Sunday, January 27, 2013

Today's links

1--Home Builders Turn to Rental Apartments, CNBC-

Since 2005, according to the U.S. Census Bureau, every new household formed has been a rental household. The sector has been underbuilt since 2004, so there is a lack of product available, which in turn has caused rents to rise steadily in most markets. New construction is increasing, but it is not even close to outpacing demand....

There were just over 200,000 multi-family housing starts in 2012, according to the U.S. Commerce Department, far lower than the annual average of 340,000 over the past decade.
"We are still woefully short of what's going to be coming in terms of demand," says Buck Horne, a housing analyst at Raymond James. "Lennar is going where the demand is going to be. They're going where they know they can make money."

2---In California, flipping houses is back with a vengeance, Dr Housing Bubble

 A massive drop in listings, a big jump in sales, and prices are going gangbusters.

3---Federal Reserve transcripts show top US policymakers vastly underestimated crisis, wsws

The blindness of the Fed was rooted in definite material and social interests. The entire financial and political establishment had a vested interest in keeping the housing bubble, based on little more than a Ponzi scheme, going.

Wall Street had driven the frenzy of sub-prime lending, buying up toxic mortgages by the fistful in order to bundle them into securities and CDOs, which they then sold to investors all over the world at an enormous profit. The regulatory agencies, including the Fed, blessed the operation and gutted all government oversight to allow the banks to engage in reckless and quasi-criminal activities. The credit rating firms such as Moody’s and Standard & Poor’s made huge profits by giving the mortgage-backed bonds their highest ratings.

While industry was being decimated, productive investment scaled backed, and the wages and living standards of the working class driven down, American capitalism generated an ever-increasing share of profits from financial machinations and outright fraud.

By downplaying the disastrous implications of a collapse in sub-prime mortgages, the Federal Reserve objectively aided and abetted the Wall Street banks, providing them with the time they needed to offload their sub-prime mortgage holdings and begin making large bets against the housing market and the securities they themselves had created.

Yet the release of the transcripts has been met with a deadening silence from lawmakers as well as the media. There are no calls for congressional hearings or any public accounting for the abject failure of these supposed custodians of the economy to detect the greatest economic crisis since the Great Depression. This only underscores the complete subordination of the entire political system, and both of its parties, to the financial aristocracy.

4---Bill Black--"liar's loans", naked capitalism
Forty-five percent of the home mortgage loans in the UK were liar’s loans – and the new “supervisor” believes that the bank officers made these loans because they all went simultaneously delusional and believed that there was an infinite bubble

5---Japan’s currency war, WSWS

Japan’s inherent economic vulnerabilities are being exposed. As an island nation largely devoid of natural resources, Japanese capitalism has always been heavily dependent on export markets and access to cheap raw materials. The air of desperation surrounding the Abe government’s aggressive monetary policy and renewed economic stimulus measures echoes Japan’s response in the 1930s.

Hard hit by the Great Depression and a dramatic slump in exports, the Japanese government that assumed office in December 1931 ended the gold backing for the yen, greatly expanded public spending, especially on the military, and cut interest rates to stimulate business. The value of the yen plunged by 60 percent against the US dollar and 44 percent against the pound sterling.

Writing in Britain’s Daily Telegraph, business commentator Ambrose Evans-Pritchard
 described Abe’s policies as “a copy of what happened in the early 1930s under [Finance Minister] Korehiyo Takahashi, the first of his era to tear up the rule book and pull his country out of the Great Depression... Few dispute that Japan pioneered the world’s most successful [economic] experiment from 1932 to 1936. The trick was to hit hard and combine all forms of stimulus, each leavening the other.”

This so-called “success,” however, came at a terrible price. Takahashi’s policies were in line with the beggar-thy-neighbour agenda increasingly pursued by all the imperialist powers, which greatly heightened geo-political tensions. Moreover, Japan’s economic program was accompanied by police-state repression against the working class at home and military aggression abroad to open up markets and access to raw materials. Japan’s invasion of Manchuria in 1931 and China in 1937 set the stage for the eruption the Pacific War in 1941, with devastating consequences for the working class.

Today, the right-wing Abe government is pursuing a similarly perilous mixture of nationalist economic policies and militarism—and it is not alone. The Obama administration’s resort to unlimited quantitative easing and its aggressive “pivot to Asia” to contain China have encouraged Abe to fire his own shot in the developing international currency wars, as well as to remilitarise Japan
6---Treasury Investors Fret About Fed Danger Zone, WSJ

7---Prices of Energy, Food Hurt Americans' Finances Most, Gallup

Implications
These results provide clear insights into the areas that are causing Americans the most financial pain. Leaders, including elected representatives, may find that actions aimed at reducing the costs of life necessities -- energy, food, and healthcare, along with reducing taxes -- could have the greatest impact on Americans' financial situations.

8---Over 65 and working, conversable economist

The proportion of U.S. adults who are "in the labor force"--that is, who either have jobs or are unemployed and looking for a job--has been falling for a decade, as I explored in an April 26, 2012, post on "Falling Labor Force Participation." But for one demographic group, the elderly, labor force participation is rising substantially...

figures show that for men over age 62, rates of labor force participation were falling through the 1980s, bottomed out around 1990, and have been rising since then.

9--Martial law in Greece, wsws

The use of dictatorial laws and state violence amounts to the criminalization of any form of collective resistance by workers to the vicious and ongoing assault on their jobs and living standards. This attack, now in its fourth year, is being carried out under the auspices of the European Union and implemented by the Greek ruling class to satisfy the demand of the Greek and international banks that the full cost of the capitalist crisis be born by the working class

10---A New Housing Boom? Don’t Count on It,  Robert Shiller,  NY Times:

 We're beginning to hear noises that we’ve reached a major turning point in the housing market — and that, with interest rates so low, this is a rare opportunity to buy. But are such observations on target?
It would be comforting if they were. Yet the unfortunate truth is that the tea leaves don’t clearly suggest any particular path for prices, either up or down..., any short-run increase in inflation-adjusted home prices has been virtually worthless as an indicator of where home prices will be going over the next five or more years. ...
The bottom line for potential home buyers or sellers is probably this: Don’t do anything dramatic or difficult. There is too much uncertainty... If you have personal reasons for getting into or out of the housing market, go ahead. Otherwise, don’t stay up worrying about home prices any more than you do about stock prices. ..

11---Monetary alchemy, fiscal science, jeff frankel's weblog

 John Maynard Keynes, of course, pointed out the advantages of expansionary fiscal policy in circumstances like the Great Depression. Milton Friedman blamed the Depression on the Fed for allowing the money supply to fall.  ...

The austerity-versus-stimulus debate has been thoroughly hashed out. On the one hand, proponents of austerity correctly point out that the long-term consequences of permanently expansionary macroeconomic policy [both fiscal and monetary] are unsustainable deficits, debts, and inflation. On the other hand, proponents of stimulus correctly point out that in the aftermath of a recession, when unemployment is high and inflation low, the immediate consequences of contractionary macroeconomic policy are continued unemployment, slow growth, and debt/GDP ratios that go up rather than down. Procyclicalists, both in the US and Europe, represent the worst of both worlds: they push in the direction of expansion during booms such as 2003-07 and in the direction of contraction during recessions such as 2008-2012, thereby exacerbating both the upswings and downswings. Countercyclicalists have it right: working in the direction of fiscal and monetary discipline during booms and ease during recessions.

Less thoroughly aired recently is the question whether — given recent conditions - monetary or fiscal expansion is the more effective instrument. This question was addressed clearly in 1937 by Sir John Hicks in a once-famous article titled “Mr. Keynes and the Classics.” The graphical model is known to many generations of undergraduate students in macroeconomics under the label “IS-LM.”

                The answer to the question which form of policy is more effective: under the circumstances that held in the 1930s and that hold again now - which are conditions not just of high unemployment and low inflation, but also near-zero interest rates — stimulus in the specific form of fiscal expansion is much more likely to be effective in the short-term than stimulus in the form of monetary expansion. Monetary expansion is rendered relatively less effective because interest rates can’t be pushed below zero. This situation, labeled by Keynes a liquidity trap, is today called the Zero Lower Bound. In addition, firms are less likely to react to easy money by investing in new plant and equipment if they can’t sell the goods they are producing in the factories they already have. The hoary — but still evocative — metaphor is “pushing on a string.” Meanwhile, fiscal expansion is rendered relatively more effective, in that it doesn’t push up those rock-bottom interest rates and thereby crowd out private-sector demand. ...

That monetary policy is less effective than fiscal policy under conditions of high unemployment and zero interest rates should not be a novel position. But many economists have forgotten much of what they knew and politicians may not have even heard the proposition.
Introductory economics textbooks have long talked about the Keynesian multiplier effect: the recipients of federal spending (or of consumer spending stimulated by tax cuts or transfers) respond to the increase in their incomes by spending more as well, as do the recipients of that spending, and so on. Again, the multiplier is much more relevant under current conditions than in the normal situation where the expansion goes partly into inflation and interest rates and thus crowds out private spending. By the time of the 2008-09 global recession even those who believed that fiscal stimulus works had marked down their estimates of the fiscal multiplier — intimidated, perhaps, by newer theories of policy ineffectiveness. The subsequent continuing severity of recessions in the United Kingdom and other countries pursuing contractionary fiscal policies, apparently to the surprise of the politicians enacting them, suggested that multipliers are not just positive, but greater than one, as the old wisdom had it. The IMF Research Department has now reacted to this recent evidence and bravely confessed that official forecasts, including even its own, had been operating with under-estimates of multiplier magnitudes.


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