Why the Fed Must Taper

The Fed is being forced to end its bond-buying, cutting off the “free money for financiers” that has sustained a frothy stock market.

While the Federal Reserve presents itself as free to do whatever it pleases whenever it pleases, the reality is the Fed’s own policies are constraining its choices. Take the taper of U.S. Treasury bond purchases–the heart of quantitative easing (a.k.a. QE or more accurately free money for financiers).

You probably know how this works:the U.S. government runs a deficit, as it spends more than it collects in tax revenues. This deficit is funded by the sale of Treasury bonds.

The Fed has been creating money out of thin air, a.k.a. printing money, and using this new money to buy Treasury bonds.

As the Federal deficit shrank, the Fed upped its bond-buying program (QE). As a result, the Fed was buying more bonds than the Treasury was issuing.This graph from from the excellent charting site Market Daily Briefing plots the Fed’s bond-buying (printing) and the Federal deficit (issuance ofnew bonds, which is different from rolling over the existing debt as bonds mature and must be replaced with new bonds).

Many seem to believe the Fed was forced into buying bonds because foreign owners have been dumping their Treasury bond holdings. But if we look at a chart of foreign-owned Treasuries, we see a modest dip in mid-2013 that reversed later that year. Foreign ownership has reached a new high of $6 trillion:

Much has been made of China selling some of its Treasury holdings, but if we look at this breakdown of foreign ownership, we see relatively modest fluctuations in the holdings of both China and Japan.

As I noted in Are Capital Inflows Propping Up U.S. Markets?, foreign central banks buy Treasuries not just for reserves but to lower the value of their currency vis-a-vis the U.S. dollar, the idea being to boost exports to the U.S. by weakening their currency.

These dynamics have created a global competition for Treasuries, pushing yields lower. The Fed is in effect competing with foreign and domestic buyers of Treasuries, a competition that has heated up as Federal deficits have declined.

This can be viewed as one consequence of the Triffin paradox, something I have covered in depth:

What Will Benefit from Global Recession? The U.S. Dollar (October 9, 2012)

Understanding the “Exorbitant Privilege” of the U.S. Dollar (November 19, 2012)

America’s Energy Boom and the Rising U.S. Dollar

As the issuance of new Treasury bonds (and thus U.S. dollars) declines, the demand for dollars will push the dollar higher.

A second side-effect is the Fed is forced to end its bond-buying, cutting off the free money for financiers QE that has sustained a frothy stock market. With the free money for financiers ending, the stock market will actually have to support its lofty valuations on its own merits.

If the market will continue rising without the Fed’s injections of free money for financiers, then why is Wall Street so terrified of “hawkish” murmurings, never mind actually hawkish actions by the Fed? 


Posted in General | Tagged , , , , , , | 2 Comments

Demand Swells for Straight Answers on Plane in Ukraine

A long list of prominent individuals has signed, a number of organizations will be promoting next week, and you can be one of the first to sign right now, a petition titled “Call For Independent Inquiry of the Airplane Crash in Ukraine and its Catastrophic Aftermath.”

The petition is directed to “All the heads of states of NATO countries, and of Russia and the Ukraine, to Ban-ki Moon and the heads of states of countries on the UN Security Council.” And it will be delivered to each of them.

The petition reads:

“Set up an impartial international fact finding inquiry and a public report on the events in Ukraine to reveal the truth of what occurred.

“Why is this important?

“It’s important because there is so much misinformation and disinformation in the media that we are careening towards a new cold war with Russia over this.”

That’s not hyperbole. It’s the language of U.S. and Russian politicians and media.

Of course, there are undisputed facts that could change people’s understanding. Many Americans are unaware of NATO’s expansion or of what actions Russia views as aggressive and threatening. But when a particular incident appears to be set up as a proximate cause for war it is well worth our time to insist on an exposure of the facts.  Doing so is not to concede that any outcome of the inquiry would justify a war.  Rather it is to prevent the imposition of an unproven explanation that makes war more likely.

What if the Gulf of Tonkin had been investigated 50 years ago this month? What if the independent inquiry that Spain wanted into the USS Maine had been allowed? What if Congress hadn’t swallowed the one about the babies taken from incubators or that hilarious bit about the vast stockpiles of WMDs? Or, on the other hand, what if everyone had listened to John Kerry unskeptically on Syria last year?

When a Malaysian airplane went down in Ukraine, Kerry immediately blamed Vladimir Putin, but has yet to produce any evidence to back up the accusation. Meanwhile, we learn that the U.S. government is looking into the possibility that what happened was actually an attempt to assassinate Putin. Those two versions, the one initially announced with no apparent basis and the one reportedly now being investigated in secret, could hardly be more different.  That the second one is under consideration makes it appear very likely that any serious proof of the former claim has not been found.

Here’s a longer version of the petition:

“At this very moment in history, when so many people and nations around the world are  acknowledging the 100th Anniversary of our planet’s  hapless stumble into World War I,  great powers and their allies are ironically once again provoking new dangers where governments appear to be sleepwalking towards a restoration of old Cold War battles. A barrage of conflicting information is broadcast in the various national and nationalistic media with alternative versions of reality that provoke and stoke new enmities and rivalries across national borders.

“With the U.S. and Russia in possession of over 15,000 of the world’s 16,400 nuclear weapons, humanity can ill-afford to stand by and permit these conflicting views of history and opposing assessments of the facts on the ground to lead to a 21st Century military confrontation between the great powers and their allies.  While sadly acknowledging the trauma suffered by the countries of Eastern Europe from years of Soviet occupation, and understanding their desire for the protection of the NATO military alliance, we the signers of this global call to action also note that the Russian people lost 20 million people during WWII to the Nazi onslaught and are understandably wary of NATO expansion to their borders in a hostile environment.   Russia has lost the protection of the 1972 Anti-Ballistic Missile Treaty, which the US abandoned in 2001, and warily observes missile bases metastasizing ever closer to its borders in new NATO member states, while the US rejects repeated Russian efforts for negotiations on a treaty to ban weapons in space, or Russia’s prior application for membership in NATO.

“For these reasons, we the peoples, as members of Civil Society, Non-Governmental Organizations, and global citizens, committed to peace and nuclear disarmament, demand that an independent international inquiry be commissioned to review events in Ukraine leading up to the Malaysian jet crash and of the procedures being used to review the catastrophic aftermath.  The inquiry should factually determine the cause of the accident and hold responsible parties accountable to the families of the victims and the citizens of the world who fervently desire peace and a peaceful settlement of any existing conflicts.  It should include a fair and balanced presentation of what led to the deterioration of U.S. –Russian relations and the new hostile and polarized posture that the U.S. and Russia with their allies find themselves in today.

“The UN Security Council, with US and Russian agreement, has already passed Resolution 2166 addressing the Malaysian jet crash, demanding accountability, full access to the site and a halt to military activity which has been painfully disregarded at various times since the incident.   One of the provisions of SC Res 2166 notes that the Council “[s]upports efforts to establish a full, thorough and independent international investigation into the incident in accordance with international civil aviation guidelines.”  Further, the 1909 revised Convention on the Pacific Settlement of International Disputes adopted at the 1899 Hague International Peace Conference has been used successfully to resolve issues between states so that war was avoided in the past.  Both Russia and Ukraine are parties to the Convention.

“Regardless of the forum where the evidence is gathered and fairly evaluated, we the undersigned urge that the facts be known as to how we got to this unfortunate state of affairs on our planet today and what might be the solutions.  We urge Russia and Ukraine as well as their allies and partners to engage in diplomacy and negotiations, not war and hostile alienating actions.   The world can little afford the trillions of dollars in military spending and trillions and trillions of brain cells wasted on war when our very Earth is under stress and needs the critical attention of our best minds and thinking and the abundance of resources mindlessly diverted to war to be made available for the challenge confronting us to create a livable future for life on earth.”

Here are initial signatories (organizations for identification only): (Add your name.)

Hon. Douglas Roche, OC, Canada
David Swanson, co-founder, World Beyond War
Medea Benjamin, Code Pink
Bruce Gagnon,  Global Network Against Nuclear Power and Weapons in Space
Alice Slater, JD, Nuclear Age Peace Foundation, NY
Professor Francis A. Boyle, University of Illinois College of Law
Natasha Mayers, Union of Maine Visual Artists
David Hartsough, co-founder, World Beyond War
Larry Dansinger, Resources for Organizing and Social Change
Ellen Judd, Project Peacemakers
Coleen Rowley, Women Against Military Madness
Lisa Savage, Code Pink, State of Maine
Brian Noyes Pulling, M. Div.
Anni Cooper, Peaceworks
Kevin Zeese, Popular Resistance
Leah Bolger, CDR, USN (Ret), Veterans for Peace
Margaret Flowers, Popular Resistance
Gloria McMillan, Tucson Balkan Peace Support Group
Ellen E. Barfield, Veterans for Peace
Cecile Pineda, author. Devil's Tango: How I Learned the Fukushima Step by Step
Jill McManus
Steve Leeper, Visiting professor, Hiroshima Jogakuin University, Nagasaki University, Kyoto University of Art and Design
William H. Slavick, Pax Christi Maine
Carol Reilly Urner, Women’s International League for Peace and Freedom
Ann E. Ruthsdottir
Raymond McGovern, former CIA  analyst, VA
Kay Cumbow
Steven Starr, Senior Scientist, Physicians for Social Responsibility
Tiffany Tool,  Peaceworkers
Sukla Sen, Committee for Communal Amnity, Mumbai India
Felicity Ruby
Joan Russow, PhD, Coordinator, Global Compliance Research Project
Rob Mulford, Veterans for Peace, North Star Chapter, Alaska
Jerry  Stein,  The Peace Farm, Amarillo , Texas
Michael Andregg, professor, St. Paul, Minnesota
Elizabeth Murray,  Deputy National Intelligence Officer for the Near East, National Intelligence Council, ret.: Veteran Intelligence Professionals for Sanity, Washington
Robert Shetterly, artist,  “Americans Who Tell the Truth,” Maine
Katharine Gun, United Kingdom
Amber Garland, St. Paul, Minnesota
Beverly Bailey, Richfield, Minnesota
Stephen McKeown, Richfield, Minnesota
Darlene M. Coffman, Rochester, Minnesota
Sister Gladys Schmitz, Mankato, Minnesota
Bill Rood, Rochester, Minnesota
Tony Robinson, Editor Pressenza
Tom Klammer, radio host, Kansas City, Missouri
Barbara Vaile, Minneapolis, Minnesota
Helen Caldicott, Helen Caldicott Foundation
Mali Lightfoot, Helen Caldicott Foundation
Brigadier Vijai K Nair, VSM [Retd] Ph.D. , Magoo Strategic Infotech Pvt Ltd, India
Kevin Martin,  Peace Action
Jacqueline Cabasso,  Western States Legal Foundation, United for Peace and Justice
Ingeborg Breines, Co-president International Peace Bureau
Judith LeBlanc,  Peace Action
David Krieger, Nuclear Age Peace Foundation
Edward Loomis, NSA Cryptologic Computer Scientist (ret.)
J. Kirk Wiebe, NSA Senior Analyst (ret.), MD
William Binney, former Technical Director, World Geopolitical & Military Analysis, NSA; co-founder, SIGINT Automation Research Center (ret.)

 

Posted in Politics / World News | Leave a comment

Ukraine Busted In ANOTHER Lie

Ukrainian Propaganda Fizzles …

The Ukrainian government has been caught in lie after lie regarding the confrontation with Russia.

The newest fib was a whopper … As the Daily Mail reports:

Muddled security officials in Ukraine were last night forced to deny a huge Russian military convoy had been deployed in the eastern rebel-run city of Lugansk.

The strong rebuttal suggested an earlier claim about an invasion by Vladimir Putin’s troops amounted to a crude propaganda move by the pro-Western Kiev government – or deep confusion in its own ranks.

The original allegation of a Russian column arriving in Lugansk came from Lt-Gen Igor Voronchenko, head of the Ukrainian Anti Terrorist Operation (ATO) in the city, and  was backed by military analyst Dmitry Tymchuk.

‘There are tanks, Grad artillery, APCs, accompanied by about 1,200 men dressed in the army uniform of Russian Federation,’ the general was quoted saying in an assertion calculated to alarm the West.

Yet there was no confirmation on Wednesday from NATO or other Western sources which was widely reported inside Ukraine.

The claim was also contradicted  closer to home by Kiev’s National Security and Defence Council spokesman Andriy Lysenko who dismissed it as ‘strange’.

‘Intelligence is not confirming the existence of this column,’ he said.

***

Vorochenko and a chorus of social media sources had indicated a recent move.

‘We can confirm this information. This army column got to Ukraine about three days ago,’ he said.

Nice try …

Posted in Politics / World News | 3 Comments

The Crazy Money Incentive Which Led to Ferguson

You Won’t BELIEVE Why Police Harass So Many African-Americans In Ferguson

We recently noted that the terrible handling of the economic crisis was one of the underlying causes of the conflict in Ferguson, Missouri.

We pointed out in 2010 that African-Americans have fared much worse  than whites since the 2008 economic crisis:

34.5% of young African American men were unemployed in October 2009.

***

No wonder Chris Tilly – director of the Institute for Research on Labor and Employment at UCLA – says that African-Americans and high school dropouts are experiencing depression-level unemployment.

It hasn’t gotten much better … black unemployment is still more than double that of whites.

But there’s also a specific reason that blacks have it so bad in Ferguson.

Jeff Smith – a former Missouri state senator, and now a New School professor of urban policy – explains in the New York Times:

Back in 1876, the city of St. Louis made a fateful decision. Tired of providing services to the outlying areas, the city cordoned itself off, separating from St. Louis County.

***

St. Louis County contains 90 municipalities, most with their own city hall and police force. Many rely on revenue generated from traffic tickets and related fines. According to a study by the St. Louis nonprofit Better Together, Ferguson receives nearly one-quarter of its revenue from court fees; for some surrounding towns it approaches 50 percent.

Municipal reliance on revenue generated from traffic stops adds pressure to make more of them. One town, Sycamore Hills, has stationed a radar-gun-wielding police officer on its 250-foot northbound stretch of Interstate.

With primarily white police forces that rely disproportionately on traffic citation revenue, blacks are pulled over, cited and arrested in numbers far exceeding their population share, according to a recent report from Missouri’s attorney general. In Ferguson last year, 86 percent of stops, 92 percent of searches and 93 percent of arrests were of black people — despite the fact that police officers were far less likely to find contraband on black drivers (22 percent versus 34 percent of whites). This worsens inequality, as struggling blacks do more to fund local government than relatively affluent whites.

***

When the state patrol and the national television cameras leave Ferguson, its residents will still be talking about how they can move forward. And they may be ready to expand the conversation so that it’s not just about black and white, but green.

Similarly, Canadian-American economist Alex Tabarrok reports:

new report from Arch City Defenders, a non-profit legal defense organization, shows that the Ferguson municipal courts are a stunning example of these problems:

Despite Ferguson’s relative poverty, fines and court fees comprise the second largest source of revenue for the city, a total of $2,635,400. In 2013, the Ferguson Municipal Court disposed of 24,532 warrants and 12,018 cases, or about 3 warrants and 1.5 cases per household.

You don’t get $321 in fines and fees and 3 warrants per household from an about-average crime rate. You get numbers like this from bullshit arrests for jaywalking and constant “low level harassment involving traffic stops, court appearances, high fines, and the threat of jail for failure to pay.”

If you have money, for example, you can easily get a speeding ticket converted to a non-moving violation. But if you don’t have money it’s often the start of a downward spiral that is hard to pull out of….If you are arrested and jailed you will probably lose your job and perhaps also your apartment—all because of a speeding ticket.

***

Of course, if you are arrested and jailed you will probably lose your job and perhaps also your apartment–all because of a speeding ticket.

As a final outrage, consider this story which ties together Ferguson, the courts, and the arrest of parents, often minority parents, for leaving their kids to play in parks (just as my parents did).

According to local judge Frank Vatterott, 37% of the courts responding to his survey unconstitutionally closed the courts to non-defendants. Defendants are then faced with the choice of leaving their kids on the parking lot or going into court. As Antonio Morgan described after being denied entry to the court with his children, the decision to leave his kids with a friend resulted in a charge of child endangerment.

No wonder Ferguson was a powder keg waiting to blow up …

Postscript: There are runaway levels of inequality economically and in access to liberty and justice.

There are two systems of justice in Americaone for the big banks and other fatcats, and one for everyone else.  Holding the little guy to the letter of the law – while letting the fatcats run around immune to the law - is creating a powder keg nationally.

Posted in Business / Economics, Politics / World News | 1 Comment

The Insane Terrorist Group We Armed and Supported Now Greater Threat to U.S. than 9/11

The Guys We Armed Are Now Threatening to Blow Us Up

American foreign policy is on par with the Keystone Cops or the Three Stooges.

Today, Secretary of Defense Chuck Hagel said ISIS is going to attack America … and the threat is even worse than 9/11.

What he forgot to mention is that the U.S. and its allies were the ones who armed and supported the crazies who are now threatening us. For example, we noted in May, before Al Qaeda had re-branded as ISIS:

The U.S. “switched sides” to arm and support Al Qaeda in Libya, so they would topple Gaddaffi. This misguided effort actually created a terrorist safe haven in Libya.

The same thing happened in Syria. The Syrian rebels are mainly Al Qaeda, and the U.S. has been supporting these terrorists for years. Indeed, as reported in the Wall Street Journal, the National and other sources, Al Qaeda’s power within the Syrian rebel forces is only growing stronger.

Rank-and-file Syrian rebels have:

In fact, one of the heads of the Syrian rebels is also the global boss of Al Qaeda … and he is calling for fresh terrorist attacks on America. CBS News reports:

Al Qaeda chief Ayman al-Zawahri called has called on Muslims to continue attacking Americans on their own soil in order to “bleed” the U.S. economy.

***

“To keep up the hemorrhage in America’s security and military spending, we need to keep the Unites States on a constant state of alert about where and when the next strike will blow,” Zawahiri said.

Let’s recap … Most of the Syrian “rebels” are Al Qaeda. The U.S. government has designated these guys as terrorists. Things are getting worse, not better: Al Qaeda is gaining more and more power among the rebels. The U.S., Saudi Arabia, Qatar and Israel have been backing these guys for years. Indeed, we’ve long known that most of the weapons we’re shipping to Syria are ending up in the hands of Al Qaeda. And they apparently have chemical weapons.

Summary: We’re arming the same guys who are threatening to blow us up.

Indeed, the U.S. and its closest allies may have directly backed ISIS.

Posted in Politics / World News | 18 Comments