Friday, June 10, 2011

Weekend links

1--America at tipping point, Shiller warns, Financial post

Excerpt: Recent housing and employment data suggests the U.S. economy is at a tipping point where a double-dip recession is possible and home prices could have much further to fall, a veteran economist said Thursday.

Robert Shiller said the recent uptick in unemployment is not yet enough of a sign as to which way the recovery is heading. But if unemployment continues to rise in the coming months, it could suggest another recession.

“Whether we call it a double-dip or not, I think there is a risk,” Shiller told Reuters Insider in an interview.

Likewise, data showing U.S. home prices fell into a double dip in March could prove to be either a seasonal effect over the winter months or part of a downward trend.

“My gut feeling is we might see a continuation of the decline” in home prices, Shiller said earlier Thursday at a Standard & Poor’s housing summit.

He added that a 10% to 25% slump in real home prices “wouldn’t surprise me at all,” though he cautioned that was not a forecast.

Shiller pointed to the glut of unsold homes on the market and the large amount of homeowners under water on their mortgages as pressuring prices. As for when home prices might bottom, Shiller told Insider that was unclear and it was possible prices could slide for 20 years.

“We’ve seen five years of decline already since the peak in 2006 and I don’t see evidence that we’re coming out of it,” he said.

2--Bank lending continues to fall, MSNBC

Excerpt: Recent reports from the Federal Deposit Insurance Corp., which insures bank deposits and manages failing banks, show that bank lending declined again in the first quarter of this year. Since June 2008, the volume of loans outstanding has fallen in 10 of 11 quarters, and the only reason it grew during the first quarter last year was an accounting change.

All told, total bank lending has declined nearly 9 percent since March 2008, according to analysis by the Investigative Reporting Workshop at American University, done in partnership with

The FDIC said that last quarter’s decrease was the fifth largest quarterly decline since it began tracking the numbers 28 years ago....

Home loans, unsurprisingly, are down 13.5 percent in the past three years. Loans to businesses are off by 18.5 percent.

By far the biggest decline has been in loans for real estate construction and development. Lending in that category has fallen by more than half, and builders and developers are having a hard time finding money to back their projects.

"Basically, it's been bad, and it's stayed at bad," says Michelle Hamecs, assistant vice president for housing finance at the National Association of Home Builders....

“We're also seeing the case, too, where lenders are bumping up against their 100 percent of capital requirement on construction loans (and) examiners are telling them not to make any more construction and development loans,” Hamecs says. “In that case, loans are being pulled; loans are just not being made.”

3--America's own 'Lost Decade', CNN Money

Excerpt: Many experts say private debt owed by households, as well as businesses, is an even bigger problem than the government debt that's getting so much attention lately. And it won't be solved without a difficult stretch of high unemployment and slow growth that will likely last for six or seven more years, producing America's own version of Japan's "Lost Decade."

"I think it's one of the major headwinds we're fighting against right now," said David Wyss, a visiting fellow at Brown University and former chief economist at Standard & Poor's.

Following a real estate bust that hit Japan in the 1990s, the economy fell into a prolonged period of economic stagnation that lasted for years and became known as the country's 'Lost Decade.'

In the U.S., the situation is shaping up to be similarly stubborn.
0:00 / 05:41 Whitney: States fall into leverage pit

"I think we're in for a lot of disappointment," said Carmen Reinhart, a senior fellow at the Peterson Institute for International Economics and a leading expert on financial crises. "If historic norms hold, deleveraging isn't pretty, and it is not a smooth process. We're already four years into this. I don't think the next six years look great."

The bubble economy that led to the recession was fueled by American consumers, businesses and banks taking on too much debt, particularly in real estate, during the decade before the crisis.

Total private sector debt -- held by consumers and businesses combined -- peaked at 283% of gross domestic product in early 2008 -- nearly three times the size of the entire economy.

The good news is that since the recession, consumers have been paying off debt and saving more. Private debt fell to 234% by the end of last year, though much of that decline resulted from bad mortgage debt shifting from banks to the government through the bailout of mortgage finance giants Fannie Mae and Freddie Mac, Reinhart said.

4--30% Of People With A 401(k) Have Taken Out A Loan Against It: New All Time Record, Zero Hedge

Excerpt: About a year ago Zero Hedge posted an article titled: "Record Number Of Americans Using Retirement Funds As Source Of Immediate Cash" after a report by Fidelity uncovered that "plan participants with loans outstanding against their 401(k) accounts had reached 22 percent versus 20 percent a year earlier." It is now time to revisit this very important topic because if recent press reports are true, last year's record number has just increased by another 50%. "On "The Early Show" Thursday, financial journalist and Newsweek columnist Joanne Lipman said, "Right now we have 30 percent of people who have 401(k)s have loans against their 401(k)s, which is a historic high. And the problem is, it's growing like crazy: By 2014, we're expecting to see 30 million people take loans against their 401(k)s." The raiding of the last ditch piggybank is on, and who can blame them?

5-- Household Worth in U.S. Rises $943 Billion as Stocks Outstrip Home Values, Bloomberg (Flow of Funds report)

Excerpt: Since reaching a five-year low of $49.4 trillion in the first quarter of 2009, net worth has improved by $8.7 trillion. That still leaves it $7.7 trillion below the record high of $65.8 trillion reached in the quarter ended June 2007, six months before the recession began.
Corporate Cash

Companies had a record $1.91 trillion in cash and other liquid assets at the end of the first quarter, the report also showed, up from $1.86 trillion in the prior three months. Six consecutive quarters of profit growth helped fuel a 96 percent jump in the Standard & Poor’s 500 Index from its recession-low in March 2009 through March 2011.

The value of financial assets, including stocks and pension fund holdings, held by American households increased by $1.16 trillion in the first quarter, today’s report showed, as the Fed’s planned purchases of $600 billion in Treasuries through June continued to push investors into riskier assets.

The value of real estate fell by $298.5 billion following the prior quarter’s $84.4 billion drop.

6--Washington Post-ABC News Poll, The Big Picture

Excerpt: Seems to me that Mr. Gross is a little out of touch with the American public (emphasis mine): ”By 2 to 1, Americans say the country is pretty seriously on the wrong track, and nine in 10 continue to rate the economy in negative terms. Nearly six in 10 say the economy has not started to recover, regardless of what official statistics may say, and most of those who say it has improved rate the recovery as weak.” I believe the majority of Americans view ours right now as a “moribund, dead, lost-decade kind of economy.” And the numbers of late support that assessment.

7--Bearish sentiment surges, Pragmatic Capitalism

Excerpt: Bearish sentiment, expectations that stock prices will fall over the next six months, surged 14.2 percentage points to 47.7%. This is the highest level of pessimism since August 26, 2010. Bearish sentiment has now been above its historical average of 30% for 15 out of the last 16 weeks.

The continued decline in stock prices, combined with the weak May jobs data and ongoing gridlock in Washington, have frayed individual investors’ nerves. As a result, bearish sentiment is at historically high levels. On a statistical basis, this week’s reading is close to being an outlier. (Two standard deviations above the historical mean is 50.7%.) The spread between bullish and bearish sentiment is also unusually negative at -23.3%.

This week’s AAII Sentiment Survey:

* Bullish: 24.4%, down 5.8 percentage points
* Neutral: 27.9%, down 8.5 percentage points
* Bearish: 47.7%, up 14.2 percentage points

8--The Penalty for Default, the Payoff to Austerity, Paul Krugman, New York Times

Excerpt: The credit default swap (CDS) for the Icelandic state has now dropped to 200 points and has not been lower since many months before the banking collapse in October 2008. The CDS has been in constant decline since January and indicates growing faith in Iceland’s economy.

Meanwhile, the CDS spread for Ireland is 683 basis points.

Why, it’s almost as if defaulting on debts run up by runaway bankers and letting your currency depreciate works better — even from the point of view of investors — than socializing private-sector losses and grimly sticking with a fixed exchange rate.

9--Is China imploding? Naked Capitalism

Excerpt: The Wall Street Journal describes the broader ramifications:

Real estate is a foundation of China’s phenomenal growth record in the past two decades, and its health is crucial to China’s construction, steel and cement sectors. Real estate is also a favored investment of Chinese looking to get better returns than bank deposits pay. Local municipalities and provinces depend on rising prices for land sales as well to fund infrastructure projects….

If the Chinese housing market slows faster than people had expected, the impact would be felt in a number of markets that export heavily to China. Many Latin American and African economies have shifted their focus toward Chinese demand for their raw materials, and many Western firms, including U.S. retailers and fast-food chains, now bank on Chinese consumers feeling wealthier to make up for stagnating sales elsewhere. Also, plans by local Chinese governments to improve infrastructure loom large for heavy-equipment makers like Caterpillar Inc.

And this development comes on top of other signs of economic slowdown:
Last week, two surveys of purchasing managers showed a slowing of manufacturing activity.

China, the world’s second-largest economy after the U.S., grew at 9.7% in the first quarter from a year earlier. In late May, Goldman Sachs lowered its estimate of Chinese second-quarter growth to 8% from its previous estimate of 8.8% as the government continues to tighten monetary policy to fight inflation and import demand from the U.S. weakens.UBS economist Tao Wang says she thinks the price decline will be short-lived as Chinese investors, with few other options, will again pour money into real estate and as local governments push up the price of land they sell to developers. Real-estate prices will rise for another three to five years, she estimates. A sharp fall then would batter investors, banks, construction firms and other sectors.

In other words, when this party ends, it’s likely to get pretty ugly.

10--New Cracks in Oil Cartel, Wall Street Journal

Excerpt: An acrimonious OPEC meeting failed to produce an agreement to increase oil production despite tight supplies and rising prices, bringing to the fore long-simmering divisions between key cartel players Saudi Arabia and Iran and calling into question the group's ability to influence oil prices.

The Organization of Petroleum Exporting Countries' first meeting since the start of pro-democracy movements in the Middle East also turned out to be one of its most turbulent sessions in years.

Tensions spilled into the open as solemn-looking delegates filed out of OPEC's modern headquarters and Saudi oil minister Ali Naimi declared it "one of the worst meetings we ever had."

In the wake of the failure to reach agreement, people familiar with the matter said the Saudis are now likely to unilaterally increase their own production by up to one million barrels a day, which would put them well above their stated quota of eight million barrels a day.

A group led by Saudi Arabia pushed hard for an actual increase in oil production of 1.5 million barrels a day, which would have brought OPEC's total production to 30.3 million barrels a day, roughly a third of world supplies....

Jay Carney, a spokesman for President Barack Obama, said the White House is considering opening the country's strategic petroleum reserves. "He's looking at a lot of options," Mr. Carney said. "We believe we are in a situation where supply is not reaching demand," a situation he attributed partly to the conflict in Libya.

The stalemate represents one of the most intense fractures in years within the 12-member cartel. The Saudi push to boost production was backed by Kuwait, Qatar and the United Arab Emirates, which cited OPEC's own projections showing an increase in demand for the group's crude in the second half of this year.

They were overruled by six members—Iran, Algeria, Angola, Venezuela, Ecuador and Libya. Delegates for those countries said the official reasons for the veto centered on questions about the resilience of oil demand in the face of weak economic data out of the U.S. and credit-tightening measures in China. Iraq and Nigeria were silent on the issue.

11--Hour by Hour, a Measure of Economic Stress, New York Times

Excerpt: Ben S. Bernanke, the Federal Reserve chairman, highlighted a relatively obscure measure of economic health, “aggregate hours of production workers,” to make the important point that our economy is not very healthy at all.

The name pretty much explains the statistic: It measures the total number of hours that Americans are paid to work in production jobs, which make up 80 percent of all jobs.

Why not take the measure of all jobs? Well, the Bureau of Labor Statistics has done just that since 2006, and the numbers show a similar decline, but it has tracked production hours since 1964, allowing comparisons with other recessions.

The comparisons, as Mr. Bernanke noted Tuesday, are not good.

Paid hours “fell, remarkably, by nearly 10 percent from the beginning of the recent recession through October 2009,” he said. Moreover, after two years of renewed growth, paid hours remain about 6.5 percent below the prerecession peak.

“For comparison,” Mr. Bernanke continued, “the maximum decline in aggregate hours worked during the deep 1981-82 recession was less than 6 percent.” No other recession since 1964 has produced a comparable decline in hours worked.

The hours-worked data also highlights a shortcoming of the work-force statistics that garner more public attention, in particular the unemployment rate.

Those statistics basically treat all jobs as equal. But some people are working part-time or a few hours less each week or their employer has stopped authorizing overtime. They have a job but they are working fewer hours and making less money.

12--Wiping Out All of 2011's Gains!, Phil's stock world via zero hedge

Excerpt: S&P 1,260. That's the line we need to hold.

That's where we started the Year on January 3rd and we finished that day at 1,271, beginning a fine tradition of making almost all of our gains on the first day of the month.....

Notice that this trend became very disturbing at the same time Uncle Ben announced his fabulous QE2 plan that showered money on his fellow Banksters according to a nice, predictable schedule that allowed them to lever up their investments to inflate stocks and commodities, trapping index fund investors (especially the working poor who make monthly contributions to IRA and 401K accounts in a nice, predictable and controllable fashion). It's a simple plan, index fund managers get your pension money at the end of the month, they are required to buy baskets of stocks to balance their funds and that action can be manipulated by clever bankers who jack up the prices and then sell into the fake demand they created - effectively stealing tens of Billions each month out of the paychecks of working Americans. Just another one of those great crimes they commit where they steal a little bit of money from everyone, every day....

Since 1973, productivity is up 100% but the MEDIAN (not average) income for American Workers has fallen by 5% over that same period. Workers are, in fact, producing twice as much (- correction, ed.) for less wages. CEO pay during that same time-frame, has gone up 1,000%, with the average CEO earning 250 times as much money as the average production worker in his own company. Out of 310 Million people in this country just 135M of us have jobs yet we only consider 13.9M (of the people "in the labor force") to be unemployed and we are only paying benefits to 4M of those people. The rest are "discouraged workers," who don't count as they took to long to find jobs so we have written them off according to schedule.

13--We’re Halfway to a Lost Decade, Justin Wolfers, via Economist's View

Excerpt: ...Many people date the financial crisis as beginning when Lehman collapsed in September 2008. But the economy was already in recession. The NBER reckons the recession began in December 2007. But look closely, and you’ll see that it may have begun a year earlier. ... The point is more easily made with a simple graph: ...

The blue line is the usual measure of GDP, which is obtained by adding up total spending. When you read the newspapers, this is the number they report. But the Fed’s Jeremy Nailewaik has convincingly shown that red line—which is the sum of all income—is the more reliable measure. In theory the two lines should be identical—one person’s spending is another’s income—but in practice, the measurements differ....

The red line now shows five things...:

1. The slump began in late 2006. And indeed, we were hardly enjoying good times through early 2006.

2. It’s a big slump, and GDP per capita fell by over 7 percent.

3. We remain a long way below the previous peak.

4. It’s going to take a long while to return to where we were back in 2006. Most forecasters are expecting GDP to grow by around 3 percent, implying per-capita growth closer to two percent. At those rates, average incomes in 2013 will (finally!) be back around the levels of 2006.

14--Seattle Residents Exposed to 10 Radioactive "Hot Particles" Per Day, Washington's blog via zero hedge

Excerpt: As I have previously noted, small particles of radiation - called "internal emitters" - which get inside the body are much more dangerous than general exposures to radiation. And see this and this.

Nuclear expert Arnie Gundersen told CNN on Monday that residents of Seattle, Washington, are breathing an average of 10 “hot particles” per day of radiation from Fukushima:...

Hot particles have an affinity for the lungs, and - if breathed in - can cause cancer down the road.

As Gundersen explained in an interview last Friday:

I am in touch with some scientists now who have been monitoring the air on the West Coast and in Seattle for instance, in April, the average person in Seattle breathed in 10 hot particles a day.

15--Fed Lacks Tools to Ramp Up Job Growth, Wall Street Journal

Excerpt: Federal Reserve Chairman Ben Bernanke рυt hіѕ finger rіght οn thе economy’s problem. In a speech given Tuesday, thе chairman discussed thе aggregate hours οf production workers, whісh hаd fallen bу nearly 10% frοm thе beginning οf thе recent recession through October 2009.

“Although hours οf work hаνе increased during thе expansion,” hе ѕаіd, “thіѕ measure still remains аbουt 6 1/2% below іtѕ pre-recession level.” In οthеr words, labor markets аrе nowhere near whеrе thеу wеrе before thе financial collapse аnd recession.

Output, οn thе οthеr hand, іѕ fully recovered. Real grοѕѕ domestic product — whісh аt іtѕ wοrѕt hаd shrunk 4.1% — surpassed іtѕ 2007 peak аt thе еnd οf 2010 аnd expanded further іn thе first quarter οf 2011. Thе gap between output аnd jobs іѕ whу thе economy іѕ іn аn expansion cycle bу economists’ standards — bυt іt doesn’t feel even close tο recovery mode fοr thе average consumer. Output hаѕ surged ahead οf labor bесаυѕе οf strong productivity. Robust productivity gains аrе gοοd fοr profits аnd inflation outlook, bυt bаd fοr workers аnd consumer spending.

Although thе Fed іѕ tasked wіth promoting full employment, thеrе isn’t much thе central bank саn dο аt thіѕ point tο push private businesses tο hire. It’s nοt thаt policymakers hаνе nο appetite fοr a third round οf quantitative easing. It’s thаt another round probably isn’t going tο hеlр. Fed policy’s main lever fοr growth іѕ tο prompt people tο borrow money. Bυt аftеr thе financial implosion, businesses аnd consumers hаνе lіttlе appetite fοr credit. Indeed, аѕ boomers аррrοасh retirement, thе U.S. household sector needs tο borrow less аnd save more.

Of course, stronger job growth wουld quicken thе deleveraging process. Yеt businesses seem less — nοt more — interested іn adding workers thіѕ spring. Thе Labor Department reported Tuesday thе number οf job openings fell іn April tο less thаn 3 million, frοm 3.1 million іn March.

Bernanke — lіkе mοѕt private economists — expects GDP growth tο pick up іn thе second half, іn раrt bесаυѕе οf thе stimulus already provided bу thе Fed. Bυt a 3%-plus rate mау nοt mean much tο consumers іf nοt accompanied bу job creation οn thе pace οf around 300,000 per month.

Even Bernanke recognizes thе need tο equate jobs wіth recovery. “Until wе see a sustained period οf stronger job creation, wе саnnοt consider thе recovery tο bе truly established,” hе ѕаіd іn hіѕ speech. Whаt more thе Fed саn dο tο bring stronger job creation аbουt seems uncertain.

16--European Union officials demand brutal austerity in Greece, WSWS

Excerpt: At a meeting of the European Parliament economic committee on Monday leading European officials called upon the Greek government and opposition parties to reach a consensus to impose a new round of punishing austerity measures on the country.

At the heart of such measures is the privatisation of huge swathes of the Greek public sector. In their totality, the cutbacks demanded by the EU at the behest of the banks amount to a social counterrevolution....

The latest proposals from EU officials and Eurozone governments will award quasi-dictatorial powers to non-elected bodies to sell off socially necessary institutions and services such as hospitals, power companies and telecommunications to the highest bidder. The result will be higher consumer prices for essential services and the complete abolition of any sort of safety net for the needy and the working population―already plagued by mass unemployment....

Under pressure from the finance markets, proposals are now being made for the nationalisation of Greek banks at the expense of the taxpayer. At the same time, the finance markets and the EU institutions are demanding that the state sell off its most important social assets to private investors!

17--Under the cover of democracy, Aljazeera

Excerpt: US and its allies assist will be using neoliberal economic policies to make sure new Arab governments stay in line....

The people of the Eastern bloc wanted to maintain all the economic gains of the Communist period while calling for democratisation. The US, however, sold them the illusion of "Western democracy" as a cover for their massive US-imposed impoverishment and the dismantling of the entire structure of social welfare of which they had been beneficiaries for decades. Thus in a few short years, and through what Naomi Klein has dubbed the "Shock Doctrine", Russia went from a country which had less than 2 million people living under the international poverty level to one with 74 million people languishing in poverty. Poland and Bulgaria followed suit. As billionaires increased and the margin of profit for US corporations skyrocketed in the former Eastern bloc, with the help of illustrious imperial organisations like the World Bank and International Monetary Fund, the US, under international pressure, moved steadily to conclude a deal to end political apartheid in South Africa.

If the people of the Eastern bloc had to sacrifice their welfare states and their livelihoods in exchange for the outright pillage of their countries by Mafia-style capitalism, the people of South Africa were sold political "democracy" in exchange for the intensification of economic apartheid and the complete surrender of the country's economic sovereignty. While the business class became infinitesimally more racially diverse (as its US precedent pretended to do since the 1970s), the impoverished classes remained racially uniform. Today's South Africa is so saddled by debt and is signatory to so many economic agreements and protocols, that it can neither redistribute the racialised private property of the country (protected by its constitution), anymore that it can provide wage increases under its obligations to the IMF, which insists on wage "restraint". The massive racialised poverty of the country has only deepened its economic apartheid under the cover of the "end" of political apartheid.

In the Middle East, the Oslo agreements, signed around the same time that US-style democracy was being imposed on Eastern Europe and South Africa, were even worse. The Palestinian Authority moved (under US and Israeli instructions) to demobilise Palestinian civil society, which was enormously strengthened during the first intifada. Western-funded non-governmental organisations appeared on the scene in force. The NGOs co-opted the intelligentsia, the technocracy, and most of all erstwhile activists into the service of a Western agenda that rendered these foreign NGOs the new local "civil society", while Western governments financed the corrupt Palestinian Authority that continued to collabourate with the Israeli occupation. Poverty reigned supreme in much of the West Bank and all of Gaza and continues to destroy the lives of Palestinians there. Iraq, meanwhile, was being also transformed from its reduction to the stone age by US bombs into a US-imposed mafia-style "democracy" while the entire welfare benefits that existed under Saddam were withdrawn. Iraqi oil was handed over to American corporations in the ongoing American pillage and destruction of that country.

Other Arab countries, especially Egypt, were being flooded with Western-funded NGOs as the IMF and the World Bank were ensuring that local wealth is firmly in the hands of international capital and a small, local, subservient business class that supports the local dictatorships. A large number of women and labour activists, human rights and political activists, minority rights and peasants rights activists were no longer to be found defending the poor and the oppressed among whom they lived, but were now found on the payroll of these Western-funded NGOs, masquerading as civil society. While this demobilisation of Arab civil society ultimately failed to forestall popular Egyptian and Tunisian rage against two of the most corrupt regimes of post-independence Asia and Africa (or even Latin America), the US and its Saudi and Qatari allies are devising a new economic package to "support" the recent uprisings, especially Egypt's larger and much more important economy....

Neutralising the poor

But if the US deal in Eastern Europe was to impoverish the majority of people under the cover of democracy so that US businesses can pillage their economies, and if its deal in South Africa was about safeguarding and maintaining the same level of racialised pillage of the country by South Africa's whites and the international business partners also under the cover of democracy, what is the form of political-economic exchange being transacted in the Arab world?...

There is an increasing understanding among US policy makers that the US should ride the democratic wave in the region in those countries where it cannot crush it, and that in doing so, it should create political conditions that would maintain the continued imperial pillage of their economies at the same rate as before and not threaten them. Saudi money followed by American money and IMF and World Bank plans and funds are all geared to supporting the business elites and the foreign-funded NGOs to bring down the newly mobilised civil society by using the same neoliberal language of structural adjustment pushed by the IMF since the late 1970s. Indeed, Obama and his business associates are now claiming that it is the imposition of more neoliberal economic policies that is the main revolutionary demand of the people in Egypt and Tunisia, if not the entire Arab world, and which the West is lovingly heeding....

Moves to limit economic protests and labour strikes are ongoing in Egypt and Tunisia. Once elections are held to bring about a new class of servants of the new order, we will hear that all economic demands should be considered "counterrevolutionary"and should be prosecuted for attempting to "weaken" if not "destroy" the new "democracy". If, as is becoming more apparent, the US strikes alliances with local Islamist parties, we might even hear that economic protests and opposition to neoliberal imperial economic policies are "against Islam." The US-imposed "democracy" to come, assuming even a semblance of it will be instituted, is precisely engineered to keep the poor down and to delegitimise all their economic demands.

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