Saturday, December 1, 2012

Today's links

1--November sales slump in US reflects worsening social crisis, WSWS

Despite a frenzied media campaign to spur holiday shopping, major US retail chains reported declines in sales for November. The 16 retailers tracked by Thomson Reuters that reported results on Thursday recorded an overall increase of 1.6 percent at stores open at least a year. This was less than half the 3.3 percent jump predicted by analysts...

Exuberant reports of record-breaking crowds storming the stores and buoyant sales volumes are belied by the dismal results reported Thursday....

Despite the economic privation indicated by the sales figures, major corporations and their multi-millionaire shareholders are doing better than ever. US corporate profits again hit a record high in the third quarter, according to a report issued Thursday by the Commerce Department.

US corporations made $1.98 trillion after taxes for the three-month period July through September, up from 1.92 trillion in the second quarter and 1.90 trillion in the first. The rise in profits was led by financial corporations, whose earnings rose by $71.3 billion. Profits for non-financial corporations, by contrast, fell by $1 billion.

How are record profits being posted in the midst of mass unemployment and an economic catastrophe for tens of millions of people? By means, in the first instance, of a relentless attack on workers’ wages, benefits and working conditions being carried out by big business with the support of the Obama administration and Congress.

This process is bolstered by the Federal Reserve’s provision of unlimited cheap credit to the banks and financial markets, which is inflating financial assets. Stock values of financial firms rebounded this year to levels that prevailed prior to the Wall Street crash of 2008. The pumping of trillions into the financial system by printing dollars comes on top the trillions of dollars in taxpayer handouts to the banks.

This is benefiting the corporate-financial elite, not the overwhelming majority of the population. There has been no real increase in the portion of the population that is employed, and real wages have been plummeting since 2008. The labor department reported this month that average hourly earnings for non-supervisory workers increased by only 1.1 percent over the past year, the weakest increase in wages since 1965, when records began to be kept. This figure is well below the rate of inflation.

The real nature of the Obama “recovery” is summed up by the fact that in its first two years, 93 percent of all income gains went to the richest 1 percent of households.

Corporations are meanwhile sitting on the largest cash hoard in history. Earlier this year, David Cay Johnston, writing for Reuters, suggested that the amount of cash and liquid assets on the balance sheets of major corporations could be as high as $5 trillion.

Meanwhile, corporate investment continues to fall. Half of the 40 largest corporations in the US are planning to slash investment this year and the next, according to a survey by the Wall Street Journal, and business investment in equipment and software has stopped growing for the first time since 2009.

Big business is holding the entire country to ransom, refusing to expand production and hire workers in order to force through its agenda of austerity and poverty-level wages.

2---One month since Hurricane Sandy, WSWS

A month has passed since Hurricane Sandy devastated coastal and low-lying sections of New Jersey, New York and Connecticut, taking the lives of more than 100 people and destroying the homes and livelihoods of tens of thousands more.

The TV cameras and reporters have long since departed. The pledges from politicians, beginning with President Obama, to do “everything in our power” to aid the storm’s victims have already been forgotten.

The brutal reality of families left to their own devices by a political and economic system that is utterly indifferent to the plight of working people emerges more clearly with each passing day.

Tens of thousands of families remain homeless, many with little prospect of ever returning to the homes that were destroyed or heavily damaged by the hurricane. Eight-and-a-half million homes and businesses lost power, and some have not had it restored to this day.

Aid available to ruined homeowners is utterly inadequate to cover their losses and rebuild. On top of this, residents of the worst hit areas of Queens, Staten Island, Long Island and the New Jersey shore—and even those along the Northeast US coast who were not severely impacted—are about to be hit with massive increases in flood insurance costs that will force many families to move away for good...

The class divide that has been growing for decades and has deepened during the so-called “recovery” from the financial crash of 2008 was on full display. While little or nothing was done to provide relief to hundreds of thousands of storm victims, the New York Stock Exchange was up and running two days after the storm. Meanwhile, residents of city housing projects in flooded areas remained without power for weeks and were forced to walk up many flights to their apartments in the dark.

The headquarters of Goldman Sachs was protected from flooding, while residents of Brooklyn’s Red Hook section, Staten Island and other areas were left to fend for themselves. Evacuation centers were crowded and unprepared to deal with the many families that needed assistance, while the wealthy stayed in high-priced hotels or one of their multiple residences...

The hurricane was not only a natural disaster. It exposed the rottenness of the capitalist system, which cannot ensure a stable and secure environment, much less decent jobs and living standards for the vast majority of the population. Trillions of dollars have been spent to bail out the banks and finance imperialist wars, while the social crisis grows ever more desperate, with millions facing long-term unemployment and millions more losing their homes to foreclosure as well as their medical insurance and pensions.

In the wake of the elections, the ruling class, under the pretext of the “fiscal cliff,” is preparing even more brutal attacks on the working class. Both Democrats and Republicans agree on the need for sweeping cuts in social spending that will leave even fewer resources to deal with future storms.

The repeated claim that “there is no money” to meet social needs is a lie. The abundant resources of society must be taken out of the hands of the financial-corporate parasites and administered democratically for the benefit of all....

The first and indispensable step in the fight for these demands is a complete political break with the twin parties of big business and all of the representatives of the ruling elite, from President Obama, New York Mayor Bloomberg and New York Governor Cuomo on down, and the building of a party of the working class that fights for a socialist program.

3--Where Are the Foreclosures?, credit slips

Here's why it didn't make a lot of sense to expect a huge pick up in foreclosures: there simply isn't the system bandwidth to handle them. Servicers really can't move significantly more foreclosures through the courts/trustee systems if they wanted. States have adopted all kinds of approaches that have significantly slowed down the foreclosure process. If I started a foreclosure in New York state today, I probably wouldn't have title and possession until early 2015. To the extent they could, it would risk pushing down housing prices and triggering more defaults. Moreover, the banks' plan for several years has been to slowly recognize losses against earnings. If all defaults had been foreclosed at once, the banking system would look a lot less solvent. The game plan has always been to run the clock. Hence all the "kick the can down the road" mods. As a result, what we're likely to see is not a foreclosure tsunami, but rather an extended foreclosure high-tide.
Assuming no major hiccups (e.g., interest rates rising), it will still take a few years before foreclosure levels return to historic averages. Unfortunately, that's when a lot of 2009-2011 HAMP mods will start to have their interest rates rise. Probably not a crisis from that, but certainly not good.

4---More on the Economic Effects of Superstorm Sandy, economic populist

In spite of this we now have headlines blazing in the press claiming Hurricane Sandy will give a $240 billion boost to the economy. Not so fast my friends, that's the total high end estimate cost to reconstruct damaged areas, not economic growth. Current claims are reconstruction will add up to 0.5 percentage points to 2013 GDP. Replacement construaction isn't growth but transfers, reimbursement from insurance. The 0.5 GDP boost estimate assumes construction will also add reinforcements, construction improvements, beyond replacement, which of course is yet to be seen. Considering the problems with insurance reimbursements for damages, it's questionable to think construction beyond replacement will be so booming. Additionally, one cannot recover the wages, sales, lost transportation and all of the other economic activity shut down by the storm. It's gone, washed out with the receding tides.

We don't believe natural disasters tied to over 100 deaths and billions in economic activity losses will eventually boost the economy. More it is possible that the impact is small when taking an average over many quarters. For Q4 2012, it's clear Sandy with negatively impact that quarter's growth. Anyone looking at the employment figures for the area thinking Sandy will help employment is smokin' crack. Sandy set employment back on it's heels for some time to come.

5--Number of the Week: Disposable Income Isn’t Coming Back Soon, WSJ

1.2%: The increase in disposable personal income per capita since the recovery began, adjusted for inflation.
Disposable income growth hasn’t kept up with broader economic expansion during the recovery, and it’s likely to remain under pressure for the foreseeable future.

Income after taxes, or disposable personal income, per capita has grown just 1.2% since the recovery began in June 2009 through the third quarter of this year. By contrast, inflation-adjusted gross domestic product per capita has increased 4.7% over the same period. To be sure, GDP fell further than income during the recession, but the path of recovery has been steadier for economic growth as a whole than individual income.

Consumers have managed to prop up growth in recent quarters. Increased spending accounted for more than a third of the 2.7% GDP growth recorded in the third quarter. Job gains have helped boost spending, but without advancing incomes it will be hard for consumption to drive economic growth.

6--QE through the looking glass , Economist

This observation dovetails neatly with a theme of Mr Stein’s pre-Fed research. In a previous paper, (written up in The Economist here) Mr Stein and his co-authors argued that investors and other market participants have a large appetite for financial assets with the attributes of money: ultra short maturity, and minimal credit risk owing to the high quality of the collateral or sterling reputation of the issuer. Demand for this so-called private money rises when the relative supply of treasury bills and other riskless government paper shrinks. But this makes the financial system vulnerable to panic if holders lose confidence in their private money and try to exchange it for the real thing.

Their theory is well supported by history, as Gary Gorton shows in his new book, Misunderstanding Financial Crises (reviewed here in this week’s issue of The Economist). In the early 1800s, banks issued their own notes and during a panic, customers would seek to convert them to specie. That source of instability was eliminated in the 1860s when national bank notes replaced private bank notes. But then, a new source of instability arose. Banks began letting customers write checks on their deposits (Mr Gorton calls checking accounts the shadow banking system of their day). If customers lost confidence in banks, they would rush to convert deposits to bank notes. But the supply of bank notes, like the supply of specie in the pre-national bank era, was not large enough to meet all the redemption demands, and banks failed.

The creation of the Federal Reserve was meant to eliminate panics forever by supplying an elastic currency, i.e. unlimited bank notes to meet spikes in demand for cash. The Fed failed at that job in the early 1930s for complex reasons, but between 1934 and 2007 America was largely spared large-scale panics thanks to deposit insurance and a central bank acting as lender of last resort.

Then in recent decades, financial innovation once again allowed private money to flourish, in the form of repo loans, asset-backed commercial paper, and money market mutual fund shares, none of which benefited from deposit insurance or a lender of last resort. The latest crisis, Mr Gorton maintains, stemmed from a run on this money. Arguably the Fed's most important and most controversial actions during the crisis were to extend its lender of last resort authority to nonbanks, in effect creating actual money to redeem the private money no one wanted any longer.

7---Business investment slows, WP

 A slowing in business spending took effect long before the term “fiscal cliff” had even been coined. In the fourth quarter of 2011, business spending on equipment an software rose at an 18.3 percent annual rate, but the growth rate has fallen every quarter since then — including to zero in the third quarter of 2012. Another indicator out Tuesday, the Equipment Leasing and Finance Association’s index of activity in the business equipment leasing sector, fell 7 percent in October (activity was still up sharply compared with year earlier, however).

8--Investment Falls Off a Cliff, WSJ

U.S. Companies Cut Spending Plans Amid Fiscal and Economic Uncertainty
U.S. companies are scaling back investment plans at the fastest pace since the recession, signaling more trouble for the economic recovery.

Half of the nation's 40 biggest publicly traded corporate spenders have announced plans to curtail capital expenditures this year or next, according to a review by The Wall Street Journal of securities filings and conference calls.
Nationwide, business investment in equipment and software—a measure of economic vitality in the corporate sector—stalled in the third quarter for the first time since early 2009. Corporate investment in new buildings has declined.
At the same time, exports are slowing or falling to such critical markets as China and the euro zone as the global economy downshifts, creating another drag on firms' expansion plans.

Corporate executives say they are slowing or delaying big projects to protect profits amid easing demand and rising uncertainty. Uncertainty around the U.S. elections and federal budget policies also appear among the factors driving the investment pullback since midyear. It is unclear whether Washington will avert the so-called fiscal cliff, tax increases and spending cuts scheduled to begin Jan. 2

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