Monday, September 16, 2013

Today's links

1---The Sub-2% Tipping Point Economy, zero hedge

Real GDP growth was an annual 1.6 percent in the second quarter. It was last at 2 percent in the fourth quarter 2012, down from 3.1 percent in the third. In addition, real disposable personal incomes (0.8 percent), and real consumer spending (1.7 percent) flash warning signs. With GDP, they possess exceptional recession-predicting abilities. The reason is simple: like riding a bike, if you don’t pedal, you tip over.

Industrial production has the weakest history as an indicator, with growth falling below 2 percent on several occasions when the economy has avoided recession...

revolving credit — contracted by an annualized 2.6 percent in July following a 5.2 percent decline in the previous month. During the last 12 months, revolving credit advanced 0.8 percent — essentially the same pace it has held since early 2012....Consumer weakness was seen in the retail sales report for August as total sales inched up a lowly 0.2 percent or 4.3 percent from year ago levels....

The latest forecast of weak GDP growth, continuing high unemployment and weak same-store sales by major retailers provide little hope for significant near-term improvement in the U.S. economy... all consumer packages companies are fighting these headwinds.”
Retail sales at general merchandise stores — the second largest category of retail sales behind motor vehicles and parts — fell 0.2 percent month-on-month in August and 0.3 percent from August 2012.

2---Earnings forecasts look grim, Testosterone Pit

Absent any miracles over the next three months, Q4 earnings forecasts are going to get kicked down brutally to bring them in line with some sort of achievable reality. Meanwhile, earnings forecasts for next year, though they have come down as well, are still showing growth of 11.3% as of September 13. Delusions in lala-land – unless the desperately hoped-for series of miracles transpires.

And how has the stock market reacted to the revenue and earnings debacle unfolding under its very nose? Since October 1, 2012, the S&P 500 has jumped 16.8% and the NASDAQ 19.6%.

Clearly, US stock markets aren’t forward looking. They’re blind. They’re no longer looking at fundamentals. They’re bedazzled by only one thing: how much money the Fed and other central banks will print. Nothing else matters.

The proof is in the pudding. On Sunday, word spread that Larry Summers had called President Obama to let him know that he was withdrawing from the race for the chairmanship of the Fed. He has been assumed to be slightly less gung-ho about the Fed’s drunken money-printing binge than some of the other names in the hat. He might even have pushed to raise interest rates earlier, if at all. Forget the corporate revenue and earnings debacle. Stock futures soared.

3---Five Years after Market Crash, U.S. Economy Seen as ‘No More Secure’, PEW

4---The S&P 500 Financials Index plunged 83 percent between October 2007 and March 2009, Bloomberg

Bank stocks bore the brunt of the credit crisis, with the S&P 500 Financials Index plunging 83 percent between October 2007 and March 2009, almost 1 1/2 times the full gauge. The drop included declines of 23 percent in October 2008 and 27 percent in January 2009, data compiled by Bloomberg show.

Record Drops

The 10.6 percent plunge on Sept. 15, 2008, was the biggest one-day calamity in the financial index’s history. It was eclipsed by a 16.1 percent retreat on Sept. 29, in a month when Lehman Brothers collapsed, Merrill Lynch & Co. and Wachovia Corp. were rescued by sales, American International Group Inc., Fannie Mae and Freddie Mac were bailed out by the government and Washington Mutual Inc. declared bankruptcy.

Almost $11 trillion of U.S. equity value was erased from peak to trough, including more than $2.4 trillion from banks.
Policy makers have spent the last five years setting rules to rein in risk-taking and reduce financial leverage. The 2010 Dodd-Frank Act, the biggest overhaul of market regulation since the Great Depression, and other rules require banks to curb trading for their own accounts, double capital for the biggest firms and use clearinghouses for derivatives trades....

“Large financial institutions still have way too much leverage,” said Bair, who now leads the Systemic Risk Council, a nonpartisan group whose members include former Federal Reserve Chairman Paul Volcker and former Treasury Secretary Paul O’Neill, in a Sept. 11 interview with Bloomberg Television. “We have gotten more capital into these banks as a result of these stress tests, but we were starting from a very low base.”

While record-low interest rates have encouraged lending, they’ve reduced profits. Net interest margin, the difference between what lenders pay for deposits and charge for loans, was 3.06 percent last quarter, near the lowest on record, according to Federal Reserve data on U.S. banks with more than $15 billion in assets. The measure has fallen for 12 of the last 13 quarters.

5---Jane’s Report: About Half of Syria Rebels Are Jihadists, antiwar
           Secularists Are Miniscule Part of Overall Rebellion

the overall rebel fighters at 100,000 strong, but that is made up of some 1,000 different factions. Al-Qaeda directly commands the loyalty of around 10,000 of those fighters.

Another 30,000 to 35,000 of the rebels are “jihadists” from pro-al-Qaeda factions that aren’t explicitly run by the group, and still 30,000 more represent various Islamist factions of a somewhat more moderate character. What’s left is the secularist component, a pretty small minority in the grand scheme of things, made doubly so by the fact that the al-Qaeda run forces like Jabhat al-Nusra have been dramatically more formidable in fighting.

Jihadists have been the most active portion of the rebellion, attacking ethnic Kurds and religious minorities nationwide, including three more Alawite villages sacked today in Homs Province.

5---David Brooks is always wrong, salon (must read)

6---Obama's attack on the middle class continues, wsws

In an action that demonstrates the ruthlessness of the Obama administration when it comes to the social conditions of workers, the White House on Friday flatly rejected a plea from the AFL-CIO to pull back on planned sanctions under the health care legislation against union health care plans covering millions of workers, whose benefits are considered too high—the so-called “Cadillac” plans. Benefits above the cutoff level will be subject to federal taxes from January 1.
Meanwhile, Treasury Department figures released Thursday show that the federal deficit, supposedly the reason for austerity measures, has plunged to the lowest level since Obama took office, less than $700 billion in fiscal 2013.....

The total cuts under the sequester—agreed on by Obama and congressional Republicans in 2011, and put into effect earlier this year—come to more than $1 trillion over ten years. Particularly hard-hit have been programs for poor children, like Head Start, and federal agencies with unexpectedly high expenditures, such as those involved in fighting the wave of summer forest fires.
Further spending cuts will be incorporated in the appropriations bills whenever they are finalized. The Republican-controlled House, for instance, has proposed to cut $40 billion from the food stamp program over the next ten years. The Democrats are proposing smaller cuts, but the program faces an automatic reduction of about 13 percent in benefit levels when a temporary increase in benefits under the 2009 economic stimulus legislation expires in November.....

In a half-hour interview broadcast on ABC’s “This Week” program Sunday, Obama laid out his position on the budget talks, which resumed in earnest last week in Washington. Obama indicated willingness to make concessions to Republican demands for further cuts in social spending, including an extension of the so-called “sequester,” while rejecting any negotiations over an increase in the federal debt ceiling.
There are now two budget deadlines in October. On the first day of the month, the start of the 2014 fiscal year, the federal government will run out of authority to spend money because Congress has not passed a single appropriations bill. Federal agencies will begin to shut down, with consequent furloughs and payless paydays for federal workers.

On or about October 18, according to recent estimates, the Treasury will exhaust its ability to borrow money to finance continuing federal payments, and will be limited to issuing checks based on incoming revenue. This will mean unpaid federal bills, likely before the end of the month, with the threat that Social Security checks for 50 million retired people will not go out after November 1.
As in previous budget crises under the Obama administration, the events are being stage-managed by the two corporate-controlled parties to give the illusion of partisan gridlock and confrontation over principles—in this case, whether to go forward with the implementation of the Obama health care program—while behind the scenes all factions within the ruling elite agree that massive cuts must be carried through in basic federal social programs.

With the cooperation of the media, a crisis atmosphere will be created to justify further sweeping attacks on the social rights of the working class to health care, unemployment compensation and retirement income. The end result will be significant cuts in Medicare, Medicaid and Social Security.

7--The economy stinks so let's keep doing the same thing we've been doing for the last 5 years, Krugman (more QE)

8---Five years since the collapse of Lehman Brothers, wsws
  
The collapse of the US investment bank Lehman Brothers five years ago, on September 15, 2008, was more than the start of a global financial crisis. It set in motion a series of processes that have brought to the surface the essential economic and political relations of world capitalism.
The historic character of the financial crisis is signified first of all by the fact that rather than removing the threat of a further meltdown, the very measures put in place by governments and financial authorities, based on the provision of ultra-cheap money to finance speculation, are creating the conditions for a new catastrophe....

As a result of the events of 2008, some 8.8 million jobs were wiped out in the US and $19.6 trillion in household wealth was lost. The intensity of the crisis can be gauged from the extent of the emergency facilities provided to the banking system by the US Federal Reserve. Altogether, some $17.7 trillion was made available, with the top eight borrowers, including Citigroup, Morgan Stanley and Merrill Lynch, receiving around $11.5 trillion. This was not a liquidity crisis, but one of insolvency.

Having rescued the major banks and finance houses, the Fed embarked on its program of “quantitative easing,” in the current round of the money-printing campaign pumping $85 billion a month into financial markets to fund the same kind of speculation that led to the crisis of 2008. According to the Wall Street Journal, total corporate bond debt has grown to nearly $6 trillion, up by 57 percent since 2007. Junk bonds, which made up 17 percent of the corporate bonds sold in the US before the crash, now constitute 25 percent.

The stock market has reached new record highs, while the American economy is growing at little more than 2 percent, well below the level necessary to accommodate the growth of the labour force and ensuring a continuation of mass unemployment.

9---(Archive)  The Wall Street crisis and the failure of American capitalism, wsws
By Barry Grey
16 September 2008

In the name of the supposed infallibility of the market, the operations of big business have been deregulated, removing all legal restraints on corporate profit-making and fueling the accumulation of ever more obscene levels of wealth in the hands of a financial oligarchy. A vast process of social plunder has occurred, in which the wealth of the country has been redistributed from the bottom to the very top.

The scrapping of huge sections of industry and the immense growth of social inequality are the hallmarks of the historic decline of American capitalism. At the heart of this decay is the separation of the process of personal enrichment of the ruling elite from the material process of production.
The United States has become the world leader not in manufacturing technology or industrial power, but in financial speculation and parasitism. As Floyd Norris, the economics columnist of the New York Times, put it on Friday, “During recent years, Lehman—along with many competitors—went on a borrowing binge to buy assets with as little money down as possible.”

By its very nature, the parasitism of American capitalism has generated corruption and criminality on an unprecedented scale. Wall Street CEOs have awarded themselves tens of millions and even billions in compensation, in an utterly irrational and socially destructive squandering of social resources for the benefit of private greed.

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