Thursday, February 28, 2013

Today's links

1---Deficit hawks' 'generational theft' argument is a sham, LA Times
The idea that we're spending much more on our seniors than our children is wrong on the numbers and wrong on the implications.

2--Shiller’s Bottom Line: Risk Lingers in Housing, WSJ

WSJ: Why are you more worried than most people?
Mr. Shiller: Part of the reason the indexes have gone up is because the foreclosure boom has receded. Foreclosed homes sell at a lower price, and the share of those sales has been falling. People might be deceived by this by looking at the indexes. The question is whether the gains will be sustained.

There isn’t any sign of the real enthusiasm we saw during the last bubble. The question is whether this could be the very vague beginning of a new boom? I guess it could. I just don’t know. Then there are issues with what the government does to support housing. They’re doing everything they can. They say they’re going to stop some day. When will people start worrying about that?

3---The Only Ones Who Recovered from the Recession are the Top 1%, economic populist
During the Great Recession, from 2007 to 2009, average real income per family declined dramatically by 17.4%, the largest two year drop since the Great Depression. Average real income for the top percentile fell even faster (36.3 percent decline), which lead to a decrease in the top percentile income share from 23.5 to 18.1 percent. Average real income for the bottom 99% also fell sharply by 11.6%, also by far the largest two year decline since the Great Depression. This drop of 11.6% more than erases the 6.8% income gain from 2002 to 2007 for the bottom 99%.
Beyond the rich making all of the income recovery post the financial crisis, the study also shows we have returned to 1917 in terms of income share going to the rich. Anyway you slice it, with capital gains made from the stock market or not, all of the economic justice of the past century has been wiped out.
Excluding realized capital gains, the top decile income share in 2011 is equal to 46.5%, the highest ever since 1917 when the series started....
top1 percent income

We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional and tax reforms should be developed to counter it. 
4---Analysis: Cuts unlikely to deliver promised budget savings, Reuters (Duh)

5---U.S. Entered Recession in January Yet Fed Fix Keeps Stocks Pumped, Trimtabs

Meanwhile, that brings us to today’s reality where the U.S. economy is in a recession and the U.S. stock market is percentage points from an all time high. But U.S. company insiders know what’s really going on. So it is no surprise that insiders at U.S. companies have bought the least amount of shares in any one month and that the ratio of insider selling to buying is now 50 to 1. These are both monthly records since TrimTabs starting tracking insiders in 2004.

And yes, companies are still buying each other and their own shares back. But companies are using balance sheet cash, not only earning nothing, but in many cases costing nothing. Perfectly logical to me for companies to be big net buyers of their own shares while insiders are bailing.

Chairman Bernanke signaled this week that the fix is still in and the Fed will keep buying $4 billion of existing bonds each trading day. So far the mass delusion is holding that newly created money is worth just as much as pre-existing cash. Debasing the currency to pay government bills is not new. The Roman Empire did, as did many others. And We are doing it know.

6---Builders Find Investors Eager to Finance Housing Growth, Bloomberg

7---Bernanke Elaborates on Exit Strategy, WSJ

8---Low Interest Rates, Overheating, and Household Indebtedness, Carola Binder

Monetary policy is a blunt instrument when it comes to counteracting the build-up of financial bubbles, but financial imbalances can lead to major problems for companies and households and ultimately cause lower growth and higher unemployment. Just the fact that the Riksbank has talked about the risks entailed in the high level of household debt has contributed to stabilising the household debt ratio, albeit at a high level, according to Ms af Jochnick.As those comments make clear, one concern in particular is that low interest rates are contributing to a higher household debt ratio. This struck me as somewhat strange because household debt to GDP in the United States has been falling steadily despite our low interest rates (see FRED graph at bottom.) I wonder if she is correct that the Riksbank has actually managed to stabilize the household debt ratio just by talking about the risks of high levels of household debt! An article in Reuters says:

Swedish Riksbank Governor Stefan Ingves, who is also the head of the Basel Committee on Banking Supervision, has warned low rates are adding to the risk of driving up household debt.
In minutes of the bank’s Feb. 12 meeting, Ingves said, “With the current low interest rates, one must be aware of the link between household debt and monetary policy.”...

Svensson's conclusion was that "The potential risks of household indebtedness have to be managed by
other means, means that have a significant effect. We should not use monetary policy to limit household indebtedness. This will only serve to run the economy into the ground.

9---US-Backed Afghan Police Poison, Massacre 17 of Their Comrades, antiwar

The perpetrators were reportedly Taliban infiltrators, retaliating for "atrocities and crimes" by Afghan police

10---Draining excess reserves and the exit strategy, sober look

Bloated excess reserves may ultimately impact the value of the dollar.

. There are concerns that over a longer period, excess reserves could distort certain markets, creating financial bubbles - as banks seek to deploy cheap capital (in real estate for example).

11---Fed chairman reassures markets on dollar-printing “quantitative easing” program, wsws

The release of the minutes followed a speech earlier this month by a member of the Fed Board of Governors, Jeremy Stein, who warned that the Fed’s policy of near-zero interest rates into the indefinite future encouraged the type of reckless, high-risk speculation that brought down the financial system in September of 2008.

The panicked response on stock exchanges last week underscored the degree to which the financial system has become addicted to massive injections of cash from the major central banks. Taking their cue from the Fed, the European Central Bank, the Bank of England and the Bank of Japan have all launched their own “quantitative easing” programs. This flood of cheap credit from the central banks amounts to an immense subsidy to the major banks and financial institutions, which are able to leverage the virtually free money to make huge profits from speculative operations.

As a result, share values, corporate profits and executive pay have spiraled upward even as the real economies of most of the industrialized countries have contracted and unemployment and poverty have continued to soar, in large part due to brutal austerity policies aimed at making the working class pay for the vast expansion of debt. The economies of the US, Britain, the euro zone and Japan all contracted in the final quarter of 2012.

The Federal Deposit Insurance Corporation reported Tuesday that profits at US banks jumped almost 37 percent in the final three months of 2012, reaching the highest level for a fourth quarter in six years. The agency said that for all of 2012, bank earnings rose 19 percent to $141.3 billion, the second-highest annual level ever.

12---The Italian election: A political watershed, wsws

The class struggle will increasingly assume more militant and open forms. European politicians have responded by publicly stating that they will not accept the electorate’s will as expressed in its vote against the austerity policies of the EU. The most blatant statement in this regard came from European Commission President Jose Manuel Barroso.

Commenting on the Italian election, he declared: “The mistake now would be to cave in to populism. We must now ask the question: Should we define our economic policy on the basis of short-term electoral considerations or by what is required to lead Europe on the path of sustainable growth? For me the answer is clear. We should… not yield to immediate party political considerations.”

In other words, the people can vote however they choose, but it will have no impact on state policy. We will stick to the social counterrevolution. Similar statements were made by other politicians and media commentators.

European ruling circles will react to Monti’s electoral disaster by increasingly turning to authoritarian methods of rule and the forcible suppression of resistance to their reactionary policies.

13---Italian politics in deadlock as Beppe Grillo rules out deal, Guardian

Former comedian says he will not back Democratic party and brands leader a 'dead man talking'

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