1--Fears Rising, Spaniards Pull Out Their Cash and Get Out of Spain, NY Times
In July, Spaniards withdrew a record 75 billion euros, or $94 billion, from their banks — an amount equal to 7 percent of the country’s overall economic output — as doubts grew about the durability of Spain’s financial system.
The deposit outflow in Spain reflects a broader capital flight problem that is by far the most serious in the euro zone. According to a recent research note from Nomura, capital departing the country equaled a startling 50 percent of gross domestic product over the past three months — driven largely by foreigners unloading stocks and bonds but also by Spaniards transferring their savings to foreign banks.
The withdrawals accelerated a trend that began in the middle of last year, and came despite a European commitment to pump up to 100 billion euros into the Spanish banking system. Analysts will be watching to see whether the August data, when available, shows an even faster rate of capital flight.
2--Manufacturing Downturn Spreads Gloom Across Asia, Europe, WSJ
Slowdown in New Orders Hits Factories in China; Euro-Zone Contraction Persists.
3--Majority of New Jobs Pay Low Wages, Study Finds, NY Times
4--Long term real rates in the US hit record lows, sober look
The long term US real rates have touched a new low. The difference between the 10y zero coupon treasury yield and the 10y zero coupon inflation swap rate is now around -88bp. That's roughly how much you'd lose in real terms per year holding long term treasuries....The American savers and retirees all want to thank Bernanke for making their cash savings dwindle even as they lock them up in long-term treasuries to get a "better" nominal rate
5--The risk of low rates, sober look
Interest income as a percentage of disposable personal income (DPI) on the other hand had declined dramatically, far outpacing the decline in debt-service ratio. Consumers are not benefiting from the lower debt burden because their savings accounts are not paying them anything
In fact net household interest income (interest received less interest paid) is near record lows (negative) in dollar terms. That's money coming directly out of US consumers' pockets.
The low rate environment is not the only factor in the delay in retirement, but its impact is unmistakable.
Blake Hurst (the American Enterprise Institute): - In a recent Wells Fargo/Gallup survey, one in three investors report that low interest rates have forced them to delay retirement. Forty-two percent of people now investing say that low rates have made them doubt that their retirement savings will last as long as they will, and nearly 40 percent of retirees report reduced consumption because of low interest rates.
It is true that some households have been helped by record low mortgage rates. But on the whole, the consumer is worse off in a prolonged low interest rate environment. Therefore keeping rates low over the next few years is by no means a riskless strategy for the Fed, requiring a thorough cost-benefit analysis. There is no question however that the costs to US households will be significant.
6--Still No Justice for Mortgage Abuses, NY Times
The Office of Mortgage Settlement Oversight, the monitor of the settlement, released a preliminary report last week showing that 138,000 homeowners had received some form of relief from March 1 through June 30. That is roughly the number that would have been expected under various aid programs in effect before the settlement. Worse, with some three million borrowers now in or near foreclosure, according to Moody’s Analytics, it is nowhere near the level of relief needed to fix the housing market....
Short sales are better than foreclosures, in part because they prevent vacancies that depress house values. But they are not punishment for wrongdoing in any meaningful sense; rather, they allow banks to get higher prices for underwater properties than they could have gotten in foreclosure sales.
Nor do they fulfill the settlement’s main purpose: to keep underwater borrowers in their homes by reducing the principal on their mortgage loans. According to the monitor’s report, $8.7 billion of debt has been written off in short sales versus only $750 million of principal reduction from loan modifications.
7--Breaking Up Banks Is Hard With Traders Hooked on Deposits, Bloomberg
Breaking up today’s banking conglomerates would mean restoring the old model of financing securities firms in the bond markets, which failed in 2008. Without Bank of America’s $1.04 trillion of deposits -- about 80 percent of them federally insured, according to Jerry Dubrowski, a company spokesman -- Merrill Lynch would have to depend again on capital markets to fund trading and back up derivatives contracts.
The big Wall Street banks are today what government- sponsored enterprises such as Fannie Mae and Freddie Mac used to be, producing profits for employees and shareholders even as taxpayers bear the ultimate risk, according to Simon Johnson, a former chief economist for the International Monetary Fund who’s now a professor at the Massachusetts Institute of Technology’s Sloan School of Management and a contributor to Bloomberg View.
“They are the GSEs of today with big downside guarantees and distorted incentives,” Johnson said. “We should restore the free market and cut off the subsidies.” ...
Bank of America pays about $500 million a quarter in interest for its $1 trillion of deposits compared with about $2.5 billion for $300 billion of long-term debt, CEO Brian T. Moynihan, 52, said on a July 18 investor call...
About 99 percent of JPMorgan’s $79 trillion derivatives book is in its deposit-taking subsidiary, according to data as of June 30 compiled by the Office of the Comptroller of the Currency. The figure for Bank of America is 71 percent.
When Merrill Lynch’s credit rating was lowered by Moody’s last September, the company responded by seeking permission to move some of its derivatives contracts to the higher-rated and federally backed Bank of America NA subsidiary. The Fed signaled that it favored granting the request, while the FDIC, which would have to pay depositors if the bank subsidiary failed, objected, people with knowledge of the matter said at the time.
“For a lot of the activities that these companies engage in, the confidence of their counterparties is really confidence not in them, but confidence in the government bailing out their affiliated bank,” Boston University’s Hurley said....
Wall Street today is “deposit-funded, and the deposits themselves are guaranteed by the government,” said Boston University’s Hurley. “It’s a huge part of the franchise of Dimon and Moynihan, and yet they’re going to be the last people on the planet to admit it.” ...
“The financial crisis has shown us that the independent investment-banking model doesn’t really work that well,” Kush Goel, a senior vice president and research analyst in the financial-services group at Neuberger Berman Group LLC, said in a telephone interview. Goel joined Neuberger in 2006, when it was still part of Lehman Brothers.
“Some people might say, ‘I don’t want to buy that, I don’t care what returns they promise, I don’t care what it is, I won’t touch something which is entirely wholesale funded,’” he said.
8--Mexican Democracy: a Post Mortem, counterpunch
9--ISM manufacturing tanks; This is the lowest reading for the PM since July 2009, calculated risk
10--CoreLogic: House Price Index increases in July, Up 3.8% Year-over-year, calculated risk
11--We can't grow ourselves out of debt, no matter what the Federal Reserve does, Guardian
Let's replace our fixation on growth with a steady-state economy focusing on lower consumption, leisure and ecological health
The thinking seems to be: "If you have more money than you know what to do with and are afraid to lend it, how about giving you even more money?" It is like giving a miser an extra bag of gold in hopes that he'll start sharing it.
Most commentators interpret Bernanke's remarks as signalling the possibility of a new round of quantitative easing. If so, the results will likely be the same as before – a brief churning of equities and commodities markets, but little leakage of the new money into the real economy. In all fairness, we cannot blame the banks for their reluctance to lend. Why would they lend to maxed-out borrowers in the face of economic stagnation? It would be convenient to blame banker greed; unfortunately, the problem goes much deeper than that.
The problem that we are seemingly unable to countenance is the end of growth. Today's system is predicated on the progressive conversion of nature into products, people into consumers, cultures into markets and time into money. We could perhaps extend that growth for a few more years by fracking, deep-sea oil drilling, deforestation, land grabs from indigenous people and so on, but only at a higher and higher cost to future generations. Sooner or later – hopefully sooner – we will have to transition towards a steady-state or degrowth economy.
Does that sound scary? Today it is: degrowth means recession, with its unemployment, inequality and desperation. But it need not be that way. Unemployment could translate into greater leisure for all. Lower consumption could translate into reclaiming life from money, reskilling, reconnecting, sharing.
Central banks could play a role in this transition. For example, what if quantitative easing were combined with debt forgiveness? The banks get bailout after bailout – what about the rest of us? The Fed could purchase student loans, mortgages or consumer debt and, by fiat, reduce interest rates on those loans to zero, or even reduce principal. That would liberate millions from the debt chase, while freeing up purchasing power for those who are truly underconsuming.
12--'The Decline of the Middle Class', economists view
13--'Changing Views of Globalization’s Impact', economists view
over the last decade it is not. ... There is no question that over the last decade United States manufacturing has declined, taking away jobs and driving down wages for those who are still employed. Robert Atkinson and colleagues have a useful paper on this topic, showing that the loss of more than five million jobs in manufacturing in a decade was not primarily a technology and productivity story.
The real-world evidence makes it surprising that it has taken economists so long to catch on...
I've expressed pro-trade views in the past, and I still have them. But it's not enough to say, as we do, that the gains from trade are such that (under fairly general conditions) we can make everyone better off and no one worse off. If the actual result is that all the gains go to the top of the income distribution, and all the costs go to the working class -- if the distribution of the gains results in a large class of losers -- then it is much harder to defend. We must find a way to ensure that trade realizes the promise of "lifting all boats" instead of just the yachts.
14--Who's fighting for workers, On The Economy
The solutions are well-known and flow from the diagnoses: better access and improved quality at all levels of education/training; demand side policies (full employment!); stronger bargaining power. (charts)
15--World-Wide Factory Activity, by Country, WSJ
16--Jackson Hole Paper: True Cause of High Unemployment Is Basic Economic Weakness, WSJ
17--Analysis: Shrinking New Orders in ISM Report Worrying (audio), WSJ
U.S. manufacturing activity contracted for the third-straight month in August, according to the Institute for Supply Management’s latest survey, and construction spending surprisingly declined 0.9% in July to a seasonally adjusted annual rate of $834.38 billion.
18--America's Secret Deal with Mexican Drug Cartels, global research
19--Two biggest risks to global economy, prag cap
Risk 1: Earnings growth expectations weaken globally
Recession in Europe continues to squeeze earnings which are nevertheless fairly high overall thanks to tight control of costs,
Chinese industrial profits reportedly fell 5.4% yoy in July, an acceleration versus the previous month. The ferrous metals smelting sector saw the sharpest drop in profits
20--Draghi Told Lawmakers ECB Must Buy Bonds for Euro’s Survival, Bloomberg
21--Cautious Moves on Foreclosures Haunting Obama, NYT
22--Foreclosure to rental scam, Businessweek
23--Private Equity Funds Target Foreclosed Homes As Rental Play, National Real Estate Investor