Thursday, January 31, 2013

Today's links

1---Spain's Rajoy, ruling party deny secret payment scheme, Reuters

2--IMF always recommends austerity, Mark Weisbrot, naked capitalism

Part of what they found is unsurprising: the IMF loves telling client states to shrink spending and government overall, and they are particularly keen on cutting social safety nets. But their advice is even more cookie-cutter than you might anticipate (emphasis ours):
Fiscal consolidation is recommended for all 27 EU countries, and expenditure cuts are generally preferred to tax increases. In some cases there are targets or limits on public debt/GDP ratios or fiscal deficits that are below those of the Maastricht treaty. There is repeated emphasis on cutting public pensions and “increasing the efficiency” of health care expenditures. Raising the retirement age is a standard recommendation, without any correlation to a country’s life expectancy. Although slowing population growth can have important benefits (not the least of which is reduced pressure on the world’s resources and climate change), an aging population is seen throughout these agreements as a threat to the fiscal sustainability of government expenditures. This is not demonstrated through empirical evidence, for example, which might take into account productivity growth that would support a rise in the ratio of retirees to workers, while allowing for rising living standards for both, as has been the case in prior decades. There also appears to be a predilection for increasing labor supply, irrespective of unemployment or labor force participation rates. This includes such measures as reducing eligibility for disability payments or cutting unemployment compensation, as well as raising the retirement age.
Th article recaps the recent embarrassment of the IMF having to admit that it got its fiscal multipliers all wrong. If you believe austerity works, you have to think fiscal multipliers are lower than one, meaning cutting expenditures won’t shrink the economy even more than the reduction in spending. But whoops! They ‘fessed up they are typically bigger than one.

3---Bernanke Still Pouring Shots Of QE To Markets Already Drunk On Liquidity, Forbes

4---Biggest Defense Spending Dive Since Vietnam Shows Risk of Cuts, Bloomberg

The year-end plunge in U.S. defense spending may provide the industry with more ammunition to fight automatic budget cuts it says will harm the economy.

Defense purchases in the fourth quarter plummeted 22 percent, the Commerce Department said yesterday. It was the biggest decline since 1972, when military spending slumped as the Vietnam War ebbed, and it contributed to the economy shrinking at a 0.1 percent annual rate in the quarter....

“Those politicians are all on notice now,” Eric DeMarco, chief executive officer of San Diego-based Kratos Defense & Security Solutions Inc. (KTOS), said in a phone interview. “If they don’t fix this, the country is going back into recession.

The recent quarter’s figures “may be a harbinger of what’s to come” under the automatic cuts, said Dan Stohr, a spokesman for the Aerospace Industries Association, an Arlington, Virginia-based organization that represents contractors. The group has led efforts to prevent the cuts, saying the reductions would result in more than 1 million jobs lost....

The fourth-quarter decline partly reflects a spike in defense spending in the previous three-month period, Kevin Brancato, an analyst at Bloomberg Government, said in a phone interview.....

Third-quarter defense spending rose 13 percent compared with the previous three months, an increase that may have been sharper than usual this year because government buyers sought to award as many contracts as possible before a year-end deadline for the automatic cuts, he said. In a last-minute deal between the White House and Congress, the reductions were delayed for two months.
“These numbers do on a monthly and quarterly basis move around,” Byron Callan, a defense industry analyst at Capital Alpha Partners LLC in Washington, said in a telephone interview. “It should be viewed more as an aberration as opposed to some new baseline or trend that people ought to think about in the balance of this year...

The Obama administration’s top economist had a different view of the figures.
The 22 percent drop in defense outlays is probably due to “uncertainty concerning the automatic spending cuts,” Alan Krueger, chairman of the White House Council of Economic Advisers, wrote in a blog post yesterday after the Commerce Department released the figures.

Contracting Slowdown

The Commerce Department’s figures echoed a similar decline in the Pentagon’s announced contracts, which include only awards of $6.5 million or more.

5---Libor Lies Revealed in Rigging of $300 Trillion Benchmark, Bloomberg

“We will never know the amounts of money involved, but it has to be the biggest financial fraud of all time,” says Adrian Blundell-Wignall, a special adviser to the secretary-general of the Organization for Economic Cooperation and Development in Paris. “Libor is the basis for calculating practically every derivative known to man.”

6---RealtyTrac: Foreclosure activity picked up in 120 metros, Housingwire

The majority of metropolitan areas surveyed by foreclosure data firm RealtyTrac experienced year-over-year spikes in foreclosure activity in 2012.
Of the 212 metropolitan statistical areas studied by the California-based research firm, 120 markets, or 57% of all surveyed MSAs, saw foreclosure activity pick up in 2012 when compared to year earlier levels.
The MSAs studied maintain populations of 200,000 or more people.
Despite an overall uptick in foreclosure activity in a majority of U.S. markets last year, 12 of the nation's largest metros experienced sharp year-over-year declines in foreclosure activity, with Phoenix leading the way as foreclosures plummeted 37% from 2011.
San Francisco foreclosure activity also experienced a 30% decline in foreclosure activity year-over-year, followed by Detroit (down 26%), Los Angeles (down 24%), and San Diego (down 85%).

7----Inventories Are the Last Refuge of the Fiscal Cliff Scoundrels, CEPR

The data has not been kind to the economists and reporters who were hyping the line that uncertainties over the fiscal cliff were slowing growth last year. Strong consumption data, capped by a jump in retail sales in December seemed to dispel the idea that consumers were being cautious due to cliff concerns. Durable goods orders, led by a big jump in capital goods orders in November, suggested that businesses were acting as though the outcome of the standoff would not have a big impact on the economy.

Yesterday's release of data on 4th quarter GDP should have been the final death knell for the fiscal cliff economic drag story. There was strong growth in both equipment and software investment by businesses and purchases of durable goods by consumers. Obviously these folks didn't get the memo about being cautious

8----Where did all the inventory go? Dr Housing Bubble

A large part of this has to do with the external forces interacting with housing. One has to do with banks holding on selectively to distressed properties while another is the dragging out of the foreclosure process. Next, you still have roughly 10 million Americans that are underwater on their mortgages. Think of that when you realize that only about 1.8 million homes are listed for sale. Those 5 million homes in distress either because of foreclosure or missing payments sure would relieve some of the pressure current buyers are facing.

Inventory keeps moving lower
The reason we have yet to see a massive boom in building similar to what we saw in the 2000s with the first housing bubble is that builders realize these underlying dynamics. In fact, about one third of new building projects are going to multi-family units to meet market demands for a less affluent young generation. Remember those 2 million younger Americans living at home because of the recession? Their first step is likely to be a rental before buying a home.
The fact that roughly 1.8 million homes are listed today, nearly the same as we had in January of 2001 is stunning. We’ve added over 33 million people in that time to the country. The inventory pressures are larger in certain markets like California where some areas have seen inventory decline year-over-year by 50, 60, and even 70 percent:

9---Is the Refi 'Apocalypse' Really Upon Us?, CNBC

Mortgage rates today are very low, but U.S. borrowers have a very short memory. They forget that the rate on the 30-year fixed, which sits around 3.6 percent today, was a full percentage point higher a year ago, and above 5 percent in January of 2010. The purchasing power gained through today's low rates have arguably helped fuel the recovery in home sales. Low rates have also sparked a boom in mortgage refinancing, which in turn has put more spending money in consumers' pockets.
Still, the slightest move higher has dramatic effects.
(Read More: US Mortgage Applications Fall as Refi Demand Drops )
Witness the 10 percent drop in refinance applications from a week ago, on the Mortgage Bankers Association's weekly report. The rate on the 30-year fixed moved from 3.62 percent to 3.67 percent.....

That may be, but 88 percent of loans outstanding today are fixed, according to the Mortgage Bankers Association. Just 12 percent are adjustable rate. Even if rates do not rise any higher than they are today, which they may not, they would have to fall below last year's lows to see the high refinance volume of 2012 continue in 2013.

"The refi apocalypse is upon us," says Mark Hanson, a mortgage analyst in Northern California. "The thought is that there are a bunch of homeowners on the fence who haven't refi'd who will all jump in thinking they will miss out. The theory is 100 percent nonsense. The series will simply plunge. That's because after 16 months of sub 4 percent rates -- and every bank loan officer and mortgage broker doing everything they can after a long mortgage banking income drought that ended with Twist -- there is nobody left to refi. In fact, the only reason refi applications stayed flat in Q3 and Q4 was because they passed a new law allowing refinances regardless of the LTV [loan to value]...the HARP unlimited LTV refi."....

While refinances may suffer under even slightly higher rates, more important to the housing recovery is new mortgages to purchase homes. Purchase applications are still running at half the rate they were in 2007, when last the Dow hit a new high. Small moves in mortgage rates do affect purchasing power, but lending standards are a far bigger driver today. New regulations for lenders and a consolidation of lending overall to the mega-banks are certainly slowing, and in some cases stalling, the process for some would-be buyers.

10----Alexander Cockburn's FBI File, antiwar

11---US economy contracted in fourth quarter of 2012, wsws

The dismal report on the US economy follows downwardly revised estimates for world economic growth issued this month by both the World Bank and the International Monetary Fund (IMF). The Commerce Department statement reflects the impact on the US of stagnation and decline in major centers of the world economy as well as the lack of any genuine recovery in the real economy of the United States.

The major factors in the plunge from slowdown to outright contraction were a sharp decline in government spending, centered in a 22 percent drop in defense spending, a pronounced drawdown in business inventories, and a 5.7 percent fall in US exports. While the scale of the declines in government spending and inventories may not be repeated in coming months, the drop in exports reflects a marked slowdown in global economic growth that shows no signs of ending.

The 17-nation euro zone is in recession and is expected to contract further in 2013, Britain is also in recession, Japan’s economy is barely growing, and growth in the so-called “emerging economies” of China, India and Brazil is decelerating. The result is a decline in markets for US exports, which fell for the first time since the beginning of 2009, the low point of the world recession.

For all of 2012, the US economy grew by 2.2 percent, according to Wednesday’s report. While a slight improvement over the 1.8 percent growth rate for 2011, this pace of economic expansion is far too slow to significantly lower the unemployment rate, currently at 7.8 percent. For that to occur, the US would have to enjoy growth of more than 3.0 percent over a sustained period....

The US Federal Reserve, the Bank of England, the European Central Bank and the Bank of Japan are all pumping virtually free cash into the financial markets, essentially by printing money, in order to prop up the banks, guaranteeing them huge profits, while inflating asset values such as stocks and bonds.
This immense exercise in financial parasitism does virtually nothing to revive the real economy. On the contrary, the counterpart to ever bigger bank and corporate bailouts is a brutal policy of austerity aimed at destroying the past social gains of the working class and reducing workers to poverty. This attack on jobs, wages and social benefits undermines any sustainable economic growth and creates the conditions for deeper slump.
Just this month, as stock markets were soaring around the world, the International Labour Organization reported that the ranks of the unemployed would hit a new record high in 2013, increasing by 5.1 million to 202 million people. A US study reported a dramatic growth in the number of “working poor,” with the total number of people in low-income working families reaching 47.5 million—accounting for nearly one-third of all working families and 15 percent of the US population.


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