Monday, September 26, 2016

Today's links

Today's quote: "We are not at some ordinary moment in history. Instead, we are at an unprecedented, era-defining crossroads. Debt to GDP is the highest it has ever been in history. Politicians are unlikely to address this since it has proven easy to sidestep and the associated issues are highly difficult, so we will almost certainly continue down this debt path, increasingly burdened by high levels of private and public debt, ignoring what is in front of us, and wondering why global growth remains so mixed."



1--Corporate debt nearly doubles in five years (from CLSA)


US corporate debt has risen by $2.8 trillion over the last five years, while corporate cash has only risen by $600 billion.

2--How bad is the economy?  Pretty bad


Default rates on U.S. corporate debt are the highest that they have been since the last financial crisis.

Corporate profits have fallen for five quarters in a row, and it is being projected that it will be six in a row once the final numbers for the third quarter come in

The Wall Street Journal says that this is the weakest “economic recovery” since 1949.

--Barack Obama is on track to be the only president in all of U.S. history to never have a single year when the U.S. economy grew by at least 3 percent

Capital expenditure growth has turned negative, and history has shown that this is almost always followed by a new recession.

---The percentage of Americans with a full-time job has been sitting at about 48 percent since 2010.  You have to go back to 1983 to find a time when full-time employment in this country was so low.
--The labor force participation rate peaked back in 1997 and has been steadily falling ever since.

One study found that median incomes have fallen in more than 80 percent of the major metropolitan areas in this country since the year 2000.

--According to the Social Security Administration, 51 percent of all American workers make less than $30,000 a year.
--The rate of homeownership in the U.S. has fallen every single year while Barack Obama has been in the White House.

--Approximately one out of every five young adults are currently living with their parents.
--One recent survey discovered that 62 percent of all Americans have less than $1,000 in savings.
---According to the Federal Reserve, 47 percent of all Americans could not even pay an unexpected $400 emergency room bill without borrowing the money from somewhere or selling something.


3--US. Bond Market’s Biggest Buyers Are Selling Like Never Before--The market returns


They’ve long been one of the most reliable sources of demand for U.S. government debt.
But these days, foreign central banks have become yet another worry for investors in the world’s most important bond market.

Holders like China and Japan have culled their stakes in Treasuries for three consecutive quarters, the most sustained pullback on record, based on the Federal Reserve’s official custodial holdings. The decline has accelerated in the past three months, coinciding with the recent backup in U.S. bond yields.

For Jim Leaviss at M&G Investments in London, that’s cause for concern. A continued retreat could lead to painful losses in a market that some say is already too expensive. But perhaps more important are the consequences for America’s finances. With the U.S. facing deficits that are poised to swell the public debt burden by $10 trillion over the next decade, foreign demand will be crucial in keeping a lid on borrowing costs, especially as the Fed continues to suggest higher interest rates are on the horizon...

Overseas creditors have played a key role in financing America’s debt as the U.S. borrowed heavily in the aftermath of the financial crisis to revive the economy. Since 2008, foreigners have more than doubled their investments in Treasuries and now own about $6.25 trillion.
Central banks have led the way. China, the biggest foreign holder of Treasuries, funneled hundreds of billions of dollars back into the U.S. as its export-based economy boomed.

Now, that’s all starting to change. The amount of U.S. government debt held in custody at the Fed has decreased by $78 billion this quarter, following a decline of almost $100 billion over the first six months of the year. The drop is the biggest on a year-to-date basis since at least 2002 and quadruple the amount of any full year on record, Fed data show....

DoubleLine Capital’s Jeffrey Gundlach predicted that benchmark Treasury yields will exceed 2 percent before year-end, echoing his earlier call that the bond market had finally reached a tipping point. At the same time, the Fed signaled at its September meeting that it’s likely to lift rates by December....

The Congressional Budget Office forecasts the U.S. deficit will rise to $590 billion in the fiscal year ending Sept. 30, the first annual increase since 2011. Over the next decade, successive shortfalls to cover costs for Medicare and Social Security will cause the public debt burden to balloon to $23 trillion


4--Hell to Pay --More $$$ for the 1%


So what does it mean that 80% of our population possesses a meager 11% of the total wealth?  For one thing it means that the recent efforts by the Fed to provide massive amounts of liquidity support to the biggest and wealthiest banks at the inflationary expense of the lower classes were not only misguided, but they were cruel and unusual

5--A Weaker Currency Is No Longer Economic Elixir It Once Was


the yen has gained 20 percent versus the dollar this year, showing that not only are the economic effects of currency depreciation waning, but the central bank’s ability to weaken the exchange rate is ebbing too.

A weaker currency, once the cure-all for ailing economies around the world, isn’t the panacea it once was.

Just look at Japan, where the yen plunged 28 percent in the two years through 2014, yet net exports to America still fell by 10 percent. Or at the U.K., where the pound’s 19 percent tumble in the two years through 2009 couldn’t stave off a 26 percent decline in shipments to the U.S. In fact, since the turn of the century, the ability of exchange-rate movements to affect trade and growth in major economies has fallen by more than half, according to Goldman Sachs Group Inc.

The findings suggest that weaker currencies may not provide much assistance to officials in countries like Japan and the U.K. that are relying on unprecedented easy-money policies to help boost tenuous growth and inflation. On the flip side, the data also indicate that concerns the U.S. recovery will be derailed as rising interest rates drive investors into the dollar are also overblown. A shift in the structure of advanced-economy trade to less price-elastic goods and services, combined with the prolonged effects of the financial crisis, have stunted the sensitivity of trade volumes relative to global exchange rates, according to Goldman Sachs analysts led by Jari Stehn.


6--How to Suffocate Your Economy: Drown it in Massive Private Debt (Today's "must read") 


We are not at some ordinary moment in history. Instead, we are at an unprecedented, era-defining crossroads. Debt to GDP is the highest it has ever been in history. Politicians are unlikely to address this since it has proven easy to sidestep and the associated issues are highly difficult, so we will almost certainly continue down this debt path, increasingly burdened by high levels of private and public debt, ignoring what is in front of us, and wondering why global growth remains so mixed.....

the world has now reached a point where combined global government and private debt to GDP is the highest by far in history....

In the United States, total nonfinancial private debt is $27 trillion and public debt is $19 trillion. More telling, since 1950, U.S. private debt has almost tripled from 55 percent of GDP to 150 percent of GDP, and most other major economies have shown a similar trend. [See Chart 2.] Since GDP is largely the sum of all the spending, and thus income, of households and businesses in an economy, if aggregate private debt to GDP has tripled, that means that average businesses and households have three times more debt in relation to their income. Both private debt and government debt matter, and both will be discussed here, but of these two, it is private debt that has the larger and more direct impact on economic outcomes, and addressing the issues associated with private debt is the more productive path to economic revival....

Private debt is a beneficial and essential part of any economy. However, as it increases, it can bring two problems. The first is dramatic. Very rapid or “runaway” private debt growth often brings financial crises. Runaway private debt growth brought the 2008 crisis in the United States, the 1991 crisis in Japan, and the 1997 crisis across Asia, to name just three. And just as runaway debt for a country as a whole is predictive of calamity for that country, runaway debt for a subcategory of debt, such as oil and gas or commercial real estate, is predictive of problems within that subcategory....

short bursts of runaway growth in private debt have often led to crisis—the United States in 2008 and Japan in 1991 to name just two. That is because so much lending occurs that it results in overcapacity: Far too much of something is built or produced—housing and office buildings are two examples—and too many bad loans are made. In fact, so many bad loans are made that they approach or exceed the amount of bank capital in the system. So, inevitably, the economies of these countries need to slow to a crawl to allow demand to catch up to this overcapacity, and the banks need to be propped up or rescued because of the extraordinary amount of bad debt.

The second problem it brings is much more subtle and insidious: When too high, private debt becomes a drag on economic growth. It chips away at the margin of growth trends. Though different researchers cite different levels, a growing body of research suggests that when private debt enters the range of 100 to 150 percent of GDP, it impedes economic growth....

Because this current private debt burden suppresses spending and investment, growth rates in the United States, Europe, and Japan—which have private debt-to-GDP ratios of 150 percent, 162 percent, and 167 percent ,and 2015 real growth rates of 2.4 percent, 1.9 percent, and 0.5 percent, respectively—will continue to lag. Real U.S. growth rates were 1 to 2 percentage points higher for most of the post-World War II period. Even a 1 percent higher growth rate in the eight years since the crisis would have resulted in $1.2 trillion more in GDP today. And now China is on the verge of joining this mediocre-growth club....

After very high GDP growth in the 1980s, fueled primarily by runaway lending, Japan suffered a stock market crash in 1990, then a real estate collapse in 1991, and finally a bank rescue in 1998. And Japan has posted almost 20 years of near-zero growth since that rescue....

There are only ten cases since World War II in which both public and private debt deleveraged by 10 percentage points or more in a five-year period. Six of these were due to high inflation. Four of these were in large measure due to a high export surplus position, or more broadly speaking, a high current account surplus. One of these, Israel in 2003, comes the closest of any case I examined to deleveraging through growth, but even there, total debt outgrew GDP.
Deleveraging is difficult...

It’s hard to expect any major economy to deleverage with only the tools of painful inflation, growth in other debt, or unrealistic trade account surpluses....

A rapid rise in mortgage debt was the proximate cause of the crisis—it rose from $5.3 trillion in 2001 to $10.6 trillion in 2007, an avalanche of new mortgage lending in the space of a mere six years. And yet even though we spent billions to bail out most of the lenders pursuant to this crisis (and largely without meaningful consequence to the management of those lending institutions), the amount of help provided to homeowners has been negligible in comparison...

We have now unmistakably entered a new age of slow growth. The ongoing situation in Japan is as sobering as it is instructive. In the generation since its private debt eruption, its nominal GDP growth has been zero. During that time, it has fallen from 18 percent of the world’s GDP to only 6 percent, and still, its burden of private debt is both high and largely ignored.....


7---The UK’s Devastating New Report on NATO’s Regime-Change War in Libya--The report is a convincing indictment of the UK’s civilian and military leadership in 2011—and our own


The report questions how the imposition of a UN-mandated no-fly zone—established in order to protect civilians—transformed into a policy of regime change. The UK’s Chief of the Defence Staff at the time, Gen. David Richards, told the committee that “one thing morphed almost ineluctably into the other.” The report points out that as early as March 20, 2011, Qaddafi’s forces had retreated 40 miles from Benghazi after a series of attacks by the French air force. “If the primary object of the coalition intervention was the urgent need to protect civilians in Benghazi,” notes the report, “then this object was achieved in less than 24 hours.”


8--US wants to distract attention from coalition strike on Syria troops – Lavrov

Russian FM hints at a coup in Washington


Kerry appeared to be “pinned down by stark criticism from the American military apparatus,” Lavrov noted, which may indicate that the US military does not comply with its commander-in-chief’s orders.


[President] Barack Obama always supported, as I was told, cooperation with Russia, and he confirmed it himself during the meeting with [President] Vladimir Putin in China. It seems to me that the military may not be obeying their supreme commander too much.”  


9--'Americans Are on Our Side': Al-Nusra Front Allegedly Receiving Weapons From US


10--No military solution


"We outlined our position clearly. We need a serious process, without cheating, without people changing their stances every two days. The agreement was [achieved], and the only thing needed is its implementation instead of changing positions. If they continue doing this, it will be extremely difficult to have serious process," Churkin told journalists Sunday.
...

The current situation in Syria is at a deadlock not because the agreement is not working or it’s working in a wrong way. The reason is that there is a typical balance of power on the ground for such conflicts. It’s obvious that there is no military solution but at the same time no one is ready for a political solution because each party is trying to change the situation on the ground for its own benefit," Lukyanov told the Russian online newspaper Vzglyad.

...
In addition, there is no unanimity on Syria in Washington. The State Department and President Barack Obama want progress on Syria but the Pentagon is trying to sabotage the agreement," the expert added.


The Syrian intelligence possesses an audio recording of conversation between Daesh terrorists and US military prior to the Washington-led coalition's airstrikes on the government troops near Deir ez-Zor on September 17, the speaker of the People's Council of Syria said Monday."The Syrian Army intercepted a conversation between the Americans and Daesh before the air raid on Deir ez-Zor", Hadiya Khalaf Abbas said as quoted by the Al Mayadeen broadcaster.

US warplanes hit Syrian government troops near the eastern city of Deir ez-Zor on September 17, leaving 62 military personnel killed and a hundred wounded. The Pentagon said initially that the airstrike was a mistake and targeted Daesh militants. The head of the Syrian parliament, added during her visit to Iran that after the coalition's airstrikes on the government troops US military directed terrorists' attack on the Syrian army.


12--Down memory lane: 9-11 -- Philip D. Zelikow --9-11 Mythmaker extraordinaire

but he is best known as the executive director of the 9/11 Commission

One of his areas of expertise is PUBLIC MYTHOLOGY.    
 
While at Harvard he actually wrote about the use, and misuse, of history in policymaking. As he noted in his own words, "contemporary" history is "defined functionally by those critical people and events that go into forming the public's presumptions about its immediate past. The idea of 'public presumption'," he explained, "is akin to [the] notion of 'public myth' but without the negative implication sometimes invoked by the word 'myth.' Such presumptions are beliefs (1) thought to be true (although not necessarily known to be true with certainty), and (2) shared in common within the relevant political community." So Zelikow, the guy who wrote The 9/11 Commission Report, was an expert in how to misuse public trust and create PUBLIC MYTHS.
 
If 9/11 was nothing but a huge HOAX, you would naturally expect that the event itself would have to be perfectly scripted.
 
In 1998, Zelikow actually wrote Catastrophic Terrorism about imagining "the transformative event" three years before 9/11. Here are Zelikow's 1998 words; Readers should imagine the possibilities for themselves, because the most serious constraint on current policy [nonaggression] is lack of imagination. An act of catastrophic terrorism that killed thousands or tens of thousands of people and/or disrupted the necessities of life for hundreds of thousands, or even millions, would be a watershed event in America's history. It could involve loss of life and property unprecedented for peacetime and undermine Americans' fundamental sense of security within their own borders in a manner akin to the 1949 Soviet atomic bomb test, or perhaps even worse. Constitutional liberties would be challenged as the United States sought to protect itself from further attacks by pressing against allowable limits in surveillance of citizens, detention of suspects, and the use of deadly force. More violence would follow, either as other terrorists seek to imitate this great "success" or as the United States strikes out at those considered responsible. Like Pearl Harbor, such an event would divide our past and future into a "before" and "after." The effort and resources we devote to averting or containing this threat now, in the "before" period, will seem woeful, even pathetic, when compared to what will happen "after." Our leaders will be judged negligent for not addressing catastrophic terrorism more urgently.
http://www.ksg.harvard.edu/visions/publication/terrorism.htm


13--Interview With Al-Nusra Commander “The Americans stand on our side


14--Gulbuddin Hekmatyar’s second coming is a US-Pakistan enterprise

One of the most colorful figures of the Afghan jihad, Gulbuddin Hekmatyar, recently signed a peace deal with Kabul which is also seen as a back-to-back US-Pakistan deal.  Hekmatyar, who lives in Pakistan with his family, is known for his anti-Indian views. As India openly supports Baluchi nationalists in Pakistan, Islamabad wants to  sever the ties between Delhi and Kabul and Hekmatyar can guarantee that in future. India has reason to be worried...

Hekmatyar used to be, after all, the principal beneficiary of the CIA support for the Afghan Mujahideen in the eighties and was even received once in the Oval Office by President Ronald Reagan.....

The point is, Ghani-Hekmtayar deal is also a back-to-back US-Pakistan deal. Now there is a congruence of interests for both the US and Pakistan to bring about an orderly transition in Kabul. Of course, both countries are apprehensive about Karzai outsmarting them and assuming power once again. On the other hand, Hekmatyar is a consensus choice for both CIA and ISI....

three former foreign secretaries and one former national security advisor – jointly penned an essay underscoring the imperatives of a major policy rethink on Afghanistan.

The thrust of their argument was that Pakistan must prioritize its existential struggle vis-à-vis India in Kashmir, and to this end, quickly normalize ties with Washington and Kabul. Simply put, they wrote, Pakistan should disengage from the Taliban, including the Haqqani group, and marshal its resources instead on “Pakistan’s ability to forcefully advocate the Kashmir cause.”
Clearly, a paradigm shift makes sense insofar as it also creates a more favorable setting for the $46 billion China-Pakistan Economic Corridor. Besides, Pakistan is desperately keen to regain the verve in the relations with the US.




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