Wednesday, September 18, 2013

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1---Why Didn't the Fed Begin Tapering?, economists view

1. Fiscal policy. The uncertainty over a government shutdown, how much additional austerity there might be, and so on made the Fed nervous about doing anything that might add to the negative shock from fiscal policy. Fiscal policymakers have performed terribly over the course of the crisis, and the Fed is the only game in town. It can't take the risk of adding to the potential problems that fiscal policy might cause.

2. Inflation and unemployment. As I said already, inflation is too low and unemployment is too high. There are no signs of an acceleration in the recovery of unemployment, and no signs that inflation expectations are moving above the Fed's long-run target. Since all signs point to easing, why do anything that might be construed as a negative shock?

3. The Fed is gun shy. The negative shock -- i.e. the rise in long-term interest rates and the corresponding slowdown in housing and investment -- when it first began talking about tapering surprised the Fed. Just talking about tapering led to an unexpected spike in interest rates and although it appears that tapering was priced into financial markets, why risk another surprise? I don't think additional bond purchases are going to do much good for the economy, all that can be done has pretty much been done already, but there is the potential for a negative reaction from markets and with all the less than robust recovery, fiscal policy worries and the like, why take a chance?

4. Capital flight from developing markets. A investors have anticipated rising yields do to the Fed potentially beginning to unwind policy, capital has flowed from developing markets to the US causing problems for these countries. Those problems could feed back into US markets and make a slow recovery even slower, so why take that chance?

Overall, then, while there probably isn't a lot to be gained from continuing QE, there is potentially a lot to lose from miscalculating the markets reaction to the onset of tapering, and the Fed wants to be more sure than it is right now about the strength of the economy before it takes that chance.

2---Bill Black on liar's loans, smirking chimp

Holland: It almost sounds like — if I could offer an analogy — if you were trying to prosecute homicides and you had no police on the streets, no homicide detectives and no snitches, your hands would be tied, even if you were a tenacious prosecutor with some ambition.

Black: It’s actually far worse than that, because as a prosecutor of those kinds of cases, I end up with a corpse that has a small entry wound and a large exit wound, and I know there’s been a homicide. I can use forensic evidence to go after those people, even in the absence of witnesses. No such things occur in the elite white-collar sphere. Instead, the lenders were making criminal referrals against the little guys — the hairdressers of the world. And they made hundreds of thousands of them.

So at the peak of the savings and loans crisis — again, one-seventieth the size of this crisis — of those 2,300 total FBI agents, 1,000 of them were working on just one industry, the savings and loan industry, to produce that incredible wave of success that we had. As recently as fiscal year 2007, there were only 120 FBI agents assigned to mortgage fraud, and that’s despite the fact that the FBI itself, in September 2004, warned that there was an epidemic of mortgage fraud — ‘epidemic’ was their word — and predicted that it would cause a financial crisis — ‘crisis’ was their word — unless it was stopped. So what happens instead? You get tens of thousands of criminal referrals about the small fish. And so every single one of those 120 FBI agents was working those cases.

Holland: Unbelievable.

Black: And there was no national task force. They were divided up into what the military would call “penny packets” — two in this office, three in this office, that type of thing. So there was no conceivable way that they would find fraud at the large institutions, because they never looked.
And actually, that same year, in 2007, the FBI forms what it calls a partnership with the Mortgage Bankers Association — the trade association of the perps. The Mortgage Bankers Association set out — imagine the audacity — to con the FBI, and they succeeded! They ginned up this fake definition of mortgage fraud under which the lending institution was always the victim and never a perpetrator. The FBI bought into this hook, line, sinker and the boat they rode out in.

So we have the incredible anomaly of the first African-American president of the United States of America, with an African-American attorney general, Mr. Holder, adopting the tea party definition of the crisis, which says that the banks were pure and this is the first virgin crisis, conceived without sin in the executive suites. Instead it’s those nasty ultra-sophisticated hairdressers who conned the poor unsophisticated bankers from Harvard and Columbia and NYU to cause this crisis.

Holland: Right. Conservatives are convinced that the Community Reinvestment Act played a major role, despite a dozen studies showing that it did not, and it’s like a zombie myth. You can stab it and you can shoot it and it just keeps walking.

Black: Look at liar’s loans — these are the loans where you don’t verify the borrower’s income, and the industry’s own experts said that these loans were 90 percent fraudulent.

Study after study after study has shown that it was the lenders who put the lies in liar’s loans — the lenders and their agents — and nobody ever made a bank make a liar’s loan. It has nothing to do with the Community Reinvestment Act. Because the purpose of it is to inflate the borrower’s income, it takes you out of Community Reinvestment, and no entity — and this includes Fannie and Freddie — was ever required to purchase a liar’s loan. In fact, [liar’s loans] didn’t qualify as credit for affordable housing goals because you didn’t verify the borrower’s income

3---Your Household Lost Seven Thousand Dollars Last Year, Smirking Chimp

If you've read the new Census Bureau on income, poverty, and health insurance you may be asking yourself: Where did our seven thousand dollars go?

We're inundated with economic numbers every day, so let's just consider that one figure for a moment: Seven thousand dollars. Actually, the statistics tell us that the figure for your household is probably even larger than that. The average under-65 household in the United States has lost $7,490 in annual income since the year 2000, according to 2012 census data.
$624 per month. $144 per week. $20 per day.

That's a lot of money for most people. And it raises the question: If the average household - if your household -- didn't get that money, who did?

Somebody got it. We've been through a rough recession - in fact, for many of us that recession is still going on. But corporate profits have soared once again. Benjamin Landy of the Century Foundation created this graph with data from the US Bureau of Economic Analysis:

Less money has been going to the average household in wages because more money is going into corporate profits. That in turn drives the personal income of the wealthy, who own more stock than average Americans, and supercharges the income of the highly wealthy - CEOs, senior executives, and high-net-worth individuals who invest heavily in stocks, hedge funds and the like.
That's turning the United States into an economy of the rich, by the rich, and for the rich.

4---Investors pigging out in Las Vegas Real Estate: Investors pay 50 percent more for housing over last year yet rents remain the same. The mechanics of rebuilding a bubble., Dr Housing Bubble

5---Here’s How BLS Data Proves QE Has Had Zero Effect As Jobs Growth Plods Along, wall street examiner

6---Time to taper? Not if you look at bank loans, Reuters

Since the bottom of the recession just over four years ago, commercial bank loans and leases have grown 4.0 percent, one of the weakest post-recession recoveries in terms of borrowing since the 1960s, according to Paul Kasriel, the former chief economist of Northern Trust Company. For comparison, over the same period after the July 1990-March 1991 recession, loans and leases grew over four times faster.
"Given what's happening to bank credit and given that the economy isn't booming, I would say it was very wise that the Fed did not choose to cut back on its asset purchases at this point," Kasriel said in an interview.
In recent weeks, residential mortgage lending has dropped and commercial lending growth has slowed as Fed officials have talked about starting to wind down their bond buying stimulus program. That talk of "tapering" spooked bond markets, lifting long-term borrowing costs.
The Fed noted in its statement that mortgage rates have risen, and added that "the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market."

7---Fed Taper End Done In By Deflation and Labor Participation Rate, economic populist

say that the job market has improved does not imply that current conditions are satisfactory. Notably, at 7.3 percent, the unemployment rate remains well above acceptable levels. Long-term unemployment and underemployment remain high. And we have seen ongoing declines in labor force participation, which likely reflects discouragement on the part of many potential workers.

labor participation rate

8---Just Replace The Whole Kit And Caboodle With Asset Bubbles , Testosterone Pit

To the Fed’s greatest disappointment, QE hasn’t even caused rampant consumer price inflation. The reason is simple: the vast majority of consumers never see any of this money that the Fed prints and therefore can’t spend it. They’re struggling with pay cuts, long-term joblessness, utter discouragement, and the prospects of never being able to retire. Demand is anemic, wage increases don’t keep up with inflation, and any further inflation crimps demand.

Instead, the Fed’s moolah is going directly to the largest banks and securities firms – the 21 primary dealers, including foreign outfits – which then redistribute it to their own operations and to their cronies. They’re not buying bread or jeans with it but more assets. Hence, rampant asset price inflation. A connection the Fed claims it hasn’t figured out yet.

To top it off, the Fed’s economic geniuses are blinded by institutional optimism when they issue their longer-term forecasts. They’ll come down to reality at the last possible moment when overwhelming data forces them to. Today was one of those moments. They lowered their economic forecast for 2013 again, now that 2013 is three-quarters finished. And they did so for the third time this year.

Now they think the economy might still grow in the range of 2.0% to 2.3% in 2013, down from their earlier guess of 2.3% to 2.6%, and down from their even earlier guess this year of 2.3% to 2.8%. Ironically, they lowered their forecasts even as QE3, the most drunken money-printing effort yet, hit its full stride early this year. In between the lines, these geniuses are admitting that QE3 with all its magic bells and whistles hasn’t boosted economic growth but hampered it.

9---Chart: Median household incomes have collapsed since the recession, WA Post

10---Poll: Americans say Washington, Wall Street haven’t done enough to thwart financial crises, WA Post

11---Syria's Assad Interviewed By Fox; Would Tell Obama "Listen To Your People", zero hedge

12---Dollar hammered as Fed confounds markets with no stimulus cut, Reuters

13---Overseas investors jump back into Treasurys in July, marketwatch

Rising Treasury yields did not prevent overseas investors from flocking back into Treasurys in July, according to the Treasury International Capital, or TIC, report released Tuesday.
In July, foreign private investors purchased a net $49.8 billion of fixed-income coupon securities, reversing $40.1 billion of net sales in the prior month.

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