Monday, July 15, 2013

Today's links

1---Greenwald: Snowden docs contain NSA 'blueprint',

Edward Snowden has very sensitive ‘‘blueprints’’ detailing how the National Security Agency operates that would allow someone who read them to evade or even duplicate NSA surveillance, a journalist close to the intelligence leaker said Sunday.

Glenn Greenwald, a columnist with The Guardian newspaper who closely communicates with Snowden and first reported on his intelligence leaks, told The Associated Press that the former NSA systems analyst has ‘‘literally thousands of documents’’ that constitute ‘‘basically the instruction manual for how the NSA is built.’’
‘‘In order to take documents with him that proved that what he was saying was true he had to take ones that included very sensitive, detailed blueprints of how the NSA does what they do,’’ Greenwald said in Brazil, adding that the interview was taking place about four hours after his last interaction with Snowden.
Retail sales rose less than expected in June, the latest sign of a slowdown in economic growth that could argue against the Federal Reserve's plan to start trimming its monetary stimulus later this year.
But growth is not slowing abruptly, with other data on Monday showing factory activity in New York state accelerating in July as new orders and employment improved.

Retail sales increased 0.4 percent last month, lifted by demand for automobiles and higher gasoline prices. However, sales of building materials fell by the most in a year, a potentially worrying sign for the housing market....

."It provides no additional evidence that the economy is gaining momentum," said Annalisa Piazza, a senior economist at Newedge Strategy in New York. "It doesn't allow the Fed's chairman to have a firmer tone as the U.S. economic recovery remains gradual."

3---Mortgage Application Volume Continues to Sink , DS News

4---Japan's stagnation: demand-side or supply-side?, noahpinion

And there is the question of whether Japanese wages and prices are even particularly sticky in the first place. Here are Japanese wages:

Wage growth is sharply negative in some years, indicating that Japanese wages may not be so sticky. See also here. (Compare this to the U.S., where wages failed to fall much even during the big recent recession.)

So how can we be looking at a sticky-price story for Japan's stagnation? Well, we could be looking at a very long series of negative demand shocks. Japan could have just kept getting hit with shock after shock, giving the appearance of a long steady decline. But what were those shocks? If they were global in nature (such as the Asian financial crisis, the tech bubble, etc.), there's the question of why other countries around the world haven't mirrored Japan's deflationary experience. And a long string of negative domestic demand shocks is not in evidence.

It seems to me that the standard New Keynesian sticky-price story just cannot explain Japan. The "short run" for Japan is over and done. We are not looking at a "short-run" fluctuation caused by sticky prices.

This has implications for policy. It means that we can't expect the "first arrow" of Abenomics - quantitative easing - to boost the real economy through the kind of channel described by a New Keynesian or AD-AS model. It might do so through some other channel, but how exactly that will work is not clear.

5---ARMs are Baaaack, WA Post

Cameron Findlay, the chief economist for Discover Home Loans, told me that the rush to adjustable-rate loans signals to him “that the consumer psyche is, they’re still reaching. If an interest-only product still existed today, I think they’d be jumping right back on that.”
He added: “Sadly, us as Americans, I think we have a very short memory span on all that stuff.”

It’s early to tell, but the same might be true on credit-card debt. The Federal Reserve said this month that revolving consumer credit — credit cards, overwhelmingly — increased an annualized 9.3 percent in May. The measure is volatile, but it’s trending back up toward pre-crisis levels.
Again, this might not be a bad thing — as my colleague Neil Irwin points out. But if America’s still-not-roaring recovery is being financed more and more by debt, and if the definitely roaring housing market recovery starts to depend on riskier and riskier mortgage products, well, that would be a textbook definition of short memory..

6---Abe's neoliberal plan to destroy Japan ("Reforms" my arse!), Bus Insider

Abe will also face a tough decision in autumn on whether to give the go-ahead for a plan to raise the 5 percent sales tax to 8 percent next year, the first stage in a scheduled doubling by October 2015 to help curb Japan's huge public debt.

Some LDP members fear a tax hike would derail a recovery, but postponing it could cause havoc in financial markets, where the move would be taken as a signal of reneging on fiscal reform.
The International Monetary Fund (IMF), while giving a cautious OK to "Abenomics", has warned of downside risks if Japan doesn't both cut its debt - already twice the size of its $5 trillion economy - and enact structural reforms.

7--NYT pushes for more regressive taxes, more destabilizing deregulation, more attacks on labor, more sovereignty eviscerating free trade legislation, and more -privatization (was this editorial written by Robert Rubin), NYT

Mr. Abe, who returned to office in December for a rare second chance, will have few excuses for shying away from overhauls, including deregulation, that many see as vital to generating growth, but his commitment to doing so remains in doubt.
“What’s required is the kind of thoroughgoing reform that Mr. Abe doesn’t seem to have the vision or stomach for,” said Jun Okumura, a senior adviser for the Eurasia Group, a political risk research and consulting firm, and former official at the Japanese Ministry of Economy, Trade and Industry. ...
Among the areas where critics want bolder steps are agrarian land policy, labor market measures to make it easier for companies to get out of money-losing businesses and shift to growth sectors, cuts in the corporate tax rate and an easing of barriers to immigration to cope with Japan’s aging and shrinking population. ......
Mr. Abe will also face a tough decision in the autumn on whether to give the go-ahead for a plan to raise the sales tax to 8 percent from 5 percent next year, the first stage in a scheduled doubling by October 2015 to help limit the huge public debt.
Some party members fear the tax increase would derail a recovery, but postponing it could cause havoc in financial markets, where the delay would be taken as a signal of reneging on fiscal overhaul.
The International Monetary Fund, while giving a cautious approval to Abenomics, has warned of risks if Japan does not both cut its debt — already twice the size of its $5 trillion economy — and enact structural overhauls.
Consider Summers “brilliant” track record:
•  He has consistently argued for privatization and deregulation of the financial sector;
• He oversaw the repeal of Glass-Steagall via the passage of the Gramm-Leach-Bliley Act;
• He approved the (previously illegal) merger between Citibank and Travelers;
• He oversaw (and indeed encouraged) concentration in the financial sector, thinking bulked up banks are a virtue. This led to the rise of the TBTF institutions (formerly known as mega-banks).
• He successfully fought Brooksley Born, then chair of the Commodity Futures Trading Commission, to rein in financial derivatives;
• He oversaw passage of the Commodity Futures Modernization Act of 2000, preventing ALL Federal regulation of derivatives; The CFMA also exempted derivatives from state insurance oversight and antigambling laws.
• Thanks to Summers, derivatives still have no minimum reserve requirements, no disclosure obligations, no transparency and no exchange listing / reporting requirements.
After he helped to create the financial crisis and collapse, Summers found himself uniquely situated to help repair the damage he wrought. But that would have required an admission of error and responsibility; instead, he compounded his errors by pushing for a small, ineffective stimulus plan.

9----Other central banks impacting US money supply , sober look

So the Fed and BoJ are fighting an uphill battle to keep money supply inflating. US money supply would still be increasing dollar for dollar with the Fed’s purchases, but their friends, the other central banks, are no longer cooperating.

10---Repeat---The Fed's latest dilemma, sober look

to many on the Fed that was justifiable as long as US commercial banks continued to expand their balance sheets. But recently that expansion has stalled.

Source: FRB

To some this calls into question the effectiveness of the whole program, since the transmission from reserves into credit is so weak. The Fed is now facing the following choices:
1. slow the purchases and run the risk of shrinking credit and rising interest rates or
2. continue with the program and risk QE "side effects" without the needed credit expansion (which has stalled).

That's why we are likely to see the Fed even more divided going forward, adding to more uncertainty and frustration by investors (including those outside the US) as well as the public.
(No credit expansion, no growth. No growth, no recovery)

11---Q2 tracking 1% GDP. (Hooray for the recovery!), calculated risk

From Merrill Lynch:
Our tracking model now pegs 2Q GDP growth at just 1%, and we only get that high with some fairly generous bounce back assumed for some of the missing data. We don’t see anything fluky about this number: it is the third weak quarter in a row.
From MarketWatch:
Barclays ... cut its second-quarter GDP trading estimate to 1.0% from 1.6% after the trade deficit widened in May. In a note to clients, Barclays blamed the larger-than-expected increase in imports in the month for the downward revision.
J.P.Morgan also cut their Q2 forecast to 1.0% (from 2.0%).
12---George Zimmermam is a social type nurtured by the promotion of political reaction., wsws

The Trayvon Martin tragedy is the product of decades of political reaction in America, during which the political and media establishment have relentlessly promoted all manner of backwardness, deliberately seeking to pollute the public consciousness with law-and-order demagogy, militarism, the glorification of guns and the promotion of vigilantism.....

Trayvon Martin's killer, George Zimmerman—the disturbed would-be cop turned vigilante—is a social type nurtured by the promotion of political reaction.
Racism likely played a role in the Trayvon Martin tragedy. But racism is not an independent factor. It is one of the ideological tools used by the ruling class to divide workers and defend capitalism

13---Finance set to surpass tech as most-profitable U.S. industry, USA Today

14---China slows, WA Post

“Last year the economy officially grew at 7.8 percent, but the consensus is that it was probably closer to 5.5 percent, and even that probably overstates it,” said Michael Pettis, a Peking University finance professor. “GDP growth numbers will continue to decline in the next few years. We might see a pop in the third quarter, but it will be temporary.”
If the government succeeds at rebalancing the economy, the growth rate could dip dramatically lower to 3 or 4 percent, Pettis said. “Is that a disaster? Not necessarily,” he said, as long as China’s consumption grows faster than GDP.

15---What Washington wants from China, CFR

Driven by the need to maintain legitimacy and to stimulate domestic consumption, the new Chinese leadership is expected to commit to the building a social safety net in the coming years. For health-care reform to succeed, the new leaders have to demonstrate significant progress in reforming the public hospitals and make health care more affordable. In the absence of fundamental changes in public hospitals' financing and management structures, health-care costs will likely continue to increase rapidly. This could be exacerbated by population aging and the growing burden of chronic noncommunicable diseases (NCDs). Today, more than 80 percent of the mortality in China is attributed to NCDs, which is significantly higher than the world average (63 percent). So far, the government has not adopted a proactive approach to addressing NCDs and their risk factors (e.g., tobacco use). Sustained government funding for the healthcare sector is also threatened by local public financing problems. Local governments, which provide the lion's share of government health spending, still do not have the incentives and capabilities to effectively implement important reform measures. A fundamental overhaul of China's health sector therefore entails reforming China's archaic political system.....

Mr. Xi may have to relax the party's tight grip on press control. But here he will face enormous opposition from his conservative colleagues and party officials, who naturally fear that greater openness in the media will unleash a tidal wave of political dissent. The more reasonable thing to expect is an erratic pattern of loosening and tightening as the new government tries to use the media to its advantage, then pulls back once the press gets too aggressive.

16---What Washington wants China: Dismantle the state to enrich private investors, CNN

Those who have been waiting for China's new leadership to unveil their economic reform program finally got some good news last week. The new premier, Li Keqiang, vowed to reduce the government's influence on China's economy in a speech to senior Communist Party officials.
More importantly, the State Council, the country's cabinet, endorsed a set of reform objectives drafted by the National Development and Reform Commission (NDRC), the economic super-agency in charge of planning and regulation.

Judging by the NDRC's reform objectives for 2013, it is easy to get the impression that China's new leaders have a bold and ambitious agenda. The document covers a wide range of initiatives. The most important are deregulation through a significant reduction of the government's power to approve investments; fiscal reform, with a focus on changing a current turnover tax into a value-added tax and expanding the experiment of levying a property tax; financial reform through liberalization of interest and exchange rates and gradual progress toward capital account convertibility; promotion of private investment in financial, energy, telecom, and rail transportation sectors, all of which have remained monopolies of the state; reform of the prices of electricity, natural gas, and water in order to promote efficiency and conservation; strengthening social safety nets and improving food safety; gradual reform of the urban household registration system to permit more migrants to settle in cities....

The most glaring omission in the NDRC directive is the curtailment of the state-owned enterprises (SOEs). It does not contain any measures that will lead to the privatization, break-up, or the loss of monopoly protection and subsidies of Chinese state-controlled businesses. This raises a giant red flag. Many of the proposed reforms (such as financial reform and promotion of private investment in sectors currently dominated by SOEs) will hurt powerful SOEs. If the government does not reduce the power and privileges of SOEs, they will easily use them to thwart any reforms that will increase competition and hurt monopoly profits.

17---What Washington wants from China Part 3---Retirement reform (so more money is not diverted from personal consumption, domestic security and military spending, NYT

Pension spending is growing rapidly, but remains under 3 percent of gross domestic product — well under the levels in mature welfare states. (Social Security represents about 4.9 percent of G.D.P. in the United States.)
The United States has a stake in this. Entitlement programs like retirement benefits will inevitably force China into a trade-off between social expenditures and domestic security and military spending. Policy makers concerned about China’s rising military spending would do well to monitor China’s social spending. ...
The one-child policy means that an ever-shrinking share of workers is paying the taxes that finance pensions and health care — the demographic phenomenon that causes the Chinese to fear “growing old before getting rich.” Beijing could make a deal: phase in later retirement ages while ending the one-child policy.
An enduring source of inequality in China has been the curse of geography: where you were born, lived and worked has largely determined the level and even existence of your retirement benefits. Reducing the urban-rural gap — as China this month announced a plan to do — is essential, as is saving elderly citizens from poverty.
China has the wherewithal to make the bold reforms to meet this basic social obligation. Does it have the will?

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