Wednesday, March 27, 2013

Today's links

1---Income Inequality, tax analysts

Incomes and tax revenues have grown from 2009 to 2011 as the economy recovered, but an astonishing 149 percent of the increased income went to the top 10 percent of earners.

If you wonder how that can happen, the answer is simple: Incomes fell for the bottom 90 percent. The rich really are getting richer while the vast majority is getting poorer. These facts should be at the center of any debate about changes in tax law and spending with the March 1 budget sequestration deadline just four days off. The income growth and shrinkage figures come from analysis of the latest IRS data by economists Emmanuel Saez and Thomas Piketty, who have won acclaim for their studies of worldwide income patterns over the last century. In 2011 entry into the top 10 percent, where all the gains took place, required an adjusted gross income of at least $110,651. The top 1 percent started at $366,623. The top 1 percent enjoyed 81 percent of all the increased income since 2009. Just over half of the gains went to the top one-tenth of 1 percent, and 39 percent of the gains went to the top 1 percent of the top 1 percent. Ponder that last fact for a moment -- the top 1 percent of the top 1 percent, those making at least $7.97 million in 2011, enjoyed 39 percent of all the income gains in America. In a nation of 158.4 million households, just 15,837 of them received 39 cents out of every dollar of increased income. That extreme concentration, however, is far from the most jaw-dropping figure that can be distilled from the new Saez-Piketty analysis. That requires a long-term comparison of those at or near the top with the bottom 90 percent. In 2011 the average AGI of the vast majority fell to $30,437 per taxpayer, its lowest level since 1966 when measured in 2011 dollars. The vast majority averaged a mere $59 more in 2011 than in 1966. For the top 10 percent, by the same measures, average income rose by $116,071 to $254,864, an increase of 84 percent over 1966. Plot those numbers on a chart, with one inch for $59, and the top 10 percent's line would extend more than 163 feet. Now compare the vast majority's $59 with the top 1 percent, and that line extends for 884 feet. The top 1 percent of the top 1 percent, whose 2011 average income of $23.7 million was $18.4 million more per taxpayer than in 1966, would require a line nearly five miles long. ....

The median wage has been stuck since 1999 at a bit more than $500 per week in real terms and job growth has lagged far beyond population growth. But capital gains and dividends have soared, a new Congressional Research Service study shows. And, of course, the rich get most of that income. Thomas Hungerford concluded:

    By far, the largest contributor to increasing income inequality (regardless of income inequality measure) was changes in income from capital gains and dividends. Capital gains and dividends were less equally distributed in 1991 than in 2006. . . . Tax policy may have also have had an indirect effect on rising income inequality, especially between 2001 and 2006. The reduction in the tax rate on long-term capital gains and qualified dividends may have led to the increased importance of this source in after-tax income.2

The Saez-Piketty analysis shows the concentration of growth at the very top increasing. That is bad for tax revenue and bad for social stability. The drop in incomes among the vast majority holds back economic growth, because there is just not enough aggregate demand to support creating enough new jobs to keep up with population growth.
And who was hit hardest by the new federal taxes that took effect this year? The vast majority. Ending the temporary 2 percentage point cut in the visible half of the Social Security tax has, predictably, dampened spending. Wal-Mart suffered very weak sales in early February, e-mails obtained by Bloomberg revealed.3 That is a predictable result for any retailer whose customer base is downscale...

Ponder again that ratio in income growth after 45 years between the vast majority and the top 1 percent of the top 1 percent -- $59 more to $18.7 million more. For each extra dollar of annual income going to each household in the vast majority, an extra $311,233 went to households in the top 1 percent of the top 1 percent

2--Americans Widely Back Government Job Creation Proposals, Gallup

Majority of Party Groups Favor Each Jobs Proposal
A majority of Democrats, Republicans, and independents support each of the three job creation proposals tested in the poll. Republicans are much more supportive of business tax breaks than the new job programs, and Democrats are more likely to favor the job creation programs, while independents show roughly equal support for all three.
Support for Job Creation Proposals, by Political Party
 


3---Free Trade and Unrestricted Capital Flow: How Billionaires Get Rich and Destroy the Rest of Us, naked capitalism


Keep in mind, the purpose of unrestricted “free trade” is to advantage the holders of capital over everyone else on the planet. Great wealth insulates these men and women from crises, so even global economic crisis is just the externalized price (that we pay) for their wealth extraction enterprise — just like a burdened health care system is the externalized price (that we pay) for wealth extraction by billionaire owners of tobacco companies from the constant stream of lung cancer patients.

What’s “a world in constant crisis” to them? Just the cost of doing business. Nothing personal. It’s just business

4---U.S. auto sales could rise 8 pct in March -research firms, Reuters

U.S. auto sales in March are expected to rise 8 percent and the annual sales pace should top 15 million for the fifth straight month as consumers shake off worries about the economy, according to research firms J.D. Power and Associates and LMC Automotive.

Sales of new cars and trucks in March are expected to rise to 1,465,100 vehicles, while the annual sales pace is forecast to hit 15.3 million vehicles, J.D. Power and LMC said in a joint report released on Thursday. Since November, the annual rate has ranged from 15.3 million to 15.5 million.

Auto sales are an early indicator each month of economic health. The industry has so far proven stronger than the overall U.S. economy as the record high age of cars and trucks on the road has reached more than 11 years, and easier availability of credit have pushed consumers into the market.

"We expect the economic environment to improve throughout 2013, as the likelihood of a dark cloud slowing the recovery pace diminishes," LMC senior vice president Jeff Schuster said in a statement. "Consumers do not appear phased by headwinds from Washington, as growth in auto sales are outperforming earlier expectations."

5---Cyprus should leave the euro. Now., NYT

The reason is straightforward: staying in the euro means an incredibly severe depression, which will last for many years while Cyprus tries to build a new export sector. Leaving the euro, and letting the new currency fall sharply, would greatly accelerate that rebuilding.

If you look at Cyprus’s trade profile, you see just how much damage the country is about to sustain. This is a highly open economy with just two major exports, banking services and tourism — and one of them just disappeared. This would lead to a severe slump on its own. On top of that, the troika is demanding major new austerity, even though the country supposedly has rough primary (non-interest) budget balance. I wouldn’t be surprised to see a 20 percent fall in real GDP.

What’s the path forward? Cyprus needs to have a tourist boom, plus a rapid growth of other exports — my guess would be agriculture as a driver, although I don’t know much about it. The obvious way to get there is through a large devaluation; yes, in the end this probably does come down to cheap deals that attract lots of British package tours.

Getting to the same point by cutting nominal wages would take much longer and inflict much more human and economic damage.

6----The "disability problem" myth, CEPR

While there have been problems with the disability program for some time, these problems changed qualitatively as a result of the downturn. Disability payments actually had been somewhat below projections until the downturn. The downturn following the collapse of the housing bubble then sent costs soaring. The Trustees projections show that this rise is temporary and projected to fall back once the economy returns to something resembling full employment, as shown below.
ss-disability-costs-2013
                            Social Security Trustees Reports, 1996 and 2012.
You can get a somewhat fuller discussion of this point in my earlier blogpost. Anyhow, before reporters just pick up the This American Life piece and start yapping about how disability costs have exploded out of control they should take a moment and look at the projections in the Trustees report.
The reality is that the explosion in costs is just one more spin-off of the disastrous economic policy crafted in Washington. We have not suddenly become a nation of slackers or unemployable deadbeats.

7---Consumers start tightening their belts, CEPR

The Conference Board's index of consumer confidence fell in March. What is noteworthy for those following the economy is that the current conditions index dropped by 3.5 points to 57.9. This component is the one that actually tracks current consumption reasonably closely, so it is giving us information about the economy.

By contrast the future expectations components is highly erratic and bears little relationship to actual consumption patterns. Reporters generally don't make a point of distinguishing between these two components. This can lead them to misinform the public about the economy.

For example there were many stories last fall highlighting falls in the index based on the future expectations index. These drops were undoubtedly attributable to media accounts warning of the end of the world if we went off the "fiscal cliff." As we now know, consumption spending held up just fine through the fall.

The recent drop in the current conditions index however should be taken as a serious warning that consumers may be tightening their belts. That would not be a surprising response to the ending of the payroll tax cut, plus some amount of layoffs and cutbacks associated with the sequester.
This is just one report among many, but it does suggest that the recovery optimists singing about having finally turned the corner may be wrong.

8---Down payment rule could torpedo housing industry, groups warn, The Hill
9---Big Banks Offer Payday Loans At 300 Percent Interest: Study, Huffington Post

10---Student loan write-offs hit $3 billion in first two months of year, Reuters

11---No Money Down Mortgages Stage a Comeback, credit union times

12----WALLISON AND PINTO: New Qualified Mortgage rule setting us up for another meltdown Government housing loan policies doomed to fail, Washington Times

13---Customers Flee Wal-Mart Empty Shelves for Target, Costco, Bloomberg

14---FHA: The serious delinquency rate was 9.5 percent in January, unchanged from December but up from 9.8 percent in January 2012, loan rate update

FHA Streamline loans accounted for 81.3 percent of all refiances.

The average FICO score for a homebuyer securing an FHA loan in January was 695, the same as in December and down from 696 a year ago. For refinanced loans, the average FICO score in January was 701, also the same as the previous month but down from 706 a year earlier.
The number of seriously delinquent loans insured by the FHA increased by 0.5 percent from December to January and was 0.6 percent higher than a year ago.
The number of loans that were 90 days or more past due increased by 3,451 in January, bringing the total number of seriously delinquent loans in the FHA’s portfolio to 738,109. In the last year, the number of seriously delinquent loans has increased by 4,265.
The serious delinquency rate was 9.5 percent in January, unchanged from December but up from 9.8 percent in January 2012.

At the end of January, the FHA had 7,780,073 insured single-family mortgages in its portfolio with an amortized balance of $1.094 trillion.
The number of loans insured by the FHA has increased by 3.6 percent in the last year while the amortized balance has increased by 4.0 percent.

(Streamline means --- The FHA streamline refinance is best defined as follows:
  • The refinance of an existing FHA loan with limited documentation and minimal underwriting qualifications.
     FHA's stance is if the homeowner is current on their existing mortgage (one that FHA is already insuring) and they are able to refinance to a lower interest rate and lower payments, without increasing the loan amount by more than the original  amount, then why not make it as easy as possible for the borrower to qualify and limit the documents needed.
     This is exactly what FHA offers with it's FHA streamline refinance. A means to refinance your mortgage without all of the paperwork, underwriting qualifications, appraisal, or time normally necessary when refinancing a home loan

15---Cyprus faces deep recession, high unemployment after bank bailout, wsws

On Tuesday, Cyprus’s central bank confirmed that the new agreement, imposed in defiance of public opinion without so much as a vote in parliament, will see a 40 percent levy on deposits above €100,000 held in the Bank of Cyprus, in addition to wiping out €4.2 billion of deposits at Laiki. This is to be accompanied by capital controls, including a weekly limit on cash withdrawals and curbs on the export of euros....

As the BBC’s Robert Peston commented, “The rescue of Cyprus won't feel like one to its people.” It amounted, he continued, to “An economy that will be starved of credit, and will therefore shrink rapidly and very painfully for citizens,” and whose “main industry, offshore banking, is being shut.”...

Nicholas Papadopolous, chairman of the Cypriot parliament’s finance committee, bluntly admitted: “We are heading for a deep recession, high unemployment.”
The European bourgeoisie, which has turned the entire continent into an austerity zone on behalf of finance capital, is now looting another defenceless country. ....

Deposit seizures and limitations on the free movement of capital meant that the EU “has now made it official policy, under certain circumstances, to encourage member states to seize depositors' assets to pay for the stabilization of financial institutions.”
“If Russian deposits can be seized in Nicosia, why not American deposits in Luxembourg?” it asked.
Such fears were strengthened by reports that the Spanish government is to impose losses of up to 60 percent on investors at five nationalised banks. In addition, a European Commission spokesperson confirmed Tuesday that large uninsured depositors could be “bailed-in” to future bank rescues, under draft legislation being prepared by the EU.





 



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