Wednesday, November 14, 2012

Today's links

1--Geithner’s Money Fund Overhaul Push Sparks New Opposition, Bloomberg

2--Retail sales sag as superstorm Sandy slows auto purchases, Reuters

3--Revolution and Evolution in Central Bank Communications, Janet Yellen, FED
"Inflation targetin" writ large--QEternity

4--Pent-up demand from boomerang buyers may not materialize, OC Housing

A big part of the bullish sentiment toward real estate is the believe that former owners who lost their houses in foreclosure will return in droves to mop up the supply of shadow inventory and push prices higher. But what if they don’t come back? What if they were so burned by the experience that they choose a lifetime of renting instead? A recent study from the federal reserve suggests this may be the case. Almost 75% of those who lost their homes to foreclosure may never return, and if they don’t the so-called recovery may be much weaker than the bulls expect.

Credit Access Following a Mortgage Default

By William Hedberg and John Krainer — October 29, 2012
Borrowers who default on mortgages return to the mortgage market at extremely slow rates. Only about 10% of borrowers with a prior serious delinquency regain access to the mortgage market within 10 years of their default
5-The CBO’s Latest Con Job: Disappearing Data to Deter Analysis of its Deficit Scaremongering, naked capitalism 

6--Economic Optimism Plunges In Post-Vote IBD/TIPP Poll,

The latest IBD/TIPP Poll shows that, at least as far as economic optimism is concerned, America very much remains a house divided.
The bellwether Economic Optimism Index for November plunged 10%, from 54 in October to 48.6 in November, as a major part of the electorate took stock of the vote's outcome and didn't like what it saw for the economy.
The partisan breakdown for optimism is telling. Not surprisingly, sentiment among Democrats improved — 4.2%, from 70.8 in October to 73.8 in November.
But Republican poll respondents, who for months were below the break-even level of 50 for optimism , expressed an even gloomier outlook over the economy's future.
The optimism index for this group plunged 41.1%, from an already-low 42.1 in October to 24.8 in November — the lowest reading ever for Republicans

7---For-Profit Colleges: A “Business Model” That Blew Up, Testosterone Pit

Career Education, when it reported its quarterly financial results, shed more light on an industry that had ruthlessly taken advantage of quirks in the American way of funding higher education, and that, even more insidiously, had preyed on gullible prospective students who were desperately trying to better their lives. Then it handed the tab to the taxpayer who couldn’t say no. A perfect scam. And it contributed to a ruinous mountain of student loans [ Next: Bankruptcy for a whole Generation].
In the halcyon days of 2010, Career Education had $2.09 billion in annual revenues. Then a free-fall. By September 30, quarterly revenues hit $333 million. Enrollment was down 23%, in the health education category 41%. An additional 900 people will be laid off, on top of the previously announced 1,300. The company will “gradually” close 23 of its 90 campuses. Red ink is gushing, with no end in sight. The stock has plunged from $70 in June 2004 to today’s 52-week intraday low of $2.60....

Turns out, that number included graduates who were working as wait staff, baristas, prep cooks, and the like. The complaint further alleged that the college fabricated outright some job placement data. The company’s new job placement rates are mostly below 65%, thus below the minimum required by the Accrediting Council for Independent Colleges and Schools.

8---Global housing: big losers and policy winners,

9--Fed Watch: Yellen Supports Explicit Guideposts, economists view

The Fed is heading toward a policy direction that would explicitly allow for inflation somewhat above target and unemployment below target as long as inflation expectations remained anchored. One would think this should put upward pressure on near term inflation. But Ryan Avent notes the opposite is occuring:
But since mid-October, there has been an unmistakable reversal in the inflation-expectations trend. Based on 5-year breakevens, all of the September spurt has been erased. And 2-year breakevens are back at July levels. Given my optimism over the Fed's September moves and the apparent strength of underlying fundamentals in the economy, I would like to disregard this trend, but one should be very reluctant to abandon guideposts that have served one well just because they've moved in an inconvenient way.... 
The Fed is moving in this direction, promising to further lock-in a program of aggressive large scale asset purchases. But is this the end of the road for policy? "Open-ended" sounds much like "unlimited." And unlimited sounds like the end of the road. If the economy stumbles, will the Fed pull a new trick out of its policy bag, or is that bag finally empty? And if that bag is empty, then we will need to turn to fiscal policy if the economy stumbles. This is worrisome given the expected path of fiscal policy - tighter, just degrees of tighter. Which means for the moment we just cross our fingers and hope the economy gains traction on the back of housing and accelerates as 2013 progresses

10---Why Is Labor Force Participation Shrinking? off the charts

CBO notes that “the economic downturn [and] weak growth in output during the recovery” have also dampened participation. In other words, the downturn and lack of job opportunities have driven many people from the labor force and reduced the important employment-to-population ratio.
As we’ve written, stimulus measures could improve labor force participation by boosting job creation. Getting Americans back to work would raise incomes, reduce poverty, enhance retirement security, and lessen pressures on disability insurance and a host of other programs.

11---Monetary policy---Is there a problem? , The Economist

since mid-October, there has been an unmistakable reversal in the inflation-expectations trend. Based on 5-year breakevens, all of the September spurt has been erased. And 2-year breakevens are back at July levels. Given my optimism over the Fed's September moves and the apparent strength of underlying fundamentals in the economy, I would like to disregard this trend, but one should be very reluctant to abandon guideposts that have served one well just because they've moved in an inconvenient way.

I can nonetheless think of two reasons why expectations might be moving differently now than earlier in the recovery. One is that the growing disjoint between the American economy and the world economy (and Europe especially) means that divergences between core inflation and headline inflation (used in TIPS) are growing. For much of the recovery the global economic outlook, the American economic outlook, and commodity prices have tended to move together. But commodity prices have actually fallen sharply since early September, even as American data have improved. It's possible, then, that expectations driven by the outlook for commodity-dependent headline inflation are weakening without impugning the American recovery. Indeed, there may be more room for rapid American growth if commodity price pressures don't squeeze American household budgets or make the Fed nervous.

A second possibility is that the American economy is much closer to the point at which nominal rigidities are non-binding, such that inflation expecations are less important for sustaining recovery than they used to be. The recovery in housing markets may speed household deleveraging even as saving rates level off

12--Housing Busts, FRBNY

13---Mortgage industry watches Congressional, CFPB leadership changes closely, Housingwire

Raj Date, the number two executive at the Consumer Financial Protection Bureau, is stepping down from his post next year, leaving a spot where he currently wears two hats: industry expert and consumer advocate.

"Raj brought continuity," said Mortgage Bankers Association CEO David Stevens. "He also had experience in the private sector having worked for Capital One."
Raj additionally served Deutsche Bank ($42.72 0%) before becoming de facto leader of the CFPB during the period stretching from the bureau's July 2011 launch and the appointment of current director Richard Cordray

14--Global Business Confidence Falls to 2009 Levels, sober look

15---Obama’s second term: Will he reduce housing subsidies or reflate the housing bubble?, oc housing

16--More "fiscal cliff", CEPR

In a narrow sense, a short voyage off the cliff shouldn’t crush the economy too badly. The CBO estimates that the full brunt of the policies add up to about $56 billion a month, which is a lot of money — about 4 percent of GDP — but should, in theory at least, do only modest damage to the economy if it lasted only a few weeks. One month of austerity along those lines would subtract only about a third of a percentage point from growth for the full year, before accounting for multiplier effects....

The second point is that there is a reason to take a risk, which seems minimal when we focus on the evidence rather the things that are "easy to imagine" at the Post. The issue is more than $700 billion in tax revenue from rich people over the next decade. If the rich don't pay it, the rest of us will, since it is unlikely that we will get the folks in Congress to raise their deficit targets by this amount.
So the question boils down to whether the rest of us want to lose $700 billion in taxes or from programs that benefit the middle class, like Social Security and Medicare, or do we want to take the Post's imaginary risks associated with letting the tax cuts expire. The choice is yours, America!
NYTimes: - Based on demographics and previous trends in household formation, it looks as if the country still has about 1.8 million fewer households today than it would have in a more “normal” economy, and most of that total household deficit is accounted for by the lower numbers of households formed by those in the 15-34 age group. Demographics suggest that there should be about 1.1 million more households headed by younger Americans today than there actually are.
When all the ballots are tallied, Obama’s vote will be 7 to 8 million below his vote four years ago. The decline is not a result of support for Romney, whose vote total was lower than that of Republican candidate John McCain in 2008. Rather, broad sections of the population expressed their disillusionment and alienation from both parties and the entire political set-up by not casting a vote.

Under the impact of the economic crisis and in response to the policies of the ruling class, the disillusionment of millions of workers and youth will turn toward anger. What political form will this anger take?

The array of pro-Democratic Party institutions—from the trade unions to the liberal and pseudo-left organizations and publications—are compromised by these developments. They hail Obama’s reelection as a great victory for “progressives” and look on the alienation of workers from the Democratic Party with fear and foreboding.
Thus far, deflationary forces have been Japan’s signature problem, with the BOJ unable to hit its quite modest 1 percent target for annual inflation. In nominal terms Japan’s economy is now the smallest it has been since 1993, hardly a ringing endorsement of campaign after campaign of quantitative easing and other extraordinary measures.
“The most important lesson of the last 20 years in Japan and of the last four years in western economies is that monetary policy is ineffective when there is no private demand for funds,” Nomura economist Richard Koo wrote in a note to clients before the data was released.
“In Japan, there has been little or no private loan demand since 1995, when the BOJ brought interest rates down to near-zero levels. And neither the economy nor asset prices have recovered, even though, as BOJ Governor Masaaki Shirakawa has noted, the BOJ embarked on quantitative easing fully eight years before its counterparts in Europe and the U.S.”

Koo coined the phrase ’balance-sheet recession’ to describe a contraction driven and reinforced by the paying back of debt. That idea has taken hold, and an appreciation of the limits of monetary policy has spread. Koo’s prescription, for large and decisive amounts of government stimulus and for investment and tax incentives, is less widely accepted.
With Japan’s government debt at a huge 230 percent of GDP, there is not sufficient political consensus there for a large new round of stimulus, and amid debate over the timing of elections the opposition has refused to give Prime Minister Yoshihiko Noda’s government the right to borrow to fund this year’s deficit.
21---Where do we go from here? Richard Koo, you tube

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