Saturday, July 27, 2013

Obama touts economic “recovery,” steps up assault on workers

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One day before President Barack Obama kicked off a speaking tour aimed at presenting himself as the champion of a “thriving middle class,” White House Press Secretary Jay Carney made clear that the administration would provide no federal funds for the city of Detroit.
The city’s emergency manager, Kevyn Orr, threw the city into bankruptcy last week in order to shred city workers’ pensions and health benefits and dismantle basic public services. In reply to questions from the press, Carney on Tuesday declared that the administration “is absolutely not” planning to provide financial assistance to the city, adding that the question of Detroit’s debt obligations would have to be decided by “local leaders and creditors.”
Detroit’s “local leaders”—including Orr, Detroit Mayor David Bing and Michigan Governor Rick Snyder—have been in continual contact with the Obama administration to coordinate their offensive against the working class. The bankruptcy of the former auto capital of the world will be used as a precedent to mount similar attacks, using unelected officials such as Orr and the bankruptcy courts, against workers’ pensions and health benefits in cities across the country.
Carney’s statement underscores the duplicitous character of Obama’s “jobs” speaking tour, which begins Wednesday with an appearance in Galesburg, Illinois. The White House will use the tour to posture as a defender of the “middle class,” even as it carries out sweeping attacks on social programs and the pensions and health benefits of public-sector workers, and hundreds of thousands of federal workers begin to lose one day’s pay a week as a result of furloughs imposed as part of “sequester” spending cuts.
Obama’s renewed public focus on economic issues, like virtually every move the administration makes, is largely dictated by political calculations of the most cynical sort. The aim is to divert attention from the revelations of massive illegal spying by the government on the American people and the unpopular international manhunt and persecution of whistle-blower Edward Snowden.
Obama has adopted the catchphrase of “growing the economy from the middle out,” as opposed to the “winner-take-all approach” approach of the Republicans, as White House spokesman Jay Carney put it. With characteristic contempt for the intelligence of the public, Obama and his political handlers are seeking to conjure up vast differences in economic policy between the Democrats and Republicans, even as the two parties work hand in glove to impoverish the working class.
The administration’s insistence that it will not provide financial assistance to Detroit and its approval of Emergency Manager Kevyn Orr’s plans to slash the pensions and health benefits of Detroit city workers represent a continuation and escalation of a policy dictated by the corporate and financial elite.
The White House has already made clear that Obama will not advance any significant proposals to address mass unemployment and worsening poverty in his speech in Galesburg Wednesday. Instead, he will take the opportunity to praise his administration’s track record on the economy.
Any so-called “jobs” measures he does propose will be tailored to the interests of big business, including tax cuts and subsidies for corporations.
During Tuesday’s press conference, Carney bragged about the Obama administration having created 7 million jobs since the start of the economic “recovery.” This ignores the fact that the working age population has grown by 9.4 million during this time. The labor force participation rate has fallen every year of the Obama’s administration.
The Obama “recovery” has in four years failed to recoup the jobs lost since 2008 by some 2 million. The National Employment Law Project reported last year that while the majority of the jobs lost during the 2008 crash were middle-income, 58 percent of new jobs created during the “recovery” were low-wage, paying between $7.69 and $13.83.
But while the economic situation for millions of people remains disastrous, life has never been better for the social layer Obama really represents. The speculators, swindlers and Wall Street mafia are, thanks to Obama’s economic policies, enjoying record stock values and record profits. CEO pay is higher than ever, as is the chasm separating the rich and super-rich from everyone else. The incomes of the top 1 percent grew more than 11 percent between 2009 and 2011—the first two years of the Obama “recovery”—while the incomes of the bottom 99 percent actually shrank.
Meanwhile, Obama is pressing forward with his proposal, outlined in his budget for the next fiscal year, to slash $400 billion from Medicare and $130 billion from Social Security.
The goal of the Obama administration, working with the Republicans and local governments, is to roll back the living conditions of the vast majority of the population to levels not seen since the 19th century, prior to the advent of the eight-hour day, child labor laws, comprehensive public education, pensions, health benefits, workplace health and safety regulations, etc.
In response to the ruthless assault of the financial oligarchy, spearheaded by Obama, the working class must advance, no less ruthlessly, its own policy. The workers to take up the struggle to break the power of the corporate and financial elite and reorganize society on the basis of social need, not private profit.

Collateral Damage: QE3 and the Shadow Banking System

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Rather than expanding the money supply, quantitative easing (QE) has actually caused it to shrink by sucking up the collateral needed by the shadow banking system to create credit. The “failure” of QE has prompted the Bank for International Settlements to urge the Fed to shirk its mandate to pursue full employment, but the sort of QE that could fulfill that mandate has not yet been tried.
Ben Bernanke’s May 29th speech signaling the beginning of the end of QE3 provoked a “taper tantrum” that wiped about $3 trillion from global equity markets – this from the mere suggestion that the Fed would moderate its pace of asset purchases, and that if the economy continues to improve, it might stop QE3 altogether by mid-2014. The Fed is currently buying $85 billion in US Treasuries and mortgage-backed securities per month.
The Fed Chairman then went into damage control mode, assuring investors that the central bank would “continue to implement highly accommodative monetary policy” (meaning interest rates would not change) and that tapering was contingent on conditions that look unlikely this year. The only thing now likely to be tapered in 2013is the Fed’s growth forecast.
It is a neoliberal maxim that “the market is always right,” but as former World Bank chief economist Joseph Stiglitz demonstrated, the maxim only holds when the market has perfect information. The market may be misinformed about QE, what it achieves, and what harm it can do. Getting more purchasing power into the economy could work; but QE as currently practiced may be having the opposite effect.
Unintended Consequences
The popular perception is that QE stimulates the economy by increasing bank reserves, which increase the money supply through a multiplier effect.  But as shown earlier here, QE is just an asset swap – assets for cash reserves that never leave bank balance sheets. As University of Chicago Professor John Cochrane put it in a May 23blog:
QE is just a huge open market operation. The Fed buys Treasury securities and issues bank reserves instead. Why does this do anything? Why isn’t this like trading some red M&Ms for some green M&Ms and expecting it to affect your weight? . . .
[W]e have $3 trillion or so [in] bank reserves. Bank reserves can only be used by banks, so they don’t do much good for the rest of us. While the reserves may not do much for the economy, the Treasuries they remove from it are in high demand.
Cochrane discusses a May 23rd Wall Street Journal article by Andy Kessler titled “The Fed Squeezes the Shadow-Banking System,” in which Kessler argued that QE3 has backfired. Rather than stimulating the economy by expanding the money supply, it has contracted the money supply by removing the collateral needed by the shadow banking system. The shadow system creates about half the credit available to the economy but remains unregulated because it does not involve traditional bank deposits. It includes hedge funds, money market funds, structured investment vehicles, investment banks, and even commercial banks, to the extent that they engage in non-deposit-based credit creation.
Kessler wrote:
[T]he Federal Reserve’s policy—to stimulate lending and the economy by buying Treasurys—is creating a shortage of safe collateral, the very thing needed to create credit in the shadow banking system for the private economy. The quantitative easing policy appears self-defeating, perversely keeping economic growth slower and jobs scarcer.
That explains what he calls the great economic paradox of our time:
Despite the Federal Reserve’s vast, 4½-year program of quantitative easing, the economy is still weak, with unemployment still high and labor-force participation down. And with all the money pumped into the economy, why is there no runaway inflation? . . .
The explanation lies in the distortion that Federal Reserve policy has inflicted on something most Americans have never heard of: “repos,” or repurchase agreements, which are part of the equally mysterious but vital “shadow banking system.”
The way money and credit are created in the economy has changed over the past 30 years. Throw away your textbook.
Fractional Reserve Lending Without the Reserves
The post-textbook form of money creation to which Kessler refers was explained in a July 2012 article by IMF researcher Manmohan Singh titled “The (Other) Deleveraging: What Economists Need to Know About the Modern Money Creation Process.” He wrote:
In the simple textbook view, savers deposit their money with banks and banks make loans to investors . . . . The textbook view, however, is no longer a sufficient description of the credit creation process. A great deal of credit is created through so-called “collateral chains.”
We start from two principles: credit creation is money creation, and short-term credit is generally extended by private agents against collateral. Money creation and collateral are thus joined at the hip, so to speak. In the traditional money creation process, collateral consists of central bank reserves; in the modern private money creation process, collateral is in the eye of the beholder.
Like the reserves in conventional fractional reserve lending, collateral can be re-used (or rehypothecated) several times over. Singh gives the example of a US Treasury bond used by a hedge fund to get financing from Goldman Sachs. The same collateral is used by Goldman to pay Credit Suisse on a derivative position. Then Credit Suisse passes the US Treasury bond to a money market fund that will hold it for a short time or until maturity.
Singh states that at the end of 2007, about $3.4 trillion in “primary source” collateral was turned into about $10 trillion in pledged collateral – a multiplier of about three. By comparison, the US M2 money supply (the credit-money created by banks via fractional reserve lending) was only about $7 trillion in 2007.  Thus credit-creation-via-collateral-chains is a major source of credit in today’s financial system.
Exiting Without Panicking the Markets
The shadow banking system is controversial. It funds derivatives and other speculative ventures that may harm the real, producing economy or put it at greater risk. But the shadow system is also a source of credit for many businesses that would otherwise be priced out of the credit market, and for such things as credit cards that we have come to rely on. And whether we approve of the shadow system or not, depriving it of collateral could create mayhem in the markets. According to the Treasury Borrowing Advisory Committee of the Securities and Financial Markets Association, the shadow system could be short as much as $11.2 trillion in collateral under stressed market conditions. That means that if every collateral claimant tried to grab its collateral in a Lehman-like run, the whole fragile Ponzi scheme could collapse.
That alone is reason for the Fed to prevent “taper tantrums” and keep the market pacified. But the Fed is under pressure from the Swiss-based Bank for International Settlements, which has been admonishing central banks to back off from their asset-buying ventures.
An Excuse to Abandon the Fed’s Mandate of Full Employment?
The BIS said in its annual report in June:
Six years have passed since the eruption of the global financial crisis, yet robust, self-sustaining, well balanced growth still eludes the global economy. . . .
Central banks cannot do more without compounding the risks they have already created. . . . [They must] encourage needed adjustments rather than retard them with near-zero interest rates and purchases of ever-larger quantities of government securities. . . .
Delivering further extraordinary monetary stimulus is becoming increasingly perilous, as the balance between its benefits and costs is shifting.
Monetary stimulus alone cannot provide the answer because the roots of the problem are not monetary. Hence, central banks must manage a return to their stabilization role, allowing others to do the hard but essential work of adjustment.
For “adjustment,” read “structural adjustment” – imposing austerity measures on the people in order to balance federal budgets and pay off national debts. The Fed has a dual mandate to achieve full employment and price stability. QE was supposed to encourage employment by getting money into the economy, stimulating demand and productivity. But that approach is now to be abandoned, because “the roots of the problem are not monetary.”
So concludes the BIS, but the failure may not be in the theory but the execution of QE. Businesses still need demand before they can hire, which means they need customers with money to spend. QE has not gotten new money into the real economy but has trapped it on bank balance sheets. A true Bernanke-style helicopter drop, raining money down on the people, has not yet been tried.
How Monetary Policy Could Stimulate Employment
The Fed could avoid collateral damage to the shadow banking system without curtailing its quantitative easing program by taking the novel approach of directing its QE fire hose into the real market.
One possibility would be to buy up $1 trillion in student debt and refinance it at 0.75%, the interest rate the Fed gives to banks. A proposal along those lines is Elizabeth Warren’s student loan bill, which has received a groundswell of support including from many colleges and universities.
Another alternative might be to make loans to state and local governments at 0.75%, something that might have prevented the recent bankruptcy of Detroit, once the nation’s fourth-largest city. Yet another alternative might be to pour QE money into an infrastructure bank that funds New Deal-style rebuilding.
The Federal Reserve Act might have to be modified, but what Congress has wrought it can change.  The possibilities are limited only by the imaginations and courage of our congressional representatives.

The militarization of America

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This week’s deployment of Blackhawk helicopters in Chicago is only the latest in a series of “urban warfare training” exercises that have become a familiar feature of American life.
As elsewhere, this exercise was sprung unannounced on a startled civilian population. Conducted in secrecy, apparently with the collusion of local police agencies and elected officials, Democrats and Republicans alike, the ostensible purpose of these exercises is to give US troops experience in what Pentagon doctrine refers to as “Military Operations on Urban Terrain.”
Such operations are unquestionably of central importance to the US military. Over the past decade, its primary mission, as evidenced in Afghanistan and Iraq, has been the invasion and occupation of relatively powerless countries and the subjugation of their resisting populations, often in house-to-house fighting in urban centers.
The Army operates a 1,000 acre Urban Training Center in south-central Indiana that boasts over 1,500 “training structures” designed to simulate houses, schools, hospitals and factories. The center’s web site states that it “can be tailored to replicate both foreign and domestic scenarios.”
What does flying Blackhawks low over Chicago apartment buildings or rolling armored military convoys through the streets of St. Louis accomplish that cannot be achieved through the sprawling training center’s simulations? Last year alone, there were at least seven such exercises, including in Los Angeles, Chicago, Miami, Tampa, St. Louis, Minneapolis and Creeds, Virginia.
The most obvious answer is that these exercises accustom troops to operating in US cities, while desensitizing the American people to the domestic deployment of US military might.
Preparations for such deployments are already far advanced. Over the past decade, under the pretext of prosecuting a “global war on terror,” Washington has enacted a raft of repressive legislation and created a vast new bureaucracy of state control under the Department of Homeland Security. Under the Obama administration, the White House has claimed the power to throw enemies of the state into indefinite military detention or even assassinate them on US soil by means of drone strikes, while radically expanding electronic spying on the American population.
Part of this process has been the ceaseless growth of the power of the US military and its increasing intervention into domestic affairs. In 2002, the creation of the US Northern Command for the first time dedicated a military command to operations within the US itself.
Just last May, the Pentagon announced the implementation of new rules of engagement for US military forces operating on American soil to provide “support” to “civilian law enforcement authorities, including responses to civil disturbances.”
The document declares sweeping and unprecedented military powers under a section entitled “Emergency Authority.” It asserts the authority of a “federal military commander” in “extraordinary emergency circumstances where prior authorization by the president is impossible and duly constituted local authorities are unable to control the situation, to engage temporarily in activities that are necessary to quell large-scale, unexpected civil disturbances.” In other words, the Pentagon brass claims the unilateral authority to impose martial law.
These powers are not being asserted for the purpose of defending the US population against terrorism or to counter some hypothetical emergency. The US military command is quite conscious of where the danger lies.
In a recent article, a senior instructor at the Fort Leavenworth Command and General Staff College and former director of the Army’s School of Advanced Military Studies laid out a telling scenario for a situation in which the military could intervene.
“The Great Recession of the early twenty-first century lasts far longer than anyone anticipated. After a change in control of the White House and Congress in 2012, the governing party cuts off all funding that had been dedicated to boosting the economy or toward relief. The United States economy has flatlined, much like Japan’s in the 1990s, for the better part of a decade. By 2016, the economy shows signs of reawakening, but the middle and lower-middle classes have yet to experience much in the way of job growth or pay raises. Unemployment continues to hover perilously close to double digits …”
In other words, the Pentagon sees these conditions—which differ little from what exists in the US today—producing social upheavals that can be quelled only by means of military force.
What is being upended, behind the scenes and with virtually no media coverage, much less public debate, are constitutional principles dating back centuries that bar the use of the military in civilian law enforcement. In the Declaration of Independence itself, the indictment justifying revolution against King George included the charge that he had “affected to render the Military independent of and superior to the Civil power.”
Side by side with the rising domestic power of the military, the supposedly civilian police have been militarized. An article published by the Wall Street Journal last weekend entitled “The Rise of the Warrior Cop” graphically described this process:
“Driven by martial rhetoric and the availability of military-style equipment—from bayonets and M-16 rifles to armored personnel carriers—American police forces have often adopted a mind-set previously reserved for the battlefield. The war on drugs and, more recently, post-9/11 antiterrorism efforts have created a new figure on the US scene: the warrior cop—armed to the teeth, ready to deal harshly with targeted wrongdoers, and a growing threat to familiar American liberties.”
The article describes the vast proliferation of SWAT (Special Weapons and Tactics) units to virtually every town in America, fueled by some $35 billion in grants from the Department of Homeland Security, “with much of the money going to purchase military gear such as armored personnel carriers.”
This armed force was on full display in April when what amounted to a state of siege was imposed on the city of Boston, ostensibly to capture one teenage suspect. The entire population of a major American city was locked in their homes as combat-equipped police, virtually indistinguishable from troops, occupied the streets and conducted warrantless house-to-house searches.
Underlying this unprecedented militarization of US society are two parallel processes. The immense widening of the social chasm separating the billionaires and multi-millionaires who control economic and political life from American working people, the great majority of the population, is fundamentally incompatible with democracy and requires other forms of rule. At the same time, the turn to militarism as the principal instrument of US foreign policy has vastly increased the power of the military within the US state apparatus.
Both America’s ruling oligarchy and the Pentagon command recognize that profound social polarization and deepening economic crisis must give rise to social upheavals. They are preparing accordingly.
The working class must draw the appropriate conclusions and make its own political preparations for the inevitable confrontations to come.

Fukushima Leak: TEPCO Delayed Informing Public Of Contaminated Water Leaking Into Sea

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The operator of Japan's crippled nuclear plant said Friday that it delayed acknowledging that the plant was leaking contaminated water into the sea because it did not want to worry the public until it was certain there was a problem.
Tokyo Electric Power Co. acknowledged for the first time this week that its Fukushima Dai-ichi plant was leaking contaminated underground water into the ocean, a problem many experts had suspected since shortly after the crisis unfolded more than two years ago.
The plant suffered multiple meltdowns after the March 2011 earthquake and tsunami destroyed its power and cooling systems. After a major leak of contaminated water in April of that year, TEPCO said it had contained the problem, and denied there were any further underground leaks into the ocean until Monday.
TEPCO has repeatedly been criticized for delayed disclosures of problems and mishaps at the plant, which still runs on makeshift equipment and has been plagued with problems, including recent blackouts and minor water leaks from storage tanks.
TEPCO President Naomi Hirose said Friday that the company delayed acknowledging contaminated water was leaking into the sea even though obvious signs of leaks were detected in May because officials were waiting until they were certain there was a problem before making such a "major announcement."
Hirose apologized for the delay and said that he and TEPCO executive vice president Zengo Aizawa would take a 10 percent salary cut for one month over the matter.
"Rather than proactively inform the public of potential risks, we retreated to negative thinking and tried to gather more data to ensure there was a problem because it was going to be a major announcement," Hirose said. "We've been trying to reform, but we repeated the same mistake. Obviously, our effort is not enough. We are really sorry."
TEPCO's quarterly meeting of its reform monitoring committee, which comprises four outside experts, was dominated Friday by discussion of the water leaks.
The head of the reform committee, Dale Klein, said he was disappointed and frustrated by TEPCO's handling of the disclosure of the leaks.
"These actions indicate that you do not know what you're doing, and that you do not have a plan, and you're not doing all you can to protect the environment and people," Klein, former chairman of the U.S. Nuclear Regulatory Commission, said at the meeting.
On Thursday, the chief of Japan's national federation of fisheries, Hiroshi Kishi, said TEPCO had betrayed the public by denying the leaks for more than two years and demanded the company take steps to stop the leaks immediately and step up monitoring of radioactivity in seawater near the plant.
TEPCO last detected spikes in radiation levels in underground and seawater samples taken at the plant in May. The company says the contamination is limited to just near the plant, but the extent of the contamination is unknown. Most fish and seafood from along the Fukushima coast are barred from domestic markets and exports.

Nuclear-contaminated Pacific Ocean may become a global threat

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It has been officially confirmed. The crippled Fukushima Nuclear Plant in Japan is leaking highly contaminated water into the Pacific Ocean. This is continuing by the minute causing great concern not only for Japan, but for all nations bordering on the Pacific Ocean, including the United States, Canada, Russia and most Pacific Island nations. Officials finally admitted this alarming news for the first time.
Earlier this month the tourism industry in this Japanese regions seemed to be doing fine. A new scheduled Asiana Airlines Charter Flight arrived with Korean tourists at Fukushima Airport on July 13.
Tourists are supposed to enjoy playing golf and participants in the Oze trekking tour.
In the meantime there are more serious worries reported for this region and beyond.
The Tokyo Electric Power Company (TEPCO), the operator of the Fukushima Daiichi nuclear plant, admitted the leakage to the ocean for the first time since a catastrophic earthquake and tsunami damaged the plant’s reactors in 2011.
The operator made the acknowledgement after steam was seen at one of the plant's reactors on Tuesday.
TEPCO has come under criticism for its delay in the announcement, since experts had harbored strong suspicions about a possible leak for a long time.
Previously, the company had denied reports suggesting that contaminated water was leaking into the ocean.
TEPCO spokesman Masayuki Ono said that radioactive water leaking from the wrecked reactors is likely to have run into the underground water system, before joining the ocean, and might therefore be the result of initial leaks to the underground system spotted in 2011.
Ono added that officials believe a leak is possible as underground water levels fluctuate in accordance with tide movements and rainfall.
Meanwhile, the operator said the number of plant workers with thyroid radiation exposures exceeding threshold levels for increased cancer risks was noticeably higher than earlier reports.