Sunday, June 16, 2013

Today's links

1---Spanish austerity cuts put lives at risk, study finds, Reuters

 Austerity cuts in Spain could lead to the effective dismantling of large parts of its healthcare system and significantly damage the health of the population, according to a study published on Thursday....

The study published in the British medical Journal (BMJ) found that Spain's national budget cuts of almost 14 percent and regional budget cuts of up to 10 percent in health and social services in 2012 have coincided with increased demands for care, particularly from the elderly, disabled and mentally ill.
The researchers also noted increases in depression, alcohol-related disorders and suicides in Spain since the financial crisis hit and unemployment increased.

"If no corrective measures are implemented, this could worsen with the risk of increases in HIV and tuberculosis — as we have seen in Greece where healthcare services have had severe cuts — as well as the risk of a rise in drug resistance and spread of disease," said Helena Legido-Quigley, a lecturer in Global Health at LSHTM who worked with McKee.

The findings in Spain chime with other studies in Europe and North America which found budget cuts had a devastating effect on health, driving up suicides, depression and infectious diseases and reducing access to medicines and care.
In a book published in April, researchers said around 10,000 suicides and a million cases of depression had been diagnosed during what they called the "Great Recession" and the austerity measures that have come with it across Europe and North America.

2---New Report: How the U.S.-EU Trade Deal would Grant Sweeping Corporate Privileges, public citizen

 This extreme system empowers corporations to circumvent domestic court systems and directly challenge a government’s public interest laws before a three-person, extrajudicial tribunal if the corporations feel the laws affect their ability to make a profit.  Corporations have already used the system to attack a slew of environmental and health policies, resulting in tribunal orders for taxpayers to pay more than $3.5 billion to foreign corporations under U.S. trade and investment deals alone....

3---No WMD in Syria?, McClatchey

Chemical weapons experts voiced skepticism Friday about U.S. claims that the government of Syrian President Bashar Assad had used the nerve agent sarin against rebels on at least four occasions this spring, saying that while the use of such a weapon is always possible, they’ve yet to see the telltale signs of a sarin gas attack, despite months of scrutiny

Read more here:

In a world where even the secret execution of Saddam Hussein was taped by someone, it doesn’t make sense that we don’t see videos, that we don’t see photos, showing bodies of the dead, and the reddened faces and the bluish extremities of the affected,” he said.

4---Rising Income Inequality and the Role of Shifting Market-Income Distribution, Tax Burdens, and Tax Rates, EPI

5--Russia's Foreign Ministry has slammed the UN Human Rights Council resolution, which condemned Hezbollah’s role in Syria, for ignoring crimes committed by “mercenary-terrorists from abroad” fighting in the rebels’ ranks., RT

6---Why real wages are falling, stumbling and mumbling

Real wages are falling at a near-record rate. Yesterday's figures show that they were 6% lower in April than they were in April 2008. This is the biggest five-year drop in real wages since 1921-26, and the second-largest fall since records began in 1855.
This cannot be blamed simply on the recession. As the IFS has pointed out (pdf), real wages rose during the recessions of the early 80s and 90s. Something, then, has changed since then. But what?
As discussed in the previous post, outflows from fixed income funds have been quite severe. However in spite of the various forecasts, the so-called "Great Rotation" out of bonds and into equities (see CNBC story from May) has not materialized. In fact just as investors put money into both bonds and stocks at the beginning of the year, more recently they have been exiting both asset classes concurrently.

Source: Investment Company Institute

The only markets that have been spared the selloff are short-term fixed income instruments (money markets) such as treasury bills...
Furthermore, as institutional investors bought treasury bills, retail investors moved into their brokerage money market accounts. Retail money market funds' assets have risen sharply.
8---Rotation out of fixed income, sober look 
Last year we discussed just how frothy the US fixed income valuations have become (here and here). Now in a matter of several weeks, the US bond markets have wiped out a year's worth of gains and then some. That includes all the interest income.

In fact, according to JPMorgan, May saw the worst global bond performance since early 2004.
Retail money market funds total assets
(source: Investment Company Institute)

It may be a disappointment to some forecasters, but the only "great rotation" taking place recently has been out of both fixed income and equities and into money markets and other cash instruments...
All of a sudden the realization has set in that rates may in fact rise and the multi-year bond rally may at some point come to an end. Google Trends shows a spike in searches related to rates rising.
9---US struggling with chronic excess capacity, sober look
10---Fed's securities purchases blunt the impact of convexity hedging, sober look
11---US Congress debates deep cuts to food stamps as need surges, wsws
12---The good old days?, NYT
Manufacturing workers have reason to regret the passing of an era. Between 1945 and 1978, their real earnings almost doubled — rising by 95 percent — but then, over the next 34 years, they actually fell by 2.3 percent. ...
In 1950, a young man, with or without a high school degree, would have found it much easier than it is today to get and keep a job in the auto industry. And in that year, according to Colin Gordon, a historian at the University of Iowa, the average autoworker could meet monthly mortgage payments on a median-priced home with just 13.4 percent of his take-home pay. Today a similar mortgage would claim more than twice that share of his monthly earnings.
13---No skills gap, NYT
Unemployment is also stubbornly high — 7.5 percent in April, or 11.7 million people, a ratio of 3.1 job seekers for every opening. No category has been spared: unemployed workers outnumber openings in all of the 17 major sectors covered by the survey. The biggest problem in the labor market is not a skills shortage; rather, it is a persistently weak economy where businesses do not have sufficient demand to justify adding employees
14--Krugman explains the weak recovery, NYT
now we’re in a situation — a liquidity trap — in which more government spending is a good thing, because it helps put unemployed resources to work; meanwhile, the cost in terms of future debt service is minimal, because interest rates are so low. Both ends of the intellectual case for austerity — the claim that spending cuts are actually expansionary and the claim that terrible things happen when debt rises even if interest rates are low — have collapsed. What could be easier, then, than for politicians to make constituents happy by spending more on things voters like?So what happens? More austerity, because a party dedicated to the proposition that less government is always more blackmailed Obama into accepting the sequester, and now uses its blocking power to prevent any solution; and it’s true, Obama has chosen not to make this a central political issue. There are many ways to show how big the government shortfall is; here’s a comparison of the track of overall government spending (federal, state, and local) during the last recession and aftermath with the Great Recession and aftermath, just in dollar terms (if we did it in, say, real per capita terms you’d see that spending is falling fairly quickly):
If government spending had grown at normal rates since 2007, it would be hundreds of billions higher than it is — and the unemployment rate would probably be 6 percent or less. At this point austerity is the main reason we’re still in an inadequate recovery.
But there isn’t even a hint of significant movement on fiscal policy. It’s really amazing.

15---How crazy is the California housing market? Pretty crazy. Dr Housing Bubble

“(Yahoo!) Banks repossessed 38,946 homes, an increase of 11 percent from the previous month. The number of homes hit with default notices for the first time grew by 4 percent.
Among the five lenders involved in last year’s national mortgage settlement, all but Citigroup (C.N) saw an increase in repossessions.
“It could be a sign of a trend we’re expecting, which is that eventually, the banks are going to pull the trigger and complete these distressed loans that have been sitting in limbo for some time,” said Daren Blomquist, vice president at RealtyTrac.”
What this really means is that smart banks are seeing the mania in the market and are gearing up to unload some of the backlog in properties.  And why not?  The market is incredibly hot and you want to sell into momentum.  I said this many years ago about the Fed and will remind you that the Fed is looking out for member banks first, and any secondary benefits are merely a consequence of this behavior.
California home values
The median California home price is up a whopping 25 percent over the last year.  Once again California home values are diverging dramatically from nationwide prices in the speed they are going up:
calfornia home values
While the above is happening, this is happening with household incomes:
household income
I know, incomes don’t matter when one-third of purchases are coming from hot money investors and another good amount of buying is coming from families stretching their budgets to the limits with low mortgage rates.
Interest only loans.  Flipping.  Hot investor money.  Parking spots going for $82,000.  Prices soaring by 25 percent while incomes are slowly edging up.  Sure sounds like a normal market!

You cannot understand economics without understanding power. The fact is that bosses' power has risen and (many) workers' power has declined. In this sense, the rising incomes of the 1% and the fall in real wages for the average worker are two manifestations of the same process.
Read more here:

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