Friday, May 10, 2013

Today's links

1---Graphs of the Day: Your Economy on Austerity, Jared Bernstein

From today’s NYT:
Next question?

2---China issues new rules targeting wealth management fund pools: sources, Reuters
The traders said the new rule would prevent a common practice in which banks shift bonds back and forth between their own balance sheets and the WMP accounts they manage for clients, allowing them to deliver promised payouts to WMP investors, even if the underlying bonds have not yet matured or have declined in value.

3---As China Daily reports, citing PwC research, the total mount of overdue loans among China's top 10 listed banks exploded by 29% in one year, rising to $79.3 billion at the end of 2012 compared to 2011. ...

And here's another reason why China finds itself in a dead end dilemma with no way out: on one hand it does not want any more housing inflation for obvious bubble reasons. On the other, any collapse in housing prices will crash its banking sector. What to do?

"The economic uncertainties and tightened rules on the real estate market would pose a tougher test for commercial lenders this year," added Raymond Yung, PwC's financial services leader for China.

"If property prices show big declines, bank lending would be in jeopardy....It's time for Chinese banks to strengthen their management of collecting repayments, and writing off more soured loans more positively."

4---No Lobby for Grandma Means a Budget Throwing Grandkids Off Train, Bloomberg

The Congressional Budget Office estimated in February that sequestration will slow U.S. economic growth this year by 0.6 percentage point. Gross domestic product rose at a 2.5 percent annual rate in the first quarter, Commerce Department figures released April 26 showed.
Investors are showing little concern about the budgetary uncertainty in Washington. The Standard & Poor’s 500 Index closed at 1,626.67 on May 9, a gain of 14 percent this year, while the Dow Jones Industrial Average climbed above 15,000 for the first time on May 7.

“When the sequester first hit, the consequences weren’t immediately apparent because it was trickling out over time,” said Melissa Boteach, director of the Center for American Progress’s Half in Ten Project, which is designed to help cut poverty over the next decade. “You’ll see over the next weeks and months the ways that this is hitting struggling families even more.” ...

A stopgap measure Obama signed on March 26 restored funding for meat inspections and eased reductions for some social programs, including nutrition aid for low-income families. A month later, Congress acted to boost funding for the Federal Aviation Administration to put an end to air-traffic controller furloughs blamed for delays at U.S. airports. ...

The Education Department says it will cut $3.4 million from funds used to help teach homeless children and youth, and also reduce state grants for adult basic and literacy education by $31 million.
At the Foundation for AIDS Research in New York, analysts estimate as many as 8,610 Americans will lose access to an AIDS Drug Assistance Program funded by HHS, and the National Institutes of Health will lose $153.7 million in AIDS research funding, meaning that 280 research grants would go unfunded, including 31 efforts to develop a vaccine.

5---Falling Deficit Alters Debate, WSJ

Rising government revenue from tax collections and bailout paybacks are shrinking the federal deficit faster than expected, delaying the point when the government will reach the so-called debt ceiling and altering the budget debate in Washington.

The improving financial picture got brighter Thursday when mortgage-finance giant Fannie Mae FNMA -3.09% —which received a big dose of taxpayer aid during the financial crisis—said it would pay the U.S. government $59.4 billion in dividends at the end of June. That sum, as well as $7 billion and possibly more from fellow mortgage-finance firm Freddie Mac, FMCC -3.98% will flow straight into the federal coffers.

the House passed a bill to take a different path. Acting with only Republican support, it voted 221-207 to approve a bill that would, rather than simply raise the debt ceiling, direct the Treasury Department to make payments first to holders of U.S. debt and benefits to Social Security recipients if Congress doesn't raise the debt ceiling and it can't pay all the government's bills.

Supporters said that approach would prevent the government from defaulting on its debt even if the debt ceiling is breached.

The measure is likely to die in the Senate, which is controlled by Democrats; they view it as a political ploy and called it the "Pay China First Act," referring to that country's large holdings of U.S. debt....

The stock market has been on a tear recently, with the Dow Jones Industrial Average up 20% since Nov. 15, 2012. Housing prices in many markets are rising. Consumer confidence is up. The number of new workers seeking unemployment benefits has fallen to prerecession levels. And interest rates are so low on government debt that the Treasury Department was able to borrow money earlier this week at no cost for the first time in 17 months

6---From Fed Chairman Ben Bernanke: Monitoring the Financial System, Fed

For the 2007-09 crisis, a prominent trigger was the losses suffered by holders of subprime mortgages. In contrast, the vulnerabilities associated with a crisis are preexisting features of the financial system that amplify and propagate the initial shocks. Examples of vulnerabilities include high levels of leverage, maturity transformation, interconnectedness, and complexity, all of which have the potential to magnify shocks to the financial system. Absent vulnerabilities, triggers might produce sizable losses to certain firms, investors, or asset classes but would generally not lead to full-blown financial crises; the collapse of the relatively small market for subprime mortgages, for example, would not have been nearly as consequential without preexisting fragilities in securitization practices and short-term funding markets which greatly increased its impact.
Conclusion In closing, let me reiterate that while the effective regulation and supervision of individual financial institutions will always be crucial to ensuring a well-functioning financial system, the Federal Reserve is moving toward a more systemic approach that also pays close attention to the vulnerabilities of the financial system as a whole. Toward that end, we are pursuing an active program of financial monitoring, supported by expanded research and data collection, often undertaken in conjunction with other U.S. financial regulatory agencies. Our stepped-up monitoring and analysis is already providing important information for the Board and the Federal Open Market Committee as well as for the broader regulatory community. We will continue to work toward improving our ability to detect and address vulnerabilities in our financial system

7---Economists See Deficit Emphasis as Impeding Recovery, economists view
Another travel day quickie:
Economists See Deficit Emphasis as Impeding Recovery, by Jackie Calmes and Jonathan Weisman: The nation’s unemployment rate would probably be nearly a point lower, roughly 6.5 percent, and economic growth almost two points higher this year if Washington had not cut spending and raised taxes as it has since 2011, according to private-sector and government
After two years in which President Obama and Republicans in Congress have fought to a draw over their clashing approaches to job creation and budget deficits, the consensus about the result is clear: Immediate deficit reduction is a drag on full economic recovery.
Hardly a day goes by when either government analysts or the macroeconomists and financial forecasters who advise investors and businesses do not report on the latest signs of economic growth — in housing, consumer spending, business investment. And then they add that things would be better but for the fiscal policy out of Washington. Tax increases and especially spending cuts, these critics say, take money from an economy that still needs some stimulus now, and is getting it only through the expansionary monetary policy of the Federal Reserve. ...
In all this time, the president has fought unsuccessfully to combine deficit reduction, including spending cuts and tax increases, with spending increases and targeted tax cuts for job-creation initiatives in areas like infrastructure, manufacturing, research and education. That is a formula closer to what the economists propose. But Republicans have insisted on spending cuts alone and smaller government as the key to economic growth. ...

8---Fed’s Evans: Low Inflation to Persist for Years, WSJ

.US. inflation, now running about 1.5%, is below the Federal Reserve‘s long-term objective and should stay that way for years, although it’s too soon for the central bank to react with a policy shift, the president of the Chicago Fed said Thursday.

“Inflation is low, and it’s lower than our long-run objective,” Mr. Evens said in an interview on Bloomberg Television, adding that he would like to see inflation closer to 2% but expects it to stay below 2% for several more years. Inflation, he said, “can be too low” when the central bank’s objective is 2%.

Asked if low inflation should prompt a policy response from the Fed, Mr. Evans said “I think it’s way too early to think like that.” In the debate over how the Fed might exit from the asset purchase program, Mr. Evans, a voting member of the policy-setting Federal Open Market Committee, said he remains “open minded [and] I’m listening to my colleagues.”

9---Lower credit scores disappear from housing market: Fed governor, Housingwire

10---Homeownership and Unemployment: Not So Fast, CEPR

11--Ending overtime, RT

Lawmakers in the US House of Representatives passed legislation Wednesday that has been criticized for supposedly revoking private sector employees’ right to get paid for working overtime hours under the pretense of offering conditional time off.

The Working Families Flexibilities Act, which passed by a 223-203 vote along party lines, would allow employers to substitute “comp time” instead of paying hourly workers time and a half for every hour worked over 40 hours, the standard full-time commitment in the US.
Women’s advocates and union organizations have vehemently opposed the bill, saying it further erodes the protections afforded in the Fair Labor Standards Act instituted during the Great Depression.
It takes cash out of the pocket of cash-strapped families under the guise of flexibility,” Liz Watson, a senior advisor at the National Women’s Law Center, told Raw Story. “It’s a bill that comes up right in time for Mother’s day – we say it’s the Mother’s day equivalent of coal in your stocking

12---Brzezinski: Syria Intervention Will Only Make it Worse, antiwar

Broader regional fighting could bring the U.S. and Iran into direct conflict, a potentially major military undertaking for the U.S. A U.S.-Iran confrontation linked to the Syrian crisis could spread the area of conflict even to Afghanistan. Russia would benefit from America’s being bogged down again in the Middle East. China would resent U.S. destabilization of the region because Beijing needs stable access to energy from the Middle East.

…The various schemes that have been proposed for a kind of tiddlywinks intervention from around the edges of the conflict—no-fly zones, bombing Damascus and so forth—would simply make the situation worse. None of the proposals would result in an outcome strategically beneficial for the U.S. On the contrary, they would produce a more complex, undefined slide into the worst-case scenario…

13---Growing signs of a financial crisis in China, wsws

14---White House seeks to shorten sentence of former Enron executive Jeffrey Skilling, wsws

By seeking to reduce Skilling's sentence, the White House is sending a message to the Wall Street criminals responsible for the 2008 crash—whose daily crimes are even greater than Skilling’s—that financial fraud will not be punished with anything more than a slap on the wrist.
Skilling was found guilty in 2006 of conspiracy, insider trading and multiple charges of securities fraud relating to the collapse of Enron in 2001. He was sentenced to 24 years in prison and fined $45 million.

15--Housing "recovery" not rooted in fundamentals, Mark Hanson

16---Inflation drops to 1.5%,, investment business

                               In the Eurozone inflation was just 1.7 per cent in March, from 1.8 per cent the month before. It is now at its lowest level since August 2010. Here is the puzzle, though. ECB boss, Mario Draghi says: “He is ready to act.” But this begs the question: act on what? Is he ready to act as if he is willing to stand up to inflation hawks trying to fight imaginary demons? Or does he want to act as the hawks’ stooge?
In the US, inflation fell from 2.0 per cent, which is not bad, to 1.5 per cent, which is looking dangerously like too low. Still let’s be consistent. When inflation is high, doves talk about one-offs, such as food and energy, and say if you strip them out it is not much of a problem. This time the one-offs worked the other way. Underlying US inflation is 1.9 per cent, which frankly is about right – although a bit of wage inflation may not go amiss

17--Fed's credibility tested as inflation drifts below target, Reuters

With the inflation rate about half of the Federal Reserve's 2.0 percent target, the central bank is facing a major test and some experts wonder whether it will eventually need to ramp up its already aggressive bond buying program.

The Fed cut official interest rates effectively to zero in late 2008 during the financial crisis. Since then, it has bought more than $2.5 trillion in bonds to bolster an anemic economic recovery and speed up the decline in unemployment.

Despite those actions, its favored inflation gauge, the Personal Consumption Expenditures (PCE) price index, has fallen to a 3-1/2 year low of 1.0 percent.
Further, by the Fed's own forecasts, inflation is likely to remain short of the central bank's target for years.
"They say that they're going to set monetary policy in a way that ensures future inflation will be 2.0 percent," said Justin Wolfers, an economics professor at the University of Michigan's Gerald Ford School of Public Policy.


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