Wednesday, June 19, 2013

Today's links

1---Syria Is Becoming Obama’s Iraq, counterpunch

In perfect Bush-like fashion, President Obama has invented a bogus pretense for military intervention in yet another Middle East country. The president’s claim that the Syrian government has used chemical weapons — and thus crossed Obama’s imaginary “red line” — will likely fool very few Americans, who already distrust their president after the massive NSA spying scandal....

The U.S. media also buried the truth behind the ridiculous chemical weapons claims by the Obama administration, which, like Bush’s WMDs, are based on absolutely no evidence. Having learned nothing from Iraq, the U.S. media again shamelessly regurgitates the “facts” as spoon-fed to them by the government, no questions asked. In reality, however, a number of independent chemical weapons experts have publicly spoken out against Obama’s accusations.....
But like Bush, Obama is ignoring the UN, and there’s a logic to his madness. Obama has invested too much of his foreign policy credibility in Syria. His administration has been the backbone of the Syrian rebels from the beginning, having handpicked a group of rich Syrian exiles and molded them into Obama’s “officially recognized” government of Syria, while pressuring other nations to also recognize these nobodies as the “legitimate Syrian government.” Assad’s iron grip on power is a humiliation to these diplomatic efforts of Obama, and has thus weakened the prestige and power of U.S. foreign policy abroad.

More importantly, Obama’s anti-Syria diplomacy required that diplomatic relations between Syria and its neighbors — like Jordan, Lebanon, and Turkey — be destroyed. These nations have peacefully co-existed for decades with Syria, but have now agreed — under immense U.S. pressure — to sever diplomatic relations while helping destroy the Syrian government by funneling guns and foreign fighters into the country, further destabilizing a region not yet recovered from the Iraq war. Obama’s Syria policy has turned an already-fragile region into a smoldering tinderbox....

Clark’s innocent sounding “no-fly zone” is in fact a clever euphemism for all-out war, since no-fly zones require you destroy the enemy’s air force, surface to air missiles, and other infrastructure..

2---BOJ Kuroda: BOJ to Adjust Policy If Japan Econ Changes, MNI
(One day after Goldman advised Kuroda to do the same)

The BOJ's JGB buying has accumulative effects on bond markets, Kuroda said.
"We will do our best to keep long-term interest rates from rising," Kuroda said, adding that the BOJ will continue to make utmost efforts to lower JGB volatility.
The central bank governor also noted that Japan's interest rates are falling considerably as some indicators suggested a rise in medium- to long-term inflation expectations.
"Lower real interest rates will have positive effects on private demand, including capital investment," Kuroda said.

Kuroda also warned, "If the BOJ's JGB buying is interpreted as debt financing, bond prices will fall and long-term interest rates could rise sharply."

3---Residential construction recovery has a long way to go, sober look

With financing tough to come by, while we've seen improvements in residential construction spending, it is still at 1998 levels.

Residential construction has a long way to go to see full recovery - even to the "pre-bubble" years.
The verdict: in most markets houses are near or above their long-run values, but none looks bubbly. Price rises in Phoenix, Tampa and Miami have restored values only to their long-run averages. In Las Vegas they are still below that long-run average. Many things could trip up the housing recovery, from stalling job growth to higher mortgage rates; at the moment, a bursting bubble is not one of them
The lowest inflation since the brink of the Kennedy-era economic boom in the 1960s is buying time for Federal Reserve Chairman Ben S. Bernanke to press on with the central bank’s $85 billion in monthly bond purchases.
A gauge of consumer prices excluding food and energy that is watched by the Fed rose 1.1 percent in the year through April, matching the smallest gain since records started in 1960. With inflation below the Fed’s 2 percent long-run goal and the jobless rate at 7.6 percent, the Fed is falling short of its mandate to ensure stable prices and maximum employment....

The economy is on the cusp of picking up,” said Sheets, former head of the Fed’s international finance division. “If we get the recovery in the labor market, inflation is likely to follow.” .....

The FOMC has bought bonds to halt disinflation before, announcing in November 2010 a round of purchases of Treasury securities totaling $600 billion and aimed partly at averting a broad decline in prices.
Prices as measured by the personal consumption expenditures index haven’t fallen to the level in April since the period before an expansion that started in 1961 under President John F. Kennedy, according to the Commerce Department’s Bureau of Economic Analysis.

Price Expectations

Investor expectations for inflation have also declined. The spread between nominal Treasuries and inflation-protected securities over the next 10 years has narrowed to 2.09 percentage points from as high as 2.59 points in March....

In December, Fed officials forecast core inflation this year would climb 1.6 percent to 1.9 percent. So far, the measure has risen 1.1 percent from a year earlier. Including food and energy, the personal consumption expenditures index, or PCE, in April climbed just 0.7 percent over 12 months.
A separate gauge of inflation, the consumer price index, climbed 1.4 percent in May from a year earlier, the Labor Department reported yesterday.

6---Fed's QE impacts neither unemployment nor inflation, NYT

The unemployment rate has fallen only slightly since the Fed began its latest round of bond buying, to 7.6 percent in May from 7.8 percent in September. And even that decline happened mostly because people stopped looking for work. The share of American adults with jobs has not increased in three years. The Fed’s preferred measure of inflation has sagged to 1.05 percent, the lowest level in more than 50 years and markedly below the 2 percent annual pace the Fed considers healthy.
“In our view it would be risky to deliver a hawkish monetary policy message at a time when growth remains sluggish, inflation continues to trend down and market inflation expectations are dropping sharply,” Goldman Sachs economists wrote in a note to clients last week.
Other analysts, however, see mounting evidence that Mr. Bernanke and his allies would like to buy fewer bonds, although most still do not expect the Fed to reduce the pace of its asset purchases before September at the earliest. Fed officials have described the asset purchases as an experiment with uncertain consequences, particularly the potential disruption of financial markets, and warned that those risks might increase with the size of the Fed’s holdings.
While the pace of growth has increased only modestly, the worst-case possibility, in which mismanaged fiscal policy sends the economy sliding back into recession, has faded. “The asset purchases may have been simply insurance against a fiscal disaster that did not materialize,” wrote Tim Duy, an economist at the University of Oregon.
Moreover, some Fed officials have concluded that large job gains are beyond reach. Economists at the Federal Reserve Bank of Cleveland wrote recently that the Fed should be satisfied if the economy adds 150,000 jobs a month — well below the monthly average of 176,000 so far this year.
Economists at the Federal Reserve Bank of Chicago set the bar even lower, at 80,000 jobs a month. Both estimates are based on the assumption that many of the people who stopped looking for work in recent years will never return, allowing the unemployment rate to return closer to its normal levels during an economic expansion even without a rebound in employment.
Federal Reserve officials both expect and want inflation to be higher than it is. So far, that isn’t happening...
Soft inflation matters a lot to monetary policy. Central bankers have said repeatedly they want price gains on target. Overshooting, undershooting: both are equally undesirable. The longer price pressures stay under the Fed’s goal, the greater the case becomes for the Fed to press forward with, or even boost, its $85 billion per month bond buying program aimed at stimulating growth
One main feature of inflation is that it reduces the real value of debt. Think of the $13 trillion in outstanding mortgages or the $12 trillion in government debt held by the public. Inflation would eat away at those obligations, without any need for bankruptcy lawyers. And it would leave more disposable income for Americans to spend.
Higher inflation in the United States would also weaken the dollar, helping exports. It would encourage people to spend now rather than sit on their cash.
And if the government engineered “monetary repression” to keep long-term interest rates below the economy’s nominal growth rate, effectively forcing banks to buy lots of government bonds, a few years’ worth of higher inflation could do wonders to reduce the public debt.
Mr. Rogoff points out that the case for higher inflation was stronger in 2008, when mortgage debt reached $14.5 trillion and debt service swallowed almost a fifth of households’ disposable income. Still, he notes, a solid case remains for faster-rising prices around the world.
But now mainstream economists like Kenneth Rogoff at Harvard are pressing the case that “a sustained burst of moderate inflation is not something to worry about.”
“On the contrary,” he wrote, “in most regions, it should be embraced.”
The prescription fits the worldview of some “monetarist” economists, who argue that the Fed should set a higher target for the nominal gross domestic product, to be met through real economic growth and inflation. Conservative pundits like Josh Barro of Business Insider have welcomed inflation as the right’s answer to fiscal stimulus — a way to juice the economy without increasing government spending.
But it is hardly a conservative idea. Paul Krugman, a Nobel laureate and liberal columnist for The New York Times, has been writing about the benefits of higher inflation, arguing that policy makers should be using any available tool — fiscal or monetary — to try to reduce an unemployment rate stubbornly stuck at more than 7.5 percent for over four years.
To be sure, economists agree that inflation is no panacea. Higher inflation does not produce more growth or lower unemployment over the long term. There is a fairly solid consensus that unstable, volatile prices depress growth by short-circuiting decisions to spend and invest. That is why central bankers work so hard to “anchor” inflation expectations to a number. ...
And here’s the best reason to be skeptical: even if the Fed wanted to engineer higher prices, it is far from obvious how it would do that.
The Fed is not just buying bonds. It is also keeping short-term interest rates at zero. And it promised to keep pushing the economy at least until the unemployment rate fell below 6.5 percent or inflation surpassed 2.5 percent.
And yet, inflation is going the other way. The economy is even flirting with deflation. The bigger risk in the United States is not that our money will buy fewer oranges tomorrow. It’s that it will buy more.
10---Will Home Prices Be Constrained by Stagnant Incomes?Chart
Source: Real Time Economics

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