Tuesday, August 13, 2013

Today's links

1---The Fukushima Nightmare Gets Worse, counterpunch

Just when it seemed things might be under control at Fukushima, we find they are worse than ever.
Immeasurably worse.
Massive quantities of radioactive liquids are now flowing through the shattered reactor site into the Pacific Ocean. And their make-up is far more lethal than the “mere” tritium that has dominated the headlines to date.

Tepco, the owner/operator–and one of the world’s biggest and most technologically advanced electric utilities–has all but admitted it cannot control the situation. Its shoddy performance has prompted former U.S. Nuclear Regulatory Commissioner Dale Klein to charge: “You don’t what you are doing.”

The Japanese government is stepping in. But there is no guarantee–or even likelihood–it will do any better.
In fact, there is no certainty as to what’s causing this out-of-control flow of death and destruction.....

Japanese experts have already estimated Fukushima’s fallout at 20-30 times as high as the 1945 bombings.

2---Trade Deficit Dramatic Shrink Will Boost Q2 GDP, economic populist

3---U.S. Satisfaction Sinks to 22% in August, Gallup
Decline seen among Democrats and Republicans alike
Trend: U.S. Satisfaction -- Monthly Measures From January 2011-August 2013

Bottom Line
At 22%, U.S. satisfaction with the direction of the country is the lowest Gallup has seen since March. This follows several months when the reading reached or approached 30%. And while satisfaction has declined among all party groups since July, the reason for this is not clear. Although the economy might be an obvious culprit, Gallup's economic indicators find no change -- or even slight improvement -- in Americans' broad view of the economy and employee perceptions of job conditions where they work.
At the same time, Obama's net job approval rating has dipped somewhat since July. It thus appears that something other than the economy is causing Americans to be less pleased with the president as well as the overall direction of the

4--Disruptions in yen carry trade could trigger global currency crisis, Mike Pento

The Japanese stock bubble has been extremely volatile of late, as the nation sprints towards a bond and equity market crisis. The Nikkei Dow surged over 70 percent in less than six months on the back of Abenomics -- an economic system that is predicated on raising taxes and creating inflation by destroying your currency. However, the benchmark index has since peaked in mid-may. The relatively new Abe regime has already been able to create inflation even after the Japanese economy witnessed years upon years of falling prices. The problem is, this new paradigm of perpetually rising prices must very soon be reflected by rising bond yields as well. The Japanese Ten-Year note is trading at 0.76 percent even though the nation now has accumulated over one quadrillion Yen in debt. The interest rate level is far below the 1.5 percent yield it displayed just prior to the Great Recession of 2008. It should be noted that the yield was twice as high as it is today, despite the fact that Japanese CPI was near zero percent. Nevertheless, we have recently viewed the YOY change in inflation rising from -0.9 percent in April, to +0.2 percent in July. At this current pace, the rate of inflation will be close to 1.0percent within three months. This should cause a significant back up in yields and force the nation to use most of its revenue just to pay the interest on its debt; leading to extreme turmoil in Japanese equities. Depending on the response from the BOJ, investors may see a reversal of the Yen carry trade, which will also lead to extreme disruptions in currency values and equity exchanges worldwide. The tenuous situation in Japan is not currently being factored into global markets and is another shock that could hit the system within the next 90 days. ...

Perhaps most importantly, the start of Fed tapering in the fall will send U.S. Treasury prices lower and pop the bubbles that exist in stocks and home prices. I say bubbles in stock values because the S&P 500 is up 23 percent since last August, despite the fact that there hasn't been any revenue growth to accompany that move. And home prices are up double digits YOY (the same growth rate seen at the height of the real estate bubble) primarily because interest rates have been artificially suppressed to record lows for the past 5 years. Money printing and interest rate manipulation are the reasons why we have re-ignited those two asset bubbles. Markets are currently extremely confused about when the tapering will commence and how much Mr. Bernanke will reduce his purchases of bonds. But who can blame investors for feeling this way?

5--Why the anger, Robert Reich

.....by almost every measure, Americans are angrier today. They're more contemptuous of almost every major institution -- government, business, the media. They're more convinced the nation is on the wrong track. And they are far more polarized.Political scientists say the gap between the median Republican voter and the median Democrat is wider today on a whole host of issues than it's been since the 1920s.
I think the deeper explanation for what has happened has economic roots. From the end of World War II through the late 1970s, the economy doubled in size -- as did almost everyone's income. Almost all Americans grew together. In fact, those in the bottom fifth of the income ladder saw their incomes more than double. Americans experienced upward mobility on a grand scale.
Yet for the last three and a half decades, the middle class has been losing ground. The median wage of male workers is now lower than it was in 1980, adjusted for inflation.

In addition, all the mechanisms we've used over the last three decades to minimize the effects of this descent -- young mothers streaming into paid work in the late 1970s and 1980s, everyone working longer hours in the 1990s, and then borrowing against the rising values of our homes -- are now exhausted. And wages are still dropping -- the median is now 4 percent below what it was at the start of the so-called recovery.

Meanwhile, income, wealth, and power have become more concentrated at the top than they've been in ninety years.
As a result, many have come to believe that the deck is stacked against them. Importantly, both the Tea Party and the Occupier movements began with the bailouts of Wall Street -- when both groups concluded that big government and big finance had plotted against the rest of us. The former blamed government; the latter blamed Wall Street.

Political scientists have also discovered a high correlationbetween inequality and political divisiveness.
The last time America was this bitterly divided was in the 1920s, which was the last time income, wealth, and power were this concentrated.

6--What People (Don’t) Know About The Deficit, P Krugman
60% of Americans think budget deficit is increasing.  Behold the power of media!

7----Krugman; No longer confident in the "free market", NYT

During the era of the Great Moderation, it seemed as if Friedman had won much though not all of this war: quantity-theory monetary policy was out, but Taylor-rule policy seemed to be doing the job, with no need for discretionary fiscal policy.

But the experience of the past 6 years, since the financial crisis began, has blown apart not just Friedman’s position but much of Samuelson’s as well.
First of all, the liquidity trap is real; conventional monetary policy, it turns out, can’t deal with really large negative shocks to demand. We can argue endlessly about whether unconventional monetary policy could do the trick, if only the Fed did it on a truly huge scale; but the fact is that the Fed hasn’t ever been willing, or felt that it had sufficient political room, to do that experiment.

Second, while the evidence from austerity programs strongly suggests that fiscal policy does in fact work, with multipliers well above one, the political economy of policy turns out to make an effective fiscal response to depression very difficult.
So the neoclassical synthesis — the idea that we can use monetary and fiscal policy to make the world safe for laissez-faire everywhere else — has failed the test. What does this mean?

At the very least it means that we need “macroprudential” policies — regulations and taxes designed to limit the risk of crisis — even during good years, because we now know that we can’t count on an effective cleanup when crisis strikes. And I don’t just mean banking regulation; as the authors of the linked paper say, the logic of this argument calls for policies that discourage leverage in general, capital controls to limit foreign borrowing, and more.

What’s more, you have to ask why, if markets are imperfect enough to generate the massive waste we’ve seen since 2008, we should believe that they get everything else right. I’ve always considered myself a free-market Keynesian — basically, a believer in Samuelson’s synthesis. But I’m far less sure of that position than I used to be.

8---Federal spending under Obama: Down dramatically, NYT

here’s federal spending as a percentage of potential GDP, as estimated by the Congressional Budget Office:
Federal spending as percent of potential GDPFederal spending as percent of potential GDP
Sure enough, spending is most of the way down to pre-recession levels. The slight remaining elevation reflects a couple of factors: spending on safety-net programs is still elevated thanks to a still-depressed economy,and the arrival of the baby boomers is already having a significant impact on retirement programs. But there has definitely not been anything like the spending ratchet stimulus opponents claimed was inevitable.

9----Yeah, but nobody went to jail!, NYT

Three-fourths of the borrowers in the deal have fallen well behind on their payments at some point, according to a special analysis of the deal performed by the Federal Reserve Bank of Boston. Many of those people have lost their houses or will lose them. Nearly half the loans in the bond have been in foreclosure proceedings since it was issued, according to the Boston Fed....

(statute of limitations: Running out the clock)  Fannie’s regulator, the Federal Housing Finance Agency, is suing Goldman and many other banks to recoup losses on bonds that the company bought. The agency asserts that the four Goldman bankers who signed the bond’s documents were directly responsible for what it says were misstatements and omissions in the deal. None of the men work for Goldman anymore.....

His tenure at Fannie has been criticized because it was the period when the firm piled into riskier mortgages. Today, Mr. Mudd offers a general defense of Fannie’s subprime strategy: “If you look at the performance of any of the nonprime business that Fannie did, the performance is in an order of magnitude better than business done at other institutions.”....

Deborah Harris, of Windsor Locks, Conn., also benefited from an adjustment to her mortgage. She took out a $168,000 loan from New Century in December 2006 to buy a house. The loan was placed in the 2007 Goldman deal. She says modifications have halved her monthly payments. “I could have been one of the statistics, most definitely,” Ms. Harris said. “I guess I was one of the lucky ones who stayed in their homes.”
One-fourth of the loans in the Goldman bond have been modified, according to the Boston Fed’s analysis. Not all of those succeeded, though. Of the 9,393 loans originally in the deal, 14 percent have been modified and are still current on their payments.....

Hundreds of thousands of subprime borrowers are still struggling. Some of their mortgages ended up in another Goldman deal that was done at the same time as Mr. Tourre was working on his own financial alchemy.
In February 2007, just before everything fell apart, Goldman Sachs bundled thousands of subprime mortgages from across the country and sold them to investors. This bond became toxic as soon as it was completed. The mortgages slid into default at a speed that was staggering even for that era.
Despite those losses, that bond still lives. It has undoubtedly left its mark on ordinary borrowers. But the impact of the deal spread ever further. It touched the bankers who sold the deal. It even landed on taxpayers, who ended up owning a large slice of the Goldman bond.

10---From the comments section econbrowser on Fannie and Freddie

 The original GSEs worked great and are what we need to get back to. They required responsible downpayments combined with an income high enough to pay down the loan and handle ownership of the home. Most importantly because they were non-profit (government owned) they had no incentives to swindle people into thinking they could afford a home that they couldn’t. If you didn’t qualify you simply had to save up more money and/or find a home you actually could afford. I blame democrats for not realizing that you do not do poor people any favors by getting them into houses they cannot afford. I blame republicans for the idea that it would be a good thing to unleash sociapathic, predatory capitalist forces on those who were least able to understand and defend themselves against them

11--Austerity whipsaws Spain, WA Post

12---Don't put Fannie and Freddie on the chopping block, NYT

Until they lost their heads in the subprime bubble, Fannie and Freddie had high underwriting standards that banks had to adhere to get a mortgage guaranteed. Second, they had to have a highly skilled hedging operation that could maneuver adeptly as interest rates changed.
And that ability of Fannie and Freddie to take on credit risk is what made that staple of American housing finance — the 30-year fixed-rate mortgage — possible. So much can happen over the course of 30 years that no bank wants to take on that risk — and no system of private capital is going to continue making those loans, at least not without some kind of government backing.
Which is why all this talk of “winding down” Fannie and Freddie, as the president put it last week, makes so little sense. In conservatorship, the two companies have been doing exactly what the country needs from them: guaranteeing prime mortgages and propping up the housing market after private capital fled. ...
In five years as wards of the government, Fannie and Freddie have actually shown the kind of role they could play. They are no longer bullies. They don’t really function as private companies anymore — nor do they have a mission to help people gain the American dream. Their portfolio is supposed to be gradually unwound. They have more capital.
In other words, their sole role now is to guarantee and securitize mortgages. And they are making huge amounts of money — much of which is going to the government. Fannie Mae, for instance, recently announced a quarterly profit of $10.1 billion, and said it was making a $10.2 billion payment to Treasury. “At the current pace,” The Wall Street Journal reported, “over the next year, Fannie and Freddie are likely to repay the government more money than they borrowed.”
In the meantime, we should be thanking Fannie and Freddie, instead of tearing them down.
"What reconstruction has done is create a Zombie economy in Afghanistan – a vast percentage of GNP, never mind corruption and customs money, and some employment – that survives only as long as “food” is available. That food of course is the billions spent by the US on failed projects. Once cut off, the economy will simply stumble back to its pre-war, pre-industrial natural state," noted Peter Van Buren, who wrote We Meant Well: How I Helped Lose the Battle for the Hearts and Minds of the Iraqi People, about the US reconstruction efforts in Iraq (his criticisms eventually cost Van Buren his State Department job).

That prewar"state" will likely mean chaos, with the Taliban emboldened, and powerful warlords jockeying within the vacuum. Already we see signs of decay: women who had pushed their way out of oppressive circumstances when the Taliban fell in 2001 are crowding into battered women’s shelters today. This once successful rights activist and parliamentarian is now on the run from an abusive husband. The legal system into which we have (mis)spent millions, won’t help her. Meanwhile, violence keeps the capital city of Kabul – once the safest place in US occupied Afghanistan – in fear, with our own diplomats shuttered behind the high walls of their sprawling compound.

If anything, SIGAR seems to be the only one sounding the alarms. According to Sopko’s recent quarterly report to congress, the US has spent almost $100 billion to date on building Afghan security forces, reconstruction, counternarcotics (another metric of failure for sure), humanitarian aid and "operations and oversight." In the last quarter alone, his office highlighted $2 billion in questionable spending, including expensive contracts going to Afghans who have clear ties to the Taliban and insurgent groups like the Haqqani Network, which has killed scores of Afghans and Americans alike over the last year.
Bottom line: if we have only mismanaged programs, aborted projects, faulty and dangerous infrastructure and facilities, useless equipment, and fat corrupt private contractors fleecing everyone in sight to show for it, what kind of future does Afghanistan really have?

14--The Iraqi genocide continues, antiwar

15---Obama: State security trumps unalienable rights, wsws

As with all of the arguments marshaled by the government to justify its unconstitutional actions, the white paper begins with the desired conclusion—that mass surveillance of the American people is legal—and works backwards, stringing together whatever rationalizations its authors can come up with. In this it recalls White House lawyers’ previous handiwork on the subjects of drone assassinations, torture and indefinite detention.

In this case, the program in question, based on the Patriot Act, involves the collection of “telephony metadata”—including the originator of the call, the number dialed, and the date and time—on nearly every individual in the United States. With this information, the government can determine in great detail the social and political affiliations of individuals. Such a mass seizure of personal records, without specific warrants, is in flagrant violation of the Fourth Amendment to the Constitution, part of the Bill of Rights, which protects “against unreasonable searches and seizures” and prohibits searches without narrowly defined warrants based on probable cause.

The arguments advanced by the white paper are in conflict not only with the letter of the Constitution, but its entire spirit. The revolutionary framers of the document started with the premise that the state represented a permanent danger to the liberties of the people, requiring “eternal vigilance” and a spirit of collective distrust. Accordingly, they established numerous mechanisms for protecting the people from the government, including by limiting and enumerating government powers, establishing a system of checks and balances, and passing a Bill of Rights.

16----Do government deficits equal private surpluses?  Uh huh, prag cap

17---SF Fed:  QE doesn’t do much for the economy., prag cap

  At least according to the San Francisco Fed:
“Asset purchase programs like QE2 appear to have, at best, moderate effects on economic growth and inflation. Research suggests that the key reason these effects are limited is that bond market segmentation is small. Moreover, the magnitude of LSAP effects depends greatly on expectations for interest rate policy, but those effects are weaker and more uncertain than conventional interest rate policy. This suggests that communication about the beginning of federal funds rate increases will have stronger effects than guidance about the end of asset purchases.”

18--Teens Face Worst Labor Market , WSJ

19---Price for Japanese imports fall sharply, WSJ

Prices for Japanese imports into the U.S. posted their largest annual decline in more than a decade, a sign that Japan’s efforts to weaken its currency and stimulate growth are influencing American inflation

20--Slowdown in credit card usage, WSJ

21---Financial repression and negative real rates generate instability, macronomics

Finally, negative real interest rates are correlated both with a rise in stock valuations (because dividend yields decline) and with a rise in earnings themselves, as the corporate cost of capital declines. Earnings are now at record levels in relation to US GDP, two or three times the deflated level that would be suggested by the current anemic rate of growth. However valuations continue to increase in relation to these inflated earnings, driving stock prices into the stratosphere. 
Since central banks worldwide are now pursuing the same easy-money policies as the Bernanke Fed, the same correlations are appearing elsewhere, with the exception of the majority of emerging markets, where economic reality remains in play." - source Asia Times, Martin Hutchinson

(Stocks will fall?)  As illustrated in Figures 2 and 3, credit and equities have correlated closely over the last few years and almost in a constant ratio. We don't see why that wouldn't work in reverse also....

the new correlations are - like LTCM's correlations in 1996-8 - entirely artificial and capable of reversing at any time. As we are seeing in the bond markets, where the Fed in spite of all its efforts is proving incapable of keeping interest rates to the level it wants, even the Fed does not have access to large enough printing presses to keep these correlations going once they start to turn negative. As with LTCM, the eventual reversal of the current correlations will within a few months cause gigantic losses and a major market crash.
Only this time the loser will not be a single albeit bloated hedge fund but more or less the entire universe of investors, all of whom have become overextended in a market far above its fundamental value. With a crash so widespread, the losers will not be just too big to fail, they will be too big to bail out - an altogether more perilous state." - source Asia Times, Martin Hutchinson


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