Monday, April 29, 2013

Today's links

1--Can the Fed offset contractionary fiscal policy?, Economist

MIKE KONCZAL writes that 2013 is shaping up to be a grand experiment, testing an important macroeconomic proposition: that expansionary monetary policy can offset fiscal cuts. In the second half of last year, the Federal Reserve began shifting its policy framework to provide more accommodation to the American economy. And from the beginning of this year, the pace of fiscal consolidation has quickened. Mr Konczal reckons that recent data show that fiscal policy is "winning":
The first is inflation expectations, as calculated by the Federal Reserve Bank of Cleveland. One-year inflation expectations initially bumped up for December 2012, which many commentators viewed as a positive sign for the new Fed policy. However, in 2013, it has fallen back down, to an average rate lower than that of 2012...
 You can also look at long-term interest rates as a sign of how well the economy is doing. An increase in interest rates would signal inflation, higher expected growth and less demand for safe assets. Here, too, there was an initial boost after the December announcement, but as 2013 has continued, interest rates have dropped back down. Growth in GDP, as noted from yesterday, has also come in below expectations, with government spending a main culprit.

2---The Story of Our Time,  Paul Krugman, NYT

 Those of us who have spent years arguing against premature fiscal austerity have just had a good two weeks. Academic studies that supposedly justified austerity have lost credibility; hard-liners in the European Commission and elsewhere have softened their rhetoric. The tone of the conversation has definitely changed.
My sense, however, is that many people still don’t understand ... the nature of our economic woes, and why this remains a very bad time for spending cuts.
Let’s start with ... what happened after the financial crisis of 2008. Many people suddenly cut spending, either because they chose to or because their creditors forced them to; meanwhile, not many people were able or willing to spend more. The result was a plunge in incomes that also caused a plunge in employment ... that persists to this day. ...
So what could we do to reduce unemployment? The answer is, this is a time for above-normal government spending, to sustain the economy until the private sector is willing to spend again. The crucial point is that under current conditions,... government spending doesn’t divert resources away from private uses; it puts unemployed resources to work. Government borrowing doesn’t crowd out private investment; it mobilizes funds that would otherwise go unused. ...
Now, just to be clear,... let’s try to reduce deficits and bring down government indebtedness once normal conditions return... But right now we’re still dealing with the aftermath of a once-in-three-generations financial crisis. This is no time for austerity. ...
Is the story really that simple, and would it really be that easy to end the scourge of unemployment? Yes — but powerful people don’t want to believe it. Some of them have a visceral sense that suffering is good, that we must pay a price for past sins (even if the sinners then and the sufferers now are very different groups of people). Some of them see the crisis as an opportunity to dismantle the social safety net. And just about everyone in the policy elite takes cues from a wealthy minority that isn’t actually feeling much pain.
What has happened now, however, is that the drive for austerity has lost its intellectual fig leaf, and stands exposed as the expression of prejudice, opportunism and class interest it always was. And maybe, just maybe, that sudden exposure will give us a chance to start doing something about the depression we’re in.

3---Rogoff and Reinhardt again, CEPR

So we have two Harvard professors who used their status to push through work that was central to the most important economic policy debates in decades, based on analysis that was by their own admission incomplete. They also refused to make any of the data available long after it was being widely cited in these debates. And, they routinely encouraged political figures to infer causality from debt to growth, when they were careful to deny any such claims when challenged by other economists.

4---Subprime is back and this time borrowers and lenders know exactly what they’re getting into, the Los Angeles Times claims in a new report, Housingwire

Apparently, some Americans with shoddy credit scores and past foreclosures want in on today's rising real estate prices and they're ready and willing to buy homes now. The LA Times notes in a new article that despite this being the era of “tightfisted banking,” at least one couple interviewed managed to get a subprime loan with a 10% interest rate after going through a foreclosure and the bankruptcy of a business.

Of course to get the loan, the homeowners had to put down a 35% downpayment. But with the right amount of money up front, the article says lenders are going subprime again. To protect themselves, lenders are looking more deeply at collateral, downpayments and the borrowers’ ability to repay the debt. Lenders also are holding loans on their own books in the hopes that a private secondary market will eventually be there to buy them in the future.  Click here to read more

5---A Grand Coalition for austerity in Italy, wsws
      The formation of a Grand Coalition in Italy, centred on Prime Minister Enrico Letta’s Democratic Party and Silvio Berlusconi’s People of Freedom (PdL) party, shows the degree to which the global financial oligarchy dominates political life.
The official description of this government as a coalition of the “left” and “right” only highlights the fact that such terms, used to describe the establishment parties, have been stripped of any serious meaning. The new government is an austerity regime, installed in defiance of the clearly expressed wishes of the electorate and acting solely in the interests of a parasitic layer of the super-rich.

This is a government imposed on the Italian working class just as surely as the former European Union Commissioner Mario Monti’s technocratic administration installed in November 2011. All of Italy’s parties are committed to serving the same social interests.

The manner in which this government was installed, as a result of secret talks and sordid manoeuvres carried out behind the backs of the people, testifies to the evisceration of all democratic norms and the ever clearer emergence of a dictatorship of finance capital, barely concealed behind the threadbare trappings of parliamentary procedure....

In the election, the slate headed by Monti received only 10 percent of the vote. What Letta has, in fact, achieved is to bring together the main parties responsible for two years of brutal austerity behind a programme for its continuation.

All those seeking an alternative to the policies of austerity have been brought face-to-face with the absence of any such alternative within the Italian political establishment. The Democrats are a product of the breakup of the Communist Party of Italy, once the largest Stalinist party in Western Europe. The Stalinists and ex-Stalinists have now emerged as the linchpin of bourgeois rule in Italy and the chief party of government. They preside over an overtly right-wing organization dominated by figures from the Christian Democrats such as Letta, while the rival Stalinist faction Communist Refoundation has all but collapsed due to its own history of rotten manoeuvres.

This leaves Beppe Grillo’s 5-Star movement, which received 25 percent of the vote in February, able to dominate opposition to the new government. However, the conservatism of Grillo’s political and economic agenda is barely concealed by the bluster of his rhetoric....

More than 31,000 companies folded in the first quarter of this year. Italy’s economy has shrunk by 6.9 percent since 2007 and contracted by fully 2.4 percent last year. Public debt has actually risen from 121 percent to 127 percent of gross domestic product (GDP), and is set to increase yet further as a second Italian and European recession looms.
The social impact has been brutal. Unemployment is at 11.6 percent, and among the young it is 37.8 percent—rising to more than 50 percent in Naples and other more deprived southern regions.

6---Governing coalition suffers huge losses in Iceland, wsws

7---US Savings Rate Near Record Low, Per Capita Disposable Income Almost Back To December 2006 Level, zero hedge

8--Noam Chomsky: Obama's Attack on Civil Liberties Has Gone Way Beyond Imagination, alternet

9---CIA’s ‘Bags of Cash’ Fueled Afghan Corruption, Bought Little Influence, antiwar
 A Decade Later, CIA Still Throwing Money at Karzai

10--Hussman: Smaller deficits mean smaller earnings, Yahoo

According to Hussman, corporate profits are near 11% of GDP and 70% above the historical norm. (Hussman agrees with Warren Buffett that one has to be wildly optimistic to believe corporate profits -- as a percent of GDP -- can hold above 6% for a sustained period.)

So what’s the catalyst that will drive corporate profits over the cliff?

"Even marginal improvements in the federal deficit and in household savings, which are necessary because of the debt burdens households have taken on…we are likely to see -12% earnings growth annualized over the next three to four years - in other words substantial weakness in corporate profits," Hussman tells The Daily Ticker...

Here’s Hussman’s rationale. He says the deficit of one sector has to emerge as the surplus of another sector. Record deficits for households and the government combined have to show up as a surplus somewhere. Hussman argues that we see a mirror image of record deficits for households and the government, and record surpluses at the corporate level as a fraction of GDP.


11---New questions on Boston bombing suspects’ ties to US intelligence, wsws

As the events in Boston graphically demonstrated, this will only facilitate plans already well advanced for the imposition of dictatorial forms of rule. The Boston Marathon bombing was seized upon as the pretext for placing the entire city of Boston and a number of its suburbs under a police-military lockdown and carrying out house-to-house warrantless searches.....

Powerful sections of the American ruling class have long given support to Chechen separatism. The American Committee for Peace in the Caucasus (ACPC), sponsored by the right-wing organization Freedom House, has led such efforts for many years. A 2004 article in the British Guardian newspaper entitled “The Chechens’ American Friends” noted that ACPC portrayed Chechen separatism as a “fashionable ‘Muslim’ cause,” deserving and requiring US support.
The director of programs in the Caucasus for the Jamestown Foundation formerly worked for Freedom House....

The US intelligence community is so familiar with the consequences of losing control of its former assets that it has coined a term for it: blowback. However, the media have avoided raising any possibility that the Boston bombings might be an example of blowback, or an operation carried out with the tacit support or assistance of forces within the state.

12---Canada Housing Crash Could Take Economy Down With It, Analyst Says, Huffington Post

13---Fitch: Recent Price Gains May Not Be Here to Stay, DS News

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