Saturday, December 15, 2012

Today's links

1---The Trade-Off Between Economic Growth and Deficit Reduction, by Laura D’Andrea Tyson, Commentary, NY Times via economists view

 ...After three years of recovery, the economy is still operating far below its potential and long-term interest rates are hovering near historic lows. Under these circumstances, the case for expansionary fiscal measures, even if they increase the deficit temporarily, is compelling.
A recent study by the International Monetary Fund finds large positive multiplier effects of expansionary fiscal policy on output and employment under such circumstances. ... The rationale for expansionary fiscal policy is particularly compelling for federal investment spending in areas like education and infrastructure...
The economy does not need an outsize dose of fiscal austerity now; it does need a credible deficit-reduction plan to stabilize the debt-to-G.D.P. ratio gradually as the economy recovers. As I contended in anearlier Economix post, the plan should have an unemployment-rate target or trigger that would postpone deficit-reduction measures until the target is achieved. ...
The goal of deficit reduction is to ensure the economy’s long-term growth and stability. It would be the height of fiscal folly to kill the economy’s painful recovery from the Great Recession in pursuit of this goal.
The good news is that overall foreclosure activity continues to fall and a decline in new foreclosures are leading the drop.
The bad news is that the huge backlog of homes already in the foreclosures process, but long delayed, are finally going back to the banks in big numbers.
Bank repossessions jumped 11% in November month-to-month and rose 5% from November of 2011, according to RealtyTrac. That marks the first annual jump in just over two years.
"Foreclosures are continuing to hobble the U.S. housing market as lenders finally seize properties that started the process a year or two ago — and much longer in some cases," notes RealtyTrac's Daren Blomquist.

3---The Markets Are No Longer Sending Useful Price Signals, BI

The markets are now well and truly broken. Not because they don't conform to my predictions, but because they are no longer sending useful price signals. Instead, my hypothesis here is that the markets are now just a giant and rigged casino, where a relative handful of big firms and other tightly coupled players are gaming their orders to take advantage of this flood of money...

I would have predicted soaring stock prices on the expectation that all this money would have to end up in the stock market eventually. I would have predicted the dollar to fall because who in their right mind would want to hold the currency of a country that is borrowing 46 cents (!) out of every dollar that it is spending while its central bank monetizes 100% of that craziness?
Further, I would have expected additional strength in the government bond market, because $85 billion pretty much covers all of the expected new issuance going forward, plus many entities still need to buy U.S. bonds for a variety of fiduciary reasons...

You might say that QE4 is now going to act as both monetary and fiscal stimulus– another $85 billion worth of Fed accumulations of Treasury bonds and mortgages- that is meant to keep stock prices moving higher and residential home sales climbing briskly.

The goal is to drive economic activity, especially residential home building, so that unemployment drops from 7.7% to 6.5%...
The key point here is that the Fed is now actively running both monetary and fiscal policy because it will now be in the business of funding nearly 100% of all the new government deficit spending in 2013. And it is pumping a bit more than $1 trillion of hot, thin-air money into the economy as it does so.....

It will require two full years of 150,000 jobs per month just to absorb the 4 million missing workers, which means that this QE effort will be with us for a very long time. Three to four years is my best guess, and that's only if the economy magically recovers. And I have very strong doubts about that.
This means that the Fed is most likely on track to increase its balance sheet by another $3-4 trillion. Ugh. That's 300% to 400% more money created in the next year than was created than during the entire 200 years following the signing of the Declaration of Independence....

Secretly in the Open

Once upon a time, it would have been considered in bad taste to suggest that the world was being centrally managed in secret by a small-ish cabal of bankers whose actions served to either prop up the excessive spending habits of the very governments that conferred upon them the power to print money, or to bolster the health and profits of the banks they mainly serve.
That was then. Today you can just read about it in the Wall Street Journal:......

If it feels like you are part of a very grand, high-stakes experiment, congratulations! You're exactly right. We are all collectively prisoner to whatever outcomes are in store.
The rather politely ignored truth right now, at least by most news outlets and politicians, is that the world's central banks have wandered very far off the reservation and are running an experiment that really has only two possible outcomes. One is a return to what we all might call 'normal and stable' economic growth. The second is the complete collapse of the fiat money and their attendant financial systems and markets.

4---US Federal Reserve expands “quantitative easing”,WSWS

5---Biggest bank laundering settlements, Big Picture

6---Study Shows a Pattern of Risky Loans by F.H.A, NYT

new and extensive analysis of 2.4 million loans insured by the Federal Housing Administration in recent years shows a pattern of risky lending that could generate $20 billion in losses and harm thousands of the nation’s most vulnerable borrowers. By ignoring risks in loans it insured in 2009 and 2010, the study concludes, the F.H.A. is imperiling both borrowers and taxpayers who stand behind the agency.
The analysis emerged less than a month after the F.H.A.’s auditor submitted a troubling report on the financial soundness of its insurance fund. In mid-November, the auditor estimated that the fund, which backs $1.1 trillion in mortgages, has a value of negative $13.5 billion. In other words, if it were to stop insuring loans today, the F.H.A. fund could not cover the losses anticipated on loans it has already insured. ....
The concentration of loans backed by the F.H.A. in areas of subpar family incomes is another warning flag, according to the study. Of the 2.4 million loans studied, some 44 percent were made to borrowers in ZIP codes where the median family income was below that of the corresponding metropolitan area. These loans will most likely generate foreclosure rates averaging 15 percent, the study concluded, well above the overall 9.6 percent average the F.H.A.’s auditor has projected for those years.
That so many F.H.A.-insured loans are going to at-risk families concerns Mr. Pinto. “The F.H.A.’s underwriting policies encourage low- and moderate-income families with low credit scores to make a risky financing decision,” he said, “one combining a low score with a 30-year loan term and a low down payment. This sets up for failure the very families and communities it is the F.H.A.’s mission to help.”
The income of a typical working-age family grew considerably in the late 1990s. Around 2000, it stopped growing. In 2007, it started falling.
Screen Shot 2012-12-09 at 11.51.22 PM.png




No comments:

Post a Comment