Tuesday, September 27, 2016

Today's links

Today's Quote:  “We are in a big fat ugly bubble that’s going to come crashing down as soon the Fed raises interest rates." Donald Trump, presidential debates

“In politics, stupidity is not a handicap.” Napoleon

1--Trump zeros in on the Fed

Republican presidential nominee Donald Trump redoubled his attack on the Federal Reserve and its chairwoman, Janet Yellen, accusing the central bank of “doing political things” by keeping interest rates low.
“When they raise interest rates, you’re going to see some very bad things happen, because they’re not doing their job,” Mr. Trump said during a debate with Democratic presidential nominee Hillary Clinton, accusing the Federal Reserve of being “more political” than his rival...

Ms. Yellen last week denied that the Fed takes politics into account in its decision making. “I can say, emphatically, that partisan politics plays no role in our decisions about the appropriate stance of monetary policy,” she said during a press conference after the Fed’s policy meeting, at which it decided to leave rates unchanged

2--The vultures are circling Deutsche Bank

As the British Daily Telegraph commented, if the German government does not stand behind the bank, then other banks and financial institutions will start to be very nervous in dealing with it. “As we know from 2008, once confidence starts to evaporate, a bank is in big, big trouble” and “if Deutsche goes down, it is looking increasingly likely that it will take Merkel with it – and quite possibly the euro as well.”...

The crisis over Deutsche Bank points to two interconnected processes. First, far from having been resolved, all the contradictions of the global financial system that exploded eight years ago not only remain, but have worsened. Second, that despite all rhetoric about cooperation and collaboration issuing from major economic summit meetings of world leaders, the global economy and financial system is increasingly becoming a battleground of each nation against all.

3--Monetary policy isn't working, and central bankers are getting desperate

Monetary policy is out of bullets

But then economists take it a step further and say that when the central bank lowers or raises interest rates, it raises or lowers demand for borrowing for investment by firms. But this simply isn’t true. There is no empirical evidence that lower rates spur capital investment. Even studies by the Federal Reserve note this fact. In fact, as former UBS chief economist George Magnus recently pointed out regarding the Bank of Japan, what really happens with investment as central banks lower rates is that it creates a skew toward high risk investment due to investor’s search for higher yield. It’s not more investment that we see, but skewed investment toward projects with longer lead times and higher risk. As George puts it, “zombie companies are kept alive perpetuating a misallocation of capital, and retarding new investment opportunities” (underlining for emphasis added). ...

Negative interest rate policy is based on the flawed assumption that banks are reserve constrained when they’re not. Nowhere where they have been implemented have negative interest rates resulted in increased lending. They are a tax. And as time goes on, this tax is likely to be passed on to bank customers, reducing aggregate demand.

Finally, there’s the higher inflation target the Bank of Japan has just set. This won’t work either. Just because the Bank of Japan says it is willing to accept higher inflation doesn’t mean they will get higher inflation. And higher inflation doesn’t mean higher real GDP growth, it could just mean an erosion of purchasing power, which would cause people to retrench....

My view is that in the absence of increases in median wages in advanced economies, we are unlikely to see a meaningful and durable increase in growth in those economies. And the result is going to be not just low short-term interest rates, but low long-term interest rates. When recession hits, yield curves will flatten instead of steepen, since we are at the zero lower bound. And the full measure of loan loss distress will come to bear on bank balance sheets, restricting credit and deepening the downturn. At that point, we will just have to see when and whether we get a fiscal response and how effective that response is. Monetary policy is out of bullets.

4--When America Was 'Great,' Taxes Were High, Unions Were Strong, and Government Was Big

5--MANPADS?  Wealthy Gulf states may arm Syrian rebels to ‘get the Russians to back off’ - US officials

6--Yellen can't figure out why capital investment is tanking

“Investment spending really has been quite weak for some time and we are really not certain exactly what is causing that. Part of it of course has been the huge contraction in drilling activity associated with falling oil prices, but the weakness in investment spending extends beyond that sector and I’m not certain of exactly what explains that … I’m not aware of evidence that suggests that it’s political uncertainty.” “Since monetary policy is only modestly accommodative, there appears little risk of falling behind the curve in the near future, and gradual increases in the federal funds rate will likely be sufficient to get to a neutral policy stance over the next few years.

7--Billions Down the Afghan Drain

There is no criticism by the NYT of Washington’s crass incompetence over fifteen years of futile and poorly-directed military operations, or mention of the fact that 2,384 members of the US forces and 1,136 “Coalition” troops died in Afghanistan. In its single use of the word ‘corrupt’ it observes that “The Afghan government remains weak, corrupt and roiled by internal rivalries. The casualty rate for Afghan troops is unsustainable. The economy is in shambles. Resurgent Taliban forces are gaining ground in rural areas and are carrying out barbaric attacks in the heart of Kabul, the capital.” But that’s nothing new. We’ve known for many years that the US-NATO war in Afghanistan was a lost cause. (The NYT doesn’t mention NATO, either, which is extraordinary.)...

It ignored the SIGAR’s report which records that over the years, among other things: US money flowed to the insurgency via corruption; the Afghan government was so deeply enmeshed in corrupt and criminal networks that dismantling them would mean dismantling major pillars of support for the government itself; the United States collaborated with abusive and corrupt warlords, militias, and other powerbrokers who “gained positions of authority in the Afghan government, which further enabled them to dip their hands into the streams of cash pouring into a small and fragile economy;” and, damningly, “People turned to the Taliban as a way of expressing opposition to the government.”

What the New York Times calls the “Afghan War Quagmire” has been caused by the US government and its NATO allies. The US Pentagon has been criminal in its incompetence. The dead soldiers of US-NATO forces gave their lives for nothing. Yet, in addition to Washington pouring its taxpayers’ money down the Afghan drain, the US-NATO military alliance has pledged “to help fund Afghan security forces to the tune of around $1 billion annually over the next three years

8--US Coalition knew they were bombing the Syrian Army in Deir Ezzor

A senior officer from the Syrian Arab Army's 123 Regiment told Al-Masdar on Tuesday morning that his unit was among the government forces targeted by the U.S. Coalition in Deir Ezzor earlier this month.

The senior officer, who asked Al-Masdar to keep his name anonymous, stated that prior to the airstrikes, the U.S. Coalition had flown several reconnaissance drones above their positions at Jabal Thardeh.

When asked how he knew they were American drones, the senior officer answered that their Russian military advisors had corresponded with the U.S. Coalition prior to the commencement of the reconnaissance mission.

9--US strikes Deir Ezzor for the 2nd time this month

10--Russian Foreign Ministry: Aleppo to Be Liberated with Assistance of Russian Aerospace Forces

11--War Crimes digest: Dresden:

12-- Washington Unmasks Plans to Arm Syrian Militants With MANPADS to ‘Get the Russians to Back Off’

13--Clinton-Trump debate: A degrading spectacle

Trump is the personification of business gangsterism, a billionaire who built his fortune on swindles, bankruptcies, the theft of wages and deals with the Mafia. When Clinton charged him with profiteering from the collapse of the sub-prime mortgage market, which touched off the 2008 financial collapse, he retorted, “That’s business.” When she accused him of paying no taxes on his vast fortune, he boasted, “That makes me smart.”

Clinton is the personification of political gangsterism, deeply implicated in the crimes of American capitalism over a quarter century, from the destruction of social welfare programs, to the criminalization of minority youth, to the launching of imperialist wars that have killed millions. At one point in the debate she declared that her strategy for defeating ISIS was focused on the assassination of its leader, Abu Bakr al-Baghdadi. She alluded to her role in “taking out” Libya’s Muammar Gaddafi and said she would make such killings “an organizing principle” of her foreign policy.

14--Bank of Japan Tries Another Way to Spur Inflation--Central bank’s policy shift is an acknowledgment that it can’t sway consumer expectations with words

$4 trillion down the tubes!

The latest figures show core inflation in Japan—all prices minus fresh food—is running at minus 0.5%, far from Mr. Kuroda’s target of 2%.
Until last week, Mr. Kuroda’s primary method of influencing consumer expectations was by buying assets, mostly government bonds but also real estate and stock. Under Mr. Kuroda, Japan’s monetary base nearly tripled to ¥400 trillion, or roughly $4 trillion, to accommodate the vast asset purchases.

Japan’s central bank has accepted defeat on its fundamental strategy: influencing consumer expectations.
The Bank of Japan 8301 -9.66 % ’s policy shift last week shows the theory that has underpinned Gov. Haruhiko Kuroda’s 3½ years at the helm is untenable, officials say. Mr. Kuroda had theorized that by proclaiming a strong commitment to a 2% inflation target and channeling huge amounts of cash into the economy, he could quickly sway consumer and investor expectations. It was supposed to be a self-fulfilling prophecy: Inflation would happen because people expected it to....

the goal is to jolt consumers and businesses out of their caution in a way that central bankers in Japan and Europe, for instance, haven’t been able to. (consumers will not borrow more during a downturn)

15--Japanese Banks: New Policy, Same Old Pain--Japanese banks may need a lot more help than the central bank is willing to give

The Bank of Japan 8301 -9.66 % has singled out the financial sector for help. The market doesn’t seem to be impressed—and for good reason.....

The BOJ did throw a bone at the banks through a less-noticed change to the central bank’s 5.7 trillion yen ($57 billion) a year exchange-traded fund purchases. The BOJ will buy 2.7 trillion yen of ETFs linked to the broad TOPIX index, and the rest will be split between ETFs linked to the TOPIX, Nikkei 225 and Nikkei 400 indexes. This skews the purchases in favor of the bank-heavy TOPIX. Bank stocks make up 8% of it, according to Bank of America Merrill Lynch, and 1% of the Nikkei 225. This move lifts the stocks without alleviating deeper issues however.
With profitability withering away, Japanese banks may need a lot more help than the central bank is willing to give

16--Bank of Japan Confesses: Even We Don’t Trust the Bank of Japan-- Central bank acknowledges inflation expectations are little swayed by its 2% target

If a central bank without credibility makes a credible promise to run a non-credible policy, do the double negatives cancel out and create credibility?
Investors considering the Bank of Japan 8301 -9.66 % ’s latest policy maneuvers, unveiled last week, can be forgiven for shrugging their shoulders and reverting to what they know: If you’re worried or confused, buy the yen....

To the non-economist this probably won’t come as much of a surprise. Japan’s been living through deflation for two decades, with prices today still lower than they were in 1997, and year-on-year headline prices, which exclude fresh food, are falling again after a brief jolt upward from 2013-2015. Compare a generation of shopping knowledge against a promise of change by a government official, and life experience wins....

The BOJ said it plans to print money equivalent to 20% of the size of the economy in just over a year. That is as much as the U.S. Federal Reserve’s three bond-buying sprees put together. This expansion of the monetary base, it argues, will eventually make people believe in inflation, even though it hasn’t obviously achieved that so far. Quite how it is meant to work is left unclear.....

This isn’t to say the BOJ has entirely lost the trust of the markets, economists or the Japanese public. In a sense, the BoJ has the opposite problem. People have too much faith in the yen it issues, because they don’t believe it can successfully boost inflation. This is our world in 2016: A central bank needs credibility so it can damage its credibility.

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