Monday, April 15, 2013

Today's links

1--Europe’s Stark Choice: Resignation or Revolution, naked capitalism

If there is one thing of which you can be sure about present-day Europe, it is that its political and economic systems are not meant to serve or protect the interests of the youth; on the contrary, they have been designed to gradually erode their last-remaining freedoms and rights and, by leaving them the tab for the transgressions and greed of the global banking sector, deprive them of all hope of ever attaining the standards of living once taken for granted by their parents or grandparents.

Spain is a perfect case in point: In the two intervening years since the country’s 15-M moment, the economy has spiraled into a bottomless depression. Official youth unemployment in the country has reached a mind-boggling 60 percent. Thousands of Spanish savers and pensioners have been robbed of their life savings, victims of the national banks’ cunning (and, it goes without saying, unpunished) preferentes sleight of hand.

All the while, taxes continue to skyrocket and essential welfare spending has been mercilessly sacrificed on the altar of bank recapitalization. Countless of the nation’s homes have – and continue to be – repossessed, to later be given away at a fraction of their value to wealthy international property speculators....

And now, with Winter turning to Spring, and Spring soon to Summer, the people of Europe face the starkest of choices: resignation to the EU’s neoliberal, neofeudal agenda, and with it, the gradual elimination of the few remaining freedoms and opportunities we still enjoy; or a spirited last-stand against the encroaching totalitarianism of the European superstate.

2---Stockman KO’s Krugman in Big Fed Brawl, Bloomberg

Stockman is exactly right. The Fed’s “quantitative easing” policies -- which some Fed governors have begun to question, according to the minutes of the mid-March Fed meeting -- have been an unqualified boon to Wall Street. Not only has QE been a gift to traders -- they can trade freely on the Fed’s promise to keep interest rates low for the foreseeable future, and who have found a willing buyer in the Fed, at market prices, for squirrelly mortgage-backed and other complex debt securities -- but the Fed’s low short-term interest rate policy has allowed the money-center banks with access to the Fed’s discount window to back up the truck and get as much short-term funding as they need at virtually no cost.

Then, as Stockman notes correctly, banks pay virtually nothing to depositors for the use of their money, and they turn around and lend out those deposits at wide spreads. It all adds up to an industry that pays close to nothing for its raw material -- cash -- and has the Fed’s blessing to rake in the profits. In 2012, despite losing $6.2 billion in the London Whale debacle, JPMorgan Chase and Co. still earned $21.3 billion in profits, its best year ever.

3---China economic data disappoint, slamming stocks, marketwatch

Chinese economic data released Monday, including first-quarter growth, came in weaker than expected, sending stocks lower across Asia, even as some analysts predicted a better numbers ahead.
Gross domestic product for the January-March quarter rose 7.7% from a year earlier, the National Bureau of Statistics said, weakening from 7.9% growth in the fourth quarter, and missing projections for 8% growth in separate surveys from Dow Jones Newswires and Reuters.

Among the March data, industrial production increased 8.9% from the year-earlier period, well below the Dow Jones Newswires forecast for a 10% gain

4---The Propaganda System That Has Helped Create a Permanent Overclass Is Over a Century in the Making, alternet

Pulling back the curtain on how intent the wealthiest Americans have been on establishing a propaganda tool to subvert democracy
 
 
 
Two top advisers to German Chancellor Angela Merkel have called for a tax on private wealth and property in eurozone debtor states to force the rich to fund rescue costs, marking a radical new departure for EMU crisis strategy.
 
 
 
Nelson Schwartz struggled to make sense of the economy in a NYT column today. After all, we see signs of economic weakness everywhere, yet the stock market is soaring. (This may be less of a mystery to folks who know that stock prices are ostensibly a measure of corporate profits, not the health of the economy.)

After going through the bad news, Schwartz gives us the case for optimism about the economy:
"'The current slowdown will be the last for a while,' said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. He estimates that after growing by annual rates of only 1.3 percent in the second quarter and 1.5 percent in the third quarter, the economy will expand by 2.5 percent in the final months of the year and maintain that pace in 2014.
 
'We’re getting closer to the end of chronically disappointing growth,' Mr. Harris added. 'It’s not like we’re going to have a huge boom but something that feels sustainable.'"
 
The economy has a trend growth rate of between 2.2 percent and 2.4 percent. If we sustain a 2.5 percent growth rate then we will be exceeding the trend growth rate by between 0.1-0.3 percentage points. According to the Congressional Budget Office the economy is still 6.0 percentage points below its potential level of output. This means that in the optimistic scenario described here we will return to potential GDP in somewhere between 20 and 60 years.
 
 
Calculated Risk disagrees with Robert Shiller:
Shiller and the Upward Slope of Real House Prices, by Bill McBride: Professor Robert Shiller wrote in the NY Times: Why Home Prices Change (or Don’t)
Home prices look remarkably stable when corrected for inflation. Over the 100 years ending in 1990 — before the recent housing boom — real home prices rose only 0.2 percent a year, on average. The smallness of that increase seems best explained by rising productivity in construction, which offset increasing costs of land and labor.
Shiller's comment on the stability of real house prices is based on the long run price index he constructed for the second edition of his book "Irrational Exuberance".

10---Fed Watch: When Can We All Admit the Euro is an Economic Failure?, economists view

11----A Tax System Stacked Against the 99 Percent, NYT

About 6 in 10 of us believe that the tax system is unfair — and they’re right: put simply, the very rich don’t pay their fair share. The richest 400 individual taxpayers, with an average income of more than $200 million, pay less than 20 percent of their income in taxes — far lower than mere millionaires, who pay about 25 percent of their income in taxes, and about the same as those earning a mere $200,000 to $500,000. And in 2009, 116 of the top 400 earners — almost a third — paid less than 15 percent of their income in taxes.

Conservatives like to point out that the richest Americans’ tax payments make up a large portion of total receipts. This is true, as well it should be in any tax system that is progressive — that is, a system that taxes the affluent at higher rates than those of modest means. It’s also true that as the wealthiest Americans’ incomes have skyrocketed in recent years, their total tax payments have grown. This would be so even if we had a single flat income-tax rate across the board.

What should shock and outrage us is that as the top 1 percent has grown extremely rich, the effective tax rates they pay have markedly decreased. Our tax system is much less progressive than it was for much of the 20th century. The top marginal income tax rate peaked at 94 percent during World War II and remained at 70 percent through the 1960s and 1970s; it is now 39.6 percent. Tax fairness has gotten much worse in the 30 years since the Reagan “revolution” of the 1980s....

Research in recent years has linked the tax rates, sluggish growth and rising inequality. Remember, the low tax rates at the top were supposed to spur savings and hard work, and thus economic growth. They didn’t. Indeed, the household savings rate fell to a record level of near zero after President George W. Bush’s two rounds of cuts, in 2001 and 2003, on taxes on dividends and capital gains. What low tax rates at the top did do was increase the return on rent-seeking. It flourished, which meant that growth slowed and inequality grew. This is a pattern that has now been observed across countries. Contrary to the warnings of those who want to preserve their privileges, countries that have increased their top tax bracket have not grown more slowly. Another piece of evidence is here at home: if the efforts at the top were resulting in our entire economic engine’s doing better, we would expect everyone to benefit. If they were engaged in rent-seeking, as their incomes increased, we’d expect that of others to decrease. And that’s exactly what’s been happening. Incomes in the middle, and even the bottom, have been stagnating or falling.

12----Why Canada's economy is in trouble, sober look 

13---Banks are still exposed to $1 trillion in unsecured mortgage debt, ochousing

Today’s featured article is about the poor loanowners who are still $1 trillion underwater. Some are so hopelessly underwater that they won’t see equity again in their lifetimes. They are renting from the bank with a feeble hope of equity in some far off future that will never come to pass. This false hope is important as it keeps the sheeple paying rather than strategically defaulting and leaving the lender with another bad loan.

Consider the flipside of a $1 trillion in underwater mortgage holders. Some lender somewhere holds that paper; therefore, lenders have $1 trillion in unsecured mortgage debt not backed by any collateral value. At current prices, if those houses were liquidated, either through foreclosures or short sales, lenders would lose a $1 trillion dollars. The banking system couldn’t absorb losses of that magnitude. Thus we have market supply manipulation, record low interest rates, and endless can-kicking by lenders hoping to avoid recognizing these losses. Lenders don’t have any good options. House prices must go up so they can recover their capital when these bad loans are inevitably processed.

The loan modifications lenders have been completing over the last several years are crazy. They have been refinancing deeply underwater borrowers with terms more volatile than Option ARMs at debt-to-income ratios that make subprime lenders look prudent. They know these loans are going to go bad. Fourteen percent of these modified loans don’t even make three consecutive payments to count as “permanent.” More than 40% redefault every year. The only reason lenders do this is to avoid losing $1 trillion. The insanity makes sense if you see it through that le...

Can-Kicking is self preservation

There’s no question that banks are using loan modifications as a way to avoid foreclosure, not because they want to help borrowers stay in houses they can’t afford, but because they must delay foreclosures until collateral values support the loan balance. Lenders don’t have many options. If they foreclose and liquidate, the losses will bankrupt them. If they don’t foreclose, they allow a lot of squatting, and they encourage the worst kinds of moral hazard, but those are problems they can deal with in the future. If they don’t survive today, problems of the future won’t matter much, so the insanity goes on

14---Can the Fed reflate the housing bubble without negative side effects?, oc housing

Stagnant real incomes suggest that rising home prices reflect artificially low interest rates.
Over the past year, the Federal Reserve has ramped up its policy of quantitative easing, with the result being new stock market highs and surging bond prices. Moreover, housing prices jumped 8%, the biggest annual gain since 2006.
The result is that more than a trillion dollars have been added to the market value of single-family homes. Homeowners are now wealthier and according to what economists call the “wealth effect,” they should be willing to spend more, helping the economy....

But there is another, less sanguine view of the housing recovery. Recent data released by the Federal Housing Finance Agency (FHFA) suggest that the increase in house prices is not being driven by a broad-based improvement in the economy’s fundamentals. Instead, the Fed’s lower rates are simply being capitalized into higher home prices....

While a housing recovery of sorts has developed, it is by no means a normal one. The government continues to go to extraordinary lengths to prop up sales by guaranteeing nearly 90% of new mortgage debt, financing half of all home purchase mortgages to buyers with zero equity at closing, driving mortgage interest rates to the lowest level in 100 years, and turning the Fed into the world’s largest buyer of new mortgage debt.
We have a completely engineered recovery based almost entirely on both federal reserve and government policy. The fundamentals are still poor; job growth is weak, unemployment is high, wage growth is slow, owner-occupant demand is flat, and millions of people are living in homes they either aren’t paying for or can’t afford when their loan modifications expire.
The problem with an engineered recovery based on policy initiatives is that these policies may change...

The National Association of realtors and the rest of the government mortgage complex can be relied on to push for looser lending. The Consumer Financial Protection Bureau recently came out with new rules that would grease the skids for relaxed lending standards, compliments of Fannie Mae, Freddie Mac and the Federal Housing Administration.
Given the continued subpar economic recovery and our past experience with the disastrous impact of loose lending encouraged by federal policies, homeowners would best be cautious about spending their new found “wealth.” Americans have seen this movie before and know how it ends.

15---The “Dirty War” Pope, wsws

16--Australia Intel agency knew there were no WMD, wsws-

Swieringa responded to Howard’s speech by stating that the parliamentary inquiry had concluded that the Australian intelligence agencies had warned Howard’s cabinet that the WMD claims were not substantiated by any evidence. She also noted: “The reason there was so much argument about the existence of such weapons … was that to go to war on any pretext would have been a breach of international law.”
Listing 11 findings of the committee, Swieringa said it had found that “the scale of threat from Iraq’s weapons of mass destruction was less than it had been a decade earlier” and it had no nuclear weapons, no ballistic missiles that could reach the US, and no known chemical or biological weapons production.
In actual fact, the parliamentary committee actually carried out a whitewash on Howard’s behalf. While raising some questions about the intelligence, it also cited the reports provided after September 2002 by the Office of National Assessments (ONA), which, after previously dismissing any WMD threat, began asserting that the existence of WMD was “highly likely”.

17---The great unmentionable: Mass unemployment in America, wsws

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