Thursday, May 2, 2013

Today's links

1---Fed's exit strategy?, Carola Binder
The survey also asked about expectations for the change in the amount of domestic securities held in the System Open Market Account (SOMA) portfolio over the next few years

Respondents were allowed to give written comments on their predictions:
"Some dealers assumed that future declines in the SOMA portfolio would be due to halting reinvestments only, while some dealers assumed halting reinvestments combined with sales. Several dealers expected such declines in the SOMA portfolio to occur at a fixed time before or after the first interest rate increase. Several dealers mentioned their views were based on the June 2011 exit principles while several others mentioned the FOMC will likely review its exit strategy, citing recent communication from Federal Reserve officials... 
Some dealers expected sales of agency MBS securities to be a part of the exit strategy from accommodative policy. Some others thought that sales are unlikely or do not expect them to occur, with several mentioning that sufficient tightening could be brought about through other tools, including raising the interest rate paid on excess reserves (IOER) as well as temporary reserve draining

2---The problem with low inflation, Jared Bernstein

That inspired Ackerlof et al to think about what might happen in a zero inflation economy, and what they found was that it would engender significant costs in terms of unemployment and growth.
The reason that zero inflation creates such large costs to the economy is that firms are reluctant to cut wages. In both good times and bad, some firms and industries do better than others. Wages need to adjust to accommodate these differences in economic fortunes. In times of moderate inflation and productivity growth, relative wages can easily adjust. The unlucky firms can raise the [nominal] wages they pay by less than the average, while the lucky firms can give above-average increases. However, if productivity growth is low (as it has been since the early 1970s in the United States) and there is no inflation, firms that need to cut their relative wages can do so only by cutting the money [i.e., nominal] wages of their employees. Because they do not want to do this, they keep relative wages too high and employment too low.

3---The Great American Wealth Transfer to the Super Rich, economic populist

During the first two years of the nation’s economic recovery, the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%.

pew wealth chg

Median household net worth in the United Sates has followed this pattern over the past decade, increasing from $81,821 in 2000 to $106,585 in 2005 (an increase of $24,764 or 30 percent) and then decreasing to $68,828 by 2011 (a decrease of $37,757 or 35 percent).

Overall, median household net worth decreased by $12,993, or 16 percent, between 2000 and 2011. Median household net worth showed no statistically significant change between 2010 and 2011.

4---Obama picks bank-friendly Mel Watt to head FHFA, naked capitalism

comments--DeMarco is going because he refused to let Geithner dump a new load of the TBTF’s toxic crap on F&F. Obama and Geithner tried to dress it up by saying it was about principle writedowns, but anyone who’s looked at the Obama record on writedowns will note that even from the start (the Nov 2008 Paulson offer, per Barney Frank), Obama has NEVER endorsed writedowns. Once again, Obama is trying to hide behind someone else’s skirt.

5---Who’s Afraid of Sibel Edmonds?, AC

6--High-cost borrowing is a new American norm, research finds, oc housing

High-cost borrowing through payday loans, pawn shops, auto title loans and others is no longer on the margins of U.S. consumer behavior — about 1 in 4 Americans have tapped this kind of financing, new research shows.

Existing home sales in March, based on closings, fell just under one percent in March. While higher than a year ago, home sales appear to have leveled off, despite this being the normally busy spring season.

7--Quote Bernanke, cal risk
As Bernanke noted two months ago, the sequester budget cuts might actually lead to less deficit reduction:
"The CBO estimates that deficit-reduction policies in current law will slow the pace of real GDP growth by about 1-1/2 percentage points this year, relative to what it would have been otherwise.

A significant portion of this effect is related to the automatic spending sequestration that is scheduled to begin on March 1, which, according to the CBO’s estimates, will contribute about 0.6 percentage point to the fiscal drag on economic growth this year. Given the still-moderate underlying pace of economic growth, this additional near-term burden on the recovery is significant.

Moreover, besides having adverse effects on jobs and incomes, a slower recovery would lead to less actual deficit reduction in the short run for any given set of fiscal actions.

8---Euro zone unemployment hits record high for 23rd consecutive month, wsws

9---Congressional Democrats Pushing Back Against Obama’s Austerity Budget, FD


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