Thursday, March 14, 2013

Today's links

1---EXCLUSIVE - U.S. to let spy agencies scour Americans' finances, Reuters

The Obama administration is drawing up plans to give all U.S. spy agencies full access to a massive database that contains financial data on American citizens and others who bank in the country, according to a Treasury Department document seen by Reuters.

2---Britain’s fiscal failure, Reuters

Mr Cameron argues that those who think the government can borrow more “think there’s some magic money tree. Well, let me tell you a plain truth: there isn’t.” This is quite wrong. First, there is a money tree, called the Bank of England, which has created £375bn to finance its asset purchases. Second, like other solvent institutions, governments can borrow.
Wolf’s main point is simple: in an economy which might already be in a triple-dip recession, deficits are caused by economic sluggishness. That’s what forces up government spending while reducing government revenues. Everything comes back to growth: the UK credit rating, the size of the deficit, and, most simply, nominal GDP, which is now 13.6% lower than the government officially forecast it would be back in 2008.
What’s more, government spending comprises a much larger share of GDP in the UK than it does in the US, which means that spending cuts can easily directly cause recessions. And deficits always go up, rather than down, in recessions:
The prime minister also stated: “[Labour] think that by borrowing more they would miraculously end up borrowing less … Yes, it really is as incredible as that.” What truly is incredible is that Mr Cameron cannot understand that, if an entity that spends close to half of gross domestic product retrenches as the private sector is also retrenching, the decline in overall output may be so large that its finances end up worse than when it started. Bradford DeLong of Berkeley and Larry Summers, the former US Treasury secretary, have shown that, in a depressed economy, what Mr Cameron deems incredible is likely to be true.
 
3---David Dayen: Out of Control – New Report Exposes JPMorgan Chase as Mostly a Criminal Enterprise, naked capitalism

4---Obama vs Chavez, counterpunch

Obama’s 2008 campaign slogans now only inspire feelings of betrayal to those who believed in him, while the corporations and wealthy will celebrate Obama’s legacy, a tribute to his pro-corporate policies. In the final analysis, Chavez will be remembered for boldly taking action against the same inhuman inequality that is growing in most countries in the world. In so doing, Chavez earned the hatred of the elite who benefit from this system-wide inequality, while the rest of us on the bottom of the inequality-spectrum owe him our appreciation, since Chavez’s fight was our fight too.

5---No Money? No Worries. Home Lenders Ease Up Rules, CNBC

The banks are also catching their collective breath now after years of raging refinances. Record-low mortgage rates had borrowers refinancing over and over, and that left little capacity or need for the banks to take on more work in the form of home purchase loans.

With rates now rising to the highest level in six months, according to a report from the Mortgage Bankers Association Wednesday, the banks are seeing fewer refinances.
(Read More: Jumbo Mortgage Divide Starts Shrinking)

"Lenders, as traditionally happens, as they have more capacity, they might be willing to stretch their credit limits more," said Forlines.

Lenders may also be responding to clearer guidelines from Fannie Mae on how it will determine which defaulted loans it can force the banks to buy back. Banks had to buy back billions of dollars worth of bad loans during the housing crash due to failures in so-called "reps and warrants" (representations and warranties) on loans it sold to Fannie Mae.

They are also just responding to more business, particularly from first time home buyers who have been largely on the sidelines until now. Improving employment and more confidence in home prices are bringing these buyers back. Since first-time buyers tend to be younger, they may not have large down payments.

6--The Fed's Exit, Big Picture

The markets have begun to wonder whether the Fed (and other central banks) will ever be able to exit from its Quantitative Easing policy. We believe there is only one reasonable exit the Fed can take. Rather than sell its portfolio of bonds or allow them to mature naturally, we believe the Fed’s only practical exit will be to increase the size of all other balance sheets in relation to its own.

This “exit” will be part of a larger three-part strategy for resetting the over-leveraged global economy, already underway. The first stage is policy-administered monetary inflation – QE in which the Fed is de-leveraging bank balance sheets by adding bank reserves. The second phase will be policy-induced price inflation – hyper-inflating the general price level enough to diminish the burden of debt repayment and gain public support for monetary system change. (Imagine today the Fed proclaims all one dollar bills are ten dollar bills. Goods and service prices would increase 10x, more or less, as would wages, asset prices, revenues, costs, etc. The only item on the balance sheet that would not increase 10x would be the notional amount of systemic debt owed.) We believe the third phase of the strategy will be a monetary reset that recaptures popular confidence following the hyper-inflation.

Below, we list a progression of facts and reason supporting these conclusions:...

Thus, it seems reasonable to assume that there will NOT be a sudden rise in US market interest rates unless the Fed wants such a rise...

The US public sector and US households are in a compounding debt trap in which there is no exit. Thus, debt is growing and being shifted presently, not being extinguished, and this portends the likeliest future path.

Real output growth from current debt/leverage levels cannot be generated from a coincident increase in more systemic credit/debt. So, the policy solution cannot be issuing new credit and transferring debt with the goal of generating increasing demand and nominal output growth. (And we further argue that wealth concentration that results directly from asset price inflation is a very relevant and direct constraint on real economic growth.)

• The US economy (and all indebted advanced economies) is shrinking in real terms presently and fiscal measures are incapable of providing a sustainable remedy. This is precisely the catalyst forcing today’s aggressive monetary policy action.
The only solution is true systemic de-leveraging (banks, households and governments). Banks are already in the process of being de-levered through QE in the form of bank reserve creation....

There are only two ways to de-lever balance sheets: 1) letting debt deteriorate naturally, which would cause a 1930s style deflationary depression, and/or; 2) creating new base money in the form of bank reserves (first) and circulated currency (second). Both reduce leverage ratios (unreserved credit-to-money available with which to repay systemic debts).

• The only two ways for the US government to de-lever without creating a deflationary depression would be: 1) Treasury sells assets (e.g. land, resources, shipping lanes etc.) and uses the proceeds for debt repayment, and/or 2) Treasury has the Fed devalue (inflate) the US dollar against a monetary asset on its balance sheet....

Policy-administered US dollar devaluation would apply the same principle, but the inflation would occur suddenly and, discretely. Following a hyper-inflationary episode, the public would be conditioned for another resetting of the global monetary system (its fifth in one hundred years).
• Central banks, led by the Fed, would have to re-price and monetize an equity asset rather than debt assets. The only monetize-able equity asset on official balance sheets is gold (which may explain why central banks of emerging economies are voracious buyers presently).

7---Executive Order 6102, (the primacy of fiat money?) wikipedia

Executive Order 6102 is an Executive Order signed on April 5, 1933, by U.S. President Franklin D. Roosevelt "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States". The order criminalized the possession of monetary gold by any individual, partnership, association or corporation.

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