Monday, November 5, 2012

Today's links

1--The recession caused the soaring deficits not "surge in promised benefits," , CEPR

What then explains the current weak economy? We had bubbles that led to enormous overbuilding in both the residential and non-residential sectors. As a result, construction continues to be depressed and will remain depressed until vacancy rates fall back to more normal levels.

The other reason is our large trade deficit. It is currently close to 4.0 percent of GDP ($600 billion a year) and would be near 5 percent of GDP ($750 billion a year) if the economy were near full employment. In the late 90s and the last decade the lost demand from the trade deficit was filled by demand generated by the stock and housing bubbles, respectively. There is nothing other than the budget deficit to fill the demand at present.

This gives us the opportunity to correct Samuelson's third assertion. There were no big new unfunded spending programs or permanent tax cuts that led to the jump in deficits in recent years. It was entirely the result of the collapse of the economy. This caused tax collections to plummet and spending on items like unemployment insurance to rise. In addition, there were temporary stimulus measures, like the payroll tax cut, intended to provide a boost to the economy. However if the unemployment rate fell back to its pre-recession level, deficits would again be very modest as shown below.

The deficits of just over 1.0 percent of GDP that we were seeing before the economy collapsed could have been sustained indefinitely even if the projected expiration of the Bush tax cuts did not push the budget into surplus. The debt to GDP ratio was falling at the time. Contrary to Samuelson's assertion about the deficits being fueled by a "surge in promised benefits," they were caused by a collapse of the economy, end of story.

2--The Difference Between Bush's First Term Vs. Obama's First Term In One Devastating Chart, BI

3--The slide in wages, NYT

Job growth has been modest but steady in the last few months. Wages, on the other hand, have been falling since August, after adjusting for both seasonality and price increases.

4--Why is the left defending Obama, Salon

...if you look at the data, is that Barack Obama has been a terrible President and an enemy to progressives. Unemployment is high. American household income since the recovery started in 2009 has dropped 5%. Poverty has increased substantially. Home equity – the main store of wealth for the middle class – has dropped by $5-7 trillion, in contrast to the increase in financial asset values held by Obama’s friends and donors. And this was done explicitly through Obama’s policies

5--Going over the fiscal cliff, econobrowser

The "fiscal cliff" refers to a broad set of tax increases and spending cuts that under current U.S. law will take effect in January. A recent assessment by Bank of America Merrill Lynch estimates the tax increases in 2012 could come to $470 B and spending cuts another $250 B, for a combined fiscal shock of $720 B, or 4.6% of GDP.

6--Waiting for housing to drive the U.S. economy, Reuters

More than 20 percent of U.S. mortgages were underwater at the end of June, amounting to 10.8 million homes. Of those, 1.8 million borrowers would recover if prices rose 5 percent, according to data analysis firm CoreLogic.

7--More on the bailouts, OC Housing

On one side of the ledger, we see that the big banks are bigger than ever, more than 90% of the gains in GDP in the past four years have accrued to those in the top 1% of the income distribution, and total Wall Street pay is still near record highs despite a sharp drop in employment....

On the other, we find that median net worth fell by 40% since 2007, real median income is still 8% lower than in 2007, there are still more than 7 million fewer full-time jobs than in 2007, and there have been at least 4 million foreclosures, many of which could have been prevented through investor-friendly government policies.

8--Did the foreclosure pipeline increase last month?, Dr Housing Bubble

There was an interesting trend that emerged last month. 2012 has seen a reversal in the housing market yet this topic has been largely absent from all debates. The piece of data that was released addressed the still formidable foreclosure pipeline. Foreclosure starts saw a 260,000 increase from the previous month. It is expected that actual foreclosures are decreasing as the pipeline is being sold and as the economy recovers, this figure will slowly move down. Yet to see the foreclosure starts pipeline increase goes counter to everything we are hearing. What gives?

It was surprising for some to see the earliest distressed pipeline bucket increase by 260,000 last month. The reason this was surprising is that there has been a steady decline in foreclosure starts for over a year. What this means is that we will be seeing more of these foreclosure hit the market in the next few months. Why the sudden jump? Banks are being calculating and want to sell into a positive trend for the housing market. They see big investors over bidding and buying properties, many times without viewing the place in lots, and pushing prices higher. Yet at some point markets do get saturated......

There is a modest pickup in new home sales but it hardly registers on the chart above. The real demand from Wall Street and many funds is for cheaper properties. So far, we have yet to see this trend impact the new home sales market. We are well below the annual trends going back to 1960. All the activity at the moment is at the lower end plus a major part of the market (above 30 percent) is being dominated by investors....

If housing is in such a good trend, why are we not seeing construction jobs pickup? The reason again is investor demand is for existing lower priced homes while flippers are targeting high priced markets for used homes....

The trends in 2012 largely came from the low rate interest environment and massive investor buying. Will this keep up into 2013? For the investor portion, we are already seeing many turn away from places like Arizona where the market is saturated. Time will tell but those trying to apply open market economic theory here are contending with a deux ex machina with the Fed and government policy. This is a command control housing market being driven by policy, banking intervention, and the government

9--Presidential campaign ends, WSWS

Neither candidate will tell the American people the truth: the next administration, whether headed by a Democrat or a Republican, will launch attacks on the living standards, social benefits and democratic rights of the American people on a scale never before seen. This will be combined with stepped-up military aggression overseas, from the Middle East to the Pacific.

Whether Obama or Romney is inaugurated next January 20 will affect only the details of this political prospectus, not its broad outlines. Both candidates, and the parties they head, represent and defend the interests of the American financial elite, the most reactionary and rapacious social force on the planet.

This was the purpose of an op-ed column by Obama published over the weekend in the Wall Street Journal, side by side with a similar piece by Romney. Addressing his audience of fat cats and corporate executives in the leading US business newspaper, Obama reiterated his loyalty to capitalism, writing, “Our free market is the engine of America’s progress, driven by risk-takers, innovators and dreamers.”...

The Democratic and Republican candidates are reassuring the ruling class that once the election is over, whatever the outcome, they will carry out the principal demands of Wall Street: dramatic cuts in social spending, particularly for entitlement programs like Social Security, Medicare and Medicaid, to slash the federal deficit.

There is breathtaking cynicism involved here. Each candidate has accused the other of supporting enormous cuts in Medicare spending, while claiming to defend the program that underwrites health care services for tens of millions of elderly and retired people. The truth is that both candidates support such cuts, but seek to conceal this fact from the American people until after the election.

Similarly, the two campaigns have never openly discussed the plans for US military intervention in Syria and war against Iran, although detailed preparations are taking place at the Pentagon, in Israel, in the Persian Gulf, and in other locations where US military forces are deployed.

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