Friday, October 21, 2011

Weekend links

1--Pay Raises Trail Behind Even Mild Inflation, WSJ

Excerpt: Core prices, which exclude food and energy, were up a milder 0.1%.

The Fed tends to watch the core rate, and policymakers are probably happy that core prices are up just 2.0% over the past year.

Households, however, have to deal with the jumps in energy and food prices. The annual top-line inflation is running at a faster 3.9%. Over the past year, food prices have risen 4.7%, gasoline costs 33.3% more and the cost of fuels and utilities used at home are up 4.0%. While households can reduce buying some of these staples, they cannot avoid them completely, which leaves less money to spend on other items.

More troubling for the consumer outlook, wage gains aren’t keeping pace with price hikes. Real weekly earnings rose in September for the first time since May. But the 0.2% gain reflected workers putting in longer shifts, not from wages increasing. Real hourly wages fell 0.1% in September from August.

2----"First Look at US Pay Data, It’s Awful", Economist's View

Excerpt: David Cay Johnston, Reuters: Anyone who wants to understand the enduring nature of Occupy Wall Street and similar protests across the country need only look at the first official data on 2010 paychecks... The figures from payroll taxes reported to the Social Security Administration on jobs and pay are, in a word, awful.

These are important and powerful figures. ... There were fewer jobs and they paid less last year, except at the very top where, the number of people making more than $1 million increased by 20 percent over 2009.

The median paycheck -- half made more, half less -- fell again in 2010, down 1.2 percent to $26,364. That works out to $507 a week, the lowest level, after adjusting for inflation, since 1999.

The number of Americans with any work fell again last year, down by more than a half million from 2009 to less than 150.4 million.

3--The Austerity Death-Trap, Robert Reich

Excerpt: Ron Paul’s newly-unveiled economic plan – promising to cut $1 trillion from the federal budget in year one (presumably that means 2013) – is only slightly more ambitious than what we’re hearing from other Republican candidates. They’re all calling for major spending cuts starting as soon as possible.

What are they smoking?

Can we just put ideology aside for a moment and be clear about the facts? Consumer spending (70 percent of the economy) is flat or dropping because consumers are losing their jobs and wages, and don’t have the dough. And businesses aren’t hiring because they don’t have enough customers.

The only way out of this vicious cycle is for the government – the spender of last resort – to boost the economy. The regressives are all calling for the opposite.

But even without these hare-brained Republican plans, we’re heading in their direction anyway. Unless Republicans agree to a budget deal before the end of the year (don’t hold your breath), the temporary payroll tax cuts and extended unemployment benefits we have now will end.

The result will be the most stringent fiscal tightening of any large economy in the world.

Together with ongoing cuts at the state and local government level, the scale of this fiscal contraction would be almost unprecedented....

Call it the austerity death trap.

Under these circumstances, the harder a country works to cut its debt, the worse the ratio becomes — because the economy shrinks even faster.

4--Wall Street Has Worst Quarter Since Crisis, Bloomberg

Excerpt: The biggest Wall Street firms posted their worst quarter in both trading and investment banking since the depths of the financial crisis as they face questions about the future of their business.

JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc. (C), Goldman Sachs Group Inc. (GS) and Morgan Stanley posted $13.5 billion in trading revenue minus accounting gains for the third quarter, down 35 percent from a year earlier. Investment- banking revenue plunged 41 percent from the second quarter to $4.47 billion.

Bank of America posted a roughly 90 percent drop in fixed- income trading revenue and Goldman Sachs had its lowest debt underwriting quarter since 2003. Corporations put off capital raises and investors sold riskier assets on concern that the U.S. economy was slowing and Europe’s debt crisis would spread.

“The micro has caught up with the macro, and the strains of the financial system have hit these companies,” Charles Peabody, an analyst at Portales Partners LLC in New York, said yesterday on Bloomberg Television’s “Inside Track.” “The question is, does that continue going forward?”

5--A long, steep drop for Americans' standard of living, Christian Science Monitor

Excerpt: Not since at least 1960 has the US standard of living fallen so fast for so long. The average American has $1,315 less in annual disposable income now than at the onset of the Great Recession.

A long, steep drop for Americans' standard of living

Not since at least 1960 has the US standard of living fallen so fast for so long. The average American has $1,315 less in annual disposable income now than at the onset of the Great Recession.

Think life is not as good as it used to be, at least in terms of your wallet? You'd be right about that. The standard of living for Americans has fallen longer and more steeply over the past three years than at any time since the US government began recording it five decades ago.

Bottom line: The average individual now has $1,315 less in disposable income than he or she did three years ago at the onset of the Great Recession – even though the recession ended, technically speaking, in mid-2009. That means less money to spend at the spa or the movies, less for vacations, new carpeting for the house, or dinner at a restaurant.

In short, it means a less vibrant economy, with more Americans spending primarily on necessities. The diminished standard of living, moreover, is squeezing the middle class, whose restlessness and discontent are evident in grass-roots movements such as the tea party and "Occupy Wall Street" and who may take out their frustrations on incumbent politicians in next year's election.

6--Occupy Wall Street Demographic Survey Results Will Surprise You, TPM

Excerpt: Among other striking findings, Codero-Guzmán discovered that 70 percent of the survey’s 1,619 respondents identified as politically independent, far-and-away the vast majority, compared to 27.3% Democrats and 2.4% self-identified Republicans....

As Rutfkoff explained: “While 49% of protesters are under 30, more than 28% are 40 or older,” roughly coinciding with Cordero-Guzmán’s findings.

Some employment, but overall difficulty finding work

When it came to employment, Rutfkoff explained that “33%… are struggling in the labor market. That percentage is double the U.S. Labor Department’s broader measure of unemployment, which accounts for people who have stopped looking for work or who can’t find full-time jobs.”

As for political leanings, Schoen’s survey recorded that the largest group of respondents, 33 percent, “do not identify with any political party,” followed by 32 percent that identified Democratic and zero respondents who identified Republican. A further 21 percent, again the largest cohesive group, said “both parties” were to blame for the “failure to address our problems.”

Overall, Rutkoff says, the survey indicates that “Zuccotti Park protesters are underemployed at twice the national rate, lukewarm to warm on Obama and broadly in favor of taxing the wealthy and encouraging a Tea Party-style populism on the left.”

Participation level: Relatively weak

Less than a quarter of the sample (24.2%) had participated in the Occupy Wall Street protests as of October 5, 2011. (But as Codero-Guzmán pointed out to TPM, the movement was still in its relative infancy at that stage.)

Age varies widely

64.2% of respondents were younger than 34 years of age, but one in three respondents was over 35 and one in five was 45 or older.

Wealth varies widely

A full 15.4% of the sample reported earning annual household income between $50,000 and $74,999. Another 13% of the sample reported over $75,000 , and 2% said they made over $150,000 annually, putting them in the top 10 percent of all American earners, according to the Wall Street Journal’s calculator. That said, 47.5% of the sample said they earend less than $24,999 dollars a year and another quarter (24%) reported earning between $25,000 and $49,999 per year. A whopping 71.5% of the sample earns less than $50,000 per year.

Highly educated

92.1% of the sample reported “some college, a college degree, or a graduate degree.”

They have jobs

50.4% reported full-time employment, and “an additional 20.4% were employed part-time.”

7--U.S. rejects plan to strengthen IMF in euro zone crisis, Reuters

Excerpt: Proposals to double the size of the IMF as part of a broader international response to Europe's debt crisis ran into resistance from the United States and others, burying the idea for now and putting the onus firmly back on Europe....

U.S. Treasury Secretary Timothy Geithner and his Canadian and Australian counterparts poured cold water on the idea. The IMF's dominant shareholders, including the United States, Japan, Germany and China, are content that the fund's $380 billion worth of resources is enough.

8--A path through Europe’s minefield, George Soros, Reuters

Excerpt: The banking system needs to be guaranteed first, and recapitalized later. Governments cannot afford to recapitalize the banks now; it would leave them with insufficient funds to deal with the sovereign-debt problem. It will cost much less to recapitalize the banks after the crisis has abated and both government bonds and bank shares have returned to more normal levels.

Governments can, however, provide a credible guarantee, given their power to tax. A new, legally binding agreement – not a change to the Lisbon Treaty (which would encounter too many hurdles), but a new agreement – will be needed for the eurozone to mobilize that power, and such an accord will take time to negotiate and ratify. But, in the meantime, governments can call upon the European Central Bank, which the eurozone member states already fully guarantee on a pro rata basis.

In exchange for a guarantee, the eurozone’s major banks would have to agree to abide by the ECB’s instructions. This is a radical step, but a necessary one under the circumstances. Acting at the behest of the member states, the ECB has sufficient powers of persuasion: it could close its discount window to the banks, and the governments could seize institutions that refuse to cooperate.

The ECB would then instruct the banks to maintain their credit lines and loan portfolios while strictly monitoring the risks they take for their own account. This would remove one of the two main driving forces of the current market turmoil.

9--Scenarios: How euro zone can get more bang for bailout, Reuters


This is an idea first presented by Deutsche Bank Chief Economist Thomas Mayer and Center for European Policy Studies chief Daniel Gros and now backed by France. If the EFSF were a bank, it could refinance itself at the European Central Bank.

With its 440 billion euros, the EFSF could buy bonds of countries under market stress on the secondary market and then use these bonds as collateral to borrow cash from the ECB in the central bank's liquidity operations, as other banks do.

In this way, the EFSF's money would be multiplied without governments adding extra funds and the ECB would not be directly involved in financing the fiscal policy of governments.

The problem with this solution, already voiced by Bundesbank President Jens Weidmann, is that obtaining a banking license for the EFSF could be problematic -- the fund is hardly a bank, it is a special purpose vehicle set up to help finance governments....


This is an idea building on elements of the U.S. Term Asset-Backed Securities Loan Facility from 2008.

The EFSF and/or ESM could use its funds to cover potential losses the ECB could incur on its purchases of bonds of countries under market stress -- up to a certain amount.

In this way the ECB would have a guarantee it would not lose money on the bonds it buys to smooth out market turbulence under its existing program aimed to improve the transmission mechanism of monetary policy.

Depending on the assumed loss, the money at EFSF disposal could guarantee bond purchases many times its size. Like an insurer, it would only pay out in case of a default -- an unlikely scenario for Spain or Italy.

For example, the EFSF could say it would cover the first 20 percent of losses that the bank could suffer in case of a default -- multiplying the EFSF's firepower fivefold to over 2 trillion euros.

10--Exposing the student loan racket (Infographic), Healthcare administration

11---That Giant Sucking Sound, Firedog Lake

Excerpt: That giant sucking sound you hear today is the sound of jobs being outsourced as President Obama signs into law three free trade deals; South Korea, Colombia and Panama. According to the Economic Policy Institute, passing the Korea Free Trade deal will likely cost this country 159,000 jobs.

The three trade deals remain basically unchanged since George W. Bush negotiated them in his last term when he was unable to get them approved by the Democrats in Congress. Just like it took Nixon to go to China, it apparently takes a Democratic president to force through NAFTA-style free trade agreements that destroy American jobs.

Why would Obama push through jobs destroying trade deals in the middle of a jobs crisis?....The problem is protecting American jobs is a much lower priority for Obama and most members of Congress than is giving the large corporate lobbyists what they are willing to donate millions to see advanced.

12--Vast Majority of Dems Abandon President, and Media Misses It, Public Citizen

Excerpt: It's typically treated as pretty newsworthy when a majority of a president's own party votes against a signature presidential initiative. Double that when over two-thirds do so. Triple the newsworthiness when it's the first time that magnitude of opposition has occured in a president's tenure.

Quadruple for when talking heads are debating whether elected officials will carry the banner of a wide-ranging new progressive protest movement that has declared its independence from that same president. And quintuple when the president has presented a two-plank carrot-stick deal with Republicans - controversial trade deals that won't create jobs plus stimulus spending that will - and when the Republicans move forward with the job-killing plank. But the job-creating plank? Not so much.

This describes precisely what happened with last night's votes to expand NAFTA-style deals to Korea, Colombia and Panama. But you wouldn't know it from any of this morning's press coverage of the vote, which lauded the "bipartisanship" of a deal that was supported by only a tiny cohort of corporate Democrats.

This is deeply misguided, as Lori Wallach noted over at FireDogLake,

"Today a larger share of House Democrats voted against a Democratic president on trade than ever before. It took Bill Clinton nearly eight years of NAFTA job losses, sell outs and scandals to have (not even) two-thirds of the House Democrats vote against him on trade."

Obama managed to do the same in three, getting Democratic opposition nearly 20 percentage points higher than Clinton ever did.Over 82 percent of Democrats opposed the Colombia FTA, while over two-thirds opposed the Korea FTA and over 64 percent opposed the Panama FTA. Even a majority of the New Democrats - the most pro-NAFTA grouping in the party - opposed. These percentages go well beyond the previous high-water mark of House Dem revolt from the president (the February vote on the Patriot Act).

Why were Dems so opposed? The deals won't do anything to help the jobs crisis, and could make things worse. On top of that, they contain hundreds of pages of non-trade provisions that put obstacles in the way of re-regulation of Wall Street and environmental protection...

13--Bloomberg boosts infrastructure bank, Bloomberg

Excerpt: For Democrats, Schumer is championing a national infrastructure bank that could help build roads, fix bridges and create jobs. For Republicans, he is open to letting U.S. corporations bring home vast amounts of overseas income without having to pay the full 35 percent corporate-tax rate.

We’ve been consistent supporters of an infrastructure bank, seeing it as both a short-term jobs boost and a long-term boon to U.S. competitiveness and quality of life. The details will be crucial. Among other requirements, the bank needs substantial initial public and private investment, a chief executive officer and independent oversight board, and safeguards to limit risks to taxpayers. It should finance no more than half a project’s costs and require dedicated funding streams. And the Davis-Bacon Act rules that require paying unduly inflated “prevailing wages” on federal projects shouldn’t apply to it.

14--Robert Reich on Infrastructure bank hoax, Robert Reich's blog

Excerpt: Obama ---“And in the coming months I’ll continue also to fight for what the American people care most about: new jobs, higher wages, and faster economic growth.”...

He says he wants an “infrastructure bank” that would borrow money from private capital markets to pay private contractors to rebuild our nations roads, bridges, airports, and everything else that’s falling apart.

Fine, but the new deal he just signed may not let him do this either – if the infrastructure bank relies on federal funds or even federal loan guarantees to attract private money. The only way he could create an infrastructure bank without sweetening the pot would be by privatizing all the new infrastructure. That means toll roads and toll bridges, user-fee airports, and entry fees everywhere else.

Apart from its potential unfairness to lower-income people, such a privatized infrastructure would have the same effect as a tax increase....

The President also wants to complete trade deals and reform the patent process. These may make the economy slightly more efficient, but they’re not going to have any perceptible positive impact on the lives of the 26 million Americans who are now either looking for work, working in part-time jobs but needing full-time ones, or have given up looking.

More importantly, the deal he just signed makes it impossible for the President and Democrats to launch any major jobs program – no WPA or Civilian Conservation Corps, no major lending program to cash-starved states and locales, no new help for distressed homeowners, and so on. Nada.

“We’ve got to do everything in our power to grow this economy and put America back to work,” the President says, now that the hostage crisis is over.

But the sad truth is he and the nation remain hostage to the ideology of right-wing Republicans who won’t let the government spend more money. Yet if the government can’t spend more – at least this year and next, until the pump is primed and the economy is growing again – we won’t see job growth. And without job growth, the economy will remain anemic.

15--IMF: Europe Risks Sovereign Debt and Bank Meltdown, Credit Writedowns

Excerpt: This video is explosive. Dr. Robert Shapiro, an advisor to the International Monetary Fund, is saying in no uncertain terms that the dithering approach that Europe has taken will lead to crisis in a very short period, two to three weeks.

16--TEXT-G20 finance chiefs' communique, Reuters

Excerpt: We, the G-20 Finance Ministers and Central Bank Governors, met at a time of heightened tensions and significant downside risks for the global economy that need to be addressed decisively to restore confidence, financial stability and growth.

2. We have progressed in delivering the commitments we made three weeks ago in Washington DC. In particular, we welcome the adoption of the ambitious reform of the European economic governance. We also welcome the completion by Euro area countries of the actions necessary to implement the decisions taken by Euro area Leaders on 21 July 2011 to increase the capacity and the flexibility of the EFSF. We look forward to further work to maximize the impact of the EFSF in order to avoid contagion, and to the outcome of the European Council on October 23 to decisively address the current challenges through a comprehensive plan. We made progress on our action plan of coordinated policies for consideration by our Leaders at the Cannes Summit. This action plan will encompass a set of measures to address immediate vulnerabilities and strengthen the foundations for a strong, sustainable and balanced growth whereby: - Advanced economies, taking into account different national circumstances, will adopt policies to build confidence and support growth, and implement clear, credible and specific measures to achieve fiscal consolidation. Those with large current account surpluses will also implement policies to shift to growth based more on domestic demand. Those with large current account deficits will implement policies to increase national savings; - Emerging market economies will adjust macroeconomic policies, where needed, to maintain growth momentum in the face of downside risks, contain inflationary pressures and endeavor to enhance resilience in the face of volatile capital flows; Surplus emerging market economies will accelerate the implementation of structural reforms to rebalance demand toward more domestic consumption, supported by continued efforts to move toward more market-determined exchange rate systems and achieve greater exchange rate flexibility to reflect economic fundamentals; - All countries will undertake further structural reforms to raise potential growth; - In all of our actions we will strive to foster growth, job creation and promote social inclusion. We remain committed to take all necessary actions to preserve the stability of banking systems and financial markets. We will ensure that banks are adequately capitalized and have sufficient access to funding to deal with current risks. Central banks have recently taken decisive actions to this end and will continue to stand ready to provide liquidity to banks as required. Monetary policies will maintain price stability and continue to support economic recovery.

17--Europe rejects U.S. approach to financial crisis, stirring doubts about plan, Washington Post

Excerpt: European officials working to address the region’s financial crisis have rejected key recommendations from the United States and the International Monetary Fund, casting doubt on whether an emerging plan will be as broad or fast-acting as hoped.

As crisis negotiations continued this weekend, European officials said they had reached general agreement on a response they were confident would restore faith in European banks and government finances....

the plan excludes the open-ended use of the European Central Bank as a guarantor of government debt and the swift infusion of public capital into banks that U.S. and IMF officials say could be critical to restoring confidence in the euro region. Both were central elements of the effort to shore up the U.S. financial system three years ago....

Their planned effort to prepare banks for a possible default by Greece or another heavily indebted European nations could take until June to complete. Banks will first be asked to raise extra capital from private sources, such as their own profits or a new sale of stock, then if necessary appeal to their governments for public help. If the government cannot afford it, officials could ask to borrow the money from the new bailout program, the European Financial Stability Facility.

Funding: Public vs. private

The step-by-step process is a concession to European politics. Officials in Germany, the most influential voice in the euro zone, are insisting that new bank capital should come from private investors before public sources. Taxpayers in many nations are weary of footing the bill for bailouts already underway in Greece, Portugal and Ireland.

But some analysts say the plan means months more uncertainty while potentially weakening banks that have to turn to public sources for help and admit they cannot raise money on their own.

It “is going to be very tricky and very long,” said Anne-Charlotte Com, a bank analyst with the Aurel BGC investment firm.

18--Three-Month Dollar Libor Climbs for 26th Day; TED Spread Widens, Bloomberg

Excerpt: The rate at which London-based banks say they can borrow for three months in dollars rose for the 26th straight day, reaching the highest level since August 2010.

The London interbank offered rate, or Libor, for dollar loans climbed to 0.40472 percent from 0.40306 percent yesterday, data from the British Bankers’ Association showed. That’s the highest since Aug. 9, 2010.

Credit Agricole SA submitted the highest rate today among the contributing panel of 19 lenders, at 0.4650 percent, up from 0.4625 percent yesterday. HSBC Holdings Plc posted the lowest, at 0.2750 percent, unchanged from yesterday.

The dollar Libor-OIS spread, a gauge of banks’ reluctance to lend, widened to 32.57 basis points at 12:07 p.m. London time, from 31.91 basis points yesterday. That’s the most since July 21, 2010.

The TED spread, or the difference between what lenders and the U.S. government pay to borrow for three months, widened to 38.95 basis points from 38.79 basis points yesterday. It reached 39.75 basis points on Oct. 11, the highest level since June 28, 2010.

19--The way forward in the fight against Wall Street, WSWS

Excerpt: The Occupy Wall Street movement has struck a powerful chord among millions of people throughout the United States and internationally. At the center of this growing movement, which has spread to hundreds of cities, is deep-rooted opposition to the immense social inequality that is the dominant feature of American and world society.

The top one percent—indeed, the top 0.1 percent—are responsible for the worst economic crisis since the Great Depression, which they have exploited to further enrich themselves. The richest 400 Americans control $1.53 trillion, while a record number of people in the US have been driven into poverty. The median income of Americans has fallen 10 percent since 2007, even as corporate profits and the bank accounts of the rich have soared. Young people face a future with no jobs, in which their education gets them nothing but tens of thousands of dollars of debt.

The protests in the US are part of an international movement against these intolerable conditions. The year began with the revolutions in Tunisia and Egypt and the outbreak of mass protests in Wisconsin. It has continued with convulsive struggles in Greece, Spain, Israel, Great Britain and other countries. This movement will expand and grow in the coming months.

The critical question is: What is the way forward? Here, the question of politics is central.....

The rights of the working class

The Socialist Equality Party proposes that the working class adopt the concept that there exist social rights that are essential to life in a complex modern society and, therefore, inalienable and non-negotiable.

These rights include:

The right to a job and a livable income

The right to high-quality public education and health care, free of charge

The right to housing and utilities

The right to a secure retirement

The right to a healthy environment and access to culture

The rights of the working class must be counterposed to the rights of the corporations, which are unconditionally defended by the two-party system—the “right” of corporations to destroy jobs and slash wages; the “right” of the banks to kick people out of their homes; the “right” of the political system to destroy social programs upon which millions of people depend.

20--Obama Has a ‘Jobs Plan’ but He’s Actually Pursuing Anti-Jobs Actions, Firedog Lake

Excerpt: Over the past few weeks President Obama has been traveling the country championing his doomed America Jobs Act as his plan to address the jobs crisis. But during the same time Obama has been publicly flogging this dead show bill, his administration was actually implementing policies and pushing legislation through Congress that will destroy tens of thousand of jobs in this country.

While some provisions from the America Jobs Act would probably help the unemployment crisis, there is effectively no chance of the act being approved by Congress. So when trying to judge how Obama is handling the current jobs crisis, it is important to look at his actions that will actually go into effect. By that criteria his recent behavior has been highly destructive.

The worst is the Administration’s strong push to pass three so called “free” trade deals. Although the America Jobs Act won’t pass Congress, the South Korea “Free” Trade deal Obama recently sent Congress is likely to be approved this week. As Obama has been publicly talking about his jobs bill, in Washington his Administration has actually been heavily lobbying Congress to pass this job killing trade deal. The deal alone is projected to cost the country roughly 159,000 jobs, according to the Economic Policy Institute

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