Friday, August 3, 2012

Weekend links

1--Unemployment rises to 8.3 percent, Bloomberg

The unemployment rate was forecast to hold at 8.2 percent, according to the survey median. Estimates in the Bloomberg survey ranged from 8.1 percent to 8.3 percent. The report showed more people left the labor force. .
Auto Sales

Demand for so-called big-ticket items like automobiles may be cooling. Car and light trucks sold at a 14.1 million annual rate in July, down from a revised 14.3 million in June and indicating little momentum as the industry heads for the best year since 2007, according to Ward’s Automotive Group. ...
Employment at private service-providers increased 148,000, the most in five months and reflecting more jobs in education and health services. Construction companies cut payrolls by 1,000 workers and retailers added 6,700 employees.

Government payrolls decreased by 9,000 for a second month. Average hourly earnings rose by 2 cents to $23.52 in July, today’s report showed. The average work week for all workers held at 34.5 hours.

Underemployment Rate

The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- increased to 15 percent from 14.9 percent. ...

Monthly payroll growth of about 100,000 is needed to keep the jobless rate stable, while growth of roughly 150,000 to 200,000 is needed to lower unemployment, Fed Chairman Ben S. Bernanke said at a news conference in April, citing a “very rough estimate.”


Through June, the U.S. had recovered about 3.8 million of the 8.8 million jobs lost as a result of the 18-month recession that ended in June 2009...The so-called fiscal cliff, in which taxes will rise and government agencies will reduce spending next year if Congress doesn’t act, raises the risk of more cutbacks

2--Broad money collapses in UK, sober look
Bloomberg/BW: - The 80 billion pound ($125 billion) Funding for Lending Scheme with the Bank of England opens today and allows banks to borrow at cheaper rates for as long as four years. An existing plan based on the same principle that’s limited to small companies will be superseded by today’s program.

Unfortunately the central bank policy and Treasury programs are not making their way into the broader economy. The broad measure of money supply is declining at a record rate.
...
In desperation to expand the supply of credit, the UK government is considering some unorthodox and possibly unwise solutions. One of those is nationalizing RBS (a money losing bank that is majority owned by the UK government) in order to force the bank to lend more. Some apparently want the UK government to be in the banking business.


FT: - Senior government figures are discussing the possibility of buying out private investors in Royal Bank of Scotland and fully nationalising it amid mounting frustration at banks’ failure to lend to British businesses.

... Some at the top of government believe the Treasury’s various schemes to free up credit, the latest of which was launched on Wednesday, have not worked, and forcing RBS to lend more is the only way to push the banks into action.

3--U.S. nuclear bomb facility shut after security breach, Reuters


The U.S. government's only facility for handling, processing and storing weapons-grade uranium has been temporarily shut after anti-nuclear activists, including an 82-year-old nun, breached security fences, government officials said on Thursday.

WSI Oak Ridge, the contractor responsible for protecting the facility at Oak Ridge, Tennessee, is owned by the international security firm G4S, which was at the center of a dispute over security at the London Olympic Games.

Officials said the facility was shut down on Wednesday at least until next week after three activists cut through perimeter fences to reach the outer wall of a building where highly enriched uranium, a key nuclear bomb component, is stored.

4--US drone strikes listed and detailed in Pakistan, Somalia and Yemen, Guardian

5--Robert Shiller Questions Whether Housing Has Bottomed, Sees Possible Bubbles, naked capitalism
6--Draghi fails to calm markets, naked capitalism

The problem is that Draghi has to keep the markets appeased until September 12, when the German Constitutional Court will presumably lift the injunction against having the German president sign the treaty that creates the permanent rescue fund, the ESM (my connected German buddies believe the judges are just about certain to lift the injuction, even if it were to take some tortured reasoning to get there). The second obstacle that has to be overcome is that Spain and Italy have to ask for aid. Why is that necessary? Because formal aid comes with strings attached. The about-to-become subject nation signs a Memorandum of Understanding and gives up fiscal sovereignity to get the dough. As Ed Harrison pointed out via e-mail, Germany wants to see the periphery countries capitulate and slash pensions, cut wages, and gut social programs. Spain’s Rajoy and Italy’s Monti are neoliberals and believe in this sort of thing. The odds favor that they’ll put up a show of holding out for a bit and then relent.

7--The Great Draghi Re-think, ft.com

Between the lines the message was perfectly clear. The Bundesbank might not like it, but the ECB will intervene in the bond markets in the foreseeable future. And big time.

From my perspective, the most important piece of the speech was Draghi’s implicit acknowledgement that the ECB has a target rate for bond yields. Draghi described the current yields as unacceptable and he stressed that the ECB “may undertake outright open market operations of a size adequate to reach its objective”.

He did not reveal where the ECB’s pain barrier is. However, the mere acknowledgement that the ECB has a certain threshold in mind is quite something. If Draghi means what he says, it follows that the bank is ready to buy bonds without any limits.

8-- Government workforce drops to lowest level since July 2006, ft.com

Private sector employment rose by just 172 ,000, its largest monthly increase since February, while government payrolls shrank by 9,000.  Private sector employment is now at its highest since December 2008 whereas the government workforce has dropped to its lowest since July 2006, indicating a healthy rebalancing of the economy towards the private sector alongside a shrinking of the state’s share of the economy as government spending cuts bite

9--Draghi again, VOX

He was also as explicit as one can be about intervention in bond purchases:


"The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective. In this context, the concerns of private investors about seniority will be addressed. Furthermore, the Governing Council may consider undertaking further non-standard monetary policy measures according to what is required to repair monetary policy transmission. Over the coming weeks, we will design the appropriate modalities for such policy measures."

10--Paul Krugman: Debt, Depression, DeMarco, economist's view


many economists believe that the overhang of excess household debt, a legacy of the bubble years, is the biggest factor holding back economic recovery. ... And the obvious place to provide debt relief is on mortgages owned by Fannie Mae and Freddie Mac...


The idea of using Fannie and Freddie has bipartisan support. ... But Edward DeMarco, the acting director of the agency that oversees Fannie and Freddie, refuses to move on refinancing. And, this week, he rejected the administration’s relief plan.

Who is Ed DeMarco? He’s a civil servant who became acting director of the housing finance agency after the Bush-appointed director resigned in 2009. He is still there, in the fourth year of the Obama administration, because Senate Republicans have blocked attempts to install a permanent director. And he evidently just hates the idea of providing debt relief.

Mr. DeMarco’s letter rejecting the relief plan made remarkably weak arguments. He claimed that the plan, while improving his agency’s financial position thanks to subsidies from the Treasury Department, would be a net loss to taxpayers — a conclusion not supported by his own staff’s analysis...

The main point, however, is that Mr. DeMarco seems to misunderstand his job. He’s supposed to run his agency and secure its finances — not make national economic policy. If the Treasury secretary, acting for the president, seeks to subsidize debt relief in a way that actually strengthens the finance agency, the agency’s chief has no business blocking that policy. Doing so should be a firing offense

11--'Vengeance for ECB Bond-Buying Will Be Bitter', der speigel

Center-left Süddeutsche Zeitung writes:


"The greatest challenge for ECB head Mario Draghi is to make it clear to the people of southern Europe that he will only help if they continue to make radical reforms to their economy. On Thursday he chose a clever dual strategy. He spoke of the possibility of bond purchases and other measures, but only if the governments in question fulfil certain conditions. In other words: there is no free money."

Center-right Frankfurter Allgemeine Zeitung writes:


"Even if the ECB intervention hasn't yet arrived, it will eventually. Central bankers in Europe believe it is very likely that the ECB will ultimately jump in -- at the latest in September, following the German high court ruling on the bailout fund, the European Stability Mechanism. Ultimately, the ESM will make direct purchases of sovereign bonds and the ECB will fire the monetary cannon."

"The actual mandate of the ECB, price stability, has faded into the background during the crisis. So far, the ECB has taken its duty of combating inflation seriously. Now, though, dangers are growing on the mid- and long-term. The greater the quantity of questionable sovereign bonds on the books, the higher the potential losses. Even worse is the potential damage to the bank's reputation: The central bank is to become subordinate to finance ministers in crisis-stricken countries. In Draghi's homeland Italy, such a situation was the norm for decades -- and the result was chronic inflation. Now, he is accepting a repeat of history. On the short term, it will create relief in the debt crisis. On the long term, vengeance will be bitter."

Conservative daily Die Welt writes:

"The ECB would be well-advised to give way to politicians this time. With his grandiose announcement that he would save the euro at any price, Draghi has already come dangerously close to a red line that a central banker should never cross. The border between fiscal and monetary policy -- which has already been blurred to the point of being unrecognizable -- would be completely nullified if the ideas being discussed were to become a reality."

It is also sham for politicians to reject the collectivization of debt or any form of a transfer union, only to leave it to the ECB to finance sovereign debt through the back door by printing more money -- to everyone's detriment. Draghi and his colleagues are responsible for the euro, but they are not democratically elected officials. Within their constraints, they can certainly help save the currency union. But the decision is a political one. … Fresh billions alone, regardless of their form, won't solve the problem."


Financial daily Handelsblatt writes:

"Because politicians have failed in their fiscal policies, they are leaving it up to monetary policymakers. Certainly it is easier to wash their hands of it. … But this won't help. The governments must govern. They have to figure out how much solidarity there is, and how much they can get their voters to suffer. Then they need to find common ground on how the euro can be rescued without printing new money. One thing is clear: Monetary policy alone cannot replace these decisions. It will only delay them. Merkel, Monti, Hollande and the other leaders must get their hands dirty, as uncomfortable as it may be."

The Financial Times Deutschland writes:

"It would be nice if (everyone could agree on the course communicated by Draghi on Thursday) so as not to limit the psychological effect of the announcement. But there was opposition from Germany, once again from Bundesbank head Jens Weidmann, who apparently was the only one on the Governing Council to vote against Draghi's plan. Draghi isn't the only one who is disgruntled. It is indeed inadvisable to sacrifice ECB unanimity. The Bundesbank head is fostering distrust where the opposite is needed…."

12--Housing: Good News Keeps Rolling In, credit writedowns

...on July 13, 2012, reporting for AOL Real Estate, Teke Wiggin wrote about the REO market. That is, "Real Estate Owned" by the lender. Wiggin discovered, "as many as 90 percent of REOs are withheld from sale, according to estimates recently provided to AOL Real Estate by two analytics firms. It’s a testament to lenders’ fears that flooding the market with foreclosed homes could wreak havoc on their balance sheets and present a danger to the housing market as a whole." (And to Fannie Mae, "which owned 114,000 foreclosed homes as of March 31, [2012]…. "[I]n the first quarter of 2012, it was unable to market 48% of its REO inventory…")


Releasing house inventory would not only wreak havoc on bank balance sheets but also damage the impregnability of beloved homebuilders. ....

The title of Wiggin’s story: "’Shadow REO’: As Many as 90% of Foreclosed Properties Held Off the Market," is confirmed by Realty Trac, which "recently found that just 15 percent of REOs in the Washington, D.C., area were for sale, a statistic that is representative of nationwide numbers."...

Americans need some money, maybe not much, but some, to buy a house now. They can still borrow more than they need on credit cards and student loans (a scandal that will be compared to subprime and home equity cash outs), but their "real" income is falling. It has been for years. The Great Depression did offer a sunny side often overlooked: prices fell. That could be a good thing if they fell more than incomes. Today, salaries fall short of rising prices. (The front-month corn, wheat, and soy price index (in the U.S.) is now 5% above the previous all-time high of 2008).


Confirmation of the Dreary Depression spills out: A good number of second-quarter, corporate financial statements have shown steady or rising earnings with slowing or falling revenue growth. Many of these efficiencies (the ability to register acceptable earnings with lower sales) have come from cost cutting, with job layoffs leading the cuts.

According to the July 18, 2012, King Report, more Americans signed up for disability in the second quarter of 2012 (246,000) than found jobs (225,000). The Congressional Budget Office reports that household income fell 12% from 2007 through 2009, with income among the top one percent falling by one-third

13--Rising home values will halt strategic default, OC Housing News

In a separate Zillow survey conducted by Ipsos®, 59 percent of homeowners said they would not make the decision to strategically default if they were underwater on their home by more than 40 percent[i]. Nearly 75 percent of homeowners in the U.S. with an underwater mortgage are underwater by 40 percent or more, according to Zillow’s first quarter Negative Equity Report[ii]....

The Zillow Home Price Expectation Survey additionally asked the same group of economists and housing analysts their stance on the adoption of government-sponsored mortgage principal forgiveness initiatives for underwater borrowers. The survey found that 72 percent of respondents opposed any adoption of such programs, while 28 percent were in favor...

To be coldly calculating about it, it makes no sense to forgive principal or reduce interest rates for that matter on underwater loanowners. Most of them simply won’t strategically default even if it’s the best financial decision. They are making an emotional decision, and what they really need is hope of a brighter future. Once they have that, they will hang on forever if necessary. It’s not logical, but it is how loanowners think. I fully expect to see strategic default decline considerably once the general public accepts the idea we are at the bottom of home prices — whether we really are or not.

14--Foreclosure Resurgence Edition, Seattle Bubble
15-- 40 percent of recent graduates stated they have put off buying a major item like a home or a car due to their college debt, Dr Housing Bubble

Rutgers University did a really interesting study with their recent graduates. Some of the perceptions shared in the research are enlightening:


The item that stands out the most is the delay of making a major purchase. 40 percent stated they have put off buying a major item like a home or a car due to their college debt. This is a new phenomenon. Never had we had such an indebted young population with student debt now towering over $1 trillion. It is impossible to suggest that this level of debt is going to have little impact on people and how they view future purchases. Also in the above chart, you see that 27 percent indicated that they will move back home to save money. This data coincides with Census figures showing millions of young Americans have moved back home during this recession instead of going out there and starting a new household via renting or buying....

The connection between high student debt and the economy is now being explored much more carefully:


“(FT) Proponents of such schemes say high student loan burdens are hindering the US recovery. Studies show that recent graduates from US universities are delaying purchases of cars and homes, inhibiting near-term economic growth.

Rohit Chopra, the official responsible for student loans at the Consumer Financial Protection Bureau, added his voice to the debate last week, telling the FT that the student debt problem was hurting the US economy. “Student debt may be more intertwined with the housing market than we realise,” he warned.”

15--The double-edged sword of low interest rates – In the last five years the drop in interest rates has made a $500,000 mortgage carry monthly costs of a $350,000 mortgage back in 2007, Dr Housing Bubble


The typical 30-year fixed rate mortgage has fallen into the 3.6 percent range. Compare that to 6.7 percent only five years ago. How big of a difference does this make? Take a look at a scenario for a $500,000 mortgage....

The difference is a payment of $3,700 and $2,700. That is a massive difference. To put this into a more direct perspective, a $500,000 mortgage at 3.68 percent would have a similar PI as a $350,000 mortgage at 6.7 percent. These low rates in other words have pushed purchasing power so high, that the increase in a place like Southern California has caused leverage to jump by $150,000. That is enormous. This is nearly the median price of a US home.


More importantly however is that this low rate environment is being caused by weak economics and declining household income. That is actually the bigger economic story. It would be one thing if overall household incomes were increasing and the economy was actually becoming healthier organically. Yet that is not the case. Here in California we have many years of major budget deficits and a big tax vote coming up this November. Underemployment is near 20 percent so these items will add pressure to housing prices rising.

16--Say Goodbye to Social Security, Rob Urie, counterpunch
In a New York Times editorial (link) written in 1993 the late economist John Kenneth Galbraith made a point that seems to have been lost on subsequent generations—many in the economic elite benefit from the destitution of others. Even more to the point, activist government could put the unemployed back to work tomorrow, but at a cost to the elite. By tying economic policies long known to work to competing economic interests, Dr. Galbraith explained the current conundrum. Economies in the West aren’t working because a small economic elite benefits from this state of affairs....

Under the guidance of Republican and Democratic administrations, labor’s take in wages and salaries has fallen from 53% of GDP in 1970 to 44% in 2012 (link). The effective tax rate on corporations is currently half of what it was in 1970 (source: BEA). Likewise, tax rates on the wealthy have been dramatically reduced. And these policies have produced exactly the outcomes they were designed to produce....

Recall the rationales that were sold along with these policies—government revenues would increase if taxes were cut. Market based policy solutions (health care, education, military) would provide better results for less money because private enterprise is more efficient than government. Shifting social resources from government to private interests would increase social welfare. None of this has happened and yet these remain the only policies being promoted and implemented by the political establishment. Conspicuously, copious evidence that these policies haven’t worked has swayed no one in the political establishment.


17--Afghan war crimes report suppressed, Uruknet

The suppression of the war crimes report would not be possible without US complicity. According to the New York Times, the US embassy in Kabul objected to its publication; US officials said that its release would "open up old wounds."


The report exposes not only Afghan warlords, but the US and its allies, including Saudi Arabia and Pakistan. They funded, armed and trained the various reactionary Islamist militias that fought the Soviet-backed regime in the 1980s, tore the country apart in the 1990s, and have ruled it in collaboration with Washington over the last decade.

18--The CIA proxy war in Syria and the pro-imperialist “left”, Alex Lantier, WSWS

These powers are not waging a struggle for democracy as part of the “Arab Spring”—the wave of revolutionary working class uprisings that toppled US-backed dictators in Tunisia and Egypt last year and terrified Washington and its Middle East allies. They are fighting a reactionary war to oust Syrian President Bashar al-Assad and install a pro-US puppet regime in Damascus.


Washington has set up a “nerve center” for the Syrian insurgency in Adana, Turkey, the site of Incirlik Air Base, a major US military and intelligence installation only 60 miles north of the Syrian border. This region of southern Turkey is now a key transit point for weapons and pro-US foreign fighters traveling to fight in Syria.

The Syrian “rebels” largely act on operational instructions from Washington. US forces communicate regularly through their allies with “rebel” forces inside Syria, providing them with reports on Syrian troop movements to guide them on the ground.

Islamist fighters are pouring in to join the fighting in Syria from around the Middle East, including US-occupied Afghanistan and Iraq and the Islamist US puppet regime in Libya, as well as Algeria, Chechnya and Pakistan. Former US Special Operations officials told the press that many arrive with help from Al Qaeda in Syria, which relies on the services of “traffickers—some ideologically aligned, some motivated by the money.”

In the Orwellian world of the American media, no attempt is made to reconcile Washington’s claims that it is occupying Afghanistan simply to wage a “war on terror” against Al Qaeda with its de facto alliance with Al Qaeda in Syria...

Obama’s reassurance that the US is providing only “non-lethal assistance” to anti-Assad forces is a cynical lie. The US is waging a brutal civil war by proxy that has already cost tens of thousands of lives and displaced hundreds of thousands of people.


Its goal is to install a US puppet regime in Damascus to isolate and prepare for war against Iran, remove a potential enemy of Israel, and advance a broader agenda of complete dominance of the Middle East by US imperialism...

Washington’s covert backing for the Syrian “rebels” lays bare the role of pro-imperialist pseudo-left groups—like the International Socialist Organization (ISO) in the US, the Socialist Workers Party (SWP) in Britain and the New Anti-capitalist Party (NPA) in France—which have promoted the war in Syria. Their “leftism” amounts to nothing more than giving “left” justifications for the crimes of American and European imperialism.


The ISO openly declares its support for intervention. In an article by Yusuf Khalil and Lee Sustar in its Socialist Worker publication, it writes: “The increasing role of the armed struggle raises the question whether to accept arms and support from the West … While many in the Syrian revolutionary movement are opposed to US and Western intervention, they will take whatever help they can get.”

Such arguments, which never analyze the forces referred to as “revolutionary,” are stunningly cynical. When did the CIA, Islamic fundamentalism and the Turkish army brass become forces for liberation

19--Central Banks Can’t Save the World, Bloomberg
But it misses important context, and there is more at play here. The unfortunate reality is that, unlike during the financial crisis of 2008 and 2009, central banks can’t be the saviors this time around for a struggling global economy. Other government entities, with better-suited policy tools, need to step up to the plate.

Why did central bankers disappoint so many this week? I suspect that they wish to keep pressure on other policy makers who demonstrate none of the necessary urgency. The bankers also realize that their policy tools are increasingly less effective. To quote Mario Draghi, president of the ECB, central banks “cannot replace governments.” There’s something else: Central bankers more than anyone are being careful to keep dry whatever ammunition they still have. ....

central banks may be part of the solution, but increasingly they will play a smaller and smaller role. The tools they have available are losing their firepower. The burden is now on other policy makers and the political leadership. Only they have the tools that can address the fundamental problem of too little growth, too much debt in the wrong places, and too little private capital being channeled to investment and other productive activities.




















































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