From the BBC this report with two sides arguing over whether or not Argentina is suffering "unrest" owing to poverty (!) or whether it is simply politically fomented. As if it makes a difference.
A policeman disperses looters after an attack to a
Two people have been killed in
Argentina's third city, Rosario, as a wave of looting spreads.
Police fired tear gas and rubber bullets to stop hundreds of people attacking
a supermarket on the outskirts of the capital, Buenos Aires.
There have been other incidents in the central city of Rosario and in the
northern province of Chaco. The looting began in the south on Thursday.
The government says trade unions linked to the opposition are to blame.
Argentine television showed images of people - many of them with their faces
covered - throwing stones at the police and trying to break into shops and
"This is probably triggered by the difficult situation the
people of Argentina are facing”
QuoteHugo MoyanoUnion leader
The attacks stir memories of the violence witnessed
during Argentina's economic crisis in 2001 when unemployed people stormed
But National Security Secretary, Sergio Berni, said the looters this time had
been taking plasma televisions and stereos, not food and had not been driven by
"There is a part of Argentina that wants to drive the country into chaos and
violence," Mr Berni said.
"But this Argentina is not the same of 2001,"
The government has deployed 400 military police to the Patagonian ski resort
of Bariloche, which witnessed the first incident of looting.
At least three supermarkets were looted there on Thursday by more than 100
people, who left with electronics, toys, clothes and food.
Further attacks were reported in the industrial cities of Campana and Zarate,
in Buenos Aires province, in Resistencia in the north and outside a Carrefour
supermarket in San Fernando, on the outskirts of the capital.
Riot police managed to stop that attack but smaller stores and kiosks in the
suburb were looted.
The mayor of San Fernando, Luis Andreotti, said: "This has been orchestrated.
Someone has started all this to create an atmosphere of fear."
Buenos Aires province governor Daniel Scioli also says the disruption is
The police could not stop a
convenience store being ransacked in San Fernando
But union leader Hugo Moyano, who opposes the government's economic policies,
dismissed the government's accusations.
"This is probably triggered by the difficult situation the people of
Argentina are facing. I cannot imagine that this has been organised by someone,"
said Mr Moyano, head of the powerful CGT union.
Private banks say inflation is again rampant in the country, though
government figures have it at just 9%.
The IMF has threatened the country with a "red card", meaning potential
expulsion from the Fund and the G20, if it does not do more to produce reliable
statistics on its inflation and GDP.
Economists say Argentina's state-centric policies are damaging its
New import restrictions mean that companies are allowed to bring in only the
same volume of goods as they export.
In many cases, this seems to have had a devastating impact on industrial
Some analysts believe Argentina could now be in technical recession.
Former Finance Minister Orlando Ferreres says the biggest concern is
The left-wing populism embraced by President Christina Fernandez seems, he
says, to exclude considered debate and a necessary change of strategy.
Having seen its star wane in Iraq, al Qaeda has staged a comeback in neighbouring Syria, posing a dilemma for the opposition fighting to remove President Bashar al-Assad and making the West balk at military backing for the revolt.
The rise of al Qaeda's affiliate in Syria, al-Nusra Front, which the United States designated a terrorist organisation last week, could usher in a long and deadly confrontation with the West, and perhaps Israel.
Inside Syria, the group is exploiting a widening sectarian rift to recruit Sunnis who saw themselves as disenfranchised by Assad's Alawite minority, an offshoot of Shi'ite Islam that dominates Syria's power and security structures.
Al-Nusra appears to have gained popularity in a country that has turned more religious as the uprising, mainly among Sunni Muslims, has been met with increasing force by authorities.
It has claimed responsibility for spectacular and deadly bombings in Damascus and Aleppo, and its fighters have joined other rebel brigades in attacks on Assad's forces.
According to Site Intelligence group, Nusra claimed responsibility in one day alone last month for 45 attacks in Damascus, Deraa, Hama and Homs provinces that reportedly killed dozens, including 60 in a single suicide bombing.
"In 18 communiqués issued on jihadist forums ... most of which contain pictures of the attacks, the al-Nusra Front claimed ambushes, assassinations, bombings and raids against Syrian security forces and 'shabbiha', pro-Bashar al-Assad thugs," Site said.
Members of the group interviewed by Reuters say al-Nusra aims to revive the Islamic Caliphate, which dates back to the Prophet Mohammad's seventh century companions, forerunners of the large empire that once stretched into Europe.
That prospect alarms many in Syria, from minority Christians, Alawites and Shi'ites to traditionally conservative but tolerant Sunni Muslims who are concerned that al-Nusra would try to impose Taliban-style rule.
Fear of religion-based repression has already prompted Kurds to barricade their quarter of Aleppo city and was behind fierce clashes between Kurdish and al-Nusra fighters in the border town of Ras al Ain in November.
The ideas of al-Nusra are also at odds with a new Syrian opposition coalition that was recognized last week by dozens of countries as an alternative to Assad and is committed to establishing a democratic alternative to Assad's rule.
Omar, a 25-year-old university graduate and former army conscript, said he deserted and joined al-Nusra in reaction to repression he experienced as a Sunni from Alawite officers who all but monopolize the army's higher echelons.
Prior to the revolt, Omar said he had sympathized quietly with Hizb ut-Tahrir, an Islamic international party with a vision for the restoration of the Islamic caliphate abolished by the secular Turkish strongman Mustafa Kemal Ataturk in 1924.
"Prayer in the army is banned, and if they suspected that you pray they would send you to the most remote posts," Omar said by phone from a rural area near Aleppo city.
"Our aim is to depose Assad, defend our people against the military crackdown and build the caliphate. Many in the Free Syrian Army have ideas like us and want an Islamic state."
"We and other Islamists have gained a reputation as being able to hold our own in battle. Lots of people want to join Nusra, but we do not have enough weapons to supply all of them."
But a woman teacher, who lives in the central Mogambo district of Aleppo, said Nusra's thinking was abhorrent.
"Al-Nusra thinks that by shouting Allahu Akbar (God is Greatest) they can justify anything they do. We did not rise up to move from the humiliation from being under Assad to the humiliation of being under al Qaeda," she said.
Opposition sources said many Syrians who facilitated the transfer of jihadis from Syria to al Qaeda in Iraq at the height of its campaign against U.S. forces there were now fighting for Nusra, while jihadis in Iraq had reversed their roles, arranging for transfer of personnel and bomb-making know-how into Syria.
The source of Nusra funding is unclear, though that, too, may come from Iraq.
Ibrahim, another young Nusra member in Idlib province, said he was imprisoned in the notorious Sednaya prison north of Damascus, where 170 mainly Islamist prisoners were killed after the army put down a mutiny in 2007. "We want revenge," he said.
Asked about a U.S. statement that Nusra operations were killing many civilians, Ibrahim said it was an exaggeration.
"A bomb goes off in front of a security compound with four cars full of shabbiha in civilian clothes guarding it. The shabbiha die and state media says they were civilian. Only their clothes are civilian," he said.
Several videos have appeared on the Internet in recent weeks purportedly showing al-Nusra-linked rebels shooting and in some instances beheading captured Assad soldiers.
But al-Nusra still appears to have wide support. Video footage on Friday showed crowds in southern Syria, the birthplace of the revolt, denouncing the U.S. designation of the group as terrorists and shouting "al-Nusra front protects us".
Farouk Tayfour, deputy head of the Muslim Brotherhood, who fought against Assad's father in the 1980s, said it was too early to categories opposition fighters. Some, he said, joined Nusra to defend their homes without subscribing to its ideology.
The identity of al-Nusra's leadership is not clear. A shadowy figure known as Abu Muhammad al-Golani - whose nationality is not known - has been named by some as the head.
But an Islamist opposition campaigner who toured northern and central Syria a few days ago and met Nusra commanders said the group operates more like an umbrella organisation with little coordination between units in different regions.
"They are not a monolithic group. The nature of Nusra in Damascus is more tolerant than Idlib. They have a real popular base in Idlib, where most Nusra members are Syrians, as opposed to Aleppo and Damascus."
He said it did not appear to be seeking to impose Taliban-style control. "Many rebels I have met say they joined al-Nusra because the group has weapons, mostly seized from raids, and that they will go back home after the revolt," he added.
But many centrist opposition campaigners fear that al-Nusra will turn its guns on any non-Islamist order that could come if Assad was deposed. "The big question is how to contain Nusra in a post-Assad Syria," said an opposition figure linked to jihadist groups, who did not want to be identified.
"Al-Nusra is the type of group that could declare the most pious cleric a heretic and kill him in the middle of a mosque just because he does not share its view," he said.
Nusra members are estimated to number in the thousands and are particularly strong in the northern region of Aleppo and Idlib, where they have joined or carried out joint operations with Islamist groups such as Ahrar al-Sham and Liwa al-Tawhid unit.
In and around Damascus they are fewer in number but remain potent, and are only 20 kilometers (12 miles) at some points from the Golan Heights front with Israel.
Abu Munther, an engineer turned rebel who operates on the southern edge of Damascus and goes to Jordan to meet other rebels, said in Amman that al-Nusra numbered hundreds of people in Damascus, as opposed to thousands in the north.
But those numbers could grow. Al-Mujahideen brigade in the southern Tadamun neighborhood of Damascus declared its allegiance to al-Nusra after dissatisfaction with Arab-backed military groups headed by defector officers.
Another opposition figure, who did not want to be named, said international intelligence agencies were trying to curb Nusra's influence in Damascus and the southern Hauran Plain, where they are near Israel and close to the Jordanian border.
"Western intelligence agencies are realising that the Nusra is the biggest threat in a post-Assad Syria and are devoting more resources to deal with the threat," he said.
"For the first time al Qaeda is within striking distance of Israel," he said. "Many are realising that the best that could be done for now is to contain them in north Syria - even if the area risks becoming an Islamist emirate of sorts - while trying to build a civic form of government in and around Damascus."
by Carl Bernstein for the British Guardian newspaper:
The Ailes/Petraeus tape made clear to many that Murdoch's goals in America have always been nefarious.
Rupert Murdoch- Reuters
So now we have it: what appears to be hard, irrefutable evidence of Rupert Murdoch's ultimate and most audacious attempt – thwarted, thankfully, by circumstance – to hijack America's democratic institutions on a scale equal to his success in kidnapping and corrupting the essential democratic institutions of Great Britain through money, influence and wholesale abuse of the privileges of a free press.
In the American instance, Murdoch's goal seems to have been nothing less than using his media empire – notably Fox News – to stealthily recruit, bankroll and support the presidential candidacy of General David Petraeus in the 2012 election.
Thus in the spring of 2011 – less than 10 weeks before Murdoch's centrality to the hacking and politician-buying scandal enveloping his British newspapers was definitively revealed – Fox News' inventor and president, Roger Ailes, dispatched an emissary to Afghanistan to urge Petraeus to turn down President Obama's expected offer to become CIA director and, instead, run for the Republican nomination for president, with promises of being bankrolled by Murdoch. Ailes himself would resign as president of Fox News and run the campaign, according to the conversation between Petraeus and the emissary, K T McFarland, a Fox News on-air defense "analyst" and former spear carrier for national security principals in three Republican administrations.
All this was revealed in a tape recording of Petraeus's meeting with McFarland obtained by Bob Woodward, whose account of their discussion, accompanied online by audio of the tape, was published in the Washington Post – distressingly, in its style section, and not on page one, where it belonged – and, under the style logo, online on December 3.
Indeed, almost as dismaying as Ailes' and Murdoch's disdain for an independent and truly free and honest press, and as remarkable as the obsequious eagerness of their messenger to convey their extraordinary presidential draft and promise of on-air Fox support to Petraeus, has been the ho-hum response to the story by the American press and the country's political establishment, whether out of fear of Murdoch, Ailes and Fox – or, perhaps, lack of surprise at Murdoch's, Ailes' and Fox's contempt for decent journalistic values or a transparent electoral process.
The tone of the media's reaction was set from the beginning by the Post's own tin-eared treatment of this huge story: relegating it, like any other juicy tidbit of inside-the-beltway media gossip, to the section of the newspaper and its website that focuses on entertainment, gossip, cultural and personality-driven news, instead of the front page.
"Bob had a great scoop, a buzzy media story that made it perfect for Style. It didn't have the broader import that would justify A1," Liz Spayd, the Post's managing editor, told Politico when asked why the story appeared in the style section.
Buzzy media story? Lacking the "broader import" of a front-page story? One cannot imagine such a failure of news judgment among any of Spayd's modern predecessors as managing editors of the Post, especially in the clear light of the next day and with a tape recording – of the highest audio quality – in hand.
"Tell [Ailes] if I ever ran," Petraeus announces on the crystal-clear digital recording and then laughs, "but I won't … but if I ever ran, I'd take him up on his offer. … He said he would quit Fox … and bankroll it."
McFarland clarified the terms: "The big boss is bankrolling it. Roger's going to run it. And the rest of us are going to be your in-house" – thereby confirming what Fox New critics have consistently maintained about the network's faux-news agenda and its built-in ideological bias.
And here let us posit the following: were an emissary of the president of NBC News, or of the editor of the New York Times or the Washington Post ever caught on tape promising what Ailes and Murdoch had apparently suggested and offered here, the hue and cry, especially from Fox News and Republican/Tea Party America, from the Congress to the US Chamber of Commerce to the Heritage Foundation, would be deafening and not be subdued until there was a congressional investigation, and the resignations were in hand of the editor and publisher of the network or newspaper. Or until there had been plausible and convincing evidence that the most important elements of the story were false. And, of course, the story would continue day after day on page one and remain near the top of the evening news for weeks, until every ounce of (justifiable) piety about freedom of the press and unfettered presidential elections had been exhausted.
The tape of Petraeus and McFarland's conversation is an amazing document, a testament to the willingness of Murdoch and the wily genius he hired to create Fox News to run roughshod over the American civic and political landscape without regard to even the traditional niceties or pretenses of journalistic independence and honesty. Like the revelations of the hacking scandal, which established beyond any doubt Murdoch's ability to capture and corrupt the three essential elements of the British civic compact – the press, politicians and police – the Ailes/Petraeus tape makes clear that Murdoch's goals in America have always been just as ambitious, insidious and nefarious.
The digital recording, and the dead-serious conspiratorial conversation it captures so chillingly in tone and substance ("I'm only reporting this back to Roger. And that's our deal," McFarland assured Petraeus as she unfolded the offer) utterly refutes Ailes' disingenuous dismissal of what he and Murdoch were actually attempting: the buying of the presidency.
"It was more of a joke, a wiseass way I have," Ailes would later claim while nonetheless confirming its meaning. "I thought the Republican field [in the primaries] needed to be shaken up and Petraeus might be a good candidate."
The recording deserves to be heard by any open-minded person trying to fathom its meaning to the fullest.
Murdoch and Ailes have erected an incredibly influential media empire that has unrivaled power in British and American culture: rather than judiciously exercising that power or improving reportorial and journalistic standards with their huge resources, they have, more often than not, recklessly pursued an agenda of sensationalism, manufactured controversy, ideological messianism, and political influence-buying while masquerading as exemplars of a free and responsible press. The tape is powerful evidence of their methodology and reach.
The Murdoch story – his corruption of essential democratic institutions on both sides of the Atlantic – is one of the most important and far-reaching political/cultural stories of the past 30 years, an ongoing tale without equal. Like Richard Nixon and his tapes, much attention has been focused on the necessity of finding the smoking gun to confirm what other evidence had already established beyond a doubt: that the elemental instruments of democracy, ie the presidency in Nixon's case, and the privileges of free press in Murdoch's, were grievously misused and abused for their own ends by those entrusted to use great power for the common good.
In Nixon's case, the system worked. His actions were investigated by Congress, the judicial system held that even the president of the United States was not above the law, and he was forced to resign or face certain impeachment and conviction. American and British democracy has not been so fortunate with Murdoch, whose power and corruption went unchecked for a third of a century.
The most important thing we journalists do is make judgments about what is news. Perhaps no story has eluded us on a daily basis (for lack of trying) for so many years as the story of Murdoch's destructive march across our democratic landscape. Only the Guardian vigorously pursued the leads of the hacking story and methodically stuck with it for months and years, never ignoring the underlying context of how Rupert Murdoch conducted his take-no-prisoners business and journalism without regard for the most elemental standards of fairness, accuracy or balance, or even lawful conduct.
When the Guardian's hacking coverage reached critical mass last year, I quoted a former top Murdoch deputy as follows: "This scandal and all its implications could not have happened anywhere else. Only in Murdoch's orbit. The hacking at News of the World was done on an industrial scale. More than anyone, Murdoch invented and established this culture in the newsroom, where you do whatever it takes to get the story, take no prisoners, destroy the competition, and the end will justify the means."
The tape that Bob Woodward obtained, and which the Washington Post ran in the style section, should be the denouement of the Murdoch story on both sides of the Atlantic, making clear that no institution, not even the presidency of the United States, was beyond the object of his subversion. If Murdoch had bankrolled a successful Petraeus presidential campaign and – as his emissary McFarland promised – "the rest of us [at Fox] are going to be your in-house" – Murdoch arguably might have sewn up the institutions of American democracy even more securely than his British tailoring.
Happily, Petraeus was not hungering for the presidency at the moment of the messenger's arrival: the general was contented at the idea of being CIA director, which Ailes was urging him to forgo.
"We're all set," said the emissary, referring to Ailes, Murdoch and Fox. "It's never going to happen," Petraeus said. "You know it's never going to happen. It really isn't. … My wife would divorce me."
Not that I agree with the conclusions as Keynes makes more sense to me than his detractors do. Judge for yourself in this analysis from Scott Minerd of Seeking Alpha.
A Premonition From a Halcyon Era
In 1968, America was literally over the moon. Apollo 7 had just made the
first manned lunar orbit and the nation would soon witness Neil Armstrong's
moonwalk. The United States was winning the war in Southeast Asia and the Great
Society was on the verge of eliminating poverty. I remember my father taking me
to the Buick dealership that summer in Connellsville, Pennsylvania, where he
bought a 1969 Electra. As we drove home I asked him why we had bought the 1969
model when we had the 1968 one, which seemed equally good.
"That's just what you do now," my father said, "Every year you go and get a
new car." "Wouldn't it be better," I asked as a precocious nine year-old, "if we
saved our money in case a depression happened?" I will never forget my father's
reply: "Son, the next depression will be completely different from the one that
I knew as a boy. In that depression, virtually nobody had any money so if you
had even a little, you could buy nearly anything. In the next depression,
everyone will have plenty of money but it won't buy much of anything." Little
did I realize, then, how prescient my father would prove to be.
Five years have passed since the beginning of the Great Recession. Growth is
slow, joblessness is elevated, and the knock-on effects continue to drag down
the global economy. The panic in financial markets in 2008 that caused a
systemic crisis and a sharp fall in asset values still weighs on markets around
the world. The primary difference between today and the 1930s, when the U.S.
experienced its last systemic crisis, has been the response by policymakers.
Having the benefit of hindsight, policymakers acted swiftly to avoid the
mistakes of the Great Depression by applying Keynesian solutions. Today, I
believe we are in the midst of the Keynesian Depression that my father
predicted. Like the last depression, we are likely to live with the unintended
consequences of the policy response for years to come.
This Depression is Brought to You By...
John Maynard Keynes (1883-1946) was a British economist and the chief
architect of contemporary macroeconomic theory. In the 1930s, he overturned
classical economics with his monumental General Theory of Employment, Interest
and Money, a book that, among other things, sought to explain the Great
Depression and made prescriptions on how to escape it and avoid future economic
catastrophes. Lord Keynes, a Cambridge educated statistician by training, held
various cabinet positions in the British government, was the U.K.'s
representative at the 1944 Bretton Woods conference and, along with Milton
Friedman, is recognized as the most influential economic thinker of the 20th
Keynes believed that classical economic theory, which focused on the long
run was a misleading guide for policymakers. He famously quipped
that, "in the long run we're all dead." His view was that aggregate demand, not
the classical theory of supply and demand, determines economic output. He also
believed that governments could positively intervene in markets and use deficit
spending to smooth out business cycles, thereby lessening the pain of economic
contractions. Keynes called this "priming the pump."
On Your Mark, Get Set, Spend
Since the Second World War, policymakers concerned with both fiscal and
monetary policy have opportunistically followed certain Keynesian principles,
particularly using government spending as a stabilizer during periods of
economic contraction. In 1968, steady economic growth and low inflation had led
optimists to declare that the business cycle was dead. When President Nixon
ended gold convertibility of the dollar in 1971 he justified it by declaring
that he was a Keynesian. Even Milton Friedman, founder of the monetary school of
economics, told Time magazine that from a methodological standpoint, "We're all
In dampening each successive downturn, authorities accumulated increasingly
larger deficits and brought about a debt supercycle that lasted in excess of
half a century. The complementary aspect of Keynes' guidance on deficit spending
- raising taxes during upswings - was rarely followed because of its political
unpopularity. As a result of the constant fiscal support without the tax
increases, businesses and households became comfortable operating with
continuously higher leverage ratios. The conventional wisdom was that this
government backstop could never be exhausted.
The calamity in the financial system in 2007 and 2008 signaled the beginning
of the unraveling of the global debt supercycle. The Keynesian model dictated
that the best way to fix the problem was to run large deficits and increase the
money supply. Keynes had based his prescriptions for this type of action on the
early mismanagement of the Great Depression which he felt had prolonged the
losses and hardship during that time. As is the case with most groundbreaking
philosophies, Keynes' disciples carried his views much further than could have
been imagined during the period in which the master lived.
The Depression My Father Knew
Keynes viewed governments' attempts at belt-tightening during the Great
Depression as ill-timed. Although President Roosevelt invested in massive public
works projects under the New Deal starting in 1933, almost four years into the
crisis, the U.S. government maintained a policy of attempting to balance the
budget as the depression raged on. Keynes' response was: "The boom,
not the slump, is the right time for austerity at the Treasury." The other
problem, according to Keynes, was that the Federal Reserve's attempts to lower
real interest rates and inject cash into the system were too modest and too late
to avoid what he referred to as a liquidity trap, leading people to hoard cash
instead of consuming.
To illustrate the dynamics of the liquidity trap Keynes cleverly invoked the
analogy of "pushing on a string." He said that at some point, attempting to
stimulate demand by easing credit conditions is like trying to push a string
that is tied to an object you want to move. Whereas you can easily pull
something toward you by the string to which an object is tied (raising interest
rates to slow growth), attempting to carry out the opposite by reversed means
(lowering interest rates to try to induce lending to otherwise unwilling
borrowers) is not always successful. This is especially true when the rate of
inflation becomes so low that it becomes impossible to set interest rates below
This Time It's Different
What sets the current downturn apart from any other since the Great
Depression is that, for the first time since the 1930s, we have had severe asset
deflation (declining real prices) in the face of relative price stability.
Periods of asset deflation occurred between the 1960s and 1990s, but nominal
prices were supported by rising inflation levels. Against the backdrop of a
rising price level, nominal asset prices remained stable or continued to
increase as real asset prices declined. This protected asset-based lenders from
severe losses resulting from declining nominal prices.
During the 2008 crisis, inflation levels were close to zero and unable to
offset falling real asset values to stabilize nominal prices. This caused a debt
deflation spiral to take hold as nominal prices fell. In contrast to the Great
Depression, policymakers took extreme measures in 2008 to prevent a total
collapse of the financial system and head off a deflationary spiral like that
experienced in the 1930s. These policies included sharply increasing the money
supply and engaging in an unprecedented amount of deficit spending.
In many ways the swift policy action proved highly effective. Instead of the
25 percent unemployment seen in the 1930s, joblessness reached only 10 percent.
While unemployment now stands at roughly eight percent, if one uses the labor
force participation rate from 2008, the level is still higher than 11 percent.
Although there was a 3.5 percent decline in the price level between July and
December of 2008, policymakers immediately tackled and reversed the deflationary
spiral. This compares with the Great Depression, when between 1929 and 1933 the
general price level declined by 25 percent.
Though some may be cheered by the relative policy successes this time around,
at the current trajectory it will still take almost as long for total employment
to fully recover as it did in the 1930s. While job loss was not as severe this
time, the recovery in job creation has been much slower. Although nominal and
real gross domestic production have returned to new highs on a per capita basis,
we are still below 2007 levels. In the same way the Great Depression and the
depressions before it lasted eight to 10 years, we will likely continue to see
constrained economic growth until 2015-2016 (roughly nine years after U.S. home
prices began to slide). Only then will the excess inventory in the real estate
market be absorbed, allowing the plumbing of the financial system to function,
and supporting an increase in the economic growth rate.
At what cost did we attain this "success?" Like any strong
medicine, the policies pursued since 2008 have had, and are continuing to have,
unintended side effects. The most glaring feature of today's global landscape is
that governments around the world have exhausted their capacity to borrow money
and have turned to their central banks to provide unlimited credit. In the
United States, it has taken an average annual deficit of $1.2 trillion and
multiple rounds of quantitative easing just to keep the economy growing at a
subpar rate since 2009.
In their 2009 book, This Time It's Different: Eight Centuries of Financial
Folly, the economists Carmen Reinhart and Kenneth Rogoff catalogue more
than 250 financial crises and conclude that the U.S. cannot reasonably expect to
circumvent the outcome that has befallen all overleveraged nations. In the
…Highly leveraged economies, particularly those in which continual
rollover of short-term debt is sustained only by confidence in relatively
illiquid underlying assets, seldom survive forever, particularly if leverage
continues to grow unchecked.
Sovereign powers saddled with debt loads as large as those of the U.S.,
Europe and Japan today are jeopardizing their long-term economic
In an October 2012 whitepaper, Reinhart and Rogoff re-emphasized their
findings that the U.S. cannot expect to quickly emerge from what occurred in
2008. They point out that 2008 was the first systemic crisis in the U.S. since
the 1930s so the consequences have been much more significant than fall-outs
from normal recessions.
What Comes Next?
The most important question for investors concerns how public sector debt
levels, which have risen exponentially over the past half-decade, will
ultimately be discharged. As Reinhart and Rogoff discuss, there are three
options to reducing debt levels. The first is restructuring, also known as
default. For obvious reasons this is painful and typically avoided except under
the most dire circumstances. Governments can also pursue structural reform,
which in today's case would mean greater austerity. Implementation of this would
stand in stark opposition to Keynes's recommendation that the fiscal and
monetary spigots be kept open during hard times. Although tightening is arguably
the best long-term path, it appears unlikely that it will be the primary policy
of choice in the near future. The third method, toward which I see global
central bankers drifting, is to keep interest rates artificially low and permit
increasing levels of inflation in the economy.
Pushing down the cost of borrowing and allowing the price level to rise is
known as financial repression. The real value of debtors' obligations is reduced
by financially repressive policies. Keynes warned of the dangers of inflation in
his early work, The Economic Consequences of the Peace, which presciently
criticized the harshness of the Treaty of Versailles:
...By a continuing process of inflation, governments can confiscate,
secretly and unobserved, an important part of the wealth of their citizens … As
inflation proceeds and the real value of the currency fluctuates wildly, all
permanent relations between debtors and creditors, which form the ultimate
foundation of capitalism, become so utterly disordered as to be almost
Keynes re-iterated his views in the mid-1940s when he visited the United
States and saw programs that were touted as Keynesian although he viewed them as
Financial repression is nothing new. Between the 1940s and the early 1980s,
the United States reduced its national debt from 140 percent of GDP to just 30
percent while continuing to run sizable deficits. The difference between then
and now is the magnitude of the debt mountain on the Federal Reserve's balance
sheet that will need to be eroded. A subtle shift has begun in which
policymakers are starting to think of inflation as a policy tool rather than the
byproduct of their actions. Despite Keynes' warnings, it appears that higher
inflation will continue to be the monetary tool of choice for central bankers
tasked with cleaning up sovereign balance sheets.
The long-term downside of mounting inflationary pressure will ultimately
accrue to bondholders and income-oriented investors. The case can be made that
we are marching headlong into a generational bear-market for bonds. During the
next decade, holders of Treasury and agency securities will likely realize
negative real returns. Despite this, these assets continue to trade at extremely
rich valuations. Exactly when the market will awaken to this anomaly in
securities pricing remains to be determined. The analogy I would use for the
current interest rate environment is that of a balloon being held underwater.
When the Fed withdraws from the market and allows interest rates to find their
economic level, the balloon will inevitably ascend.
If investors need to stay in fixed-income assets, they should transition into
shorter duration credit and floating-rate products like bank loans and
asset-backed securities. If duration targeting is a concern for
liability-matching purposes, adjustable-rate assets can be barbelled with
long-duration securities like corporate bonds or long duration agency mortgage
securities. Equities and risk assets are likely to rise as the money supply
Gold, as I discussed in my October 2012 Market Perspectives, "Return to
Bretton Woods," has significant upside and should be included in any portfolio
designed to preserve or grow wealth over the long-term. Depending on the scale
of the current round of quantitative easing and the decline in confidence in
fiat currencies, the price of an ounce of gold could easily exceed $2,500 within
a relatively short time frame and could ultimately trade much higher.
The World is Waiting
The Great Depression brought about the Keynesian Revolution, complete with
new analytical tools and economic programs that have been relied upon for
decades. The efficacy of these tools and programs has slowly been eroded over
the years as the accumulation of policy actions has reduced the flexibility to
deal with crises as we reach budget constraints and stretch the Fed's balance
sheet beyond anything previously imagined. Nations have exceeded their ability
to finance themselves without relying on their central banks as lenders of last
resort and increasingly large doses of monetary policy are required just to keep
the economy expanding at a subpar pace. Some have referred to this as reaching
the Keynesian endpoint.
Keynes would barely recognize where we now find ourselves. In this ultra
loose policy environment we are limited by our Keynesian toolkit. Today, the
world is waiting for someone to come forward and explain how we are going to get
out of our current circumstances without suffering the unintended consequences
created by so-called Keynesian policies.
Early in his life, Abraham Lincoln wrote that he regretted not having been
present during the founding of the nation because that was when all the
positions in the pantheon of great American leaders were filled. By resolving
America's Imperial Crisis through the Civil War and the abolishment of slavery,
Lincoln would go on to join those lofty ranks himself. Much like that crisis
needed Lincoln, the current crisis needs someone who can identify new tools to
resolve the present economic crisis. Until then we are condemned to a path which
leads to further currency debasement and the erosion of purchasing power, with
the result being a massive transfer of wealth from creditor to debtor. Without a
new economic paradigm, the deleterious consequences of the current misguided
policies are a foregone conclusion. It would seem my Dad could hardly have been
more correct when he described the next depression from behind the wheel of his
World News website has a report on sweatshop conditions as per usual producing stuff Americans want to buy.
Sweating and trembling as he fielded questions about last month's killer fire at one of his factories in Bangladesh, Delwar Hossain insisted he had no idea the workshop was making clothes for Wal-Mart Stores Inc when it went up in flames.
On the other side of the world, Wal-Mart said the factory - where 112 workers lost their lives - was not authorized to produce its merchandise and had been sub-contracted by a supplier without its permission.
That there should be such blind spots in the supply chain of the world's largest retailer is puzzling.
However, an investigation by Reuters since the November 24 blaze has found that, under pressure from big Western brands to produce huge volumes of apparel fast and at rock-bottom prices, Bangladeshi suppliers routinely sub-contract their orders.
This frequently happens without the knowledge of the end-buyers and, all too often, the orders end up in factories that under-pay workers or cut corners on safety.
Experts in supply-chain risk say the practice has led to a lack of control over what is manufactured where, by whom and under what conditions.
"The first problem is retailers and wholesalers are demanding more and more compliance and more and more protocol. However, they keep pushing everyone for lower and lower prices," said Edward Hertzman, who runs Sourcing Journal, a trade publication.
"You have one department of the company campaigning for fair wages etcetera, but then in the very next room the sourcing department is asking for 10-20 percent cheaper. How do you do that?"
In the charred remains at the site of the fire in an industrial suburb of Bangladesh's capital, Dhaka, a Reuters photographer found clothes that were labeled for - among other big-brand retailers - Wal-Mart, Sears Holdings Inc and Walt Disney Co.
After the fire, both Wal-Mart and Sears admitted that their goods were being manufactured at the Tazreen Fashions workshop, even though both had specifically denied that factory authorization as a supplier.
Disney said its records showed that none of its authorized licensees had manufactured Disney-branded products at the factory for the past 12 months.
Garment producers in the South Asian country say U.S. and European buyers haggle with them over every nickel and cent to keep their costs down, right down to the price of a shirt button. In turn, the suppliers - operating on wafer-thin margins - are forced to minimize their own costs and this often means farming work out to factories that operate on a shoestring.
"Everything has a price," Bangladeshi Commerce Minister Ghulam Muhammed Quader told Reuters in Dhaka.
"If you want to really give higher wages or really want to give some sort of other safety standards at a higher level, it costs some money. So the competitors for getting the orders from the big brands always try to cut their cost in different ways."
For a long time Western apparel buyers depended heavily on China to source their products. But labor shortages and mounting wage pressures prompted them to look elsewhere and Bangladesh has become - as a 2011 McKinsey report put it - "the next sourcing hotspot."
There they have found a country that has favorable trade terms with Europe and, crucially - with the minimum wage for garment workers under $37 a month - plenty of cheap labor.
Bangladesh's roughly 3,000 factories now account for 80 percent of the country's $24 billion annual exports. The industry employs 3.6 million people and more than four times that number are dependent on the sector for their livelihoods.
In short, it has become the economic lifeblood of the once-impoverished country as it moves up from aid to trade.
Poor working conditions such as overcrowding and even locked emergency exits, have long been the dark side of this success story. Rights groups say efforts to address this have often been thwarted by curbs on union activities that employers and the government fear could threaten the boom.
In April, a labor activist was found murdered and his body bore signs of torture. Human Rights Watch said the killing raised the possibility of government involvement because the man had previously been detained and tortured by security officials. Officials dismissed the suggestion.
There have been building collapses and many fires at Bangladeshi garment factories in the past, although none as deadly as the blaze at Tazreen Fashions.
Shamoly Akhter, 19, was working on the second floor of the multi-storey factory building as night fell. She said that, when a fire alarm started ringing, two supervisors prevented employees from leaving and told them to return to their work.
"The alarm was ringing continuously and we were struggling to get out ... but they said it was just a drill," she said at a Dhaka hospital, where she was being treated for injuries sustained when she leapt from the burning building.
She said that music playing in the factory was turned to high volume, apparently to muffle the sound of the alarm.
When finally the workers forced their way to the staircase they found it was ablaze, thick with smoke because highly flammable yarn and fabrics stored around exits on the ground floor had caught fire.
The factory had no external fire-escape stairs so Akhter, like many of her co-workers, jumped from a window to the ground.
Factory owner Hossain, who was not present when the fire broke out, said he had never been told by the building's planners that an outside staircase was necessary.
"You see, there are three staircases so why would we need another one?" he told Reuters in an interview.
Hossain is managing director of Tuba Group, which has several garment factories. One of its units - Tuba Garments Limited - was recently sub-contracted to produce Wal-Mart clothes, but the order was diverted to Tazreen Fashions, according to two industry sources who declined to be named.
Hossain confirmed the order came from a sub-contractor, but said he had not been told the clothes were for Wal-Mart.
The trouble is that Wal-Mart rated the Tuba Garments factory as a "yellow" in "ethical sourcing audits," which meant orders could be placed there, but Tazreen Fashions was not on its list of authorized factories.
"If somebody cheated ... it is not the fault of Wal-Mart, it is not the fault of that factory even," said Mohammad Shafiul Islam, president of the Bangladesh Garment Manufacturers and Exporters Association. "It is not possible to police everything. Inspection every single hour, every single moment is not possible."
Islam said sub-contracting only happens "sometimes," but one garment manufacturer who asked not to be named said it is "a very common practice."
"Wal-Mart goes to the lowest bidder so manufacturers have to work on high volumes, but no one can find enough compliant factories to fulfill the orders, so they sub-contract," he said.
Sourcing Journal's Hertzman, a veteran of the sourcing world who pairs retailers and apparel brands with factories in five Asian countries, said the whole certification process is often more cosmetic than anything else.
"A lot of times factories find ways to get around these certifications," he said. "Everything looks kosher on the day of the audit, but they really are not up to par."
The problem boils down to cost, he added. Manufacturers commit to ethical behavior, but they choose countries where workers are paid comparatively meager salaries because it saves them money. Cheaper manufacturing there means cheaper goods on shelves in the West, which is what consumers ultimately want.
From Mortgage News Daily by Jann Swanson. The idea that government could have a role seems just too outre for these people. why I wonder...
Edward J. DeMarco, Acting Director of the Federal Housing Finance Agency, told members of SIFMA this afternoon that "The secondary mortgage market infrastructure that served this country for many years is broken." It is not effective when it comes to adapting to market changes, issuing securities that attract private capital, aggregating data, or lowering barriers to market entry he said. There must be some updating and continued maintenance of the government sponsored enterprises securitization infrastructure, "and to the extent possible, we should invest taxpayers' dollars to this end once, not twice."
He told SIFMA members that, as those who invest in the secondary market, they are uniquely positioned to contribute to policy discussions about the future of the housing finance system. There are many views and many important issues about access to credit and fair treatment for borrowers, and fostering a competitive primary and secondary mortgage market. But if we really are serious about expanding the private sector's role in housing finance, we must consider what types of changes are necessary to bring private capital back to the housing finance market.
The conservatorships of Fannie Mae and Freddie Mac were never intended to belong-term solutions. They were meant as a "time-out" as the market was eroding and a way to provide some stability while decisions were made about rebuilding the housing finance system. Today the government is involved in nine out of every ten mortgages so it is essential that the mortgage market transition to a more secure, sustainable, and competitive market.
DeMarco said that the country's regulatory infrastructure sets and enforces certain rules of the road; in part to ensure that fraud or poor business decisions don't create spillover costs for the system but also to add certainty and transparency; protect customers and promote access to credit. But the owners of private capital must make informed decisions about the allocation of resources to promote economic growth and prosperity.
"In the mortgage market, that means we need established rules by which everyone abides. But we also need competitive markets and market participants operating within those rules to ensure that credit is available to help families purchase homes and rent houses and apartments. A competitive private market system also ensures that such capital is efficiently allocated between housing and all other sectors."
Regardless of how the conservatorships are resolved, the Acting Director said, we know the nation will need a healthy and efficient secondary market and FHFA has set out to develop a framework that will serve the GSEs in the short term and have broad application in the future.
FHFA recently issued a white paper in which the development of a new infrastructure was divided into two components; the "physical" infrastructure or platform which comprises the technology that drives the existing secondary market operations and the "virtual" infrastructure, meaning the contractual provisions that govern secondary market transactions.
The Enterprises' outmoded proprietary infrastructures need to be updated and maintained, DeMarco said, and any such update should provide enhanced value to the mortgage market with a common and more efficient model. FHFA has undertaken this effort with the goal that it will have benefits beyond the GSE business model. Therefore, this new infrastructure must be operable across many platforms, so that it can be used by any issuer, servicer, agent, or other party that decides to participate.
In the white paper FHFA raised the issue of the platform's scope. The focus could be on functions that are routinely repeated across the secondary mortgage market, such as issuing securities, providing disclosures, paying investors, and disseminating data. Each is a function where standardization could have clear benefits to market participants. For example, if there is to be some type of federal guarantor of mortgage-backed securities, that guarantor will need these functions performed. Private-label mortgage-backed securities market might also benefit from such a utility. Providing standardization across key mortgage market functions should add depth and liquidity to the market.
The second component of the securitization infrastructure - the contractual framework - is governed in the current securitization model by the GSEs' Selling and Servicing Guides. These set forth the rules that sellers must follow to obtain the GSE guarantee and the rules for servicing mortgages, including the procedures that must be followed to address delinquent loan servicing.
The equivalent in the private-label securitization market is the Pooling and Servicing Agreement or PSA, a legal document that lays out the responsibilities and rights of the servicer, the trustee, and others over a pool of mortgage loans. While the PSA covers some of the same issues as the Guides, there has been more variation in the individual agreements. Variation in terms can lead to tailoring of transactions to meet particular investor requirements, but greater standardization in some areas could add more liquidity and more certainty to the market. In addition, as became evident during the financial crisis, the responsibilities of various parties in the PSA agreements may have made resolution of issues more difficult and added to the losses of many investors.
While the GSE's are working toward harmonizing requirements in their respective Seller and Servicing Guides, this is an optimal time to further consider how best to address contractual shortcomings identified during the past few years.
Some of the work already underwaywhich will fit into the various parts of a new infrastructure for housing finance are:
The Uniform Mortgage Data Program is improving the consistency, quality and uniformity of data gathered at origination and for servicing. Common data definitions, electronic data capture, and standardized data protocols will improve efficiency, lower costs, and enhance risk monitoring.
Settling on servicing standards will provide clarity on how troubled loans will be serviced and FHFA's Servicing Alignment Initiation produced a single set of protocols for both GSEs which may serve as a basis for national servicing standards.
FHFA's Joint Servicing Compensation Initiation is considering alternatives for future mortgage servicing compensation.
The Representation and Warranties framework long used by the GSEs did not work well under stress conditions so the GSEs have developed a new framework that will clarify lenders repurchase exposure and liability on deliveries after January 1.
The Loan-Level Disclosures announced last year will help establish consistency and quality of data for investors in Enterprise MBS.
DeMarco said that there is no simple path to rebuilding the country's housing finance system and there are still many fundamental questions about the end state of housing finance reform. There are also difficult transition issues to consider and FHFA is working to help pave that transition to whatever end state policymakers ultimately choose.
One step is to contract the GSE operations. To that end, FHFA isincreasing guarantee fees and pursuing initiatives with the potential to transfer some credit risk to the private sector, a goal that most policymakers seem to agree with. While FHFA will continue to work in this area, if policymakers are serious about limiting the government's role, more direct action may be needed to have significant near-term effects.
The most fundamental question in considering the end game for housing finance reform is what, and how big, should the role of the federal government be? This, DeMarco said, is clearly where there are diverging policy and political views, but stakeholders must start to think through this process.
Perhaps it will be easier to break this question up into component parts, not to suggest a particular legislative strategy, but rather a defined ordering of how to think about housing finance reform.
One potential place to start is what the role of the traditional government mortgage guarantee programs, like the Federal Housing Administration or FHA, should be. If FHA's role in the future is defined in terms of which borrowers would have access to this program, then it should be easier to look at the rest of the market and consider questions like:
"What is the capability and capacity of private market participants to intermediate credit for single-family housing? What functions are necessary to have an efficient market?"
"How should standards be established and updated in the market to enhance efficiency, risk assessments, and liquidity, thereby lowering costs to borrowers and investors alike?"
"Where do we think the market system requires prudential government oversight or limits? Have we ensured that any oversight or limits act to foster, not inhibit, competition, including fostering the full participation of small and mid-sized firms in the mortgage market?"
"Are there remaining public policy concerns about potential market failures and, if so, are those concerns about market stability and liquidity or about social policy goals regarding homeownership?"