Saturday, October 19, 2013

Today's Links

1--Bursting bubbles? Bay Area home market cools, prices and sales fall, LA Times

Home prices and sales fell last month in the Bay Area as the tech-rich region mirrored a cooling trend elsewhere within the state.
The median home price in the nine-county region fell 1.9% from August to $530,000, while sales dropped 17.1% -- a steeper fall than the normal seasonal slowing, research firm DataQuick said Thursday. It was the second straight month that the median decreased.

“Interest rates are higher, the inventory has risen, and investors now account for a lower share of all sales. In addition, we’ve seen a normal, seasonal slowing in the market heading into fall,” DataQuick President John Walsh said in a statement. “It’s likely we’ll see year-over-year price gains trend lower for the foreseeable future.”

2---The Harsh Spending Cuts Of The Sequester Are Still In Place, Mark Gongloff

 The Tea Party's fervor about debt and deficits, which purely out of coincidence blossomed immediately after the election of President Obama, has pushed the government into a series of belt-tightening measures, frustrating the economy's recovery from the worst recession since the Great Depression. In fact, government spending has been the weakest of any recovery since 1948, according to a study by the Economic Policy Institute, a left-leaning think tank. The latest round of brutal cuts, the sequestration that helped "solve" the Tea Party-driven fiscal-cliff crisis earlier this year, are still in place, dragging on the recovery and costing potentially three million jobs.

3---Debt ceiling smokescreen for slashing social security, Al Jazeera

The International Monetary Fund admitted earlier this year that its long-cherished belief that budget cutting lowers deficits was wrong. The debt-to-GDP ratio — a statistic commonly used to justify government spending cuts — involves two interdependent numbers: a numerator and a denominator. Cutting the numerator (government spending) typically winds up shrinking the denominator (the size of the economy) even more. Thus, the ratio used to justify austerity measures winds up unchanged or even more dire, which then prompts further spending cuts. It is the economic equivalent of trying to apply even more leeches to a weak patient to return him to health. Lost in these figures is the double whammy to the middle class and the poor: It becomes desperately difficult to find work, and therefore many lose their savings and homes at the very same time that social safety nets are pulled out from underneath them....

A seminal event was former Supreme Court Justice Lewis Powell's 1971 memorandum that set forth a long-term strategy for how to move American values to the right. Writing two months before his nomination to the Supreme Court, he stressed the importance of consistent, continuing action and ample funding, which could be obtained only through a combined effort by corporate executives, pro-business conservatives and the wealthy. An important legacy of his vision was the establishment of such think tanks as the Cato Institute and the American Enterprise Institute to provide polish and intellectual legitimacy for the conservative agenda. Although this campaign has many fathers, key players include the U.S. Chamber of Commerce and conservative billionaires such as the Koch brothers, Peter Peterson, Richard Mellon Scaife and the Coors family.

Even with the overwhelming majority of Americans firmly opposed to cutting Social Security and Medicare, both parties have embraced this once extreme right-wing agenda under the rubric of entitlement reform — which is the sort of Madison Avenue packaging that Powell advocated for selling conservative ideas to the public. Other achievements of this long-term campaign include a law-and-economics movement that has produced a more business-friendly judiciary, changes in campaign-finance laws to allow the rich to spend even more and a money-driven system of staffing congressional committees.

But even with that level of influence, politicians need cover to implement unpopular moves. The high drama over the federal budget has provided just such a distraction.

4---S&P breaks record, Reuters

5---Stocks move higher as Fed spending spree continues, TrimTabs

where are we right now in the market and the economy? Well the market value of all US and global stock markets are back around the same $60 trillion peak reached in 2007. That’s about double the 2009 low. Why are stocks up? Simple. Central banks have created trillions of new money with which to buy bonds and stocks.

At the same time, despite the trillions in money creation, global economic growth has been marginal after inflation. In other words, while both the global economy and stock markets crashed in 2008 and 20099, the value of all stocks has soared since then while the global economy is barely holding its head above water.

That is where we are right now – a surging stock market and a global economy that is barely growing after inflation. So, knowing where we are now, where are we headed? Well for the immediate future, for as long as the central banks keep creating money at the same pace, what is most likely is that stocks will keep going up. But without any new catalyst for growth the global economy will barely grow.

Remember, I use a supply and demand framework upon which I overlay my what is happening, what is so, right now analysis. TrimTabs has reported that since 2010 the total number of shares in the US stock market has grown by less then 3% in total, which translates into a few hundred billion dollars of share supply. At the same time the Federal Reserve has pumped grown it’s balance sheet by around $3 trillion. So what happens when trillions more money – starts chasing a few hundred billion dollars supply of shares? That right stocks go up.

It really is that simple. Stocks go up when the demand from trillions of more money – even if it is newly created – overwhelms a few hundred billion dollar supply of shares. Looking back over the fast few years, whenever the Fed pumped new money into financial assets, stocks went up. When it stopped printing stocks went down. And when the Fed started printing again stocks went back up.

And right now the Fed keeps creating money, although at some point the pace will slow. Obviously the Fed has been hoping that the US economy will start to grow faster without all the new money creation. Unfortunately I see no evidence of that occurring. It’s possible, I just don’t see any reason as to why.
 ...

when the Fed starts to slow money printing, two things are likely to happen. Bond and equity buyers will stop buying and start selling. And companies are likely to become net sellers and not net buyers

6--Obama plans attack on "entitlements", wsws

-In a White House statement Thursday, President Obama made clear that he would push for new cuts in social programs, leading to major attacks on the core programs for retirees dating from the New Deal and the Great Society--Medicare and Social Security. “The key now is a budget that cuts out the things that we don’t need,” he said, adding, “The challenges we have right now are not short-term deficits; it’s the long-term obligations around things like Medicare and Social Security.”...

Obama is meanwhile pushing for a huge cut in corporate taxes as part of a long-term budget deal....

Just this week, the staggering growth of poverty in America was brought home with the release of a new study showing that 48 percent of US school children are poor, up 32 percent since 2001.
Behind the appearance of partisan gridlock and mutual recrimination, the differences between the two parties are tactical, concerning the ways and means of reversing all of the social gains of the working class and the pace of the onslaught, not the need to carry it out. The major difference is on taxes, with the Republicans rejecting any new government revenue from taxes and insisting that the budget deficit be slashed and the national debt reduced entirely through spending cuts.-

7--The official story on Bin Laden killing is bogus, PCR

8---NYSE Margin Debt Is Rising Once Again, Bus Insider

9--Your textbooks lied to you, prag cap

The following comes from an excellent new paper from the Fed

Changes in reserves are unrelated to changes in lending, and open market operations do not have a direct impact on lending. We conclude that the textbook treatment of money in the transmission mechanism can be rejected.  Specifically, our results indicate that bank loan supply does not respond to changes in monetary policy through a bank lending channel, no matter how we group the banks....

All of these points are a reflection of the institutional structure of the U.S. banking system and suggest that the textbook role of money is not operative.
...


Since 2008, the Federal Reserve has supplied an enormous quantity of reserve balances relative to historical levels as a result of a set of nontraditional policy actions.  These actions were taken to stabilize short-term funding markets and to provide additional monetary policy stimulus at a time when the federal funds rate was at its effective lower bound.  The question arises whether or not this unprecedented rise in reserve balances ought to lead to a sharp rise in money and lending.  The results in this paper suggest that the quantity of reserve balances itself is not likely to trigger a rapid increase in lending.  To be sure, the low level of interest rates could stimulate demand for loans and lead to increased lending, but the narrow, textbook money multiplier does not appear to be a useful means of assessing the implications of monetary policy for future money growth or bank lending.” 

 


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