Sunday, July 28, 2013

Today's links

1---80 Percent Of U.S. Adults Face Near-Poverty, Unemployment: Survey, AP

Four out of 5 U.S. adults struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives, a sign of deteriorating economic security and an elusive American dream.
Survey data exclusive to The Associated Press points to an increasingly globalized U.S. economy, the widening gap between rich and poor, and the loss of good-paying manufacturing jobs as reasons for the trend.
The findings come as President Barack Obama tries to renew his administration's emphasis on the economy, saying in recent speeches that his highest priority is to "rebuild ladders of opportunity" and reverse income inequality....

As nonwhites approach a numerical majority in the U.S., one question is how public programs to lift the disadvantaged should be best focused – on the affirmative action that historically has tried to eliminate the racial barriers seen as the major impediment to economic equality, or simply on improving socioeconomic status for all, regardless of race.
Hardship is particularly growing among whites, based on several measures. Pessimism among that racial group about their families' economic futures has climbed to the highest point since at least 1987. In the most recent AP-GfK poll, 63 percent of whites called the economy "poor."...

While racial and ethnic minorities are more likely to live in poverty, race disparities in the poverty rate have narrowed substantially since the 1970s, census data show. Economic insecurity among whites also is more pervasive than is shown in the government's poverty data, engulfing more than 76 percent of white adults by the time they turn 60, according to a new economic gauge being published next year by the Oxford University Press.....

The gauge defines "economic insecurity" as experiencing unemployment during the year, or a year or more of reliance on government aid such as food stamps or income below 150 percent of the poverty line. Measured across all races, the risk of economic insecurity rises to 79 percent.

Marriage rates are in decline across all races, and the number of white mother-headed households living in poverty has risen to the level of black ones.
"It's time that America comes to understand that many of the nation's biggest disparities, from education and life expectancy to poverty, are increasingly due to economic class position," said William Julius Wilson, a Harvard professor who specializes in race and poverty. He noted that despite continuing economic difficulties, minorities have more optimism about the future after Obama's election, while struggling whites do not....

"There is the real possibility that white alienation will increase if steps are not taken to highlight and address inequality on a broad front," Wilson said....

Higher recent rates of unemployment mean the lifetime risk of experiencing economic insecurity now runs even higher: 79 percent, or 4 in 5 adults, by the time they turn 60.
By race, nonwhites still have a higher risk of being economically insecure, at 90 percent. But compared with the official poverty rate, some of the biggest jumps under the newer measure are among whites, with more than 76 percent enduring periods of joblessness, life on welfare or near-poverty.
By 2030, based on the current trend of widening income inequality, close to 85 percent of all working-age adults in the U.S. will experience bouts of economic insecurity.
"Poverty is no longer an issue of `them', it's an issue of `us'," says Mark Rank, a professor at Washington University in St. Louis who calculated the numbers. "Only when poverty is thought of as a mainstream event, rather than a fringe experience that just affects blacks and Hispanics, can we really begin to build broader support for programs that lift people in need."...

Going back to the 1980s, never have whites been so pessimistic about their futures, according to the General Social Survey, a biannual survey conducted by NORC at the University of Chicago. Just 45 percent say their family will have a good chance of improving their economic position based on the way things are in America

2---Mortgage Default Rate Spikes In June: LPS, The Street

The national mortgage delinquency rate rose sharply in June, after declining for five consecutive months, according to a "First Look" mortgage monitor report from Lender Processing Services (LPS).

The percentage of borrowers who are 30 days or more past due on their mortgage loans but not in foreclosure rose to 6.7%. That's an increase of 10% from the previous month and is at the highest level since February.
Some of this increase is seasonal, according to LPS, though the seasonal increase is usually not this large. Last June, the default rate rose by 3.4%.
The foreclosure inventory rate, meanwhile, continues to decline as banks process fewer foreclosures and opt for short sales and loan modifications instead. Foreclosures declined 4% in June from the previous month and are down 30% year-over-year.
In total, there are about 4.8 million U.S. residential properties that are either 30 or more days delinquent or in foreclosure.

3---Who is buying US debt?, Testosterone Pit

Foreigners recycling their trade surpluses have been an important source of purchases for US government debt. As you can see from the chart of long-term securities purchases by foreigners, that buying collapsed during the crisis. And, interestingly, it has recently fallen sharply again.
Offsetting the reduction in purchases of US debt by foreigners, the Fed has stepped in with multiple quantitative easings (QE), buying government securities itself in order to add liquidity and drive interest rates down.

4----Mortgage delinquencies take a sharp turn up, CNBC

Despite receding from the high levels during the housing crash, 4.8 million loans are delinquent or in foreclosure, according to LPS. ...

The  Home Affordable Modification Program has helped 865,100 homeowners avoid foreclosure, but more than 306,000 could not keep up with even the modified monthly payments, according to the Special Inspector General for the Troubled Asset Relief Program. The program does not force banks to write down mortgage principal.

Overall mortgage delinquencies are still down 6.5 percent from a year ago, according to Lender Processing Services. Some of the spike may be attributed to "a seasonal phenomenon," according to LPS analysts, but this particular spike is larger than usual. Delinquencies ticked up just 3.4 percent in June 2012. The rise also spanned products and regions.

5---Wall Street Overwhelmingly Favors Yellen Over Summers For Fed Chair: CNBC Poll , Mark Gongloff

6---The Political Right's Affection for QE, P Krugman

This (from Paul Krugman) describes my position on QE:
...QE, in the eyes of its most enthusiastic advocates, can return us to Milton’s Eden. And they are determined to read the evidence as confirming that hopeful notion.
Yet there are many economists, myself included, who regard this view as highly unrealistic, yet support more aggressive Fed action all the same. Why? First, because it might help and is unlikely to do harm. Second, because the alternative — fiscal policy — may be of proven effectiveness, but is also completely blocked by politics. So the Fed’s efforts are all we have....

Comments: Dan Kervick said...
You know, I can understand the motives of those who think QE is the only game in town. But what is frustrating is those who have insistently claimed that it is the only game in town when they themselves participated in making it the only game in town by carrying water for the fiscal contraction agenda of the White House.
Obama now seems frustrated about his inability to develop political traction for even the modest spending plans he has proposed. He should recognize that this kind of public diffidence is the natural political effect of frightening the country with the bogus message we are "out of money" and spending years on grand bargaineering and sounding debt alarms.

He has received woefully bad advice. But maybe his own instincts are to blame too.
I really think the case for expansion of stepped up government consumption and gros
s investment, and for public role in job creation, would be helped if people would stop relying so much on the term and concept of "stimulus". That's a lame and rhetorically unpersuasive approach, and also fails to grasp with the larger opportunities and challenges. We need to rely on something more like Mariana Mazzucato's analysis of role of "the entrepreneurial state" in driving the innovations of the past. The American people need to be made to understand that the US (and Europe as well) are risking their children's future and giving us a dangerous "investment gap" of our own making. We are an irresponsible and feckless can't-do generation that has talked ourselves into a gloomy image of persistent managed decline, where there is nothing left to do but bean-count the diminished expectations for 2030, 2040 and beyond

7---QE:  The new monetary ideology , Economist

QUANTITATIVE easing, which almost no one had heard of five years ago, is the great new discovery in macroeconomic policy. Policymakers put their faith in it as the engine of recovery; variations in the quantity of money supplied by the central bank has graduated from an emergency measure to a permanent tool. As Adam Posen recently put it, given the failure of interest-rate policy alone to determine the economy’s credit conditions, future central bank governors ‘will have to make unconventional monetary policy conventional’.

This new enthusiasm for unconventional monetary policy is the more remarkable in that no one is quite sure how it works. There are several possible transmission mechanisms from money to prices (or nominal income) – notably the bank lending channel and the portfolio rebalancing channel. They have been extensively tested, with inconclusive results.

All of this led John Kay to wonder why so much attention was given to unconventional monetary policies ‘with no clear explanation of how they might be expected to work and little evidence of effectiveness?’ His answer: they are helpful to the financial services and those who work in them.
Here is another answer, given by the Chicago University economist Robert Lucas in the Wall Street Journal. Quantitative Easing, he wrote,  “entails no new government enterprises, no government equity positions in private enterprises, no price fixing or other controls in the operation of individual businesses, and no government role in the allocation of capital...These seem to me important virtues”.
In short, a happy mix of self-interest and ideology.

8---Japan: Wages and deflation, sober look

Japan has been experiencing relentless downward pressure on wages, contributing to ongoing deflation.

Source: Barclays Capital

Barclays researchers argue that another key factor pushing wages lower has been the disappearance of "downward rigidity". In the US when things get tough, companies cut costs by laying off workers (volume adjustment). In Japan costs are more commonly reduced through wage cuts (price adjustment)....

rising inflation and falling wages could be a recipe for disaster. It's OK to take a pay cut when prices are falling, but it just doesn't work in a positive inflation environment. That is why, according to Barclays, the most important task for Japan's new government will be to implement labor reform in order to allow wages to rise with inflation.
Barclays: - As long as Japan targets 2% CPI inflation on a sustainable basis, it must create an economy conducive to higher wages. We believe this requires a determination to change the structure of the economy, especially the labor market.
Monetary policy has the power to raise prices and price variables such as nominal wages to a certain extent. However, monetary policy does not have the capacity to determine the relative relationship between nominal wages and prices ...

... So when considering whether Japan can escape deflation with an accompanying rise in real wages, there is a need to think about labor productivity in addition to monetary policy....

9---The confluence of tight housing conditions and weak household incomes, sober look

We are seeing the confluence of tight housing conditions and weak household incomes. As JCHS points out "most types of households have seen their real incomes decline over the past decade". This is particularly true for growing households.

Source: JCHS

4. As a result, "the total number of households paying more than half their incomes for housing soared by 6.7 million from 2001 to 2011, a jump of 49 percent...

 On top of all this is the fact that households are now forming at a rate of about a million per year. The market is demanding a million new residential units each year. Unless construction can keep up and prices decline or incomes rise (neither seems likely right now), this trend will drive up the number of households with "housing cost burdens" (already over 40 million; see #4 above) - for both homeowners and renters

10--Massacre in Egypt: US-backed junta kills scores, wounds thousands of people, wsws

11---Greece and Detroit—a new stage in the social counterrevolution, wsws

12---Growth From the Middle Out, and How It Works, NYT

13--New Homes: There is "no question" that higher rates have affected demand, sober look

According to D.R. Horton's there is "no question" that higher rates have affected demand. Homebuilders have seen a slowdown in order growth.
Bloomberg: - PulteGroup, based in Bloomfield Hills, Michigan, said second-quarter orders fell 12 percent on a lower community count. D.R. Horton said orders increased 12 percent, which was below analysts’ forecast for 28 percent growth, according to Adam Rudiger, an analyst at Wells Fargo & Co. in Boston.

Rising mortgage rates contributed to increased cancellations and a dropoff in traffic in June, according to Fort Worth, Texas-based D.R. Horton. Borrowing costs have surged in the past two months on expectations that the Federal Reserve will scale back bond purchases. The 30-year average fixed mortgage rate was 4.31 percent in the week ended today, up from a near-record low of 3.35 percent in May, Freddie Mac said.

We got our first indication today that consumers are feeling the effect of rising rates on their purchasing power,” Peter Martin, a San Francisco-based analyst with JMP Securities LLC, said in a telephone interview.
Orders are rising, but not nearly as fast as was implied by stock valuations. The equity markets have priced in a significant momentum in residential construction growth over the past couple of years. Now higher mortgage rates are taking some of that momentum out, which is showing up in homebuilder underperformance. It's an interesting consideration for the Fed, as the September decision on securities purchases looms large.


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