Wednesday, October 2, 2013

Today's Links

1---Fighting Deflation? Class warrior Abe taxes working people while subsidizing big business, Bloomberg

Abe’s administration is honing legislation for its “growth strategy”....Getting businesses to start distributing their rising profits and near-record cash through higher wages and new projects at home will be key to sustaining a rebound in the world’s third-largest economy. Without pay rises, households will be hit by both higher taxes and living costs -- as energy bills climb after the yen slid 21 percent the past year. ...

The package that Abe said yesterday would be prepared for December will include measures to boost capital investment by smaller companies; spending for the 2020 Olympics; payments to low-income earners; and tax incentives for home purchases.
As well as 1 trillion yen in annual tax cuts, including 730 billion yen in investment tax reductions...reducing labor regulations talks with the U.S.-led Trans Pacific Partnership group of nations. ...

The first two components have done little to change companies’ reluctance to unleash their improving earnings, which left some 220 trillion yen in cash on their balance sheets at the end of June, according to data compiled by the BOJ. Regular wages excluding overtime and bonuses fell 0.4 percent in August from a year earlier, a 15th straight drop, government data showed yesterday. ...

households are girding for a 3 percentage point increase in the consumption levy, to 8 percent starting April 1. Consumer confidence fell in August for a third consecutive month, and sentiment among merchants declined for a fifth straight month. ...

Japan’s central bank has indicated that it will add to already unprecedented easing if a setback to the economy warrants it...

Increasing purchases of Japanese government bonds, exchange-traded funds and Japanese real-estate investment trusts are among the options. ....The sales tax is set to ratchet up again to 10 percent in October 2015.

2--Millennials Face Uphill Climb, WSJ

More Demanding Jobs, Coupled With Recession, Have Postponed Young Americans' Entry Into Workforce, According to New Report

About a third of adults in their early 20s work full time, a proportion that rises to about half of adults in their late 20s. The labor-force participation rate for young people last year declined to its lowest point in about 40 years, according to the report. ...

"The combination of structural change plus this particular recession has been devastating for millennials," said Anthony Carnevale, director of the center and co-author of the report. Mr. Carnevale estimates, by modeling previous recessions, that today's young people will lose a minimum of 3% in earnings over their lifetimes. "It has really knocked them back, and some of these losses are permanent."
Between 2000 and 2012, the employment rate for people ages 21 to 25 dropped from 84% to 72% overall, with some demographics taking a bigger hit. Young men experienced a steeper decline, from 80% to 65%. The job rate for young workers without postsecondary education dwindled from 66% to 53%, and young African-Americans' peak unemployment rate after the recession reached 30%, double that of young whites.

3---Japan's not so hot economy, Testosterone Pit

- Industrial output dropped
0.7% in August from July, and was down 0.2% from a year ago, taking the index value to 97.2, down 2.8% from the 2010 average of 100, the year the index was reset. One more aspect of the deindustrialization of Japan. But... the Purchasing Managers Index inched up to 52.5 in September (above 50 = expansion), after declining in August, the highest since February 2011. Benefits of Abenomics: Inflation pressures. Input prices rose for the ninth month in a row, based on the devalued yen and high raw materials costs. Orders and backlog were strong. But there was, as the report put it, “stagnation of employment.”
- On the sales side: commercial sales in August were up 0.7% from last year, but dropped nearly 4% from July and hit the lowest since January. OK, it’s seasonal. But by comparison, the July-August drop in 2012 was 3.4%. Retail sales in August rose 1.1% from prior year, but.... Now the benefits of glorious Abenomics are kicking in: inflation. Considering that consumer prices of goods, which make up much of retail sales, jumped 1.8% over the same period [read my brief “Rumblings” article, Goods inflation jumps in Japan], on an inflation-adjusted basis, retail sales dropped year over year

4---Uncle Sam is a reluctant landlord of foreclosed homes, Bloomberg
(Market-worshipping US Gov refuses to let market work)

For sale or rent by distressed owner: 248,000 homes. That’s how many residential properties the U.S. government now has in its possession, the result of record numbers of people defaulting on government-backed mortgages. Washington is sitting on nearly a third of the nation’s 800,000 repossessed houses, making the U.S. taxpayer the largest owner of foreclosed properties. With even more homes moving toward default, Fannie Mae, Freddie Mac and the Federal Housing Administration are looking for a way to unload them without swamping the already depressed real estate market.
Trouble is, they haven’t figured out how to do that. The government admitted as much in August, when Fannie, Freddie and FHA issued a joint plea to the public for ideas about how to solve the problem. (Give it your best shot: You have until Sept. 15 to email ideas to “They’re stuck,” says Karen Shaw Petrou, managing partner of Federal Financial Analytics, a Washington-based consultant that advises banks and other clients on government policy. “They don’t know what to do.”

Shielding the market from a flood of government homes might be good for property values and the economy. It’s not such a great deal for taxpayers, who bear the costs when government-guaranteed loans go bad and who pay for maintenance on vacant homes the feds take over. One idea the Administration is exploring: allowing Fannie, Freddie and FHA to keep an ownership stake in the properties by converting them to rentals in partnership with private investors. When the market recovers, the government would sell the homes for more than they could get now and not risk glutting the market. Structured properly, such joint ventures could reduce the impact of foreclosures on struggling neighborhoods.

It’s not at all clear whether that would work on a large scale. The government would have to spend money to bring the rental properties — many of them old and dilapidated — to code; pay still more to insure the rentals; and build a bureaucracy to manage and maintain them. Even if they do all that, there might not be people willing to move in.

5---The Forgotten War: 12 Years in Afghanistan Down the Memory Hole, naked capitalism

In August, Afghan news services reported that Karzai had chaired a meeting with a few of the country’s most powerful warlords to call for the candidacy of Abdul Rab Rasoul Sayyaf, intimidator of women in parliament, longtime pal of Osama bin Laden, mentor of al-Qaeda’s Khalid Sheikh Mohammed, likely collaborator in the assassination two days before 9/11 of the Taliban’s greatest opponent, Ahmad Shah Massoud — in short the quintessential untouchable jihadi.

There’s an irony so ludicrous as to be terrible in the thought that while the U.S. supposedly fought this interminable war to insure that al-Qaeda would never again find a haven in Afghanistan, the country’s next president could be the very guy who invited bin Laden to Afghanistan in the first place and became his partner in building al-Qaeda training camps.

Even Karzai, who likes to poke his finger in American eyes, quickly backed away from that insult.  Within hours of the news reports, he announced that he would remain “neutral.”  Americans scarcely seemed to notice, but Afghans noted what Karzai had done in the first place. Now, as Sayyaf and other potential candidates do backroom deals, jockeying for position, Afghans wait anxiously to learn which ones will actually register to run before the October 6th deadline.....

The country’s high rates of maternal and infant mortality have slightly improved but remain among the worst in the world. You have to wonder if Washington couldn’t have turned all that MRAP money to better purpose.
As for the advancement of the human rights of women, much ballyhooed by American politicians and others, a report filed by the independent Afghan Rights Monitor in December 2012 tells a more accurate tale.  It describes merely 10 of the many women assassinated in recent years because of their “work and ideals”: “women’s development activists, a doctor, two journalists, a provincial lawmaker, a teacher, and a police officer.”...

Good neighbor Pakistan chose this moment to release from detention at an “undisclosed location” Mullah Abdul Ghani Baradar, longtime pal of Taliban leader Mullah Omar, and formerly his second-in-command.  Karzai campaigned for his release to facilitate the Afghan “peace process,” but now that Baradar is free, his whereabouts are officially unknown.  How do you suppose women in Afghanistan, or girls in Pakistan’s Swat Valley, receive that news?
So that’s the way the war is ending — in waste, destruction, anxiety, conspiracy, and the evaporation of illusory achievements. A thousand diminutions mark the waning of Afghanistan, punctuated by the sudden violent death of women.
But even when the war “ends” and Americans have forgotten it altogether, it won’t be over in Afghanistan. Obama and Karzai continue negotiations toward a bilateral security agreement to allow the U.S. to keep at least 9 of the biggest bases it built and several thousand “trainers” (and undoubtedly special operations forces) in Afghanistan seemingly forever.

6---Corporate Profits Are Soaring, But You're Not Feeling It , Huffington Post

Corporations may be raking in record profits, but workers aren't getting any richer, new data illustrates.
In fact, real wages have declined by nearly seven percent in the past seven years, according to data collected by the compensation research company Payscale. In other words, U.S. workers have less buying power now than they did before the financial crisis.
Meanwhile, corporate profits have increased by 18.6 percent over the past year, according to Payscale. In fact, corporate earnings now represent a larger share of GDP than during any other period in history.

Payscale's findings are just the latest in a slew of research that indicates the sluggish economic recovery has not been beneficial for most of us. Income inequality in the U.S. is at a new high as skyrocketing income gains for the top one percent are met by stagnating wages for practically everyone else. In 2012, an average CEO of one of the nation's largest companies was paid 273 times more than his or her workers, according to a study by the Economic Policy Institute, a left-leaning think tank.
Unfortunately, Payscale predicts that wage growth will continue to slow

7---Trust in Banks? Nope. Gallup
Gallup analysis of trust in institutions reveals a crisis in the U.S. banking industry. In October 2010, Americans' trust in banks fell to an all-time low of 18% -- lower than its level at the height of the global financial collapse. Gallup analysts find this to be a continuation of a free-fall that began in 2006.
Fewer say they have trust in executive and judicial branches
by Jeffrey M. Jones
PRINCETON, NJ -- At a time when the U.S. is dealing with the federal debt limit, the budget, the rollout of the healthcare law, and the situation in Syria, trust in all three branches of the federal government remains on the lower end of what Gallup has measured historically. Americans' trust in the executive and judicial branches of the federal government are both down five percentage points in 2013, to 51% and 62%, respectively. Trust in the legislative branch is the lowest of the three, at 34%, and is unchanged from 2012.
Trust in Three Branches of Government Is Down

9---Good time to buy a house?, OC housing

the current figures don’t come anywhere close to the recent highs. Existing-home sales are up, but they’re still about 27% below the figure from mid-2005. And those 613,000 building permits hardly compare to the bubble-era high of 1,798,000 in September 2005.
So, the best you can say right now is housing has leveled out after a 13-year roller-coaster ride that has seen massive government and Federal Reserve efforts to spur demand. Is that a recovery?...

Two of the most troubling aspects of the housing recovery, so far, have related to the outsize presence of deep-pocketed Wall Street investors acting out a monumental episode of “Flip This House...

Their presence is driving price increases and sales volume even as they frequently outbid individual home buyers. Indeed, it’s a great paradox that the new real-estate boom is taking place alongside a plunging rate of homeownership. The homeownership rate—the percentage of housing units occupied by their owners—has fallen from a bubble-era high of 69.2% to today’s 65%, the lowest level since 1995. (A four-percentage-point falloff is huge. The rate has been above 60% since the 1950s.)...

As interest rates rise to their traditional levels, generally between 5% and 7%, you can expect either prices to stabilize or sales volumes to decline. Ominously, the Mortgage Bankers Association this month noted a decline of more than 70% in refinance-loan applications since rates began rising in May and about a 15% falloff of purchase-loan applications...

Don’t believe the hype about the shadow inventory problem being over. 1.7 million borrowers are seriously delinquent on government-backed loans, and millions more are underwater. Must-sell shadow inventory has morphed into can’t-sell cloud inventory. Although it isn’t likely that banks will suddenly start processing millions of foreclosures and flood the market with must-sell inventory, these loans must still be resolved, and that will like facilitate a sale that would not have otherwise occurred. These additional sales will serve as a cap on future appreciation. 


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