The share of our national income which goes to corporate profit is the highest it's been since they started tracking it in 1929, while the share going to people -- as salary and wages -- is the lowest. And the percentage of that corporate profit which goes to Wall Street is also the highest on record.
We're becoming a financialized economy. Never before has the manipulation of money counted for so much and the real-world economy of people and consumer goods counted for so little.
And none of it is an accident.
When Wall Street catches a cold ...
The Wall Street Journal reported this Thursday that "Stock and bond prices tumbled after stronger-than-expected economic data ..."
Why would good news about the economy cause the stock market to fall? The sentences continues: "... raised investor anxiety about a pullback next month in central-bank support for financial markets... "
Investors had been relying on the Federal Reserve to keep pumping up the stock market's record run, but some mildly favorable economic reports raised fears that the Fed's market-friendly interventions might come to an end.
"We're getting another knee-jerk reaction to fears of tapering," a market analyst told the Journal, referring to the Fed's monthly purchase of $85 billion in bonds. As Reuters reported last month, "Many on Wall Street believe the Federal Reserve's monetary policy is behind record corporate earnings and the stock market's surge to all-time highs this year."
When Wall Street catches a cold -- when it even might catch a cold -- the economy catches pneumonia....
The money nowadays isn't in manufacturing, or retail, or any of the other traditionally jobs-producing industries. The money now is in money...
Banks have a bigger share of the corporate-profit pie -- and that pie's bigger than ever. As Floyd Norris notes in the New York Times, the government's revised estimate of wage and salary income is 42.6 percent of GDP, which matches the 2010 figure as the lowest percentage since this data was first captured in 1929.
Using the latest revisions to the national income and product account (NIPA) data produced by the Bureau of Economic Analysis, Norris also notes that corporate profits are now 9.6 percent of GDP. That's the highest since these figures were first captured
2---10 million and counting, Ralph Nader
Here's a startling fact -- more than 10 million Americans have been evicted from their homes since 2007. That's nearly the entire population of the state of Michigan. Just imagine if the people of an entire state were rendered homeless overnight -- it would be quite a calamity...
Laura Gottesdiener details how poor, African American communities were specifically targeted and exploited by the banks with inferior or too-good-to-be-true loans over the course of several decades. Gottesdiener reports the touching, personal stories of these tragedies and, importantly, how four of the families fought back. The book is a gripping account of the rampant predatory corporate practices that took place all across the country and which have caused our economy so much harm -- and how abused communities can begin the rebuilding process.
The post-financial crisis reality is that the dream of owning a home has ended for too many Americans. Looking ahead, it is unfortunate that much of the same flawed thinking that led to the subprime mortgage crisis is now re-occurring. President Obama recently announced his plan for a housing recovery, intending to "wind down" the two main federal mortgage agencies -- Fannie Mae and Freddie Mac. (Recall Fannie and Freddie were bailed out by taxpayers with $185 billion.)
Eliminating these agencies would effectively privatize the mortgage guarantee market, which many analysts say would undoubtedly result in higher costs to potential homeowners. Under the current Senate and House plans, borrowers would be paying about $75 and $135 more a month in interest, respectively, on a conforming loan of $200,000 with a 20 percent down payment according to Mark Zandi, chief economist at Moody's Analytics.
In short, this action and its resulting, deceptive free-for-all could effectively end the ability of low-income earners to receive mortgages at all.
3---Treasuries fall apart, yields spike, Testosterone Pit
The 10-year Treasury note dropped, and its yield shot up to a high of 2.87% before settling at 2.82%, the highest since July 2011. The yield is now up 75% since early May. It’s rumored to be the worst multi-month selloff since 1962. The 30-year Treasury bond yielded 3.85%, the 5-year note 1.56%. But these bonds and notes haven’t fallen nearly enough: inflation as measured by CPI – not the silly core PCE method that the Fed tries to bamboozle us with – is 2% at this point, with an excellent chance of being much higher long before the 5-year note matures. At its current yield, it’s just a matter of how much the holder of this note will end up losing to inflation over the term. Mortgage rates have jumped in sympathy, pressuring home buyers. And rates on car loans are rising; hence the potential inflection point in July sales. Going back to some sort of normal is going to be rough. Yup, wealth is going to get redistributed.
What, No QE Infinity? This plunge in Treasuries, though the Fed hasn't even started tapering its bond purchases yet! And the near-zero interest rate policy will remain in effect perhaps for years to come. Dallas Fed President Richard Fisher explained it this way on Fox: "I think the market has come to realize there is no QE infinity."
Thursday, August 15, 2013
Dose of reality: US Treasuries dive as the date of some sort of Fed "taper" moves closer. September has been penciled into the calendar, and given recent data, that seems to solidify. The 10-year note swooned and the yield soared to 2.81%, before backing off a notch to 2.80% at this time, up 8 basis points, the highest yield since July 2011 (to drive up mortgage rates and add more pressure on potential home buyers who are already facing much higher home prices
4---International Investors Dump $40.8 Billion in Treasuries, the Most Ever, money and markets
Did you hear the news out of the Treasury Department this morning? It was an absolute disaster for the bond market — and for good reason:
Foreign holders dumped a whopping $40.8 billion in long-term Treasuries, the biggest exodus from bonds in the history of the U.S.
Worse, June was actually the third month of mass dumping in the past four, for a total of $79 billion. China, the biggest holder of our bonds, unloaded $21.5 billion, while Japan, the second-largest holder, dumped $20.3 billion.
It wasn’t just government bonds, either. Foreigners dumped $116 million of bonds made up of packaged U.S. mortgages. They sold $5.2 billion of Fannie Mae, Freddie Mac and Ginnie Mae bonds, and $5 billion in corporate bonds. And they unloaded $26.8 billion of U.S. stocks.
All told, more international capital flowed out of U.S. markets than at any time in history, worse even than at the depths of the 2008 credit crisis.
I’ve been warning readers and subscribers to get out of bonds for a year now. I said to dump Treasury bonds, emerging market bonds, junk bonds, municipal bonds and vulnerable bond-like stocks, with REITs looking particularly dangerous. Indeed, I said the Federal Reserve was inflating its third massive bubble in the past 15 years (after “dot-bombs” and housing), and that it was going to blow up in our face.
5---US consumer confidence in surprising fall from six-year high, Guardian
Friday's figure of 80.0 follows a series of disappointing results from US retailers that have caught economists by surprise...Consumer confidence in the US fell unexpectedly in August as higher interest rates and a dip in the rate of economic growth appeared to sap optimism.
The Thomson Reuters/University of Michigan's preliminary reading of consumer sentiment slipped from a six-year high of 85.1 in July to 80.0. The figure was well below the 85.5 reading expected by economists.
Friday's figure follows a series of disappointing results from US retailers including Walmart and Macy's that have caught economists by surprise. "The expectation was that we were going to have a good August," said economist Ken Goldstein of the Conference Board. "Clearly that was wrong."
But Goldstein said the figure was more likely a "bump in the road" than a sign that the recovery was taking a downturn.
Consumers' view of current economic conditions showed the biggest decline in the Michigan survey, falling to 91.0 from 98.6. But most maintained "the prevailing view that the economic expansion will continue", survey director Richard Curtin said in a statement.
"Perhaps the most important recent changes have been the increase in home values as well as the jump in the numbers that expect interest rate increases during the year ahead," he said.
Long-term interest rates have risen by more than a full percentage point over the last three months as the Federal Reserve has been signaled it is preparing to scale back its $85bn-a-month bond buying programme.
6--The student loan ripoff, Matt Taibbi, Rolling Stone
But the main question is, how is the idea that the government might make profits on defaulted loans even up for debate? The answer lies in the uniquely blood-draining legal framework in which federal student loans are issued. First of all, a high percentage of student borrowers enter into their loans having no idea that they're signing up for a relationship as unbreakable as herpes. Not only has Congress almost completely stripped students of their right to disgorge their debts through bankruptcy (amazing, when one considers that even gamblers can declare bankruptcy!), it has also restricted the students' ability to refinance loans. Even Truth in Lending Act requirements – which normally require lenders to fully disclose future costs to would-be customers – don't cover certain student loans. That student lenders can escape from such requirements is especially pernicious, given that their pool of borrowers are typically one step removed from being children, but the law goes further than that and tacitly permits lenders to deceive their teenage clients.
Not all student borrowers have access to the same information. A 2008 federal education law forced private lenders to disclose the Annual Percentage Rate (APR) to prospective borrowers; APR is a more complex number that often includes fees and other charges. But lenders of federally backed student loans do not have to make the same disclosures.
"Only a small minority of those who've been to college have been told very simple things, like what their interest rate was," says Collinge. "A lot of straight-up lies have been foisted on students."
Talk to any of the 38 million Americans who have outstanding student-loan debt, and he or she is likely to tell you a story about how a single moment in a financial-aid office at the age of 18 or 19 – an age when most people can barely do a load of laundry without help – ended up ruining his or her life. "I was 19 years old," says 24-year-old Lyndsay Green, a graduate of the University of Alabama, in a typical story. "I didn't understand what was going on, but my mother was there. She had signed, and now it was my turn. So I did." Six years later, she says, "I am nearly $45,000 in debt. . . . If I had known what I was doing, I would never have gone to college."
"Nobody sits down and explains to you what it all means," says 24-year-old Andrew Geliebter, who took out loans to get what he calls "a degree in bullshit"; he entered a public-relations program at Temple University. His loan payments are now 50 percent of his gross income, leaving only about $100 a week for groceries for his family of four.
7---Dow completes worst week of 2013, CNBC
Stocks post 3-day losing streakThe Dow posted its biggest weekly decline this year.
"We've seen a brief correction of 3 to 5 percent off the recent highs and I would suspect the market to be choppy and sideways from here going into the next Fed meeting," said Matt Kaufler, portfolio manager of the Federated Clover Fund. "We're trying to add to more cyclically oriented sectors during this pullback." ....
The Dow Jones Industrial Average fell 30.72 points to close at 15,081.47, dragged by Verizon and Pfizer. The blue-chip index broke below its 50-day moving average on Thursday.
The S&P 500 slid 5.49 points to finish at 1,655.83, breaking below its 50-day moving average. The Nasdaq dipped 3.34 points to end at 3,602.78. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended below 15.
8---Economists Trim 2013 GDP Growth Forecasts, WSJ
Economists cut their expectations for 2013 U.S. economic growth but lifted hiring forecasts for the rest of the year, according to a survey of forecasts released Friday.
The third-quarter survey of 41 forecasters done by the Federal Reserve Bank of Philadelphia shows the consensus view on gross domestic product expects growth of 1.5% for all of this year, down significantly from 2.0% expected when the survey was last done in May.
Part of the downward revision reflects the refiguring of historical GDP reported last month by the Commerce Department. But the economists in the Philadelphia Fed survey also expect the second half of 2013 will be less robust than they expected three months ago. The median forecast thinks real GDP will grow 2.2% this quarter and 2.3% in the fourth quarter, down from 2.3% and 2.7%, respectively.
For 2014, forecasters expect real GDP to grow 2.6%, down from 2.8% projected in May.
“The outlook for the labor market remains nearly unchanged,” the report said.
The median forecast for the unemployment rate expects the rate to fall to 7.3% in the fourth quarter. That would be little change from the 7.4% expected in May and July’s level of 7.4%. The jobless rate is projected to average 7.1% for all of 2014.
Inflation is expected to remain lackluster. On a fourth-quarter to fourth-quarter basis, the headline consumer price index is expected to rise 1.4% in 2013, and 2.0% in 2014, down from May’s respective forecasts of 1.7% and 2.2%
9---Household Debt Is Still Too Damn High , Mark Gongloff
Households really haven't shed all that much debt. The New York Fed reported that households had $11.15 trillion in debt in the second quarter. That's down $78 billion from the first quarter, which is great. And yet debt is only about $1.5 trillion lower than it was at its peak in the third quarter of 2008 -- in the middle of a mammoth recession that was partly caused by, guess what, way too much household debt. (Story continues below the New York Fed's chart of mountainous debt levels.)
By comparison, consumer debt is still nearly $3 trillion higher than it was nine years ago, when the debt bubble was in its middle stages. ...
It does not help that consumers are still falling behind on their debts at a pace nearly three times faster than they did in the relatively quiet days of 2004.
As finance blogger Barry Ritholtz wrote yesterday, japing at some of the overly cheerful headlines about the New York Fed report, "Yay! We Suck Much Less Then We Used To!"
As if to confirm that consumers might not yet be ready to go on a spending splurge, Wal-Mart on Thursday reported quarterly revenue that fell short of expectations by nearly $2 billion, cut its forecast for the full year's profit and warned that the back-to-school shopping season was going to disappoint, too. Company executives used the phrase "challenging retail environment" or something like it ten times in their conference call. (H/T to Kim Bhasin.)
This matters a lot, because consumer spending makes up about two-thirds of all U.S. economic growth. Still-high debt levels and anemic wage growth -- the WSJ makes a big deal out of how incomes have grown 6 percent in four years, which is pitiful -- are keeping consumer demand weak. That keeps businesses from expanding and hiring and slows down the whole economy.
Household debt is still a big problem, but don't be confused: Government debt is not a problem. In fact, the government should be going deeper into debt now, while interest rates are still relatively low, to help generate demand while consumers continue to nurse themselves back to health.
10--Pro-Junta Stance Irreparably Harmed US Credibility in Egypt, antiwar
Tepid Reaction to Massacres Not Fooling AnybodyCynically backing the latest coup in hopes of sidelining an elected government they didn’t particularly care for wasn’t a figment of anyone’s imagination: Secretary of State John Kerry really did praise the military takeover just two weeks ago.
That didn’t take long to blow up in America’s face. While other coups the US has backed didn’t come back to directly haunt them for years or decades, Egypt’s junta is already carrying out a campaign of massacres against civilian protesters, and President Obama’s response barely counted as criticism, filled with excuses and condemnations of the ousted civilian government.
Worst of all, President Obama is still refusing to halt aid to the junta, despite US law explicitly obliging him to. The US can’t bankroll a coup while pretending to be neutral, nor can it reasonably expect to be held blameless when the new junta starts slaughtering its political opponents in the streets.
11---Egypt's army crosses the Rubicon, info clearinghouse