Tuesday, October 1, 2013

Today's Links

1--Abe abandons fight with deflation to pursue class war, Reuters
(More taxes on the poor. Tax breaks for the corporations)

Abe, riding a wave of popularity with economic policies that have begun to stir the world's third-biggest economy out of years of lethargy, said the government will raise the national sales tax to 8 percent in April from 5 percent.
But at the same time he softened the blow to the nascent recovery. As the tax increase is set to raise an additional 8 trillion yen ($81.42 billion) a year, Abe also announced an economic stimulus package worth 5 trillion yen.
"It is my government's responsibility to have Japan's economy regain hope, vigor and confidence for growth, while at the same time maintaining trust in the country, as well as securely passing on the social security system to the next generation," Abe told a nationally televised news conference.
The tax increase marks the first serious effort since 1997 to rein in Japan's public debt, which recently blew past 1,000 trillion yen ($10.18 trillion). At more than twice the size of the economy, this is the heaviest debt load in the industrial world. The country also runs a huge annual budget deficit of 10 percent of GDP....

Japan spiraled into deep recession after the sales tax was increased in 1997 to 5 percent from 3 percent

Cushioning the tax-hike pain, Tuesday's package features public-works spending for the 2020 Tokyo Olympics and tax breaks to promote corporate capital spending. Officials will also consider an early end to a corporate tax add-on that has funded reconstruction following the 2011 earthquake and tsunami, which would save companies 900 billion yen.
Abe also instructed the ruling coalition parties to start considering a permanent cut in the corporate tax rate, which he noted was high by international standards.

Prime Minister Shinzo Abe decided earlier on Thursday to raise the 5 percent sales tax to 8 percent in April to pay for rising welfare costs

2----Housing smoke and mirrors, EI

Existing Home Inventories are building, which clearly reflects a fall in demand; and also possibly greater motivation amongst sellers to get out. The inventory trajectory continues to closely shadow the pattern of 2010 which prompted the Fed’s aggressive QE2 programme. This pattern suggests that the housing market is reaching a critical point at which further intervention from both the Federal Reserve and Federal Government may be needed to give it some more momentum.

[Homes.com] reported that the recovery in the housing market has been losing momentum and even reversing in some cases since May

3---Bubble Trouble: Record Junk Bond Issuance, A Barrage Of IPOs, “Out Of Whack” Valuations, And Grim Earnings Growth , Testosterone Pit

When Blackstone’s global head of private equity, Joseph Baratta, said Thursday night that “we” were “in the middle of an epic credit bubble,” the likes of which he hadn’t seen in his career, he knew whereof he spoke.
Junk bond issuance hit an all-time record of $47.6 billion in September, edging out the prior record, set in September last year, of $46.8 billion, according to S&P Capital IQ/LCD. Year to date, issuance amounted to $255 billion, blowing away last year’s volume for this period of $243 billion. The year 2012, already in a bubble, set an all-time record with $346 billion. This year, if the Fed keeps the money flowing and forgets about that taper business, junk bond issuance will beat that record handily..

The cost of a high-yield bond on an absolute coupon basis is as low as it’s ever been,” explained Baratta, king of Blackstone’s $53 billion in private equity assets. Even the riskiest companies are selling the riskiest bonds at low yields. The September frenzy hit the upper end too and set a new record: companies sold $145.7 billion in investment-grade bonds in the US. And Baratta complained that valuations “relative to the growth prospects are out of whack right now.”

These “growth prospects” look grim, with corporate revenues barely keeping up with inflation, and with earnings growth, despite all-out financial engineering, getting decimated. On October 1 last year, earnings estimates for the third quarter 2013 still saw a growth of 15.9%. As of Friday, estimated earnings growth had plunged to 4.6%, dropping 20 basis points per week in August and 10 basis points per week in September. And they may still be too optimistic....

There were 23 IPOs in May, 20 in June, 17 in July (Independence Day put a damper on it), 19 in August, and 21 in September. But last week alone, there were 12 IPOs – more than two per day! Generally, IPOs are scheduled apart to avoid overloading the market. But now the smart money is scrambling to issue paper while it still can and stuff it into the portfolios of retail investors at current “out of whack” valuations, stocks and bonds alike, before the Fed turns off its crazy money spigot, and before investors will finally open their eyes to the grim earnings reality.
Why would anyone buy this crap?

4---Debt Default: The Only Way to Get to Full Employment?, Dean Baker

5---The Rut We Can’t Get Out Of, NYT
(We need more demand. Duh)

We are in an age of global oversupply: an oversupply of global labor (hence high underemployment); an oversupply of global productive capacity (hence ultra-low inflation); and an oversupply of global capital (hence low interest rates).
This explains why, around the middle of each of the past three years, activity petered out after predictions earlier in the year that the economy would finally achieve escape velocity.
The jobs created have been mainly low wage and part time. Growth in domestic manufacturing is still slow, and business spending has fallen, though corporations are flush with profits. Debt-saddled households continue to see real incomes deteriorate (even with very low inflation). Sales of new homes have suddenly reversed course. Rents are falling in several markets where home prices have recently increased. Even the seemingly unflappable stock market has been seesawing because of the uncertain economic signals...
It’s interesting that when it comes to casualty tolls, pro-war politicians can tell us exactly how many people have died in Syria since the violence started there in 2011, (and of course for them, all the deaths are the personal responsibility of President Assad), whereas when it comes to Iraq and the number of people who have been killed there since March 2003, there’s a great deal more vagueness. “We don’t do body counts on other people” Donald Rumsfeld famously declared in November 2003. The Iraqis killed since March 2003 (and casualty figures vary from around 174,000 to well over one million) are, for our political elite, ‘non-people.’ In 2013, it’s only dead Syrians (and Syrians whose deaths can be blamed on Syrian government forces) that matter - not dead Iraqis.
Developed nations need to put the huge surplus of underemployed workers back to work by any means, including big public sector investments to improve infrastructure and competitiveness. We need a new economic multilateralism with the developing world, to encourage them to rebalance their economics away from savings and toward consumption, while we in the West must curb our addiction to credit and consumption (and in doing so reverse the trends of income and wealth polarization
Country's president makes announcement during live TV appearance, saying 'Yankees go home!'
Maduro said a group of embassy officials that his government had been following for months was "dedicated to meeting with the Venezuelan extreme right, to financing it and feeding its actions to sabotage the electrical system and the Venezuela economy".
"I have proof here in my hands," he said, though he did not offer any details on the diplomats' alleged transgressions other than to say they met with opposition and labour leaders in the south-west state of Bolivar, which is home to a number of troubled state-owned foundries and Venezuela's main hydroelectric plant.

8---Hundreds Killed in a Few Days as Iraq’s Deadly September Comes to an End, antiwar

9---Police State Programs Not Affected by a Government Shutdown, antiwar

10---August Housing Metrics Point to Slowing Recovery, DS News

11---Redfin Reports Diminished Bidding Activity, DS News

12---The Obamacare disaster, wsws

The insurance exchange launch is a milestone in a process that, in the guise of “reform,” has been aimed at funneling billions of dollars into the coffers of the private health insurers and slashing costs for the government and corporations. In the end, it will leave tens of millions uninsured and others with vastly deteriorated medical services...

the truth of the matter is that it was never about improving medical care for ordinary Americans, and it was always about setting up an even more heavily class-based system of health care delivery. From the beginning, Obama promised that his “reform” would slash hundreds of billions of dollars from Medicare, and costs would be further cut by eliminating “unnecessary” treatments and services.

Even after the bill’s passage, without the much-vaunted “public option,” one concession after another was made to big business: only companies with 50 or more employees would have to provide insurance, only those working 30 hours or more had to be covered. Bare-bones, “skinny” plans—without hospitalization and surgery coverage—would be considered “adequate” employee-sponsored plans. Those businesses that do not comply would face minimal penalties.

People without coverage through their employer, or from a government program such as Medicare or Medicaid, are to make up the fresh pool of captive, cash-paying customers who must fend for themselves on the insurance exchanges. Beginning today, those browsing the offerings on the new “marketplace” will confront a confusing array of plans, but with one common feature: The least expensive plans offer the lowest levels of coverage with limited choices, and the highest out-of-pocket costs.
While those shopping for insurance plans will be provided with minimal government stipends or none at all, there is no meaningful oversight over what the insurance companies can charge for coverage. If an insufficient number of young, healthy people sign up, the insurers can be expected to jack up premiums even higher to bolster their cash flow.

According to the Congressional Budget Office, the health care overhaul will leave an estimated 31 million people—about a tenth of the US population—uninsured by 2023. Undocumented workers and their families are barred from purchasing coverage on the exchanges. Due to a “family glitch” in the law, businesses are only required to provide “affordable” insurance to their employees, not to their employees’ families, so those family members will not receive subsidies to purchase coverage on the exchanges.
The very poorest people will also be ineligible in some states. While the US Supreme Court ruled the ACA constitutional, it struck down a component of the law that called for expanding Medicaid. The result is that in 21 states, many people making below the poverty level will not be eligible for either ACA subsidies or Medicaid. Still others will be forced to go without coverage because they simply cannot afford it, with or without the government subsidies...

The Obamacare catastrophe demonstrates the incompatibility of the private ownership of the means of production and the basic social rights of the working class, including health care, education, jobs, and a secure retirement.

13--(For what it's worth: Archive) London Bankers on Irving Fisher (deflation), London Banker 2008

Fisher outlines how just 9 factors interacting with one another under conditions of debt and deflation create the mechanics of boom to bust for a Great Depression:

Assuming, accordingly, that, at some point of time, a state of over-indebtedness exists, this will tend to lead to liquidation, through the alarm either of debtors or creditors or both. Then we may deduce the following chain of consequences in nine links: (1) Debt liquidation leads to distress selling and to (2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes (3) A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be (4) A still greater fall in the net worths of business, precipitating bankruptcies and (5) A like fall in profits, which in a “capitalistic,” that is, a private-profit society, leads the concerns which are running at a loss to make (6) A reduction in output, in trade and in employment of labor. These losses, bankruptcies and unemployment, lead to (7) Hoarding and slowing down still more the velocity of circulation.

The above eight changes cause (9) Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.

Evidently debt and deflation go far toward explaining a great mass of phenomena in a very simple logical way
 Fisher then sums up his theory of debt, deflation and instability in one paragraph:

In summary, we find that: (1) economic changes include steady trends and unsteady occasional disturbances which act as starters for cyclical oscillations of innumerable kinds; (2) among the many occasional disturbances, are new opportunities to invest, especially because of new inventions; (3) these, with other causes, sometimes conspire to lead to a great volume of over-indebtedness; (4) this in turn, leads to attempts to liquidate; (5) these, in turn, lead (unless counteracted by reflation) to falling prices or a swelling dollar; (6) the dollar may swell faster than the number of dollars owed shrinks; (7) in that case, liquidation does not really liquidate but actually aggravates the debts, and the depression grows worse instead of better, as indicated by all nine factors; (8) the ways out are either laissez faire (bankruptcy) or scientific medication (reflation), and reflation might just as well have been applied in the first place

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