Friday, February 10, 2017

Today's Links

"This administration is so heavily loaded with crackpots, fanatics and amateurs, that it would be optimistic to imagine that they will pass safely through the political swamplands of the Middle East without detonating a crisis with which they cannot cope." Patrick Cockburn

1--Fitch Warns Trump Administration Could Lead To Global Economic Disaster

Just days after ECB president Mario Draghi (and other Europeans) suggested that Trump's proposed deregulation has "sown the seeds of the next financial crisis", when he told the European Parliament that "the last thing we need at this point in time is the relaxation of regulation. The idea of repeating the conditions that were in place before the crisis is something that is very worrisome", clearly ignoring that one of the biggest timebombs facing the world is his own balance sheet... 

In the report Fitch warns that "the Trump Administration represents a risk to international economic conditions and global sovereign credit fundamentals" and cautions that because "US policy predictability has diminished, with established international communication channels and relationship norms being set aside", this raises the "prospect of sudden, unanticipated changes in US policies with potential global implications."

2--GOP Demand Trump Get Tough with Russia

In Syria, Russia is doing something the US isn’t—wiping out jihadists imported by the Gulf Emirates and the CIA. Anybody who knows anything about reality “on the ground” in Syria knows the “rebels”—including the Islamic State, rebranded as Daesh—are virtually all Wahhabi indoctrinated proxies, paid for by the Gulf kingdoms and trained by the CIA and the Pentagon, primarily in Jordan and Turkey.

But what’s really striking is the fact the senators enthusiastically support the US military violation of Syrian national sovereignty and the destruction of the country.

Lost in the fog is the fact Syria invited Russia to help it defeat Saudi-CIA proxies. The same can definitely not be said for the US.

3-- How Putin's iconic 2007 Munich speech sounds today

“Unilateral and frequently illegitimate actions have not resolved any problems. Moreover, they have caused new human tragedies and created new centers of tension. Judge for yourselves: wars as well as local and regional conflicts have not diminished... And no fewer people perish in these conflicts – even more are dying than before. Significantly more, significantly more!”....

In international relations, we increasingly see the desire to resolve a given question according to so-called issues of political expediency, based on the current political climate. And of course, this is extremely dangerous. It results in the fact that no one feels safe. I want to emphasize this – no one feels safe! Because no one can feel that international law is like a stone wall that will protect them. Of course, such a policy stimulates an arms race...

I think it is obvious that NATO expansion does not have anything to do with the modernization of the alliance itself or with ensuring security in Europe,” Putin said back in 2007. “On the contrary, it represents a serious provocation that reduces the level of mutual trust. And we have the right to ask: against whom is this expansion intended? And what happened to the assurances our western partners made after the dissolution of the Warsaw Pact? Where are those declarations today? No one even remembers them.“...

"I consider that the unipolar model is not only unacceptable but also impossible in today's world," Putin said, "However, what is a unipolar world? However one might embellish this term, at the end of the day it refers to one type of situation, namely one center of authority, one center of force, one center of decision-making."

"It is a world in which there is one master, one sovereign. And at the end of the day this is pernicious not only for all those within this system, but also for the sovereign itself because it destroys itself from within," the Russian President said

4--The election of Trump and the crisis of the European Union (Should Gremany turn east for the future?)

The ferocious denunciation of the EU by US President Donald Trump—his threat of retaliatory tariffs, his suggestion that he might seek an alliance with Russia at the expense of Europe, and the close connections of his chief strategist Stephen Bannon to right-wing extremists in Europe—has made it clear that the EU can no longer base itself on the support of the US, a fundamental prerequisite of its existence in the past.

In discussing the Iraq war in 2003, the WSWS explained that the post-war order was “in fact, a departure from the historical norm.” David North, chairman of the International Editorial Board of the WSWS, wrote that “[t]he more basic tendency of American capitalism, rooted in its somewhat belated emergence as a major imperialist power, had been to augment its world position at the expense of Europe.” This analysis has now been confirmed. Trump’s stance on the European Union is only the most extreme expression of a development that has been underway for a long time....

At the same time, explosive social tensions are developing beneath the surface. One out of ten people in Europe is officially unemployed, and one out of four is impoverished or socially marginalized. In the poorest countries in Eastern Europe, the average monthly wage is only €400. Even in the wealthier countries, millions of people work under precarious conditions on the edge of destitution.

The ruling class is responding to this crisis by militarizing, strengthening and arming the state apparatus, closing borders and imposing unending austerity.

The European working class confronts two dangers, which are in fact two sides of the same coin. First, it is faced with the transformation of the EU from an economic union into a military union that is also arming itself to suppress internal social and political dissent. For example, France has been under a state of emergency for 15 months. Second, it is faced with the splintering of Europe into national states under right-wing authoritarian regimes. Both of these trajectories mean a decline into war and barbarism.

5--Yellen Urged to Abolish Stress Tests as GOP Pursues Banks’ Wish List

6--Poll: Trump More Widely Trusted Than News Media

A new poll from Emerson College finds 90 percent of Republicans believe that the Trump administration is “truthful” — while less than 10 percent say the same about the news media.

By contrast, 77 percent of Democrats believe the Trump White House is “untruthful,” while 69 percent think the news media generally tells the truth. Independents tend to think they’re all a bunch of liars, with 52 percent calling the administration untruthful and 47 percent calling the media the same.

Republicans nearly unanimous trust in the Trump White House — and contempt for the Fourth Estate — means that, on the whole, voters have more faith in the president: Forty-nine percent call the Trump administration truthful, 48 percent say the opposite; for the media, those numbers are 39 and 53, respectively.

7--Strong earnings drive stocks to new highs

8--Foreign Governments Dump US Treasuries as Never Before, But Who the Heck is Buying Them?

It started with a whimper a couple of years ago and has turned into a roar: foreign governments are dumping US Treasuries. The signs are coming from all sides. The data from the US Treasury Department points at it. The People’s Bank of China points at it in its data releases on its foreign exchange reserves. Japan too has started selling Treasuries, as have other governments and central banks.

Some, like China and Saudi Arabia, are unloading their foreign exchange reserves to counteract capital flight, prop up their own currencies, or defend a currency peg.

Others might sell US Treasuries because QE is over and yields are rising as the Fed has embarked on ending its eight years of zero-interest-rate policy with what looks like years of wild flip-flopping, while some of the Fed heads are talking out loud about unwinding QE and shedding some of the Treasuries on its balance sheet.....

So who is buying all these Treasuries when the formerly largest buyers – the Fed, China, and Japan – have stepped away, and when in fact China, Japan, and other countries have become net sellers, and when the Fed is thinking out loud about shedding some of the Treasuries on its balance sheet, just as nearly $900 billion in net new supply (to fund the US government) flooded the market over the past 12 months?

Turns out, there are plenty of buyers among US investors who may be worried about what might happen to some of the other hyper-inflated asset classes.

And for long suffering NIRP refugees in Europe, there’s a special math behind buying Treasuries. They’re yielding substantially more than, for example, French government bonds, with the US Treasury 10-year yield at 2.4%, and the French 10-year yield at 1.0%, as the ECB under its QE program is currently the relentless bid, buying no matter what, especially if no one else wants this paper. So on the face of it, buying US Treasuries would be a no-brainer.

9--Record $1 Trillion in Junk Debt to Mature in Next 5 Years

10--Wall Street Financed Jeb Hensarling for its Propaganda War – Now In Full Swing

Hensarling was a long time aide to the master of fronting for Wall Street deregulation – Senator Phil Gramm. Gramm served as Chair of the Senate Banking Committee from 1995 to 2000, which included the fateful year that the Gramm-Leach-Bliley Act was passed in 1999. That legislation repealed the Glass-Steagall Act which had protected the nation by separating banks holding insured deposits from the speculating investment banks of Wall Street. Just nine years after it was repealed, Wall Street crashed in epic fashion, taking the U.S. economy with it. Gramm’s blind march to the drumbeat of special interests was blamed by Time Magazine as a key contributor to the financial collapse in 2008. Time wrote:

“…Gramm was Washington’s most prominent and outspoken champion of financial deregulation. He played a leading role in writing and pushing through Congress the 1999 repeal of the Depression-era Glass-Steagall Act, which separated commercial banks from Wall Street. He also inserted a key provision into the 2000 Commodity Futures Modernization Act that exempted over-the-counter derivatives like credit-default swaps from regulation by the Commodity Futures Trading Commission. Credit-default swaps took down AIG, which has cost the U.S. $150 billion thus far.”

According to the database at the Center for Responsive Politics, Gramm’s largest campaign donors included the very same serially charged Wall Street banks that are now financing Hensarling. (See here.)

Gramm’s deregulation push was a family affair. His wife, Wendy Gramm, was the Chair of the Commodity Futures Trading Commission (CFTC) from 1988 to January 1993. Public Citizen reported on her tenure as follows:

“In 1992, as the first step in its business plan to profit on the speculation of energy, Enron petitioned the CFTC to make regulatory changes that would limit the scope of the commission’s authority over certain kinds of futures contracts.  Immediately before leaving the CFTC, Gramm muscled through approval of an unusual draft regulation that would do just that – it narrowed the definition of futures contracts and excluded Enron’s energy future contracts and swaps from regulatory oversight.  Although her actions were criticized by government officials who feared the change would have severe negative consequences (as, in fact, it did), Gramm was rewarded five weeks after she left the CFTC with a lucrative appointment to Enron’s Board of Directors. Between 1993 and 2001, when the company declared bankruptcy, Enron paid Gramm between $915,000 and $1.85 million in salary, attendance fees, stock option sales, and dividends.”

12--Greasing the wheels; Stocks Surge on Tax-Cut Signal

Shares rally after president says he would soon make an announcement that would be ‘phenomenal in terms of tax’

13--Foreigners Dump Debt, Offering Up a Test for Rates-- Foreign buyers, like the Chinese state, are holding a smaller share of the debt of the U.S. and other developed nations

Foreigners are steadily pulling back: As of November, for the first time since 2009, less than 30% of the $20 trillion market for U.S. government debt was held overseas, according to the latest official data, released in January, from the Treasury Department and Federal Reserve. In the U.K., it is now 27%, compared with a record of 36% in 2008. In Germany, it is 49%, down from a peak of 57% in 2014.

The consequences from this shift are uncertain. Strong demand helps push up prices, and lower yields, of government bonds, at least in the short term. And buyers such as the Chinese state have been ravenous sources of demand. Between 2000 and 2014, Chinese authorities built up a $4 trillion currency reserve, mainly through buying Treasurys to keep the yuan weak and help the country’s exporters. In January, its reserves fell below $3 trillion, the lowest level in almost six years. China is now trying to boost its currency, and its Treasury holdings fell by about $200 billion between May and November.

“You create an environment where yields are manipulated lower by captive investors,” said Paul Donovan, chief economist at UBS Wealth Management. “There is now a shift going on here, which is most significant for the U.S.”...

In the longer term, the decline in foreign buyers might not matter so much. For countries that print their own currency, bond yields—and thus the price of bonds—are strongly determined by where investors believe central banks will set interest rates in the future. In theory at least, bonds whose prices are pushed up or down excessively by supply-and-demand forces will eventually correct to correspond to interest-rate expectations.
Moreover, in the Treasury market, if large overseas investors suddenly sell bonds, domestic and other foreign investors could move in....

entral banks were created in the 17th century to finance governments. Even though most are now independent, they still implement monetary policy by buying and selling public debt, and investors say any significant disturbance in bond prices from waning foreign demand would spur them to intervene further.

Indeed, modern central banks have substantial experience doing just that. When the financial crisis began in 2008, the Federal Reserve and the Bank of England stepped in to calm private debt markets. Later, they bought large amounts of sovereign bonds to lower their yields.

In Japan, the central bank now directly fixes 10-year borrowing costs for the government at 0%. There, foreigners own just 9.2% of the government debt market; yet bond yields have stayed at record lows for decades, despite a government debt load amounting to 229% of Japan’s economy that has elicited repeated warnings from ratings companies.

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