Monday, April 18, 2011

Today's links

1--Q4 2010: Mortgage Equity Withdrawal strongly negative, Calculated Risk

Excerpt: For Q4 2010, the Net Equity Extraction was minus $77 billion, or a negative 2.7% of Disposable Personal Income (DPI). This is not seasonally adjusted.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.

The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding declined sharply in Q4. Mortgage debt has declined by $550 billion over the last eleven quarters. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance. Note: most homeowners pay down their principal a little each month unless they have an IO or Neg AM loan, so with no new borrowing, equity extraction would always be slightly negative.

2-- CDC Study Finds Suicide Rates Rise and Fall with Economy, Calculated Risk

The overall suicide rate rises and falls in connection with the economy, according to a Centers for Disease Control and Prevention study released online today by the American Journal of Public Health. The study, "Impact of Business Cycles on the U.S. Suicide Rates, 1928–2007" is the first to examine the relationships between age-specific suicide rates and business cycles. The study found the strongest association between business cycles and suicide among people in prime working ages, 25-64 years old.

• The overall suicide rate generally rose in recessions like the Great Depression (1929-1933), the end of the New Deal (1937-1938), the Oil Crisis (1973-1975), and the Double-Dip Recession (1980-1982) and fell in expansions like the WWII period (1939-1945) and the longest expansion period (1991-2001) in which the economy experienced fast growth and low unemployment.

• The largest increase in the overall suicide rate occurred in the Great Depression (1929-1933)—it surged from 18.0 in 1928 to 22.1 (all-time high) in 1932 (the last full year in the Great Depression)—a record increase of 22.8% in any four-year period in history. It fell to the lowest point in 2000.

3--China's bad growth bet, Nouriel Roubini, Project Syndicate

Excerpt: China’s economy is overheating now, but, over time, its current overinvestment will prove deflationary both domestically and globally. Once increasing fixed investment becomes impossible – most likely after 2013 – China is poised for a sharp slowdown. Instead of focusing on securing a soft landing today, Chinese policymakers should be worrying about the brick wall that economic growth may hit in the second half of the quinquennium.

Despite the rhetoric of the new Five-Year Plan – which, like the previous one, aims to increase the share of consumption in GDP – the path of least resistance is the status quo. The new plan’s details reveal continued reliance on investment, including public housing, to support growth, rather than faster currency appreciation, substantial fiscal transfers to households, taxation and/or privatization of state-owned enterprises (SOEs), liberalization of the household registration (hukou) system, or an easing of financial repression.

China has grown for the last few decades on the back of export-led industrialization and a weak currency, which have resulted in high corporate and household savings rates and reliance on net exports and fixed investment (infrastructure, real estate, and industrial capacity for import-competing and export sectors). When net exports collapsed in 2008-2009 from 11% of GDP to 5%, China’s leader reacted by further increasing the fixed-investment share of GDP from 42% to 47%.

4--Who’s Serious Now?, Paul Krugman, New York Times via Economist's View

Excerpt: Paul Ryan, the chairman of the House Budget Committee, ... unveiled his budget proposal, and the initial reaction of much of the punditocracy was best summed up (sarcastically) by the blogger John Cole: “The plan is bold! It is serious! It took courage! It re-frames the debate! The ball is in Obama’s court! Very wonky! It is a game-changer! Did I mention it is serious?”

Then people who actually understand budget numbers went to work, and it became clear that the proposal wasn’t serious at all. In fact, it was a sick joke. The only real things in it were savage cuts in aid to the needy and the uninsured, huge tax cuts for corporations and the rich, and Medicare privatization. All the alleged cost savings were pure fantasy. ...

On Wednesday, as I said, the president called Mr. Ryan’s bluff: after offering a spirited (and reassuring) defense of social insurance, he declared, “There’s nothing serious about a plan that claims to reduce the deficit by spending a trillion dollars on tax cuts for millionaires and billionaires. And I don’t think there’s anything courageous about asking for sacrifice from those who can least afford it and don’t have any clout on Capitol Hill.” Actually, the Ryan plan calls for $2.9 trillion in tax cuts...

5--Insincerely Yours, Paul Krugman, New York Times

Excerpt: Republicans are deeply, sincerely concerned about the budget deficit. That’s why, in unveiling their plan last week, they declared themselves willing to give ground on their traditional priorities, signaling a willingness to accept higher taxes on the wealthy and reduced defense spending as part of a deficit-reduction deal.

Oh, wait. You mean they didn’t do anything like that? You mean that even while warning about an imminent fiscal crisis, they actually tried to cut taxes on the rich to their lowest level since 1931?

Why, you might actually think that they’re not sincerely concerned about the deficit. But that can’t be true, since they keep saying that they are.

OK, you get the point. It’s truly amazing that so many commentators — people who presumably know something about the relationship or lack thereof between what politicians say and what they do — are willing to accept at face value claims of deep, sincere concern about the deficit from people whose actual priorities are demonstrated by their absolute unwillingness to sacrifice anything they want in the name of deficit reduction.

Atrios likes to say that nobody cares about the deficit. Basically, that’s right.

Look, we’ve been here before. The obvious parallel in my mind is what happened after 9/11, when more or less the same people declared themselves totally focused on fighting terrorism — but unwilling to give up anything they wanted, and in fact eagerly using the terrorist threat as an excuse to grab even more goodies. I mean, within 48 hours of the attack Congressional Republicans were preparing their response: a cut in the capital gains tax; in the immediate aftermath, the Bush administration fought hard to keep airport security in private hands. Somehow, responding to terrorism only involved doing things the administration wanted to do anyway: invading Iraq, torturing people, tapping our phones, etc..

For what it’s worth, Obama is actually offering to make some sacrifices on the budget; call it political positioning if you like, but that’s infinitely more than his opponents are doing.

So it’s easy to be completely cynical about self-proclaimed deficit hawks — and the cynicism is totally justified. There’s no sincerity here.

6--How nuclear apologists mislead the world over radiation, Helen Caldicott, The Guardian

Excerpt: Mr Monbiot, who is a journalist not a scientist, appears unaware of the difference between external and internal radiation

Let me educate him.

The former is what populations were exposed to when the atomic bombs were detonated over Hiroshima and Nagasaki in 1945; their profound and on-going medical effects are well documented. [1]

Internal radiation, on the other hand, emanates from radioactive elements which enter the body by inhalation, ingestion, or skin absorption. Hazardous radionuclides such as iodine-131, caesium 137, and other isotopes currently being released in the sea and air around Fukushima bio-concentrate at each step of various food chains (for example into algae, crustaceans, small fish, bigger fish, then humans; or soil, grass, cow's meat and milk, then humans). [2] After they enter the body, these elements – called internal emitters – migrate to specific organs such as the thyroid, liver, bone, and brain, where they continuously irradiate small volumes of cells with high doses of alpha, beta and/or gamma radiation, and over many years, can induce uncontrolled cell replication – that is, cancer. Further, many of the nuclides remain radioactive in the environment for generations, and ultimately will cause increased incidences of cancer and genetic diseases over time.

The grave effects of internal emitters are of the most profound concern at Fukushima. It is inaccurate and misleading to use the term "acceptable levels of external radiation" in assessing internal radiation exposures. To do so, as Monbiot has done, is to propagate inaccuracies and to mislead the public worldwide (not to mention other journalists) who are seeking the truth about radiation's hazards.

7--Radioactive Human Embryos: Our Nuclear Legacy?, Truthout

Excerpt: We're now entering a more disturbing chapter of the nuclear disaster in Japan. Radiation is being detected in the atmosphere, rain water and food chain in North America. The official refrain, boldly repeated, is, "Not to worry, perfectly harmless, no health threat," even though the six Fukushima reactors contain thousands of times more radioactivity than the bomb dropped over Hiroshima. Some of our best scientists of the previous century would be rolling over in their graves......

Hermann Muller, another Nobel Prize winner, is one of many scientists who would not have been okay with that. In a 1964 study, "Radiation and Heredity" [6], Mueller clearly spelled out the genetic damage of ionizing radiation on humans. He predicted the gradual reduction of the survival of the human species as exposure to ionizing radiation steadily increased. Indeed, sperm counts, sperm viability and fertility rates worldwide have been dropping for decades.

These scientists and their warnings have never been refuted, but they are still widely ignored. Their message is very clear - virtually every human on earth carries with them the nuclear legacy, a genetic footprint contaminated by the cold war, Three Mile Island, Chernobyl, the 400-plus nuclear power plants that have not melted down and, now, Fukushima. The risk to the future of humanity is unparalleled and so tragically unnecessary.

8--Food prices: World Bank warns millions face poverty, BBC

Excerpt: The World Bank has warned that rising food prices, driven partly by rising fuel costs, are pushing millions of people into extreme poverty.

World food prices are 36% above levels of a year ago, driven by problems in the Middle East and North Africa, and remain volatile, the bank said. That has pushed 44 million people into poverty since last June. A further 10% rise would push 10m more below the extreme poverty line of $1.25 (76p) a day, the bank said.

And it warned that a 30% cost hike in the price of staples could lead to 34 million more poor. The World Bank estimates there are about 1.2 billion people living on less than $1.25 a day.

"More poor people are suffering and more people could become poor because of high and volatile food prices," said World Bank president Robert Zoellick.

9--Banks facing $3.6 trillion 'wall of maturing debt', IMF Global Financial Stability Report says, UK Telegraph

Excerpt: Debt-laden banks are the biggest threat to global financial stability and they must refinance a $3.6 trillion "wall of maturing debt" which comes due in the next two years, the International Monetary Fund said in its Global Financial Stability Report.

Many European banks need bigger capital cushions to restore market confidence and help reduce the risk of another financial crisis, according to the IMF's report, published on Wednesday.

Banks around the world are facing a $3.6 trillion "wall of maturing debt" coming due in the next two years, and the rollover requirements are most acute for Irish and German banks, the report said.

"These bank funding needs coincide with higher sovereign refinancing requirements, heightening competition for scarce funding resources," the IMF said.

10--Pain of British Fiscal Cuts Could Inform U.S. Debate, Landon Thomas Jr., New York Times

Excerpt: In the United States, the debate over how to cut the long-term budget deficit is just getting under way. Retail sales plunged 3.5 percent in March, the sharpest monthly downturn in Britain in 15 years. And a new report by the Center for Economic and Business Research, an independent research group based here, forecasts that real household income will fall by 2 percent this year. That would make Britain’s income squeeze the worst for two consecutive years since the 1930s....

While severe in its approach to spending cuts, the British plan lacks the stark sweep of the Republican proposal. Britons will certainly feel pain at the local government level as money dries up for care of the elderly, youth programs and trash collection. But icons like the National Health Service have largely been spared. Other notable differences suggest that even Europe’s most conservative party is markedly to the left of the mainstream Republican position in the United States, and in some ways is more liberal than the position Mr. Obama has taken....

But in Britain, the big worry now is not tax rates. Instead, the fear is that Mr. Osborne’s emphasis on cuts in social spending — which aim to achieve an approximate budget surplus by 2015 and are likely to result in the loss of more than 300,000 government jobs — might tip the economy back into recession. Already the government has had to slash its growth estimate to 1.7 percent, from 2.4 percent, for this year, as consumer incomes are under pressure from high inflation, weak wage growth and stagnant economic activity. "My view is that we are in serious danger of a double-dip recession," said Richard Portes, an economist at the London Business School. "This is going to be a cautionary tale."...

Mr. Ryan, on the other hand, proposes to slash spending by $5.8 trillion but — in contrast to the British approach — would allow most of the spending reductions to be offset by $4.2 trillion in tax cuts, rather than applied to closing the deficit gap. In other words, while Mr. Ryan would lean heavily on spending cuts to close the deficit, he also hopes to spur the sort of supply-side economic growth most often discussed when Ronald Reagan was in the White House.

11--CPI, Angry Bear

Excerpt: A 1.5% annual increase in the core CPI would be well within the Fed's implied target of 2% core inflation. To but this in perspective, from 1965 to 2008 the core CPI never fell below 2%.

In the short run, however rising inflation is creating problems for the consumer. In March the year over year change in real average hourly earnings fell to -1.0% and real weekly wage growth turned negative. This weakness in real wages is showing up in the economic data.

For example, in March nominal retail sales rose 0.4%. But most of this was gasoline and excluding service station sales, nominal retail sales only rose 0.1%. This CPI report strongly implies that real retail sales actually fell in March.

This means that in the first quarter real consumer spending is ending on a very weak note -- one reason forecasters were optimistic about first quarter growth three months age was that the fourth quarter ended on a strong note. Moreover, the second quarter will be when the biggest impact of the disruptions to the supply chain from the Japanese disaster will occur. So the standard thinking that growth will rebound in the second quarter is questionable.

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