Friday, April 20, 2012

Weekend links

--No exit in the EU, naked capitalism


Excerpt: private credit has become remarkably inefficient. Private finance is supposed to be a service enabling greater growth in the real economy of production and services. This argument made more sense in the Bretton Woods era following WW II until the 1970s when economic growth was strong and financial institutions comprised some 15% of corporate profits in the US. Yet, since the liberalization of finance from the 1970s, economic growth has continued to diminish in the West, meanwhile in the most liberalized ‘finance gone wild’ economies, like the US, finance now comprises some 40% of corporate profits. The bottom line is that deregulated capital markets in recent decades have taken an ever-increasing share of our economy, while producing less economic growth. Finance no longer enables economic growth by providing a needed service, but instead impose a massive rent seeking tax on the economy.

2--No Housing Recovery Until 2020 In 5 Simple Charts, zero hedge

Excerpt: From BofA: "The foreclosure inventory pipeline that must be cleared in the next few years is very large. Our mortgage strategists forecast that another 6.6 million homes will need to be liquidated over the next five years."

Live at home children: Since the recession, the share of young adults that still live with their parents has climbed. Of the 25-34 year age group, 14.2% live at home compared to an average of 10.5% in the first half of the last decade. Similarly, of the 18-24 year age cohort, 54.6% live at home, which is up from the low of 50% early in the last decade, but is close to the longer-term average. We should expect to see the 25-34 year olds move out of their family homes once the economy heals. It may take more time for the younger age cohort."

We forecast household formation to gradually turn higher over the next two years with a notable pickup starting in 2014. This inflow of new households will be supportive of the renovation market. Many of these new households will initially move into the rental market due to slow wage growth and tight credit conditions, as well as the typical attraction to renting for the young adult age cohort...

gain in renovations and multifamily building in the next two years should provide some support before the eventual turn in single family construction begins. Assuming housing starts return to the historical average of 1.5 million by 2016 and renovation spending remains healthy, residential investment will once again become an important part of the economy. We expect residential investment to reach 3.5% of GDP by 2016 and return to the historical average of 4% by 2020."

3--BP Blow-out Cover-Up: Two Years of Lies, by grtv

EcoWatch reveals shocking information of a BP cover-up of a blow-out prior to the deadly Deepwater Horizon explosion in the Gulf.

Special report from the Caspian sea. for Ecowatch.org by investigative reporter Greg Palast.

4--Blamed for Bee Collapse, Monsanto Buys Leading Bee Research Firm, natural society

Excerpt: Monsanto, the massive biotechnology company being blamed for contributing to the dwindling bee population, has bought up one of the leading bee collapse research organizations. Recently banned from Poland with one of the primary reasons being that the company’s genetically modified corn may be devastating the dying bee population, it is evident that Monsanto is under serious fire for their role in the downfall of the vital insects. It is therefore quite apparent why Monsanto bought one of the largest bee research firms on the planet.

It can be found in public company reports hosted on mainstream media that Monsanto scooped up the Beeologics firm back in September 2011. During this time the correlation between Monsanto’s GM crops and the bee decline was not explored in the mainstream, and in fact it was hardly touched upon until Polish officials addressed the serious concern amid the monumental ban. Owning a major organization that focuses heavily on the bee collapse and is recognized by the USDA for their mission statement of “restoring bee health and protecting the future of insect pollination” could be very advantageous for Monsanto.

In fact, Beelogics’ company information states that the primary goal of the firm is to study the very collapse disorder that is thought to be a result — at least in part — of Monsanto’s own creations. Their website states:

While its primary goal is to control the Colony Collapse Disorder (CCD) and Israeli Acute Paralysis Virus (IAPV) infection crises, Beeologics’ mission is to become the guardian of bee health worldwide.



What’s more, Beelogics is recognized by the USDA, the USDA-ARS, the media, and ‘leading entomologists’ worldwide. The USDA, of course, has a great relationship with Monsanto. The government agency has gone to great lengths to ensure that Monsanto’s financial gains continue to soar, going as far as to give the company special speed approval for their newest genetically engineered seed varieties. It turns out that Monsanto was not getting quick enough approval for their crops, which have been linked to severe organ damage and other significant health concerns.

Steve Censky, chief executive officer of the American Soybean Association, states it quite plainly. It was a move to help Monsanto and other biotechnology giants squash competition and make profits. After all, who cares about public health?

5--The Shrinking Government Sector, economist's view

Excerpt: Tim Taylor highlights a recent publication from the Cleveland Fed on "The Shrinking Government Sector" showing, among other things, that "government spending on goods and services was actually higher in the much of the 1970s than it is today"...

The recent rise in government transfer payments is extraordinarily large 4%: nearly 4% of GDP during the recent recession... For comparison, total defense spending in 2011 was 4.7% of GDP. Thus, just rise in government transfer payments has been roughly comparable to total defense spending. ...

Increases in transfer payments during recessions stabilizes spending. Without such a large infusion of transfers from the government, the recession would have been much worse (though I would have preferred more actual spending in the mix, and more spending overall). It's also likely that transfer payments will fall back to to a level near the 12 percent level that existed prior to the recession (in fact, as the graph shows, the turnaround has already started), that is, the recent run-up is temporary. This is not what we should be worried about.

What ought to concern us is the fall in government spending in such areas as "building roads, providing education,... paying for research and development," and so on. At a time when we ought to be using infrastructure spending to help the recovery along and to enhance future growth prospects -- the price of this spending is at rock bottom levels we are unlikely to see again anytime soon -- we are cutting spending sharply (note the fall-off in spending at the end of the first graph, and the more general downward trend). Using the temproary run-up in the deficit from the recession to block needed spending on infrastructure is a penny-wise, pound-foolish approach to governing. Even without including the substantial help it provides to the recovery, the benefits of infrastructure spending outweigh the costs. We are worse off, not better off, when such spending is blocked by deficit hawks.

6--Democrats conceal post-election austerity plans, WSWS

Excerpt: While the Obama reelection campaign claims to support higher taxes on the wealthy and oppose cuts in Medicare and other programs on which working people depend, the White House and congressional Democrats are already making plans for a bipartisan attack on social programs after the election.

These plans are being concealed from the people behind a smokescreen of demagogy about standing up for the “bottom 99 percent” and making the rich pay “their fair share” in taxes. The cynicism of the Obama campaign underscores the phony and undemocratic character of the entire electoral process.

The Obama campaign has focused on political ploys such as the “Buffett Rule,” a proposal to establish a minimum 30 percent income tax rate for all those making $1 million or more a year. This is an effort to make the American people forget three years of bailouts of the banks and the super-rich and a worsening of income inequality. According to a study released March 2, the top one percent of the American population garnered 93 percent of all increased income in 2010, the first year of economic “recovery” according to the White House....

The real attitude of the Democrats to massive budget cuts was seen in Tuesday’s decision by Senate Budget Committee Chairman Kent Conrad, Democrat from North Dakota, to postpone any action on a 2013 budget resolution until after the November election. Conrad announced that his committee would begin drafting a budget resolution based on the deficit-cutting recommendations of the Simpson-Bowles commission, appointed by Obama, but that no actual votes would be taken until after the election—i.e., until it is too late for the American people to react at the polls.

Conrad said he had made the decision to postpone a vote after it became clear that not enough Democrats were prepared to support a comprehensive deficit-reduction plan in advance of the elections. “I don’t think we will be prepared to vote before the election,” Conrad said, indicating action would only be taken in a lame-duck session of Congres...

after the November 6 election, when the US Treasury again reaches the legal limit on borrowing and the Bush tax cuts expire December 31, as do other stopgap measures adopted over the past two years, including the extension of unemployment benefits and the payroll tax cut for working people and the deadline for $1.2 trillion in automatic spending cuts.

These deadlines will be used to create a crisis atmosphere and claim that sweeping austerity measures are unavoidable. The measures that will be brought forward after the election will go far beyond anything proposed publicly by either party.

According to New York Times columnist David Brooks, Obama administration officials have given private assurances of support for major spending cuts after the elections and have already proposed, in the most recent budget, to cut discretionary domestic spending from 4 percent of US gross domestic product to only 2.2 percent, far below the level of the Reagan administration.

The 2012 election is a political fraud, used by the big business politicians of both parties to give the American people the illusion of choice, while behind the scenes the two parties are preparing measures so unpopular that they cannot be discussed openly for fear of a public backlash.

The American two-party system is a political conspiracy against the working class.

7--IFR Comment: Synchronised and large-scale deleveraging, IFR

Excerpt: The ECB’s 3-year LTROs have dealt with financial sector tail risk by allowing banks to partially overcome refinancing needs. This has not eliminated the prospect of severe deleveraging which according to the IMF will see large EU-based banks shrink their balance sheets by a combined €2.0trn through end-2013 (7% of total assets). This only serves to support calls for the eurozone to change its crisis response strategy and deal more actively with the financial sector...

When the US looked to deal with its banks via TARP there was the ability to rely on government funds and unless Germany is willing to open up its coffers the ECB route for accessing funds continues to be the only real way out. Eurozone policy makers have tended to deliver too-little-too-late when it comes to the crisis response but we have got to a stage where the response itself now needs to morph and change. The ECB needs to throw away its inhibitions over solvency concerns and play a more active role in fostering a solution that will deal with the financial sector and in turn create a firmer basis for growth.

Given the likelihood that policy action will require things to get worse we should expect to see the widening trend on peripheral debt being maintained. But on the view that Germany/eurozone will be forced into closer fiscal integration, or the ECB playing a more active role, then Bunds should ultimately suffer either on dilution of creditworthiness or concerns over ECB liquidity creation.

8--The Son of the Housing Bubble: First-Time Homebuyers Tax Credit, Dean Baker, Huff Post

Excerpt: The first-time homebuyers tax credit was added to President Obama's original 2009 stimulus package. It was introduced by Senator Johnny Isakson, a Republican from Georgia, but the proposal quickly gained support from both parties. The bill gave a tax credit equal to 10 percent of a home's purchase price, up to $8,000, to first time buyers or people who had not owned a home for more than three years. To qualify for the credit, buyers had to close on their purchase by the end of November, 2009, however the credit was extended to buyers who signed a contract by the end of April, 2010....

once the credit ended, prices resumed their fall. By the end of 2011 they were 8.4 percent below the tax credit induced peak in the spring of 2010. Adjusting for inflation, the decline was more than 12.0 percent.

The problem was that the credit did not lead more people to buy homes, it just caused people who would have bought homes in the second half of 2010 or 2011 to buy their homes earlier. This meant that the price decline that was in process in 2007-2009 was just delayed for a bit more than a year by the tax credit.

This delay allowed homeowners to sell their homes for higher prices than would otherwise have been the case. It also allowed lenders to get back more money on loans that might have otherwise ended with short sales or even defaults. The losers were the people who paid too much for homes, persuaded to get into the market by the tax credit.

This was the same story as the in the original bubble, but then the pushers were the subprime peddlers. In this case the pusher was Congress with its first-time buyer credit.

According to my calculations, the temporary reversal of the price decline transferred between $200 and $350 billion (in 2009 dollars) from buyers to sellers and lenders. Another $15-25 billion went from homebuyers to builders selling new homes for higher prices than would otherwise have been possible.

While this might look like bad policy on its face, it gets worse. The tax credit had the biggest impact on the bottom end of the market, both because this is where first-time buyers are most likely to be buying homes and also an $8,000 credit will have much more impact in the market for $100,000 homes than the market for $500,000 homes.

The price of houses in the bottom third of the market rose substantially in response to the credit, only to plunge later. To take some of the most extreme cases, in Chicago prices of bottom tier homes fell by close to 30 percent from June 2010 to December of 2011, leading to a lose of $50,000 for a buyer at the cutoff of the bottom tier of the market. The drop in Minneapolis was more than 20 percent or more than $30,000. First-time buyers in Atlanta got the biggest hit. House prices for homes in the bottom tier have fallen by close to 50 percent since June of 2010. That is a loss of $70,000 for a house at the cutoff of the bottom tier.

Many of the 11 million underwater homeowners in the country can blame the incentives created by the first-time homebuyers credit for their plight. This was really bad policy, which should have been apparent at the time. Unfortunately, it is only the victims who are suffering, not the promulgators of the policy. Welcome to Washington.

9--IMF insists austerity drive must be intensified, WSWS

Excerpt: The continuing austerity program was set out Tuesday in the IMF’s World Economic Outlook, which made clear there was no prospect of what was once considered a “normal” pattern of economic recovery. The Global Stability Report published Wednesday noted that European banks intended to cut their balance sheets by $2.6 trillion, dealing a major blow to business credit and household borrowing, and prompting a call by IMF chief economist Olivier Blanchard for further government-funded bank bailout operations.

Both reports served to underscore that the collapse of Lehman Brothers in 2008 and the ensuing financial crisis represented not a conjunctural downturn, from which there would be a genuine recovery, but rather a breakdown in the capitalist order leading to a fundamental restructuring of social and economic relations. Nearly four years later, that restructuring is being ruthlessly pursued with ever more dire consequences for the working class...

The claim is that these measures will bring economic stability. But their impact can be seen most clearly in Greece, where the IMF-backed austerity program has produced devastation. The World Economic Outlook noted that after contracting by about 7 percent in 2011, the Greek economy could be expected to shrink by a further 4.7 percent in 2012.

The class content of these measures was made clear by the IMF itself. The report noted that “labour market conditions” will remain “difficult” in many advanced economies—that is, there will be no reduction in jobless levels now reaching 20 percent in some parts of Europe. At the same time, it pointed out, “much of the increase in GDP since the trough has flowed to profits.” The report declared that it would be a “long time” before there were any real wage increases.

In other words, what is taking place is not “recovery” but a massive redistribution of wealth up the income scale....

This “madness”, however, is not a result of some policy failing. It is embedded in the very operations of the financial markets. Rising sovereign debt to GDP ratios, resulting from government bank bailouts, provoke the demand from financial markets for more spending cuts. Such cuts lead in turn to a fall in GDP, raising the sovereign debt to GDP ratio, leading to financial-market pressure for still more cuts.

Responding to a question on his reference to schizophrenia, Blanchard insisted that financial markets had to be appeased at all costs. “The markets listen and you have to convince them that you are credible, that you know what you are doing,” he said. One of the methods for achieving this goal was spelled out in the executive summary of the World Economic Outlook, which emphasised the importance of what it called “reforms to aging-related spending” in rebuilding “market confidence.”

In other words, the health and well-being of pensioners and the aged, as well as other vulnerable sections of society, must be sacrificed in a vain attempt to appease the insatiable demands of finance capital....

It also made clear that none of the contradictions of the capitalist economy that exploded in 2008 has even begun to be resolved, let alone overcome. In fact, the measures taken by governments over the past three-and-a-half years make them less able to deal with a new financial crisis. As the report noted: “In the current environment of limited policy room, there is… the possibility that several adverse shocks [a crisis in the euro zone, an oil price spike, for example] could interact to produce a major slump reminiscent of the 1930s.”

10--Financial turbulence mounts as global economy slides deeper into slump, WSWS

Excerpt: The source of the new round of turbulence, however, is not just the situation in Spain and Italy, but the deepening malaise of the world capitalist economy as a whole. Four years after the onset of the global financial crisis, nothing has been resolved. In the words of a report prepared by the Financial Times and the Brookings Institution, the world economy “remains on life support.”

It is being kept afloat largely by the pumping of massive amounts money into the financial system. According to Professor Eswar Prasad of the Brookings Institution: “The global economic recovery is still spluttering due to a lack of robust demand, policy tools that are stretched to their limits and unable to muster much traction, and enormous risks posed by weak financial systems and political uncertainty.”...

The deepening recessionary trends in the world economy have immediate political implications. They will bring an intensification of the international assault on the working class through the imposition of austerity measures, combined with layoffs and wage cuts in every sector of the economy.

11--Food Stamp Rolls to Grow Through 2014, CBO Says, WSJ

Excerpt: The Congressional Budget Office said Thursday that 45 million people in 2011 received Supplemental Nutrition Assistance Program benefits, a 70% increase from 2007. It said the number of people receiving the benefits, commonly known as food stamps, would continue growing until 2014.

Spending for the program, not including administrative costs, rose to $72 billion in 2011, up from $30 billion four years earlier. The CBO projected that one in seven U.S. residents received food stamps last year.

In a report, the CBO said roughly two-thirds of jump in spending was tied to an increase in the number of people participating in the program, which provides access to food for the poor, elderly, and disabled. It said another 20% “of the growth in spending can be attributed to temporarily higher benefit amounts enacted in the” 2009 stimulus law.

CBO said the number of people receiving benefits is expected to fall after 2014 because the economy will be improving.

“Nevertheless, the number of people receiving SNAP benefits will remain high by historical standards,” the agency said.

It estimated that 34 million people, or 1 in 10 U.S. residents, would receive SNAP benefits in 2022 “and SNAP expenditures, at about $73 billion, will be among the highest of all non-health-related federal support programs for low-income households.”

12--$82B for Food Stamps as Users Hit Record Highs, Bloomberg (video)

Excerpt: "From 2007 to 2011, the cost of the food stamp program rose 135%"...... "For all of 2011, total cost of the program was $78 billion...and it is forecast to cost $82 billion over the next year."

13--Foreclosure ripple effect: 8.3 million children in jeopardy, MSNBC

When we think of foreclosure, we tend to think of the tremendous financial toll it takes on adults. But a new report sheds light on the millions of children who are having their lives thrown into disarray by the crisis as well.

The analysis of foreclosure data, prepared for the children’s advocacy group First Focus, finds that as many as 2.3 million children have lost their homes to foreclosure. In addition, the report finds, another 3 million are at risk being displaced from their homes due to foreclosure.

The researchers also say that an additional 3 million kids could be affected by foreclosure because they live in a rental home that is either in foreclosure or at risk of being foreclosed upon. That means more than 8 million children are either affected or at risk

14--The Crappy Jobs of May 2011, economic populist

Excerpt: The two largest occupations were retail sales clerks and cashiers. These two job titles make up a whopping 6% of total occupations. After retail sales people, then cashiers, the next largest occupations where general office clerks, food preparation and serving, registered nurses, waiters and waitresses and customer service representatives. The above BLS chart describes the top 10 occupations in the United States for May 2011. Notice, except for nurses, these are all crappy jobs, below the average wage....

Of the 10 largest occupations, only registered nurses, with an annual mean wage of $69,110, had an average wage above the U.S. all-occupations mean of $21.74 per hour or $45,230 annually. Annual mean wages for the rest of the

10 largest occupations ranged from $18,790 for combined food preparation and serving workers to $33,120 for customer service representatives.

15--Economic Reports Fan Fears, WSJ

Excerpt: Dimmer Jobs Picture and Sluggish Home Sales Cast Doubt on Recovery's Footing...

Rising layoffs, falling home sales and slowing manufacturing activity are sparking fears that the economic recovery is headed for a springtime stall for the third year in a row.

New data Thursday provided fresh evidence that the job market is losing the momentum it built earlier this year, which could pressure fragile housing markets that have been showing signs of life. Separate reports this week suggested that the factory sector, a source of strength in the recovery, now is being hurt by weak growth overseas.

owever, recent signals have been mixed, with worrisome indicators following positive ones—such as consumer confidence and auto sales—that suggest the recovery remains on track. Economists generally believe total economic output in the first three months of the year grew at a rate a bit above 2%—slower than at the end of 2011 but significantly stronger than the same period a year ago.

"It's been the weakest recovery in the post-World War II period, and that hasn't changed," said David Rosenberg, chief economist for investment firm Gluskin Sheff.

New claims for unemployment benefits ticked down last week to 386,000 from 388,000 the week before, the Labor Department said Thursday. But those figures have been repeatedly raised in recent weeks, suggesting that the final number could be higher—and well above the 361,000 notched in mid-February. The less-volatile four-week average rose for the fifth time in seven weeks, a sign that layoffs are increasing again after approaching a four-year low earlier this year.

Economists cautioned that a range of factors, from a historically warm winter to an early Easter, have muddied the weekly figures and made it difficult to identify clear trends....

Nonetheless, the recent figures, combined with an unexpectedly weak March jobs report, suggest the job market is cooling. "It adds to concern about backsliding in job creation after faster employment gains earlier in the year," Credit Suisse economist Jonathan Basile wrote in a note to clients.

The housing market continues to bump along the bottom. Sales of previously owned homes fell 2.6% in March from February, according to the National Association of Realtors, meaning that the rise in buyer traffic during the mild winter hasn't yet translated into strong sales gains....

The manufacturing sector also is showing signs of cooling. Factory output slipped in March after rising a month earlier.

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