Thursday, May 16, 2013

Today's links

1---Recurring Nightmares?, counterpunch

Mistaken austerity programs have cost the U.S. economy 2.2 million jobs according to the Brookings Institution. This loss of jobs due to austerity is occurring despite rapidly falling deficits in the federal budget. In other words, Congress and the administration could be investing in the economy, rather than shrinking it. And, the courts are siding with employers, overruling the NLRB and saying the bosses don’t have to notify workers of their rights.

While workers struggle, the big banks keep racking in government subsidies, $102 billion in subsidies since 2009, but that’s not enough. In addition to shaking down taxpayers, they are also shaking down customers. Banks are using robo-signing to create false credit card debt, suing customers – without giving them notice – and then getting judgments against customers for debts they really don’t owe. California is suing JPMorgan Chase over this practice, but the other big banks do it too. And, as the investor class watches cities fail, they look for opportunities to profit, like vultures circling cities for meat to pick off the bones of urban decay.

2-- Bill Gross on QE, zero hedge

We see bubbles everywhere, and that is not to be dramatic and not to suggest they will pop immediately. I just suggested in the bond market with a bubble in treasuries and bubble in narrow credit spreads and high-yield prices, that perhaps there is a significant distortion there. Having said that, it suggests that as long as the FED and Bank of Japan and other Central Banks keep writing checks and do not withdraw, then the bubble can be supported as in blowing bubbles. They are blowing bubbles. When that stops there will be repercussions. It doesn't mean something like 2008 but the potential end of the bull markets everywhere. Not just in the bond market but in the stock market as well and a developing one in the house market as well."...

Does it mean it is a good thing that capitalism should thrive under this quantitative easing posture on the part of central banks that distorts markets and this court's capitalism and promotes a zombie corporations and lowers net interest margins and destroys business model? All of that is the negative aspects of quantitative easing. Can we live with? I do not think this will be with us for a long time. For the next 12-24, perhaps...

On when the Federal Reserve will start to taper the billions of dollars in bond purchases:

"It is almost a day-to-day thing in terms of the market but certainly not in the terms of the FED. They had objectives in terms of 6.5% unemployment and importantly, 2.5% inflation. We're down to 1 percent inflation in terms of the PCE which is their target for inflationary measure. To think the fed would begin to pull back in terms of tapering when inflation is approaching the Japanese levels of the lost decade is a big stretch. I do not think they change much. I think they have to be concerned about what happens in asset markets. Up until this point the chairman has done an Alan Greenspan and said cannot really relieve him as such but will monitor them in terms of potential regulation.

3---Multifamily Starts Suffer Biggest Monthly Plunge Since 2006: Is The REO-To-Rent "Recovery" Dead?, zero hedge

4--Tragic Trifecta: Initial Claims Soar, Housing Starts Plunge, CPI Below Expectations, zero hedge

5---U.S. Stocks Fall as Fed's Williams Discusses QE Tapering, Bloomberg

6---Broken transmission mechanisms, economist

7---Austerity as "shock doctrine", NYT

Noah Smith recently offered an interesting take on the real reasons austerity garners so much support from elites, no matter hw badly it fails in practice. Elites, he argues, see economic distress as an opportunity to push through “reforms” — which basically means changes they want, which may or may not actually serve the interest of promoting economic growth — and oppose any policies that might mitigate crisis without the need for these changes:
I conjecture that “austerians” are concerned that anti-recessionary macro policy will allow a country to “muddle through” a crisis without improving its institutions. In other words, they fear that a successful stimulus would be wasting a good crisis.

If people really do think that the danger of stimulus is not that it might fail, but that it might succeed, they need to say so. Only then, I believe, can we have an optimal public discussion about costs and benefits.
As he notes, the day after he wrote that post, Steven Pearlstein of the Washington Post made exactly that argument for austerity.

What Smith didn’t note, somewhat surprisingly, is that his argument is very close to Naomi Klein’s Shock Doctrine, with its argument that elites systematically exploit disasters to push through neoliberal policies even if these policies are essentially irrelevant to the sources of disaster. I have to admit that I was predisposed to dislike Klein’s book when it came out, probably out of professional turf-defending and whatever — but her thesis really helps explain a lot about what’s going on in Europe in particular.

And the lineage goes back even further. Two and a half years ago Mike Konczal reminded us of a classic 1943 (!) essay by Michal Kalecki, who suggested that business interests hate Keynesian economics because they fear that it might work — and in so doing mean that politicians would no longer have to abase themselves before businessmen in the name of preserving confidence.

8---Loose Central Bank Policies Looking Increasingly Dangerous, BIS Official Warns, WSJ

It’s a refrain that is being heard more and more often, especially from central bankers: the world is expecting too much of them.
The latest to take up the refrain is Jaime Caruana, general manager of the Bank for International Settlements, who warned in an unusually frank speech in London that, while the ultra-low interest rates and ultra-easy monetary policy adopted by advanced economy central banks might have been the right response to the crisis when it broke, they are looking increasingly dangerous the longer they last.
“A vicious circle can develop, with a widening gap between what central banks are expected to deliver and what they actually can deliver,” Mr. Caruana said. “This may ultimately undermine their credibility and, with it, their legitimacy and effectiveness.”

9---Fed’s Rosengren: Government Fiscal Policy Big Drag on Economy, WSJ

The economy would benefit much more from the Federal Reserve‘s aggressive monetary policy actions if not for the significant headwinds being created by government taxation and spending policies, a central bank official said Thursday.
The policy maker, Federal Reserve Bank of Boston President Eric Rosengren, said some of the economic weakness many see as a sign of ineffective monetary policy is, in fact, created by the headwinds arising from the government’s troubled financial situation. He believes fiscal policy is too austere for the current state of the economy, and said the drag created by the government indicates there may be room for the Fed to be even more aggressive in its efforts to spur better rates of growth and keep inflation at the official target of 2%, he said.

“Contractionary fiscal policy will in the near term place downward pressure on inflation and upward pressure on unemployment,” Mr. Rosengren said. He also said the Fed’s inability to keep price pressures near target and its struggle to lower the unemployment rate “can be attributed to the emergence of more fiscal restraint than might have been expected” based on the historical experience of recovery efforts.
The headwinds created by government are something the Fed needs to bear in mind as it charts the course for monetary policy, the official said. Mr. Rosengren said very weak inflation gains and slow declines in unemployment “could lead one to argue that policy has not been sufficiently accommodative.”

10--Manufacturing falls, WSJ

11---Sorry, World, U.S. Consumers Can’t Save You , WSJ

12---More weak data, prag cap

Housing starts, CPI, jobless claims, Philly Fed all off

13---From Brooklyn to California, Housing Bubble Threat Grows, WSJ

U.S. home prices jumped almost 11 percent in March from a year earlier, the biggest gain since the height of the real estate boom in 2006, CoreLogic Inc. reported last week. Values are rising faster than incomes, an indication that prices may fall in some cities once higher mortgage rates erode affordability, Humphries said. Investor purchases will inevitably cool, adding another potential hit to the market, according to Vitner.

The gains in some U.S. areas aren’t sustainable for a healthy market, said Dean Baker, co-director of the Center for Economic and Policy Research in Washington.

“If prices keep going up at this rate for another six months, we will have a bubble, and people will get hurt,” he said in a telephone interview.

14---US Defense Department to furlough 650,000 civilian workers, wsws

15---U.S. households experienced higher levels of financial distress in the first quarter as they faced budget constraints and a drop in the savings rate, according to the CredAbility Consumer Distress Index. , DS News

Despite the growth in jobs and an improved housing market, our index shows that the average U.S. household has seen little improvement in the past year and took a step back in 2013’s first quarter,” said Phil Baldwin, CEO for CredAbility. “The jump in Social Security taxes in January forced people to save and spend less compared to the previous quarter. With nearly 49 million people on food stamps and almost 12 million still unemployed, there are still a lot of challenges facing many families.”

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