Friday, February 8, 2013

Today's links

1---Food stamp usage vs jobs, Fabius Maximus

2---Hong Kong cage dwellers, yahoo news

How to cope with rising housing prices

3---Lessons From The 1930s Currency Wars, zero hedge

Get ready for the next phase of the crisis

4---Bullish sentiment still rising, Trimtabs

I am also surprised that we are still seeing positive inflows into both mutual and exchange traded US equity funds. My opinion had been that inflows were boosted directly and indirectly as a result of higher 2013 tax rates, and those inflows would stop by the end of January. Instead, February equity flows still are positive, although nowhere near the huge inflows of January

Lastly and perhaps the biggest surprise, at least to me, is that withheld income and employment tax payments were still up over 6 percent during the past two weeks through early February.

Those of you who have been regular followers of my blogs know that I had been expecting wage and salary growth to be slumping by now as a result of higher 2013 tax rates pushing lots of taxable income into 2012. I also had been saying that higher employment taxes this year would lower take home pay.

5---"Housing is a fad", Robert Shiller, Bus Insider

Robert Shiller, the Yale economist who nailed the housing bubble before it burst, was on Bloomberg Television with Trish Regan and Adam Johnson on Wednesday afternoon to discuss the U.S. housing market.

As usual, Shiller was reluctant to declare that home prices had bottomed. He explained that the housing market is a speculative one and that there's no telling which way prices would go tomorrow. He also explained that there wasn't much reason to believe that home prices would appreciate back to levels seen during the last cycle.

6---The Brennan Appointment: Bringing the Murder Program home, power of narrative

John Brennan, who now is Obama's chief adviser on domestic security and counterterrorism goes to head the C.I.A. I'll tell you what that means to me: Obama and his fellow murderers are absolutely determined to bring the Murder Program home to America, and probably even more quickly than I had previously thought. I described the steps by which that might happen in the second half of the preceding post. The unfolding nightmare that I described might very well lie in your future, America -- and in the not too distant future at that. Do you care?....

Since the administration is already expanding the number of strikes, there can be no question that they plan to rely on assassination more and more frequently. And if at some point there should be serious domestic unrest ... well, we might prefer not to think in great detail about what the administration's response is likely to be.

7----It's the trade deficit, stupid, economic populist

EPI has a new study which shows once again, reducing the trade deficit will create American jobs. The number one cause of our massive trade deficit is currency manipulation. The figures are astounding. EPI estimates 20 countries, developed and underdeveloped, made off with $700 billion more in trade by manipulating their currency in 2011. This cost the United States $400 billion in additional trade deficit for the same year. That's a hefty amount of cash.

The U.S. could stop currency manipulation with a just say no program and this doesn't even require Congress. An executive order could declare currency manipulators can not buy U.S. assets, period. This would stop currency manipulation in it's tracks. Manipulators need to buy U.S. assets, in particular U.S. Treasury bonds, to keep their currencies undervalued,. We explained the mechanics of currency manipulation and why other countries buy up U.S. assets in this article.
....
According to EPI, if the U.S. stopped currency manipulation in 2011, nominal GDP would have increased whopping 1.4% to 3.1% in 2014. That's huge! Even better, America would have created between 2.2 million to 4.7 million new jobs by 2014. EPI estimates stopping currency manipulation in 2011 would have reduced the unemployment rate by 1.0% to 2.1% and created between 620,000 to 1.3 million new manufacturing jobs in just three years. That is just stopping currency manipulation, all other policies remain the same.
The statistics are bleak. Manufacturing has lost almost a third of her jobs since 1998. From the same time period, the United States has lost one third of her global export market share...

It is not just economic growth and employment at stake. Confronting currency manipulation would also reduce the federal budget deficit. EPI's model suggests between a $78.8 billion and $165.8 billion budget deficit reduction over the same three year time period. This is because growth increases output, reduces payouts via social safety nets and, drum roll please, increases tax receipts, government revenues. Yes folks, putting people back to work and increasing economic output reduces the federal budget deficit

8---Private equity's role in housing recovery, alternet

Every day, it seems a new report comes out praising the ongoing housing recovery. In Georgia, home prices are up 5 percent over last year, a year in which we also had one of the highest foreclosure rates in the country. Seems a little odd, doesn’t it? Don't foreclosures usually drive down the market?

That’s because the housing “recovery,” as they’re calling it, is fueled almost entirely by Wall Street private equity firms, hedge funds and the Fed's unwavering support. After creating a massive bubble in home prices that eventually burst and caused our economy to go into a tailspin, these guys have decided to come back for more, and figured out a way to profit off their destruction -- by turning foreclosed homes into rentals and securitizing the rental income. ....

The Blackstone group, the biggest player in the new REO to rental market, has spent $2.5 billion in the last year purchasing 16,000 homes, a number that amounts to over $100 million per week. Property records show that many of the homes Blackstone has acquired in Fulton County over the last few months were purchased on the courthouse steps at the monthly foreclosure auction, or through short sales—when a lender agrees to accept less than the amount owed on a loan. The vast majority of these homes are not empty, but occupied by homeowners who fell behind during the great recession.

9---Fed Worried about Bubbles, Not Inflation, NYT

 Some credit markets are showing signs of overheating as investors take larger risks in response to the persistence of low interest rates... Fed Governor Jeremy Stein, highlighted a surge in junk bond issues, the popularity of certain kinds of real estate investment trusts and shifts in bank balance sheets as areas the central bank is watching closely...
Mr. Stein gave no indication that the Fed is contemplating any change in its aggressive efforts to hold down interest rates. Rather, he described the overheating as a trend that might require a response if it intensified over the next 18 months. But the speech nonetheless underscored that the Fed increasingly regards bubbles, rather than inflation, as the most likely negative consequence of its efforts to reduce unemployment by stimulating growth. ...
Central bankers historically have been skeptical that asset bubbles can be identified or prevented from popping. Moreover, they tend to regard financial regulation as the appropriate means to prevent excessive speculation and not changes in monetary policy ... But the crisis has forced central bankers to reconsider both the importance of financial stability and the role of monetary policy. ...
And he closed on a cautionary note. “Decisions will inevitably have to be made in an environment of significant uncertainty,” he said. “Waiting for decisive proof of market overheating may amount to an implicit policy of inaction on this dimension.”
10--U.K. Lesson: Austerity Leads to More Debt, New Yorker

Just how disastrous was made clear yesterday by a new report from the Institute of Fiscal Studies, a London-based think tank that is widely regarded as independent and nonpartisan. In the “Green Budget,” its lengthy and detailed annual review of the U.K.’s finances, the I.F.S. pointed out that the budget deficit, far from being eliminated, was still so large that next year the Chancellor, George Osborne, will have to borrow about sixty-five billion pounds more than he had anticipated. (That’s about four per cent of the U.K.’s G.D.P.) Indeed, the hole in the public finances is so big, the I.F.S. said, that the government might well be forced to introduce a series of tax hikes following the next general election, which is expected to take place in 2015.

Even some commentators who have supported the austerity program appear dejected. “This is a truly desperate state of affairs that demands swift and decisive action,” the Daily Telegraph’s Jeremy Warner wrote in his column following the release of the report. And he went on: “We seem to have the worst of all possible worlds, with nil growth, some very obvious cuts in the quantity and quality of public services, but pretty much zero progress in getting on top of the country’s debts.”....

In short, the U.K. experience shows how austerity policies, when applied without regard to the state of the economy, often lead to more government borrowing and debt creation, not less. In the past few years, we’ve seen pretty much the same thing happen in other European countries: Greece, Ireland, Portugal, and now Italy and Spain. Still, though, many proponents of austerity refuse to acknowledge their errors.
Osborne is one of them, which is only to be expected: he’s an unpopular politician, with his career on the line. It might be hoped that international organizations tasked with purveying economic wisdom, such as the International Monetary Fund and the Organization for Economic Co√∂peration and Development, would be more open to reappraising their views. Not so, apparently. The I.M.F. remains staunchly behind Osborne’s policies, and, in a statement released yesterday, the O.E.C.D. said the U.K.’s “fiscal stance remains appropriate

11---Who Gets Hurt Most by Higher Unemployment?, On The Economy

The recent CBO report projects real GDP growth to be a measly 1.4% this year, down from a rate closer to 3%, they claim, were it not for all the fiscal cuts baked in the 2013 cake:
CBO estimates that economic growth in 2013 would be roughly 1½ percentage points faster than the agency now projects [i.e., 1.4%] if not for the fiscal tightening.
By Okun’s rule, this suggests unemployment will stick at about 8% this year—about where it is—instead of a number a lot closer to 7% (Okun’s rule turns that 1.5% faster GDP growth into about 0.75 of a percentage point (ppt) lower unemployment). In fact, the CBO predicts that unemployment rate this year will move from all of 7.9% in the first half of the year to 8% in the second half. Thanks, dudes.

12---Bank scandals and the case for public ownership, wsws


The bringing of charges against the rating agency Standard and Poor’s by the US Justice Department has again highlighted the cesspool of illegality, conflict of interest and corrupt relations that lie at the very heart of the US and global financial system.
The $5 billion civil lawsuit brought by the government claims that from September 2004 through October 2007 S&P “knowingly and with the intent to defraud, devised, participated in, and executed a scheme to defraud investors” through the sale of collateralized debt obligations backed by residential mortgage securities. According to the suit, the ratings agency “falsely represented” that its credit ratings were objective, while in reality its “desire for increased revenue and market share” led it to “downplay and disregard the true extent of the credit risks....

In Germany, the federal supervisory agency BaFin is bringing to a conclusion an investigation into the role played by Deutsche Bank in the Libor (London Interbank Offered Rate) rate-rigging scandal, which impacted $350 trillion worth of financial transactions worldwide.
The bank’s defence is that any manipulation of the Libor rate by its staff was the result of the action of “rogue traders”. This defence ignores the fact that, in the words of the BaFin head investigator, the whole system was “practically an invitation to manipulate.”...

Karl Marx noted that when capital experienced a crisis and profits rates fell “there appears swindling and a general promotion of swindling by recourse to frenzied ventures” for the sake of trying to overcome the crisis.
But Marx was still pointing to somewhat exceptional circumstances. Now the exception has become the rule. The past 30 years, following the end of the post-war capitalist boom, have been characterized by the rise of financialization and the ever greater separation of the accumulation of profit from the actual processes of production.
Under conditions where the valuation of financial assets is increasingly based on a series of complex mathematical models, and where changes in the underlying assumptions can bring major changes in the final outcome, transforming potential losses into profits, the way is open to manipulation and fraud. In fact, as the S&P case shows, the ever-present danger of being outstripped by one’s rivals compels such corruption as a matter of survival.

The stench emanating from the financial system is a product of the decay of the entire profit system. That system must be replaced by a higher socio-economic order in which the vast wealth created by the collective labour of the world working class is deployed to meet human need.

13---The "home equity ATM" is open for business, CNBC

During the housing boom of the last decade Americans withdrew over $1 trillion in home equity. They did it through cash-out refinances, home equity loans, and home equity lines of credit. The latter allowed them to use their homes like an ATM. They spent the money on cars, televisions, vacations and fancy home upgrades. It was seemingly endless equity, until suddenly that equity was gone.
"Home prices are definitely a factor" in the recent rise home equity lines of credit, said Brad Blackwell, an executive with Wells Fargo Home Mortgage. "As they increase, people have more available equity."
Blackwell also pointed to increased consumer confidence, meaning borrowers now feel better about their ability to repay these loans. Both factors fueled a 19 percent jump in originations of home equity lines of credit at the end of last year, according to Equifax. In 2008, as housing was crashing, home equity line originations dropped 55 percent.
"Nationally we've seen a 31 percent increase in HELOC's year-over-year," said a spokesperson from JPMorgan Chase.
With home prices up 8 percent year-over-year in December, according to the latest reading from CoreLogic, homeowners are regaining home equity at a fast clip—1.4 million borrowers rose above water on their mortgages through the end of September. That number likely increased as price appreciation accelerated toward the end of the year....

The average home equity line in October of 2012 was just below $90,000 compared to October 2006, when lines averaged just over $100,000, according to Equifax.
Despite the recent surge, volume is still down dramatically from the height of the housing boom. Borrowers in 2012 took out a collective $7.2 billion in home equity lines through last October, compared to just over $28 billion in 2006

14---Shiller explains why owner-occupied housing is a poor investment, oc housing

Adam Johnson also noted that this was in line with Shiller’s assessment that real U.S. home price appreciation from 1890 to 1990 was just about 0 percent. This is explained by the falling costs of construction and labor.
For people who can’t wrap there heads around this, Shiller offers an analogy.
“If you think investing in housing is such a great idea, why not invest in cars?” he asked. “Buy a car, mothball it, and sell it in 20 years. Obviously not a good idea because people won’t want our cars. It’s the same with our houses. So, they’re not really an investment vehicle.” …
 

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