Tuesday, December 11, 2012

Today's links

1---Consumer credit trend remains the same; guess who is doing all the borrowing?, sober look

The latest increase in consumer credit finally showed some increase in revolving credit for October as consumers started to spend a bit. Once again some are attributing this increase in credit card purchases to homeowners stocking up in preparation for Sandy, a storm that ending up leaving millions on the Eastern Seaboard without power. But the growth in non-revolving credit continues unabated, driven primarily by government sponsored student loans.
Econoday: - Consumers are active borrowers with credit outstanding, up $14.2 billion, up sharply for a third month in row. Much of the gain is once again tied to loans for students who, limited by the soft jobs market, continue to stay in school. Strong sales of autos are also driving up borrowing. Student and auto loans are part of the nonrevolving component which is up $10.8 billion in the month. The revolving side, where credit cards are tracked, popped up $3.4 billion following the prior month's $2.2 billion decline. Willingness to borrow money and willingness to make big ticket commitments like auto purchases are good signs for the holiday shopping season.
Student loans owned by the federal government now constitute nearly a fifth ($0.52 trillion) of US consumer credit (excluding mortgages). Based on the pace of the past 12 months' growth, government-owned student debt will be at $1.7 trillion in 10 years. That's roughly 39% of total consumer debt, assuming other consumer credit also grows at the current pace. And this number doesn't include student loans guaranteed by the government but owned by banks (included in blue below), which represent another half a trillion. As discussed earlier (see post), this allows universities to rapidly increase tuition costs, often with little incentive to do otherwise. And that ends up creating even more demand for student loans.

Owners (lenders) of consumer credit (source: FRB)

2---Falling homeownership rate and the housing market, sober look
 
Some readers have been asking how one can reconcile positive signs in the housing market with declining rates of homeownership. Indeed, homeownership is falling at an even faster pace than during the 08-10 period (chart below)....
 
The explanation is that so far a great deal of net demand growth in housing has been in rental units. Households are putting a premium on mobility. This demand for rentals is in fact one of the factors supporting the housing market - for every renter there is a landlord who buys a home.
JPMorgan: - There is no contradiction between increased demand for housing and reduced homeownership rates. Demand for housing is mainly dependent on the increase in the number of households, whether these households choose to own or to rent the housing units they live in. Growth of household formation had been stifled during the expansion to date by high unemployment and subdued job growth. Young people have had an especially tough time in the labor market, and many who could not find jobs or could not find good jobs are living with their parents or are doubling or tripling up in apartments with friends. In addition, tough labor market conditions have discouraged immigration.

But labor markets are gradually improving, and the period of maximum weakness in household formation is behind us. And the increase in the number of households has accelerated over the past year, to growth of 1.01% or 1.15 million, the largest annual increase since 2Q06 if still somewhat below the norms prior to the recession. The decline in homeownership rates implies that virtually all the increase in demand for housing units associated with increased household formation consists of increased demand for rental units. Indeed current estimates indicate that over the past year the number of occupied rental units increased 1.32 million and the number of owneroccupied housing units actually declined 175,000 (although the number of reported owner-occupied units was up in the latest quarter).
 
3---Banks face ongoing legal challenges from their bubble-era misconduct, oc housing  
 
4---NFIB small-business optimism index plunges, marketwatch
 
Small-business optimism plunged in November in the wake of President Barack Obama's re-election, according to data released Tuesday. An index from the National Federation of Independent Business that tracks sentiment among small firms fell 5.6 points at 87.5. The survey found that 49% of small-business owners expect future business conditions to be worse than current conditions. In October, a record percentage of owners were uncertain about the outlook, and it appears that many became decidedly negative in November. "Washington does not have the needs of small business in mind, said NFIB chief economist Bill Dunkelberg. "Between the looming 'fiscal cliff,' the promise of higher health-care costs and the endless onslaught of new regulation, owners have found themselves in a state of pessimism."
 
5---Fiscal Cliff Lessons From The 1930s, Big Picture
 
6---Did risky mortgage lending cause the financial crisis? , noahpinion
 
7---Pittsburgh inspired Colo. town's fracking ban, pipeline
 
8---Israel behind bogus Iran nuclear data leak - reports, RT
 
Israel may be behind a series of leaks implicating Iran in nuclear weapons experiments, Western diplomats say, stressing that in doing so Tel Aviv could have compromised the ongoing UN investigation into Tehran's nuclear activities and ambitions.
In its efforts to raise international pressure on Tehran, Israel supposedly carried out leaks of several documents from an International Atomic Energy Agency (IAEA) investigation, The Guardian reported on Monday citing Western diplomats.
The latest leak, published by the Associated Press last month, showed a diagram representing the results of a computer modeling of a 50-kiloton nuclear device. The chart was leaked by an unnamed official from “a country critical of Iran's atomic program," AP said.
However, the report came under fire shortly afterwards, with critics pointing out that the diagram was not only flawed but based on unclassified information. “This diagram does nothing more than indicate either slipshod analysis or an amateurish hoax,” nuclear scientists Yousaf Butt and Ferenc Dalnoki-Veress declared on the Bulletin of Atomic Scientists website.
The IAEA stressed that the leaked graph was only a small part of a much broader collection of data in the inquiry into Iran’s nuclear ambitions
 
9---The political economy of the Spanish bank bailout, wsws
 
The decision last week by euro zone finance ministers to provide €39.5 billion for a Spanish bank bailout is a trial run for a much more extensive operation that will have at its centre further attacks on the social position of the working class.
Under the agreement, €37 billion will be provided to four major banks already receiving support from the Spanish government, with €2.5 billion deposited in a so-called “bad bank” intended to cover losses resulting from the collapse of the Spanish real estate market.
The measures are to be accompanied by job-slashing at the banks concerned and increased pressure on the Spanish government to intensify its austerity program, which has already cut €150 billion from social services. However, the bailout falls well short of what is needed to cover Spanish debt.
Last June, it was estimated that Spanish banks would need at least €100 billion, and the €2.5 billion set aside to cover the collapse in the property market is a drop in the bucket compared to the estimated €60 billion losses incurred. These initial measures are widely regarded as a prelude to a full-scale operation to bail out the Spanish state and institute the kind of financial dictatorship now in place in Greece.
The latest intervention has nothing to do with promoting economic recovery. Such threadbare claims are merely intended for public consumption. The austerity measures demanded by the euro zone financial authorities will only deepen the recession in Spain, where unemployment is already at 25 percent overall and 50 percent and more for youth....
 
At the same time, preparations are stepped up for state repression on a massive scale. The Spanish government is increasing its spending on police and security forces, including a 1,780 percent increase in expenditure on riot personnel and equipment over the next two years.
In Spain, the stakes are even higher than in Greece. This is because the German banks are heavily involved in the Spanish financial crisis. According to the Bank for International Settlements, German lenders have an exposure of $139.9 billion to Spain, the highest in Europe, of which almost $46 billion is to Spanish banks. This is one of the reasons the German government has been opposed to any write-down of Greek debt, fearing it could set a precedent that would extend to Spain.
...
 
At the same time, preparations are stepped up for state repression on a massive scale. The Spanish government is increasing its spending on police and security forces, including a 1,780 percent increase in expenditure on riot personnel and equipment over the next two years.
In Spain, the stakes are even higher than in Greece. This is because the German banks are heavily involved in the Spanish financial crisis. According to the Bank for International Settlements, German lenders have an exposure of $139.9 billion to Spain, the highest in Europe, of which almost $46 billion is to Spanish banks. This is one of the reasons the German government has been opposed to any write-down of Greek debt, fearing it could set a precedent that would extend to Spain.
Last June, when a €100 billion bailout for the Spanish banks was first mooted, a Reuters report noted that it was “effectively a back-door bailout for reckless German lending,” adding that “if lenders in Spain were allowed to default, the consequences for the German banking system could be very serious.”
More than 150 years ago, Karl Marx made the telling point that the stability of the credit and financial system was dependent on the course of the class struggle. To the extent that the bourgeoisie was confident that the “wolves of finance” could continue to devour the resources of the state, then the credit system would continue to function.
But that confidence would collapse under conditions of a revolutionary upsurge by the working class and a crisis would result. These remarks point to a major feature of the political economy of the euro zone debt crisis.
Finance capital, as Greece, and now Spain, demonstrate, is increasingly dependent on the organisations of the pseudo-left, together with the trade union apparatuses, to prevent such a development taking place..

10--Italian Prime Minister Monti resigns, WSWS

Monti resigned nevertheless for tactical reasons. He is attempting to secure a long-term and stable parliamentary majority for his increasingly unpopular austerity measures.

Mario Monti took on the leadership of the Italian government in November 2011 as the representative of international finance. The former EU commissioner formed a cabinet of non-partisan technocrats who enjoy the confidence of the European Union and the European Central Bank. He was supported by a broad coalition stretching from the PDL on the right, to the Democrats and the SEL (Left, Ecology, Freedom) on the left.

Monti has met the expectations placed in him by his backers in the financial community. He imposed a drastic austerity programme onto the country, undermined workers’ rights, raised the retirement age and pushed up taxes for workers and the middle class. As a result, Italy fell into a deep recession. Unemployment and poverty have increased significantly.

Middle class layers were also hit hard. This month, the tax burden for families has nearly doubled thanks to a new tax on property. Pre-Christmas sales have fallen by 13 percent as a result.

11---Modest Job Growth, Less Take-Home Pay Is Recipe for Depressed Consumer, WSJ

Worries about the consumer outlook are elevated. First, despite a surprise pop in November, hiring is not accelerating at the end of 2012. Second, consumers are more pessimistic about the future as households realize they likely face higher tax bills next year. Modest job growth and less take-home pay won’t support substantial increases in consumer spending.
At first glance, the November job gain of 146,000 was a positive surprise. Economists had expected only an 80,000 increase because of Sandy, but the Labor Department said the superstorm had little impact.
But labor demand isn’t as strong as the November number suggests. That’s because Labor also revised down hiring in September and October. Job growth over the past three months averaged 139,000 per month.
That’s below the 157,000 average of the past year, and is only fast enough to hold the unemployment rate steady or to reduce it very gradually. (The unemployment rate dropped to 7.7% last month only because more Americans dropped out of the labor force, not because more job seekers found work.)
And then there is the fiscal cliff threatening the outlook. The consumer survey compiled by Thomson Reuters/University of Michigan showed an unexpectedly large drop in economic sentiment and expectations in early December

12---Consumer Spending Wobbles, WSJ

U.S. consumer spending, a rare pillar of economic strength in recent months, is showing signs of weakening.
American consumers helped carry the economy through a spring slowdown and appeared to power a summer resurgence in growth. But in recent weeks government data have shown spending was slower over the summer than previously believed, and it has started off the final three months of the year on an even weaker footing. ...

Manufacturing, which helped drive the early stages of the recovery, has faltered amid uncertain demand at home and weakness overseas; the factory sector contracted in November after two months of growth, the Institute for Supply Management reported a week ago.
Business investment fell sharply in the third quarter and has likely stayed weak as concerns mounted over the fiscal standoff in Washington. The housing market has shown strong growth this year, but construction activity remains depressed compared with before the recession.
Friday's employment report showed the economy added jobs at a steady though hardly spectacular pace in November, but the Labor Department also revised downward its estimate for the number of jobs added in September and October by a combined 49,000 jobs.

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