Thursday, September 8, 2016

Today's links

Today's quote:  "An new orthodoxy is emerging in elite global circles that the only way to escape of the liquidity trap and soak up excess savings is concerted fiscal stimulus on a world scale. The International Monetary Fund has become the fiscal cheerleader, yet even the IMF cannot seem to marshal its own staff", Ambrose Evans Pritchard


An understanding between Russia and OPEC holds the potential to completely transform the geopolitical alignments in the Middle East. First and foremost, Russia aspires to replace the US from its 70-year old pivotal status as Saudi Arabia’s number one partner in energy. This shift cannot but impact petrodollar recycling, which has been historically a robust pillar of the western financial system."  Ambassador MK Bhadrakumar

1--McKinsey Study Shows 81% of US Worse off Than in 2005, France 63%, Italy 97%

The McKinsey study Poorer than Their Parents? offers a new perspective on income inequality over the period 2005-2014.
Based on market income from wages and capital, the study shows 81% of US citizens are worse off now than a decade ago. In France the figure is 63%, Italy 97%, and Sweden 20%.

The numbers for the US and France differ radically once transfer mechanisms like food stamps and Obamacare subsidies are taken into consideration.

2--Why are Central Banks finally turning to fiscal stimulus to buoy growth?

the recent meeting of the G20 finance ministers and central bank governors of the leading countries around the world in China may also be seen as a further marker of shifts from fiscal austerity. They have echoed this important trend in favour of fiscal policy along with monetary policy and structural reforms. However, given that structural reforms cannot deliver quickly and that monetary policy has nearly exhausted its weapons, which in any case have not been successful, fiscal policy measures have emerged as the winner. Even the IMF, which supported austerity in the past, seems to be now one of the strong supporters of fiscal policy along with monetary and structural reforms. The IMF (2016) calls for policymakers in large economies to identify and implement policies that would boost growth and contain risks. Such policies, in this view, should include: structural reforms, fiscal support—most valuable at this juncture it is suggested—and monetary policy to lift inflationary expectations. Above all, of course, stimulating aggregate demand is most important, whereby expansionary fiscal policy is paramount and prominent.

It is also the case that the recent “unorthodox” Quantitative Easing (QE) and negative interest rate types of monetary policies, implemented in many countries around the world, have not really been successful; let alone the fact that central banks are reaching the limits of their monetary policies. A good example in this context is Japan where the “Quantitative and Qualitative Easing” (QQE) monetary policy with negative interest rates (-0.1) aspect of “Abenomics” has not worked. However, the fiscal part of “Abenomics” has introduced, early August 2016, a new large fiscal stimulus, which amounts to 6% of GDP. Interestingly enough, this fiscal stimulus is in synergy with monetary policy, as stated by the Japanese central bank governor. Other countries, especially European, should introduce similar fiscal policies; the Japanese initiative is a lesson for the world.

An interesting question is the extent to which this change in attitude towards fiscal policy would produce the “proper” fiscal stance. This is a relevant question but at the end of the day it is important that the rising disenchantment is promising. In any case, with monetary policy having failed to produce healthy levels of employment and GDP growth, fiscal policy has now to shift from pursuit of budget surplus to promoting expansion

3--Pipeline War: The Mess in Syria by Robert F. Kennedy , Jr. & response by Stephen Zunes

we need to look at history from the Syrians’ perspective and particularly the seeds of the current conflict. Long before our 2003 occupation of Iraq triggered the Sunni uprising that has now morphed into the Islamic State, the CIA had nurtured violent Jihadism as a Cold War weapon and freighted U.S./Syrian relationships with toxic baggage.

During the 1950′s, President Eisenhower and the Dulles brothers rebuffed Soviet treaty proposals to leave the Middle East a cold war neutral zone and let Arabs rule Arabia. Instead, they mounted a clandestine war against Arab Nationalism — which CIA Director Allan Dulles equated with communism — particularly when Arab self-rule threatened oil concessions. They pumped secret American military aid to tyrants in Saudi Arabia, Jordan, Iraq and Lebanon favoring puppets with conservative Jihadist ideologies which they regarded as a reliable antidote to Soviet Marxism. At a White House meeting between the CIA’s Director of Plans, Frank Wisner, and Secretary of State, John Foster Dulles, in September of 1957, Eisenhower advised the agency, “We should do everything possible to stress the ‘holy war’ aspect.”

The CIA began its active meddling in Syria in 1949 — barely a year after the agency’s creation. Syrian patriots had declared war on the Nazis, expelled their Vichy French colonial rulers and crafted a fragile secularist democracy based on the American model. But in March of 1949, Syria’s democratically elected president, Shukri-al-Kuwaiti, hesitated to approve the Trans Arabian Pipeline, an American project intended to connect the oil fields of Saudi Arabia to the ports of Lebanon via Syria. In his book, Legacy of Ashes, CIA historian Tim Weiner recounts that in retaliation, the CIA engineered a coup [ ], replacing al-Kuwaiti with the CIA’s handpicked dictator [ ], a convicted swindler named Husni al-Za’im. Al-Za’im barely had time to dissolve parliament and approve the American pipeline before his countrymen deposed him, 14 weeks into his regime.

4--An Economic Mystery: Why Are Men Leaving The Workforce

At 4.9 percent, the nation's unemployment rate is half of what it was at the height of the Great Recession. But that number hides a big problem: Millions of men in their prime working years have dropped out of the workforce — meaning they aren't working or even looking for a job.
It's a trend that's held true for decades and has economists puzzled.
In the 1960s, nearly 100 percent of men between the ages of 25 and 54 worked. That's fallen over the decades.

In a recent report, President Obama's Council of Economic Advisers said 83 percent of men in the prime working ages of 25-54 who were not in the labor force had not worked in the previous year. So, essentially, 10 million men are missing from the workforce.

"One in six prime-age guys has no job; it's kind of worse than it was in the depression in 1940," says Nicholas Eberstadt, an economic and demographic researcher at American Enterprise Institute who wrote the book Men Without Work: America's Invisible Crisis. He says these men aren't even counted among the jobless, because they aren't seeking work.

5--US recession jitters stoke fears of impotent Fed and fiscal paralysis

An new orthodoxy is emerging in elite global circles that the only way to escape of the liquidity trap and soak up excess savings is concerted fiscal stimulus on a world scale. The International Monetary Fund has become the fiscal cheerleader, yet even the IMF cannot seem to marshal its own staff...

the US economy may have hit a brick wall in August. The ISM gauge of manufacturing plunged below the boom-bust line to 49.4, and the services index dropped to a six-year low, with new orders crashing nine points.
My own tentative view is that these ISM readings are rogue surveys. The Atlanta Fed's 'GDPNow' tracker points to robust US growth of 3.6pc in the third quarter. The New York Fed version is coming in at 2.8pc.

Yet the US expansion is already long in the tooth after 87 months, and late-cycle chemistry is notoriously unpredictable. Warning signs certainly abound. Corporate profits have been slipping for six quarters, the typical precursor to an abrupt slump in business spending. "The only thing keeping the US out of recession is the US consumer. If consumption stalls then we really are in trouble," says Albert Edwards from Societe Generale....

The Reifschneider paper argues that the Fed can probably muddle through, so long as it succeeds in pushing interest rates back up to 3pc or so before the next recession hits. Even then it might have to launch a further $4 trillion of QE and stretch its balance sheet to a once unthinkable $8.5 trillion...

Larry Summers, the former US Treasury Secretary, said the implication of the Fed paper is that the rates would have to be anywhere from minus 6pc to minus 9pc to extract the US from a deep recession, and there is no plausible way to mimic such rate cuts with other monetary weapons in the Fed's armoury.
"I find the idea that forward guidance and QE could do anything like the work of 600, let alone 900, basis points of rate-cutting close to absurd," he said.
The Fed acknowledges that fiscal policy will have to come to the rescue when push comes to shove. Keynesian tax cuts and spending will be the last line of defence. Yet there is no political consensus whatsoever for the sort of New Deal blitz that may be required...

History will judge that those nations best able to weather the next global downturn are those that grasp the essential character of our desperate deflationary age, and can cast aside deeply-ingrained and totemic beliefs about debt. The losers will be those spooked by shadows on the wall.

The winners - or survivors - will be those most willing to seize on the cheapest borrowing costs in history to fight back, preferably combining fiscal and monetary in a radical fashion. Call it helicopter money if you want, or 'overt monetary financing' of deficits. The accounting terminology is irrelevant.

6--Long in the tooth:  The Great Debt Unwind Beneath the Surface: US Commercial Bankruptcies Soar

In August, US commercial bankruptcy filings jumped 29% from a year ago to 3,199, the 10th month in a row of year-over-year increases, the American Bankruptcy Institute, in partnership with Epiq Systems, reported today...

During the financial crisis, commercial bankruptcy filings soared, peaking in March 2010 at 9,004. Then they fell sharply on a year-over-year basis. In March 2013, the year-over-year decline in filings reached 1,577. Filings continued to fall, but at a shrinking pace, until November 2015, when for the first time since March 2010, they rose year-over-year. That was the turning point:....

Bankruptcies – and defaults, which precede them – are indicators of the “credit cycle.” The Fed’s policy of easy credit with record low interest rates has encouraged businesses to borrow. And borrow they did.
In October 2008, as the prior credit bubble was beginning to implode, there were $1.59 trillion commercial and industrial loans outstanding at all US banks. Then the Financial Crisis hit, and loans outstanding plunged, many of them wiped out or restructured in bankruptcies. But then the Fed solved a credit problem with even more credit, and as of July 2016, there were $2.064 trillion of C&I loans outstanding, a 30% jump from the peak of the prior credit bubble that blew up so spectacularly:

The end of the credit cycle arrives when businesses can no longer carry the debt they incurred in good times, or when they believed that good times were about to arrive. They’d believed in six years of Wall Street hogwash about “escape velocity” They’d borrowed to be ready for it, and now that debt is sinking them – hence the surge in bankruptcies.
Now the hangover is setting in from the Fed’s efforts to solve a debt problem with even more debt, to gain very little economic growth

7--Operation Raqqa: 'Two Turkish Mechanized Brigade Groups Can Defeat Daesh'

Recep Erdogan's announcement about the possibility of a US-Turkish operation against Raqqa, Daesh's stronghold in Syria, has provoked a lively debate among experts regarding the potential consequences of the joint military assault.Turkish President Recep Erdogan's statement that Ankara is ready to join the US-led assault on Raqqa, the Daesh (ISIS/ISIL) stronghold in Syria, has triggered a heated debate among experts.

"Raqqa is an important center for Daesh. Obama particularly wants to do something together [with us] about Raqqa. We have told him that this is not a problem for us," Erdogan said, as quoted by Hurriyet Daily News.

8--Moscow's Criticism of Turkish Syria Intervention 'Proves There's No Secret Deal'

9--Turkey prepares joint action with US in Syria (Erdogan seems to have forgotten his claim that the US was behind the july coup)

Meanwhile, Russia’s Foreign Ministry issued a statement Wednesday expressing concern over Turkey’s offensive into Syria. “This calls into question the sovereignty and territorial integrity of the Syrian Arab Republic,” it said, adding, “We call on Ankara to refrain from any steps which can further destabilize the situation in Syria.” It pointed out that the Turkish operation had been launched without either the permission of the Syrian government or authorization by the United Nations....

The Erdogan government now appears to be disposed to pursuing its own interests by playing off Washington and Moscow, whose strategic objectives Syria—under the veneer of a common struggle against terrorism—are diametrically opposed....

We’re not going to take a deal that doesn’t meet our basic objectives,” US deputy national security advisor Benjamin Rhodes told reporters during a stop by President Obama in Laos.

These “objectives” were spelled out Wednesday in a 25-page “transition plan” issued by the so-called High Negotiations Committee, a front representing the Islamist militias and Syrian exile politicians aligned with various powers and their intelligence agencies that was cobbled together by the Saudi monarchy. It demands the ouster of “Bashar al-Assad and his clique” within six months and the installation of a “transitional governing body” that would rule the country for 18 months leading up to elections.

How such a body would be selected is not specified, but the transparent aim is to impose a regime in Damascus that would be aligned with Washington and its allies, thereby achieving US imperialist aims of furthering hegemony over the oil-rich Middle East and further isolating Russia and China.

10---Pay heed to the butterfly effect of Putin-Salman oil deal in Hangzhou

...the Russian-Saudi bonding at Hangzhou seems a tactical congruence to keep oil prices stable. The two countries account for almost 40% of the world’s oil exports. Both are keen to ensure that their economies, which critically depend on oil income, do not suffer from fall in oil prices. Both are willing to freeze production....

Russia’s Energy Minister Alexander Novak said in Hangzhou:
  • In fact, we are opening a new era of our cooperation today. Our energy cooperation is moving toward a deeper and closer interaction, a strategic partnership. This became possible thanks to trust relations with our Arab friends… this (is a) new stage of relations between the two countries, OPEC and non-members. This is a historic moment.
Novak announced: “We are ready to join freezing oil production… Russia and Saudi Arabia are top oil producers with the highest impact on the industry. Our coordination will be crucial in stabilizing the market.”...

An understanding between Russia and OPEC holds the potential to completely transform the geopolitical alignments in the Middle East. First and foremost, Russia aspires to replace the US from its 70-year old pivotal status as Saudi Arabia’s number one partner in energy.
This shift cannot but impact petrodollar recycling, which has been historically a robust pillar of the western financial system.

11--Rebel/US/Turkish failure at Aleppo is absolute  (again)

12--Turkey FM: Assad must go Back to square 1

Turkish Foreign Minister Mevlüt Çavuşoğlu has dismissed the possibility of a transition process in Syria including Syrian President Bashar al-Assad, adding operations conducted by the Free Syrian Army (FSA) should continue towards the south of the country and that the Manbij area “should be cleared of terrorists.”

Speaking at a joint press conference with Saudi counterpart Adil Al-Jubeir, Çavuşoğlu said chaos in Syria would continue if al-Assad remained in power during the transition process, as he was responsible for “killing of 600,000 Syrians; even yesterday he used chlorine gas.”

Al-Assad missed an opportunity in the beginning of the Syrian crisis when he responded to the people’s demands with arms, the foreign minister stated

Turkey and the United States have discussed operations regarding Islamic State of Iraq and the Levant (ISIL) strongholds in Raqqa and Mosul in order to defeat the jihadist group, Turkish Foreign Minister Mevlüt Çavuşoğlu has said.

“If we want to cleanse Syria and Iraq of Daesh [ISIL], it is important that we mount operations both in Mosul and in Raqqa,” he said Sept. 7

Turkey’s “successful and rapid” cross-border operation into Syria “to clear the border of jihadists has changed the world’s view of the region,” President Recep Tayyip Erdoğan has stated, claiming that no longer can any plan in Syria be implemented without Turkish consent.

“The fact that Turkey carried out its operation into Syria successfully and very rapidly has changed the world’s view of the region. It is no longer possible to implement any scenario in the region that does not include Turkey or does not have Turkey’s consent,” Erdoğan said in his address to 81 provincial governors on Sept 8, adding that the balances “have drastically changed” since Turkey liberated Jarablus from the Islamic State of Iraq and the Levant (ISIL). 

Responding to criticism from some quarters that the Euphrates Shield operation may have violated international law, Erdoğan referred to the “cruelty” of Syrian President Bashar al-Assad.

“They say: ‘You can’t enter there if the host country does not invite you.’ Sorry but we can enter there upon the invitation of the people who are the real owners of this country. The leader of that country is cruel. Are we going to seek permission from someone who has killed 600,000 people?”  he said.

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