Sunday, December 30, 2012

Today's links

1---Stephen Roach On Why Abe's Aggression Won't Save Japan, zero hedge

The sad case of the American consumer is a classic example of how this plays out. In the years leading up to the crisis, two bubbles – property and credit – fueled a record-high personal-consumption binge. When the bubbles burst, households understandably became fixated on balance-sheet repair – namely, paying down debt and rebuilding personal savings, rather than resuming excessive spending habits.

Indeed, notwithstanding an unprecedented post-crisis tripling of Fed assets to roughly $3 trillion – probably on their way to $4 trillion over the next year – US consumers have pulled back as never before. In the 19 quarters since the start of 2008, annualized growth of inflation-adjusted consumer spending has averaged just 0.7% – almost three percentage points below the 3.6% trend increases recorded in the 11 years ending in 2006.

Nor does the ECB have reason to be gratified with its strain of quantitative easing. Despite a doubling of its balance sheet, to a little more than €3 trillion ($4 trillion), Europe has slipped back into recession for the second time in four years.

Not only is QE’s ability to jumpstart crisis-torn, balance-sheet-constrained economies limited; it also runs the important risk of blurring the distinction between monetary and fiscal policy. Central banks that buy sovereign debt issued by fiscal authorities offset market-imposed discipline on borrowing costs, effectively subsidizing public-sector profligacy....

Unfortunately, it appears that Japan has forgotten many of its own lessons – especially the BOJ’s disappointing experience with zero interest rates and QE in the early 2000’s. But it has also lost sight of the 1990’s – the first of its so-called lost decades – when the authorities did all they could to prolong the life of insolvent banks and many nonfinancial corporations. Zombie-like companies were kept on artificial life-support in the false hope that time alone would revive them. It was not until late in the decade, when the banking sector was reorganized and corporate restructuring was encouraged, that Japan made progress on the long, arduous road of balance-sheet repair and structural transformation.

US authorities have succumbed to the same Japanese-like temptations. From quantitative easing to record-high federal budget deficits to unprecedented bailouts, they have done everything in their power to mask the pain of balance-sheet repair and structural adjustment. As a result, America has created its own generation of zombies – in this case, zombie consumers.

Like Japan, America’s post-bubble healing has been limited – even in the face of the Fed’s outsize liquidity injections. Household debt stood at 112% of income in the third quarter of 2012 – down from record highs in 2006, but still nearly 40 percentage points above the 75% norm of the last three decades of the twentieth century. Similarly, the personal-saving rate, at just 3.5% in the four months ending in November 2012, was less than half the 7.9% average of 1970-99...

Massive liquidity injections carried out by the world’s major central banks – the Fed, the ECB, and the BOJ – are neither achieving traction in their respective real economies, nor facilitating balance-sheet repair and structural change. That leaves a huge sum of excess liquidity sloshing around in global asset markets. Where it goes, the next crisis is inevitably doomed to follow.

2---Real prices, and the price-to-rent ratio, are back to late 1999 to 2000 levels depending on the index, calculated risk
http://www.calculatedriskblog.com/2012/12/comment-on-house-prices-real-house.html#sli0Kdku1blLVmRO.99

Case-Shiller reported the fifth consecutive year-over-year (YoY) gain in their house price indexes since 2010 - and the increase back in 2010 was related to the housing tax credit. Excluding the tax credit, the previous YoY increase was back in 2006. The YoY increase in October suggests that house prices probably bottomed earlier this year (the YoY change lags the turning point for prices).

3--Housing recovery?, investor place-

Housing sales aren’t being fueled by average folks looking to buy a home. Just 61% of buyers are purchasing primary residences, the lowest number since 2005 and down from 70% in 2008. Meanwhile, speculators accounted for 27% of housing sales. They’re buying homes to rehab and subsequently flip or rent

4---Mortgage Recovery Still Rocky, CNBC

Up to now the housing recovery had been fuelled by investors buying up thousands of distressed properties, the bulk of them in western states like Arizona, Nevada and California. This helped shrink supplies in those states and boost prices by double digits. While it may seem like the distress is quickly flying out of the market, that may not be the case just yet.

5---Banks Deeply Involved in FBI-Coordinated Suppression of “Terrorist” Occupy Wall Street, naked capitalism

If you had any doubts of the veracity of former IMF chief economist Simon Johnson’s depiction of the financial crisis as a “quiet coup,” a pre-Christmas release of FBI documents should put them to rest. While I linked to a discussion of the results of the Partnership for Civil Justice’s FOIA of FBI materials on Occupy Wall Street, I was remiss in not writing them up earlier. Both the Partnership for Civil Justice and Naomi Wolf at the Guardian (hat tip Scott A) provide good overviews. The PCJ also published the FBI documents it obtained.
If you’ve been following the story of the official response to Occupy Wall Street, it was apparent that the 17 city paramilitary crackdown was coordinated; it came out later that the Department of Homeland Security was the nexus of that operation. The deep FBI involvement is a new and ugly addition to this picture. Several impressions emerge from reading the summaries and dipping into the FBI documents:
The FBI deemed OWS to be a terrorist organization and went into “guilty until proven innocent” mode. Many of the FBI descriptions of possible OWS actions or those of affiliated organizations like Adbusters consistently look to have taken the most inflammatory snippets and presented them out of context.
The FBI also seems to believe that there is no such thing as peaceful protest, that any non-violent activity has the potential to turn violent and therefore should be treated as violent. One document to corporate “clients” warned:
Even seemingly peaceful rallies can spur violent activity or be met with resistance by security forces. Bystanders may be arrested or harmed by security forces using water cannons, tear gas or other measures to control crowds.
The banks were deeply involved in the effort to put down OWS. The executive director of the PCJ stated, “These documents also show these federal agencies functioning as a de facto intelligence arm of Wall Street and Corporate America.” Naomi Wolf adds:
The documents, released after long delay in the week between Christmas and New Year, show a nationwide meta-plot unfolding in city after city in an Orwellian world: six American universities are sites where campus police funneled information about students involved with OWS to the FBI, with the administrations’ knowledge (p51); banks sat down with FBI officials to pool information about OWS protesters harvested by private security; plans to crush Occupy events, planned for a month down the road, were made by the FBI – and offered to the representatives of the same organizations that the protests would target; and even threats of the assassination of OWS leaders by sniper fire – by whom? Where? – now remain redacted and undisclosed to those American citizens in danger, contrary to standard FBI practice to inform the person concerned when there is a threat against a political leader (p61)...
 
The rationale for this overkill was that OWS was a terrorist threat. That’s a striking contrast with the media depiction of the movement when it was in its encampment phase as a bunch of directionless hippies with no message. But the FBI response highlights how anything other than corporate or otherwise officially sanctioned assembly is no longer permitted in America

6---With all the Fed activity, there has been no QE in 2012, sober look
 
By definition, any policy of "quantitative easing" involves the expansion of bank reserves (by outright purchases of securities) and ultimately the monetary base. Neither has been expanded by the Fed in 2012.
 
7--On the Economics and Politics of Deficits, NYT
 
Evan Soltas of Wonkblog and Joe Weisenthal of Business Insider both make the same point, in more detail, that I tried to make in my series on ONE TRILLION DOLLARS: the current budget deficit is overwhelmingly the result of the depressed economy, and it’s not clear that we have a structural budget problem at all, let alone the fundamental mismatch between what we want and what we’re willing to pay for that people like to claim exists

8---Abuses Of Power Always – Always – Expand Beyond Their Original Application, Big Picture

9---New-Home Sales Rise to Highest Level in Two Years, WSJ

10---Spending by the federal government is boosting the country’s economic growth, WSJ

. U.S. government expenditures and investment rose at a 9.5% seasonally adjusted annual rate during the third quarter, following a year of declines. However, cuts in federal spending that are slated to kick in if the U.S. goes over the “fiscal cliff” could weigh on overall economic growth.

11---Consumer Sentiment Hits Lowest Level Since July, WSJ

12---The Dahiya doctrine is a military strategy in which the Israeli army deliberately targets civilian infrastructure as a means of inducing suffering on the civilian population, counterpunch

The Dahiya doctrine is a military strategy in which the Israeli army deliberately targets civilian infrastructure as a means of inducing suffering on the civilian population, making it so difficult to survive that fighting back or resisting occupation are no longer practical, thereby establishing deterrence. The doctrine is named after a southern suburb in Beirut with large apartment blocks. Israeli bombs flattened the entire neighborhood during the 2006 Lebanon War. But this doctrine is not a modern strategy for controlling populations. Nor is putting the people of Gaza on a “diet” new- subjugating an entire population through a combination of poverty, malnutrition, a struggle over limited resources, and violence is the American way, adopted by our closest allies, (and “the only democracy in the Middle East,” with the “most moral army in the world,”) the Israelis.

Dec 27th marks the 4th anniversary of the beginning of Operation Cast Lead, (the name derives from a popular Hannukah children’s song about a dreidel made from cast lead.) During this attack on Gaza, 1,417 people were killed (330 children), 4336 were wounded. 6,400 homes were destroyed. Hospitals, mosques, the power plant, and the sewage system were deliberately targeted.
Israel accuses Hamas of war crimes for shooting rockets without guidance systems indiscriminately into Israel. Israeli officials claim that “Hamas hides behind civilians” as a justification to bomb civilian population centers and infrastructure. Killing civilians in Gaza using precision munitions, is a war crime, no matter who is hiding behind them.

13---Robert Shiller: "Housing long term outloof still "fuzzy", bloomberg video

14---Canada’s housing crash begins, canadian business

In just one year, Vancouver house prices have dropped by 12%, and unit sales are plummeting in both Vancouver and Toronto. Here’s how the meltdown will play out this fall.

15---Charting the state of the U.S. economy, EPI's top charts
16---The soft landing, greater fool
 
17---ANALYST: Canadian Home Prices Will Plunge 25% From Here, Bus Insider
 
18---Losing faith in stocks, AP
 
19---Canada's dirty little sub prime loan secret threatens to sink housing market, peoples world
 
20---Savings Deposits Soar By Most Since Lehman And First Debt Ceiling Crisis, zero hedge
 
21---Corporate profits vs labor share of income, Atlantic
 
22---Top 2012 housing stories, from crash warnings to rent vs. buy, financial post
 
Consumers must be getting tired of hearing the experts cry wolf about rising interest rates and a housing crash.
Rates haven’t moved much if at all for most terms, if anything they’ve fallen and stayed put. Mortgages still hover around 3% for anyone willing to lock in for five years and consumers have been doing that more than ever — some even opting for a 10-year commitment.
As for the crash, is it happening? Sales have dropped sharply in some markets, Vancouver notably. But prices have remained relatively firm with the 25% drop predicted by many still not materializing. But even the real estate industry says price gains will be limited.

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