Executive Intelligence Review

April 6, 2016 (EIRNS) -- Minnesota Federal Reserve President Neel Kashkari, interviewed adversarily by CNBC-TV anchors April 6, repeated his assertion that the Dodd-Frank Act had done no good in preventing another full bank crash and huge bailout; and again spoke of breaking up the Wall Street banks as a potential solution. Kashkari's intervention came at the same moment that the anti-Wall Street Sen. Bernie Sanders completed his seventh primary victory over Hillary Clinton in the past eight states to vote. "The question is," Kashkari said, "in a stressed economic environment like a crisis when multiple banks are running into trouble at the same time, will we actually be able to haircut bond holders and creditors? I say the answer is no. And the reason is the contagion from one bank to another bank to another bank. No one yet has figured out how to solve that contagion risk. Dodd-Frank hasn't done it. The [`bail-in' idea] hasn't done it. We see it in Europe.... Those `contingent conversion' securities haven't added to stability. They've actually added to instability and uncertainty."

And asked why he hadn't brought up breaking up Wall Street banks in 2010, when he had just run the TARP bailout, Kashkari said he had, but, "What I'm saying, is, and what we in Minneapolis are saying, is, a bunch of these transformational solutions were taken off the table in 2010." That would be by Rep. Barney Frank, for Obama, on behalf of Wall Street.

Kashkari's April 4 hearing at the Minneapolis Fed Bank, on ending "too big to fail," featured Stanford economist Dr. Anaan Admati calling for the Fed to reject the Wall Street banks'
latest "living will" proposals -- "a charade," she said -- and then move to break these banks up by ordering them to sell off divisions and subsidiaries which threaten a crash.

Admati is correct that the Federal Reserve has the authority to determine that large banks' internal controls, including their "living wills," are not credible, and to order them to change their structure and sell off units. It has this authority as their "safety and soundness" regulator.

{EIR} Founding Editor and leading Hamiltonian economist Lyndon LaRouche gave this idea his qualified support, because the banks could be broken up quickly, and "the Federal Reserve could write off their bad assets through its discount window function."
The only way "breaking up" Wall Street leads to a productive credit system, LaRouche said, is that the vast majority of its speculative units be shut down entirely, and key to that is writing off all their worthless "assets."

LaRouche also noted the next Democratic debate, April 13 in New York, "could be some fun" with the Wall Street issue loose: "Hillary will try to defend inflation again, Wall Street inflation of all its worthless debt," he said.


PR Governor Announces Debt Moratorium; Praises `Patriotic, Courageous', Legislature

April 6, 2016 (EIRNS) -- Shortly after noon today,Puerto Rican Governor Alejandro Garcia Padilla signed into law the Puerto Rican Emergency Moratorium and Financial Rehabilitation Law, sent to him by the Legislative Assembly, allowing him to declare a fiscal emergency and a temporary moratorium on any part of the island's $72 billion debt he considers necessary, in order to preserve essential public services for the island's 3.5 million inhabitants. The moratorium will extend until Jan. 31 of 2017.

The reality is, Garcia Padilla said today, that Puerto Rico is insolvent. This legislation "provides us with the tools to address the highest priority of needs, providing essential services to our people without fear of retribution." It will also allow the government to address "in an orderly manner," the crisis at the Government Development Bank (GDB), the government's financing authority, which is close to insolvency and unable to meet a $422 million debt payment due May 1, or a subsequent $700 million one July 1. According to Associated Press, the bill would allow the bank to enter into receivership if necessary.

Governor Garcia criticized the U.S. Congress, which has moved at a glacial pace to produce draft legislation to address the island's crisis, and has mooted a proposal for a strict financial control board, which most Puerto Rican leaders flatly reject. For nine months, Garcia said, only the Puerto Rican people and their leaders have increased their efforts to propose solutions to put the island on the road to economic recovery. He thanked the Legislative Assembly's majority for responding with "courage to the patriotic call which difficult times have put before us."

Predictably, Puerto Rico's action has unleashed a wave of hysteria among bondholders--vulture funds especially--who are threatening lawsuits, warning of financial catastrophe, etc., especially since the moratorium includes General Obligation (GO) bonds whose payment is constitutionally guaranteed. One group of creditors holding $5 billion in GO bonds attacked the government for refusing its offer to restructure debt by extending principal payments and accept a new $700 million loan. Responding to that complaint, the {Financial Times} reported today, GDB president Melba Acosta warned that "incurring additional debt at a higher cost is not the answer to the Commonwealth's fiscal issues. Indeed, it is exactly that type of Wall Street solution that led us to the precipice we are now looking over."

`Trilateral' Economies Wait for the Crash

April 6, 2016 (EIRNS) -- The United States economy is clearly nearing zero economic growth again, the latest episode in President Obama's "recovery." The Atlanta Federal Reserve's April 5 estimate of GDP growth rate in the first quarter fell to 0.4% from 0.7% one week earlier, because of the very negative durable goods orders and business capital spending data released by the Commerce Dept. April 3. The "official" GDP figure hasn't come out yet, but most other forecasts are in the Atlanta Fed's range.

Meanwhile European economic growth is estimated at 0.4% in the same quarter, the same as in the last quarter of 2015. And Japan, filling out the `Trilateral' picture, will likely soon announce that it is officially back in recession yet again, with negative growth over the past six months.

The U.S. Commerce Dept. reported April 4 that in February, factory orders fell broadly in the U.S. economy: transportation equipment down 6.25; machmachinery down 3.4; electrical equipment, appliances and components down 6.85 percent. Overall factory orders fell 1.7%. Some 14 months of the last 17 have seen a month-to-month drop, and orders have been down relative to the previous year, for 16 straight months.

Orders for non-defense capital goods excluding aircraft -- the measure of business capital investment -- fell by a steeper 2.5% in February.

Combined with the steady fall in manufacturing employment since mid-2015, which accelerated in March to a loss of 41,000 manufacturing and transport jobs -- centered in the durable goods industries -- it is clear that Obama's "manufacturing recovery" has become its opposite.

Not surprising, then, is a new study by Princeton and Harvard economists on what has become known as the American "gig economy." After barely changing between 1995 and 2005, the share of American workers in "alternative work arrangements" -- temps, contract labor, "on-call" workers, etc. -- jumped from 10.1% in 2005 to 15.8% in 2015. As economists Katz and Krueger wrote, "All of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements."

That is the significant finding; the total share of people working, who do not have full-time employment -- or if they do, are temporary, without benefits or severance rights -- is at least 40% according to other studies. "Alternative" in this study was narrowly defined, not to include either part-time workers or those who are self-employed freelancers -- but it is still rising fast.

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Executive Intelligence Review