Friday, April 26, 2013

Today's links

1---Chanos: China Is Only Getting Worse, Jim Chanos video

Boom to bust? China's credit bubble gets bigger

2---The 1 Percent’s Solution, by Paul Krugman, Commentary, NY Times

  Economic debates rarely end with a T.K.O. But the great policy debate of recent years between Keynesians, who advocate sustaining and, indeed, increasing government spending in a depression, and austerians, who demand immediate spending cuts, comes close... At this point, the austerian position has imploded; not only have its predictions about the real world failed completely, but the academic research invoked to support that position has turned out to be riddled with errors, omissions and dubious statistics.
Yet two big questions remain. First, how did austerity doctrine become so influential in the first place? Second, will policy change at all now that crucial austerian claims have become fodder for late-night comics?
On the first question:... the two main studies providing the alleged intellectual justification for austerity ... did not hold up under scrutiny. ... Meanwhile, real-world events ... quickly made nonsense of austerian predictions. ...
The austerity agenda looks a lot like a simple expression of upper-class preferences, wrapped in a facade of academic rigor. What the top 1 percent wants becomes what economic science says we must do. ...

3---Japan's 'wall of money' proves elusive for global markets, Telegraph

Japanese investors are repatriating funds from around the world at an accelerating pace, dashing hopes that stimulus from the Bank of Japan will flood global asset markets with newly-printed money

4---Modified mortgages show ‘alarming’ default trend, marketwatch

Troubled homeowners who received modified mortgages through a federal program are seeing high default rates, a troubling trend that officials inadequately understand, according to an investigator’s report released Wednesday.

The oldest permanent modifications made through the federal Home Affordable Modification Program, which launched in 2009, were redefaulting at a rate of 46.1% as of March 31, according to the report from the special inspector general overseeing the Treasury Department’s efforts to shore up the U.S. financial system. HAMP’s permanent modifications from 2010 have redefault rates ranging from 28.9% to 37.6%.

“The number of homeowners who have redefaulted on a HAMP permanent mortgage modification is increasing at an alarming rate,” the report said. “Treasury’s data shows that the longer a homeowner remains in HAMP, the more likely he or she is to redefault out of the program.”
Unfortunately, Treasury officials have an insufficient understanding of factors behind failures, according to the report....

When Treasury launched HAMP, officials said the program could help 3 million to 4 million at-risk homeowners avoid foreclosure. However, as of March 31, only about 2 million HAMP modifications had been started, and 54% of these have been cancelled, according to the report.

Looking at Treasury’s use of funds from the Troubled Asset Relief Program, which was designed to shore up the U.S. financial system, less than 2%, or about $7.3 billion, has been spent on homeowner-relief programs, such as HAMP, as of March 31. Meanwhile, Treasury has spent 75% of TARP funds on rescuing financial institutions, the report said.

5---Japans’s Scary Lesson on Slashing Interest Rates, Bloomberg

Lost Decades
Japan’s two lost decades are worth considering. The nation of 127 million people has been living with zero rates for so long that they seem, well, normal. Under the surface, credit spreads mean little, not when the underlying assets on which they are based are drugged up on monetary stimulants. Bank balance sheets get muddied. So do the government’s books, as it becomes hard to discern where a central bank’s holdings begin and end. Corporate shenanigans are easier to disguise.

Oddly, free money has done more to hold Japan back than to revive it. Monetary largesse relieves the pressure on politicians to make industries, from electronics to steel, more competitive and innovative. It concentrates capital in nonproductive sectors such as construction, telecommunications and power, and it starves others -- like startup companies -- that could fuel job growth.

Zero rates also sapped the urgency from Japan Inc. at the very worst moment, just as it needed to keep up with a cast of growth stars in Asia, China included. Even when Japan has churned out growth of, say, 3 percent, it has been more artificial than organic. All that liquidity was meant to support so-called zombie companies and industries that employ millions. It has led to a “zombification” of the broader economy, complicating Prime Minister Shinzo Abe’s revival efforts.

Long-term Risks

Ultralow rates, for example, have exacerbated Japan’s fiscal woes because the costs of adding to the world’s largest public debt appear negligible. Someday, bond traders will decide that a debt more than twice the size of a $5.9 trillion economy is too great for a rapidly aging population. For now, 10-year yields of 0.58 percent warp politicians’ sense of long-term risks.

6----Grasping At Straw Men, Krugman, NYT

OK, Reinhart and Rogoff have said their piece. I’d say that they’re still trying to have it both ways, on two fronts. They deny asserting that the debt-growth relationship is causal, but keep making statements that insinuate that it is. And they deny having been strong austerity advocates – but they were happy to bask in the celebrity that came with their adoption as austerian mascots, and never to my knowledge spoke out to condemn all the “eek! 90 percent!” rhetoric that was used to justify sharp austerity right now. Sorry, guys, but with so much at stake you have a responsibility not just to put stuff out but to make crystal clear what you think it implies for policy.
What was new in this piece, however, was the creation of a straw man. R-R:
The fact that high-debt episodes last so long suggests that they are not, as some liberal economists contend, simply a matter of downturns in the business cycle.
Who are these “some liberal economists”? As far as I know, none of their prominent critics have made that particular argument. It has always been about the effects of sustained low growth, for whatever reason, on debt ratios.

7----A slowmotion sequester hits America's invisible poor with stealth cuts, Robert Reich, Guardian

Most of us are not feeling the squeeze on federal spending. That's because the cuts chiefly target those who have least
So far, the much-dreaded "sequester" – some $85bn in federal spending cuts between the end of March and 30 September – hasn't been evident to most Americans.
The Salt Lake Community Action Program, for example, recently closed a food pantry in Murray, Utah, serving more than 1,000 needy people every month. The Southeast Alaska Regional Health Consortium is closing a center that gives alcohol and drug treatment to Native Alaskans. Some 1,700 poor families in and around Sacramento, California are likely to lose housing vouchers that pay part of their rents. More than 180 students are likely to be dropped from a Head Start program run by the Cincinnati-Hamilton County (Ohio) Community Action Agency.

All across America, food pantries and community centers catering to the poor are laying off staff, reducing services, or closing. But most Americans don't know anything about this because the poor live in different places than the middle class. Poverty has become ever more concentrated geographically in America.

A final reason much of the sequester is invisible is that many employees are being "furloughed" rather than fired. "Furlough" is a euphemism for working shorter workweeks and taking pay cuts.
Two thousand civilian employees at the Army Research Lab in Maryland, for example, are being subject to one-day-per-week furloughs starting this week, resulting in a 20% drop in pay. The Hancock Field Air National Guard Base is furloughing 280 workers. Many federal courts are now closed on Fridays.

Furloughs arguably spread the pain. Mass layoffs would be far harder to swallow.
For all these reasons, the sequester hasn't been particularly visible. Yet, in coming months, it will spread on a much larger scale. The cuts will be bigger and they'll affect more people. Although still decentralized and localized, largely affecting the poor, and often in the form of furloughs and pay cuts rather than layoffs, the sheer scale of the coming cuts may make them far more apparent.

8---Mervyn King Led the UK Economy to Its Worst Downturn Ever, CEPR

9---Attacks Grow in Iraq, Over 200 Killed in Three Days, antiwar

10---Breaking Out the Bush Playbook on Korea, antiwar

In return for the North Koreans shipping their fuel rods out of the country, the United States, South Korea, and Japan agreed to finance two light-water nuclear reactors, normalize diplomatic relations, and supply the DPRK with fuel. Washington pledged not to invade the North. “Initially, North Korea kept to its side of the bargain,” say Kaplan, “The same cannot be said for our side.”

The reactors were never funded and diplomatic relations went into a deep freeze. From North Korea’s point of view, it had been stiffed. The North reacted with public bombast and a secret deal with Pakistan to exchange missile technology for centrifuges to make nuclear fuel.

However, the North was still willing to deal, and DPRK leader Kim Jong-il told the Clinton administration that, in exchange for a non-aggression pact, North Korea would agree to shelve its long-range missile program and stop exporting missile technology. North Korea was still adhering to the 1994 agreement not to process its nuclear fuel rods. But time ran out and the incoming Bush administration torpedoed the talks, instead declaring North Korea, along with Iran and Iraq, a member of an “axis of evil.”

Nine days after the U.S. Senate passed the Iraq war resolution on October 11, 2002, the White House disavowed the 1994 Agreed Framework, halted fuel supplies, and sharpened the economic embargo the United States had imposed on the North since the 1950-53 Korean War. It was hardly a surprise when Pyongyang’s reaction was to toss out the arms inspectors, fire up the Yongbyon reactor, and take the fuel rods out of storage.

11---Robert Shiller Destroys The Idea Of Investing In A Home, Business Insider


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