Wednesday, July 27, 2011

Today's links

1--Home Prices in 20 U.S. Cities Fell 4.5% in Year to May, Case-Shiller Says, Bloomberg

Excerpt: Home prices in 20 U.S. cities dropped in the year ended May by the most in 18 months, adding to evidence the housing market is struggling.

The S&P/Case-Shiller index of property values in 20 cities fell 4.5 percent from May 2010, the group said today in New York. The decline matched the median forecast of 32 economists surveyed by Bloomberg News.

A pipeline of foreclosures and uneven demand will keep prices from rising this year, discouraging new-home construction and delaying a rebound in housing. Shrinking home equity and an unemployment rate at 9.2 percent are weighing on consumer spending, which accounts for about 70 percent of the economy.

“Home prices will remain depressed through most of this year, like the housing sector itself,” Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, said before the report. “Foreclosures are definitely a huge issue. The overhang of unsold homes will take longer to clear as the job market is very soft.”

2--Feel the Austerity, Streetlight blog

Excerpt: The Cameron government's austerity plan in the UK is near its one-year anniversary, and its effects continue to exactly match the prediction that any decent Macro 101 student could provide as the correct answer to a final exam question:

UK GDP figures show slower growth of 0.2%

Growth in the UK economy slowed in the three months to 30 June, partly because of the extra bank holiday in April. Gross Domestic Product (GDP) grew by 0.2% in the second quarter, according to the Office for National Statistics, down from 0.5% in the previous quarter....

But shadow chancellor Ed Balls said that the slowdown was a serious problem for the government and it should take steps to boost growth.

"These figures show that last year's recovery has been recklessly choked off by George Osborne's VAT rise and spending review," he said. "The economy has effectively flat-lined for nine months and this is very bad news for jobs, living standards, business investment and for getting the deficit down."...

It's not mysterious: when you raise taxes and cut government spending, growth slows. And when you do that during a very fragile and weak recovery, you can push your economy back into recession, or at best, choke off growth almonst completely. That's exactly why, as has been extensively written about both here and elsewhere, austerity during a time of economic weakness is not a good way to beat a budget deficit, and will be largely self-defeating.

3--Vicious Cycles: Why Washington is About to Make the Jobs Crisis Worse, Robert Reich's blog

Excerpt: The only way out of the vicious economic cycle is for government to adopt an expansionary fiscal policy — spending more in the short term in order to make up for the shortfall in consumer demand. This would create jobs, which will put money in peoples’ pockets, which they’d then spend, thereby persuading employers to do more hiring. The consequential job growth will also help reduce the long-term ratio of debt to GDP. It’s a win-win.

This is not rocket science. And it’s not difficult for government to do this — through a new WPA or Civilian Conservation Corps, an infrastructure bank, tax incentives for employers to hire, a two-year payroll tax holiday on the first $20K of income, and partial unemployment benefits for those who have lost part-time jobs.

Yet the parallel universe called Washington is moving in exactly the opposite direction. Republicans are proposing to cut the budget deficit this year and next, which will result in more job losses. And Democrats, from the President on down, seem unable or unwilling to present a bold jobs plan to reverse the vicious cycle of unemployment. Instead, they’re busily playing “I can cut the deficit more than you” — trying to hold their Democratic base by calling for $1 of tax increases (mostly on the wealthy) for every $3 of spending cuts.

All of this is making the vicious economic cycle worse — and creating a vicious political cycle to accompany it.

4--Massachusetts Attorney General Signals Likelihood of Nixing “50 State” Mortgage Settlement, Naked Capitalism

Excerpt: The market-moving stories, namely the US debt ceiling drama and the rolling Greek/Eurozone mess, are crowding out anything other than tragedies (the Norway bombing, Chinese train wrecks) and good old fashioned high profile prurient interest (DSK and the Murdochs).

Let’s briefly cover an important development in the US mortgage saga. I’m told that the Department of Justice is putting the thumbscrews on state attorneys general to sign a mortgage settlement deal this week (how exactly the DoJ can pressure state officials is beyond me, since the Feds typically ignore state investigations until they look like they are about to be end run, but hopefully readers can enlighten me). New York and Delaware, as we already indicated, are out via having launched their own investigations, as is Nevada (ground zero of the mortgage mess) and likely California. We’ve been told Arizona was out a while ago, but haven’t gotten confirmation that that is still true.

We are also told the banks are pressing (as we predicted) for a very broad release, and the announcement today from Martha Coakley, the Massachusetts state AG, strongly suggests she is another dissenter. Per Bloomberg:

The banks in settlement talks with state and federal officials are seeking broad releases to protect them from legal claims. Massachusetts Attorney General Martha Coakley said yesterday she won’t support an agreement that includes releases for securitization of mortgages and conduct related to a database of mortgages known as MERS.

“Massachusetts will not sign on to any global agreement with the banks if it includes a comprehensive liability release regarding securitization and the MERS conduct,” Coakley wrote to the Norfolk County register of deeds in Dedham, Massachusetts. “These investigations must continue.” The registry keeps real estate records.

5--More Americans unhappy with Obama on economy, jobs, Washington Post

More than a third of Americans now believe that President Obama’s policies are hurting the economy, and confidence in his ability to create jobs is sharply eroding among his base, according to a new Washington Post-ABC News poll.

But Americans’ discontent does not stop there. The survey also found that Americans harbor negative feelings toward congressional Republicans. Roughly as many people blame Republican policies for the poor economy as they do Obama. But 65 percent disapprove of the GOP’s handling of jobs, compared to 52 percent for the president.

The dissatisfaction is fueled by the fact that many Americans continue to see little relief from the pain of a recession that technically ended two years ago. Ninety percent of those surveyed said the economy is not doing well, and four out of five report that jobs are difficult to find. In interviews, several people said that they feel abandoned by both parties, particularly as debates over the debt ceiling gridlock Washington.

“What I’ve realized is it doesn’t matter if you’re Republican or Democrat anymore,” said Joey Wakim, 21, a used car salesman from Allentown, Pa. “We just want somebody who’s gonna get things right.”

6--New Court Filing Reveals How the 2004 Ohio Presidential Election Was Hacked, Truthout

Excerpt: A new filing in the King Lincoln Bronzeville v. Blackwell case includes a copy of the Ohio Secretary of State election production system configuration that was in use in Ohio's 2004 presidential election when there was a sudden and unexpected shift in votes for George W. Bush.

The filing also includes the revealing deposition of the late Michael Connell. Connell served as the IT guru for the Bush family and Karl Rove. Connell ran the private IT firm GovTech that created the controversial system that transferred Ohio's vote count late on election night 2004 to a partisan Republican server site in Chattanooga, Tennessee owned by SmarTech. That is when the vote shift happened, not predicted by the exit polls, that led to Bush's unexpected victory. Connell died a month and a half after giving this deposition in a suspicious small plane crash....

Spoonamore concluded from the architectural maps of the Ohio 2004 election reporting system that, "SmarTech was a man in the middle. In my opinion they were not designed as a mirror, they were designed specifically to be a man in the middle."

A "man in the middle" is a deliberate computer hacking setup, which allows a third party to sit in between computer transmissions and illegally alter the data. A mirror site, by contrast, is designed as a backup site in case the main computer configuration fails.....

Spoonamore also swore that "...the architecture further confirms how this election was stolen. The computer system and SmarTech had the correct placement, connectivity, and computer experts necessary to change the election in any manner desired by the controllers of the SmarTech computers."

Project Censored named the outsourcing of Ohio's 2004 election votes to SmarTech in Chattanooga, Tennessee to a company owned by Republican partisans as one of the most censored stories in the world.

In the Connell deposition, plaintiffs' attorneys questioned Connell regarding gwb43, a website that was live on election night operating out of the White House and tied directly into SmarTech's server stacks in Chattanooga, Tennessee which contained Ohio's 2004 presidential election results....

Bob Magnan, a state IT specialist for the secretary of state during the 2004 election, agreed that there was no failover scenario. Magnan said he was unexpectedly sent home at 9 p.m. on election night and private contractors ran the system for Blackwell.

7-- Worse Than Hoover, Marshall Auerback:, Naked Capitalism

Excerpt: But what is this President’s ideal? The only time in our national discussions where Mr. Obama has evinced any kind of passion has been during the debt ceiling negotiations. He has, since the inception of his presidency, elevated budget deficit reductions and the “reform” of entitlements as major transformational goals of his Presidency (rather than seeing deficit reduction as a by-product of economic growth). As early as January 2009, before his inauguration (but after the election, of course), then President-elect Obama pledged to shape a new Social Security and Medicare “bargain” with the American people, saying that the nation’s long-term economic recovery could not be attained unless the government finally got control over its most costly entitlement programs (http://www.washingtonpost.com/wp-dyn/content/article/2009/01/15/AR2009011504114.html)...

In essence, the debt ceiling dispute is not forcing a compromise on this President, but is instead is viewed by him as a golden opportunity to do what he’s always wanted to do. That also explains why he won’t ask for a clean vote on the debt ceiling, why he has ignored the coin seignorage option, and why he has persistently avoided the gambit of challenging its constitutionality via the 14th amendment, even though his Democrat predecessor has already suggested that this is precisely what he would do: Bill Clinton asserted last week that he would use the constitutional option to raise the debt ceiling and dare Congress to stop him (http://www.nationalmemo.com/article/exclusive-former-president-bill-clinton-says-he-would-use-constitutional-option-raise-debt)....

And to what end? Neither he, nor the Congress appear to recognize the downward acceleration in GDP triggered when the spending limits are reached if the automatic stabilizers are disabled because they are no longer funded as a consequence of the debt ceiling limitations (again, a LEGAL, rather than operational constraint – the debt ceiling reflects an UNWILLINGNESS to pay, rather than an INABILITY to pay).

So spending will be further cut, debt deflation dynamics will intensify, sales will go down more, more jobs will be lost, and tax revenues will collapse even further. Which will set the whole process off again: more spending is cut, sales go down more, more jobs are lost, and tax revenues fall more, etc. etc. etc. until no one is left working. All are radically underestimating the speed and extent of the subsequent damage.

Unlike President Hoover, who inherited the foundations of a huge credit bubble from the 1920s and found himself overwhelmed by it, this President is worse. He is, through his actions, creating the conditions for a second Great Depression because of his misconceived belief that too much government spending “crowds out” private investment, and takes dollars out of the economy when it borrows. And therefore, goes the perverse logic, when the government stops borrowing to spend, the economy will have those dollars to replace the lost federal spending.

And so after the initial fall, Obama believes, it will all come back that much stronger.

Except, that as my friend Warren Mosler insists, he is dead wrong, and therefore we are all dead ducks.....Obama is in fact tearing apart most of the foundations which were tentatively initiated under Hoover, but which came to full fruition under FDR. If he continues down this ruinous path, $150 billion/month in spending will be cut. Such economic thinking isn’t worthy of Mellon, let alone Herbert Hoover.

8--Debt ceiling negotiations lead to fascism?, Naked Capitalism

Excerpt: ....Ryan Grim explains what it really means in the Huffington Post (hat tip Guy S):

Debt ceiling negotiators think they’ve hit on a solution to address the debt ceiling impasse and the public’s unwillingness to let go of benefits such as Medicare and Social Security that have been earned over a lifetime of work: Create a new Congress.

This “Super Congress,” composed of members of both chambers and both parties, isn’t mentioned anywhere in the Constitution, but would be granted extraordinary new powers. Under a plan put forth by Senate Minority Leader Mitch McConnell (R-Ky.) and his counterpart Majority Leader Harry Reid (D-Nev.), legislation to lift the debt ceiling would be accompanied by the creation of a 12-member panel made up of 12 lawmakers — six from each chamber and six from each party.

Legislation approved by the Super Congress — which some on Capitol Hill are calling the “super committee” — would then be fast-tracked through both chambers, where it couldn’t be amended by simple, regular lawmakers, who’d have the ability only to cast an up or down vote. With the weight of both leaderships behind it, a product originated by the Super Congress would have a strong chance of moving through the little Congress and quickly becoming law. A Super Congress would be less accountable than the system that exists today, and would find it easier to strip the public of popular benefits. Negotiators are currently considering cutting the mortgage deduction and tax credits for retirement savings, for instance, extremely popular policies that would be difficult to slice up using the traditional legislative process.

House Speaker John Boehner (R-Ohio) has made a Super Congress a central part of his last-minute proposal.

The Tea Partiers make a fetish of invoking the Constitution when it suits them but will happily run roughshod over it when it conflicts with their pet wishes. Not that they are singularly guilty in this conspiracy against the public-at-large, but their faux holier-than-thou/populist pretense while aligning themselves with an elite power grab is particularly nausea-inducing.

I hate using the word “fascism” because overuse has weakened its bite, but trumped-up threat by trumped up threat, our government is moving relentlessly in that direction.

9--FDR Speech 1936, Jesse's Cafe American

Excerpt: We had to struggle with the old enemies of peace—business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.

They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.

Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me—and I welcome their hatred.

I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second Administration that in it these forces met their master.

10---I'm starting to think that the Left might actually be right, Telegraph

Excerpt: It has taken me more than 30 years as a journalist to ask myself this question, but this week I find that I must: is the Left right after all? You see, one of the great arguments of the Left is that what the Right calls “the free market” is actually a set-up.

The rich run a global system that allows them to accumulate capital and pay the lowest possible price for labour. The freedom that results applies only to them. The many simply have to work harder, in conditions that grow ever more insecure, to enrich the few. Democratic politics, which purports to enrich the many, is actually in the pocket of those bankers, media barons and other moguls who run and own everything....

...when the banks that look after our money take it away, lose it and then, because of government guarantee, are not punished themselves, something much worse happens. It turns out – as the Left always claims – that a system purporting to advance the many has been perverted in order to enrich the few. The global banking system is an adventure playground for the participants, complete with spongy, health-and-safety approved flooring so that they bounce when they fall off. The role of the rest of us is simply to pay.

This column’s mantra about the credit crunch is that Everything Is Different Now. One thing that is different is that people in general have lost faith in the free-market, Western, democratic order. They have not yet, thank God, transferred their faith, as they did in the 1930s, to totalitarianism. They merely feel gloomy and suspicious. But they ask the simple question, “What's in it for me?”, and they do not hear a good answer....

As for the plight of the eurozone, this could have been designed by a Left-wing propagandist as a satire of how money-power works. A single currency is created. A single bank controls it. No democratic institution with any authority watches over it, and when the zone’s borrowings run into trouble, elected governments must submit to almost any indignity rather than let bankers get hurt. What about the workers? They must lose their jobs in Porto and Piraeus and Punchestown and Poggibonsi so that bankers in Frankfurt and bureaucrats in Brussels may sleep easily in their beds.

11--Swift U.S. action on debt needed in global interest: IMF, Reuters

Excerpt: An IMF official, briefing reporters by telephone, said that if the United States' AAA debt rating -- regarded as the gold standard for creditworthiness -- was downgraded it could be "extremely damaging" for the U.S. and world economy.

The IMF official said that, since such a downgrade would be precedent-setting, it was impossible to predict with certainty the impact, but it would certainly drive interest rates up.

While underlining the urgency of reaching a debt-reducing agreement, the IMF also cautioned that an "excessively large upfront fiscal adjustment" should be avoided because that would further dampen domestic demand and slow growth.

"With a still-wide output gap and downside risks to the outlook, especially potential spillovers from European financial markets, directors called for a cautious approach to unwinding macroeconomic support," the IMF said.

12--Republican Leaders Voted for U.S. Debt Drivers, Bloomberg

Excerpt: House Speaker John Boehner often attacks the spendthrift ways of Washington.
“In Washington, more spending and more debt is business as usual,” the Republican leader from Ohio said in a televised address yesterday amid debate over the U.S. debt. “I’ve got news for Washington - those days are over.”

Yet the speaker, House Majority Leader Eric Cantor, House Budget Chairman Paul Ryan and Senate Minority Leader Mitch McConnell all voted for major drivers of the nation’s debt during the past decade: Wars in Afghanistan and Iraq, the 2001 and 2003 Bush tax cuts and Medicare prescription drug benefits. They also voted for the Troubled Asset Relief Program, or TARP, that rescued financial institutions and the auto industry.

Together, a Bloomberg News analysis shows, these initiatives added $3.4 trillion to the nation’s accumulated debt and to its current annual budget deficit of $1.5 trillion.

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