“Five years after excessive debt propelled a housing-market collapse into a financial crisis and recession, similar bets are being placed across the U.S…..Leverage is getting back to where it was precrisis,” said Christina Padgett, head of leveraged finance research at Moody’s Investors Service….
Total corporate-bond debt has grown to nearly $6 trillion, up 59% since 2007, the year before the financial crisis……Leverage by companies rated investment grade has risen 20% since 2010 …
about 6% higher than in 2008, according to J.P. Morgan Chase JPM -0.48% & Co. ….
Small investors are increasingly partners in the corporate-borrowing surge. In 2008, mutual funds held, on average, 17% of the bonds and 3% of the loans made to junk-grade companies, according to Bank of America. Today, they own about 26% of the bonds and 19% of the loans….
Assets in mutual funds and exchange-traded funds that invest in junk bonds have grown to $285 billion in July from $92 billion at the end of 2008, according to Morningstar.”
2---Bonds Bleed: Largest Bubble In History Unwinds, But The “Great Rotation” Into Stocks Is Deceptive Wall Street Hype , Testosterone Pit
The bond-fund massacre has been spectacular. Prime example: antsy investors yanked $7.7 billion in August out of the largest bond fund in the world, Pimco’s Total Return Fund. In July, they’d yanked out $7.5 billion, in June a record $14.5 billion. From May 1 through August 31, the fund’s assets shriveled 14%, from $292 billion to $251 billion; $26 billion from outflows and $15 billion from the shrinking value of the bonds. The fund lost 5.5% during that period.
By riding up the greatest bond bubble in the history of mankind, the fund has become known as a place where investors who don’t mind smaller returns but shudder at the thought of losing some of their principal could park their money without having to worry about it – but now, they’re worrying about it.
September is shaping up to be even worse. Bonds are cratering and yields are spiking worldwide. In the US, the 10-year Treasury yield kissed the magic 3.0% late Thursday, at least briefly, for the first time since July 2011, up from a low of 2.75% at the beginning of the month. It will drag other bond yields, mortgage rates, and other consumer and corporate rates behind it.
3---Unemployment Rate Drops for Wrong Reasons, NY Times
The U.S. unemployment rate dropped 0.1 percentage point to 7.3% in August and a broader measure of unemployment fell to 13.7% from 14%, but the declines came from the wrong reasons.
The drop in the main unemployment rate was driven almost totally by negative factors. The number of people employed fell by about 115,000. The only reason the rate declined is that the overall labor force dropped by a larger 312,000, a possible sign of discouraged long-term jobless dropping out.
The labor force participation rate, which is the percent of the population either working or looking to work, took a tumble to 63.2% — its lowest level since 1978. ...
More than four million people have been out of work for more than six months and over 11.5 million in total are looking for work. There’s still a big hole in the jobs market.
4---Household Income Unchanged in July 2013 , demo memo
5---Median Household Income Down 7.3% Since Start of Recession, NYT
....longer-run trends are even more depressing.
February’s median annual household income was 5.6 percent lower than it was in June 2009, the month the recovery technically began; 7.3 percent lower than in December 2007, when the most recent recession officially started; and 8.4 percent lower than in January 2000, the earliest date that this statistical series became available.
6---Stagnant Wages Are Crimping Economic Growth, WSJ
Americans are spending enough to keep the economy rolling, but don't expect them to splurge unless their paychecks start to grow.
Four years into the economic recovery, U.S. workers' pay still isn't even keeping up with inflation. The average hourly pay for a nongovernment, non-supervisory worker, adjusted for price increases, declined to $8.77 last month from $8.85 at the end of the recession in June 2009, Labor Department data show.
Stagnant wages erode the spending power of consumers. That means it is harder for them to make purchases ranging from refrigerators to restaurant meals that account for most of the nation's economic growth
7---Analyst Says QE and Housing Policy Boosting Inequality, naked capitalism
8---U.S. economic policy since Lehman has been an astonishing, horrifying failure, NYT
Set aside the politics for a moment, and ask what the past five years would have looked like if the U.S. government had actually been able and willing to do what textbook macroeconomics says it should have done... I’ve done a back-of-the-envelope calculation ... It would have been about three times as big as the stimulus we actually got, and would have been much more focused on spending rather than tax cuts.
Would such a policy have worked? All the evidence of the past five years says yes. ... Government spending on job creation would, indeed, have created jobs.
But wouldn’t the kind of spending program I’m suggesting have meant more debt? Yes... But ... the ratio of debt to G.D.P. ... would have been only a few points higher. Does anyone seriously think that this difference would have provoked a fiscal crisis?
And, on the other side of the ledger, we would be a richer nation, with a brighter future...
Look, I know that as a political matter an adequate job-creation program was never a real possibility. And it’s not just the politicians who fell short: Many economists, instead of pointing the way toward a solution of the jobs crisis, became part of the problem, fueling exaggerated fears of inflation and debt.
Still, I think it’s important to realize how badly policy failed and continues to fail. Right now, Washington seems divided between Republicans who denounce any kind of government action — who insist that all the policies and programs that mitigated the crisis actually made it worse — and Obama loyalists who insist that they did a great job because the world didn’t totally melt down.
Obviously, the Obama people are less wrong than the Republicans. But, by any objective standard, U.S. economic policy since Lehman has been an astonishing, horrifying failure
9---Poll: Majority Of Americans Approve Of Sending Congress To Syria, The Onion
10---Here we go again, Economist
the Fed allowed its first round of asset purchases to come to an end and its balance sheet began to shrink. Inflation expectations promptly tanked, forcing the Fed to embark on QE2 in late 2010. That programme was also allowed to end, in the summer of 2011. Inflation expectations and hiring sank again. And so in the fall of 2011 we got "Operation Twist" a QE variant designed to mimic QE's stimulative effects without expanding the balance sheet. That didn't quite do the trick and so in September of 2012 the Fed began buying mortgage-backed securities. In December it tacked on additional and ongoing purchases of Treasury securities as well. There was no set endpoint on that round of purchases, dubbed QE3, and some of us were hopeful that the Fed finally grokked the pattern.
Alas, they had not. No sooner had the American economy gotten a few decent months of job growth under its belt did FOMC members begin calling for a timetable for ending purchases. Inflation expectations began to drop steadily around March. And from May, when the timetable began to come into focus, interest rates began to jump. From the spring, the real interest rate on American government debt is up nearly 2 full percentage points. Unsurprisingly, the economy has begun to sputter.
It is painfully obvious that the Fed dislikes having to deploy unconventional policy and wants to stop using it as soon as possible. One of these days it will realise that the best way to get off and stay off unconventional policy is to push forward with it until the economy is back to full employment and inflation pressures are firm enough to justify interest-rate rises. If you don't kick the ball past the crest of the hill, it just rolls back down and you have to kick it again. Sadly, it may fall to Mr Bernanke's successor, and early 2014, to give the economy the boot it really needs.
11---1978 vs. 2013: Last Time So Few Were in Work Force , WSJ
12---Why Is One-Sixth of U.S. on Food Stamps?, WSJ
13---How the Fed fueled an explosion in subprime auto loans, Carrick Mollencamp, Reuters
14---Putin: Syria chemical attack is ‘rebels' provocation in hope of intervention’, RT
Will we help Syria? We will. And we are already helping, we send arms, we cooperate in the economics sphere, we hope to expand our cooperation in the humanitarian sphere, which includes sending humanitarian aid to support those people – the civilians – who have found themselves in a very dire situation in this country,” Putin said. ...
Putin, on the contrary, stressed that setting precedents of military action outside a UN Security Council resolution would mean the world’s smaller countries can no longer feel safe against the interests of the more powerful ones.
“Small countries in the modern world feel increasingly vulnerable and insecure. One starts getting the impression that a more powerful country can at any time and at its own discretion use force against them,” Putin said, citing the earlier statement made by the South African President.
Such practice would also make it much harder to convince North Korea to give up its nuclear program, Putin pointed out.
15---Syrian war, threat of global conflict dominate G20 summit, wsws
These rising diplomatic and military tensions reflect the inability of any government to halt the drive to war, which can be fought only on the basis of the mobilization of the working class in struggle against capitalism. Six years ago, Putin responded to the Bush administration’s threats to launch a war with Iran by declaring that such a conflict would lead to World War III. Today, the drive to war against Syria poses the danger of precisely such a conflict.
16---The US-Al Qaeda alliance in Syria and the fraud of the war on terror, wsws
17---Growth in low paying jobs and wage deflation for low-income groups - a painful trend , sober look
This combination of more payrolls in low paying sectors and higher wage deflation for many of those same employees is contributing to weakness in the overall US real wage growth