Wednesday, December 8, 2010

Today's Links

1--Obama Rips the Left Despite Widespread Criticism,

Excerpt: President Obama mocked liberal allies today for their “sanctimonious” opposition to what he claims is the best tax cut deal he can wrangle from GOP “hostage-takers.”....

The President found himself on familiar ground, going on the defensive with Democrats a day after announcing a “framework” deal with Republicans for extending across the board tax cuts and continuing emergency unemployment checks for 13 months.

In defending a compromise that temporarily gives up his campaign pledge to torpedo tax breaks for the wealthiest Americans, Obama was indirectly rebuking outraged Democratic liberals who say he’s caved to the GOP and abandoned his campaign pledge to rein in the rich.

The opposition appeared to be broader than just the left wing of Obama’s splintering party. From the liberal diva House Speaker Nancy Pelosi to centrist Democrats like Louisiana Sen. Mary Landrieu, Obama is under fire for what detractors say is botched deal with more give-aways for Republicans than concessions from the GOP.

“I’m going to argue forcefully for the nonsensicalness and the almost, you know, moral corruptness of that particular policy,” said Landrieu, ahead of a meeting of Senate Democrats, where Vice President Biden tried to sell his brethren on the tax cut deal . “This is beyond politics. This is about justice and doing what’s right.”’

2--Dr. Doom Predicts Another $1 Trillion in Housing Losses, New York Times

Excerpt: The country’s real estate problems are “underappreciated,” and banks could face another $1 trillion in housing-related losses, Mr. Roubini said in a phone interview with DealBook on Monday. At the same time, he played down the issues in Ireland, Greece, Portugal and Spain, calling the matter “contained” for now.

The United States “real estate market, for sure, is double dipping,” Mr. Roubini said. “The apparent increase in prices has been fully reversed, demand is falling, and supply is going to increase.”

The drumbeat of bad news grows louder. Sales of existing homes fell more than expected in October, down 2.2 percent to an annual rate of 4.43 million, the lowest level in more than a decade, according to the National Association of Realtors. After rising in the second quarter, Standard & Poor’s Case-Schiller home price index fell 2 percent in the third quarter....

Mr. Roubini said he was particularly focused on a recent study by Laurie Goodman, a senior managing director of Amherst Securities and a former co-head of fixed income research for UBS. In her October report, “The Housing Crisis — Sizing the Problem, Proposing Solutions,” Ms. Goodman comes to the dark conclusion that more than 11 million borrowers are in danger of losing their homes, or roughly one out of five borrowers.

3--More Auto Loans Going To Subprime Buyers, Huffington Post

Excerpt: Consumers with less than stellar credit are getting car loans again as lenders loosen their standards, and the trend is likely to continue as more lenders get into the business.

The percentage of loans going to subprime buyers rose 8 percent in the third quarter, their first year-over-year increase since 2007, according to a report issued Tuesday by Experian, a credit reporting agency. For new cars, the percentage of loans going to subprime buyers rose 13 percent over the July-September period in 2009. The increase for used cars was 3 percent....

Another sign that the credit market is thawing: The loans people are getting are covering larger amounts and have longer terms. The average amount financed for new cars rose $2,530, to $25,273, over the third quarter of last year, while the average amount financed for used cars grew $977 to $16,706. The average terms rose by about a month, although the lowest tier buyers – those with scores of 550 or less – saw their terms rise by nearly four months.

Zabritski said the loosening in auto lending is likely to continue to grow in the near term. On Oct. 1, General Motors Co. finalized its purchase of AmeriCredit Inc., a Texas-based company that specializes in subprime lenders and has a $9 billion portfolio of subprime loans...Banks and auto financing companies feel they can afford to take bigger risks because consumers are being more cautious with their money and savings rates are up. The percentage of loans that were delinquent for 30 days fell 8 percent in the third quarter, to 3 percent, while the percentage of loans delinquent for 60 days fell 17 percent, to less than 1 percent.

4--China's credit bubble on borrowed time as inflation bites, Ambrose-Evans Pritchard, Telegraph

Excerpt: The Royal Bank of Scotland has advised clients to take out protection against the risk of a sovereign default by China as one of its top trade trades for 2011. This is a new twist...

Officially, inflation was 4.4pc in October, and may reach 5pc in November, but it is to hard find anybody in China who believes it is that low. Vegetables have risen 20pc in a month. ...

Diana Choyleva from Lombard Street Research said the money supply rose at a 40pc rate in 2009 and the first half of 2010 as Beijing stoked an epic credit boom to keep uber-growth alive, but the costs of this policy now outweigh the benefits.

The economy is entering the ugly quadrant of cycle – stagflation – where credit-pumping leaks into speculation and price spirals, even as growth slows....

The froth is going into property. Experts argue heatedly over whether or not China has managed to outdo America’s subprime bubble, or even match the Tokyo frenzy of late 1980s. The IMF straddles the two...."I remain convinced we are witnessing a bubble of epic proportions which will burst – catching investors as unawares as the bursting of the Asian bubbles of the mid-1990s. Ignore these indicators at your peril," he said

5--Ireland: All groups take hit in Budget, Irish Times

Excerpt: Most workers face substantial tax increases, while social welfare recipients will have their benefits cut as part of the €6 billion adjustment announced in the Budget yesterday by Minister for Finance Brian Lenihan.

The wide-ranging tax changes in the Budget will bring some lower-paid workers into the tax net for the first time and will hit every income group up to the top earners....

Cuts in the childcare allowance and increases in third-level college registration fees will impact on a wide range of families.

A middle-income family stands to lose as much as €300 a month. A couple with three children and a household income of €75,000 who contribute €4,500 to their pension pot annually will see their net income fall by €1,815, or €151.25 a month.

They will lose a further €40 a month in reduced children’s allowance payments. If they have one child in university, one in secondary school and one in primary school, a combination of increased registration fees and transportation levies will see their net monthly income fall by an additional €75 a month.

Pensioners are one of the few groups to remain unscathed, with no change in the State pension, but those on public service pensions of over €12,000 will also be subject to cuts. The unemployed will have a cut of €8 a week in their benefits, while a similar cut will also apply to the carer’s and disability allowance....Excise duty on petrol went up by 4 cent a litre and there was a 2 cent increase in diesel....

We welcome approval of the 2011 budget by the Irish parliament," an IMF spokesman said. "This is a clear sign of Ireland's strong commitment to tackle its problems and harness the impressive growth potential of this open and dynamic economy."

6--Tax cuts, Oprah-style, Felix Salmon, Reuters

Excerpt: The outlines of the tax-cut negotiations have finally come into focus: basically, it’s a kitchen-sink approach where Republicans and Democrats all get the tax cuts they want. The Bush tax cuts get extended for people earning more than $250,000 a year — and unemployment insurance gets extended, along with various tax credits. On top of that, there’s a 2% cut in payroll taxes, and the reintroduction of the estate tax at the Republicans’ preferred level: 35% of estates over $5 million. There’s even a nice new tax deduction for businesses making new investments. This is tax cutting, Oprah-style: you get a tax cut! And you get a tax cut! And you! And you! You all get a tax cut!

This is clearly a win for the Republicans, who get everything they want for the rich. ... Meanwhile, all the Congressional opposition to this deal is going to come from Democrats, who are basically being asked to sign off on exactly the same bill that George W Bush would have asked for, with a spoonful of unemployment-benefit sugar to help the medicine go down. ...

7-- After stimulus, construction industry seeing private-sector and state projects drying up, by Annys Shin, Washington Post (hat tip to Economist's View)

Excerpt: The end of the stimulus - the $787 billion that Washington approved last year in an effort to forestall another Great Depression - is more than a year away. But for ... thousands of other workers in the road construction industry, it has already arrived.

Road construction workers were among the first to benefit from the 2009 American Reinvestment and Recovery Act, which pumped hundreds of millions of dollars into "shovel-ready" road resurfacing projects in order to save or create millions of jobs.

The bulk of highway-related work will be done within a year...

Without the stimulus, thousands of workers who build and maintain America's roadways could soon join the 1.6 million construction workers who are unemployed. The construction industry lost an additional 5,000 jobs in November, the latest U.S. Labor Department data show, bringing the sector's unemployment rate to 18.8 percent...

8--Slowest Price Increases Since 1981, Wall Street Journal

Excerpt: Price increases are decelerating at the greatest pace in nearly 30 years, a paper from the Federal Reserve Bank of San Francisco said....

“The relatively high level of disinflationary pressure is concentrated in the goods and services that make up core inflation,” the economists wrote. “Over a sixth of consumer spending is on goods and services for which prices are declining, while three-fourths is on goods and services for which inflation has slowed,” the paper noted. The paper said as of October, half of consumer spending had been devoted to items whose inflation rate had dropped by 1.2% or more....

The economy’s disinflationary trajectory is the biggest since 1981....The current episode is more problematic because it is tied to developments in the economy itself. What’s more, the disinflationary trend has deepened despite an extremely aggressive stimulus campaign from the Fed, including nearly two years of zero-percent interest rates, joined with massive purchases of mortgage and government bonds.

Policy makers are decidedly worried that the current price environment could give way to their nightmare scenario: outright deflation. While some economists believe a little bit of deflation is benign, most in the profession agree with central bankers and think it is a damaging situation. They believe deflation depresses demand and makes debts harder to repay–which is pernicious in an economy that is already only managing weak growth, as many look to reduce high debt loads.

9--China risks inflation with dollar peg, Bloomberg

Excerpt: China’s reluctance to allow a stronger exchange rate has hamstrung its efforts to rein in inflation and endangered a campaign to shift the economy toward domestic demand.

The central bank continues to add liquidity, with money supply rising 19 percent in November from a year ago, according to the median estimate of 29 analysts in a Bloomberg News survey before a government release this month. That needs to be curbed to 15 percent to 16 percent to rein in inflation, said Fred Hu, the former Goldman Sachs Group Inc. chief China economist who has founded financial advisory firm Primavera Capital Group.

China has held off executing a series of interest-rate increases in part because that would put pressure on a currency officials have kept down to shelter exports. The strategy will leave inflation accelerating past 4 percent for 2011, a three- year high, according to a separate survey. The cost: diminished consumer spending and narrower margins for domestic industries.

“China is behind the curve” on reining in the monetary measures adopted during the global financial crisis, said Hu, 47, who is based in Beijing and gives talks to Communist Party members on the economy. “Policy makers have been complacent and failed to anticipate the inflationary consequences of the massive stimulus program.”

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