Sunday, November 17, 2013

Today's Links



“Sometimes I wonder whether the world is being run by smart people who are putting us on, or by imbeciles who really mean it” Mark Twain


1---Ex-Bank Executive May Face Death in Vietnam Fraud Trial, Bloomberg

2---Americans Are Shedding Debt, Will They Spend?, Bloomberg

3---'Generation Wait': Share of young adults who move hits 50-year low, NBC

U.S. mobility for young adults has fallen to the lowest level in more than 50 years as cash-strapped 20-somethings shun home-buying and refrain from major moves in a weak job market.
The new 2013 figures from the Census Bureau, which reversed earlier signs of recovery, underscore the impact of the sluggish economy on young people, many of them college graduates, whom demographers sometimes refer to as "Generation Wait."

Burdened with college debt or toiling in low-wage jobs, they are delaying careers, marriage and having children. Waiting anxiously for their lucky break, they are staying put and doubling up with roommates or living with Mom and dad, unable to make long-term plans or commit to buying a home — let alone pay a mortgage

4---Warning: Stock Market Margin (Borrowing) Reaches All-Time High , Testosterone Pit

5---Attack on Junk-Loans Risks LBO Profits as U.S. Cracks Down, Bloomberg

6---archive Defaults Account for Most of Pared Down Debt, WSJ

7---The Looming Bond Fund Crash repeat, Paul Amery

8---Deflation, A Stock Market Crash And Then Christmas, naked capitalism

9---'1mn died' from Afghan heroin, drug production '40 times higher' since NATO op, RT

10--Americans Trimming Their Holiday Spending Plans, gallup
Consumers estimate they will spend $704 on gifts, down from $786 in October

11---BOJ Beat: Central Bank Bullish Despite GDP Slowdown, WSJ

12---Deleveraging Decelerates and Household Balances Increase, NY Fed

13--Japan GDP slows to 0.5% in 3Q, Reuters
Annualized third-quarter growth was 1.9 percent, higher than the median forecast of 1.7 percent, Cabinet Office data showed.

14---The workers’ rebellion at Boeing, wsws

15---Yellen Signals Continued QE Undeterred by Bubble Risk, Bloomberg

16--"I see nothing. Noooothing." "Punch bowl" Janet invokes the Sergeant Schultz defense, Forbes

In her first public appearance as nominee to succeed Fed Chairman Ben Bernanke, Janet Yellen faced the Senate Banking Committee, reiterating her intention to keep the monetary spigots wide open while rejecting the notion that we are seeing asset bubbles as a consequence of quantitative easing.  Yellen noted there is “no set time” for tapering, implicitly admitted the Fed lost control of the market during the summer so-called taper tantrum, and agreed that investors buy gold to protect from “catastrophe.”.....

On the issue of QE being an elitist policy, favoring those holding financial assets and failing to trickle down to Main Street, Yellen was diplomatic in her attempts to answer.  Admitting asset purchases harm savers, she tried to emphasize the wealth effect and the fall in unemployment, but never acknowledged the marginal decline in the efficiency of the policy.
The expected successor to Chairman Bernanke also implicitly admitted the Fed lost control of the market during the summer, when the mere indication of tapering sparked a surge in interest rates that pushed mortgages up 100 basis points and dramatically tightened financial conditions. Saying “I don’t think the Fed should be a prisoner of the market,” she accepted that the behavior of financial markets forced them to ultimately recognize the impact of their communication, even mentioning them in their policy statement.

17---What Krugman missed, Flassbeck economics

Summary: Nominal wages (compensation of employees) have been falling in absolute terms most of the time in Japan since 1998 (chart ULC and wages) and have found their way back above the zero line only recently but with growth rates below one percent...the US today as in Europe investment is restricted by demand and demand is restricted by income expectations of private households at very high levels of unemployment. At no point is it a story of the “willingness” to save or to invest “at full employment” as Krugman holds (and with given income or income growth at full employment, as he should have added). It is a story of a dysfunctional labour market, where unemployment can rise sharply without wages being “too high....high unemployment depresses wages, depressed wages depress private consumption and depressed consumption does not allow the economy to recover despite enormous profits in the company sector and desperate attempts of monetary policy.....
 we may wish but we cannot be all net exporters ....its mercantilist approach has hit the wall. ....
the looming fight is about international market shares and competitive depreciation. That is exactly the way in which the world will fail to come to grips with the power of an overly rich company sector. -

.....even well-intended policies may lead to questionable results if the underlying analysis is flawed. Abenomics and most of its academic followers like Paul Krugman regard a protracted liquidity trap as the main reason for the Japanese weakness -.....The diminished expectations and the uncertainty of Japanese private households concerning their future income and deflation as such prevent private consumption from taking a lead role in a recovery. To call that constellation a liquidity trap is misleading. In fact, the trap is a wage or income trap much more than a liquidity trap. And exactly at this point the Japanese story turns into a more general story of the dangers of overly flexible labour markets that applies to the US after the crisis of 2008 as well as to large parts of Europe....

Krugman’s liquidity trap story is unconvincing because it lacks a clear and consistent inflation theory. Inflation is considered to be a monetary phenomenon. But it is hard to understand that even extreme monetary easing plus many attempts of fiscal expansion over the last twenty years have not brought about any inflationary acceleration, in particular if, according to Krugman, the growth performance is found to be rather normal. It seems that the old monetarist ideas about inflation stand in the way of a clear and practical solution. Imagine a world were money is much less important for prices than wages.

Nominal wages (compensation of employees) have been falling in absolute terms most of the time in Japan since 1998 (chart ULC and wages) and have found their way back above the zero line only recently but with growth rates below one percent. Unit labour costs (compensation per head divided by Gross domestic product per head), clearly the best predictor of inflation in all developed countries of the world including Japan (chart ULC and inflation), have been falling consistently since the mid of the 1990s. They were above zero only in years of sharp downswings of the economy and falling productivity. Real wages were on a random walk below and above zero with the latter associated with periods of absolutely falling prices and increased uncertainty. -...

The diminished expectations and the uncertainty of Japanese private households concerning their future income and deflation as such prevent private consumption from taking a lead role in a recovery. To call that constellation a liquidity trap is misleading. In fact, the trap is a wage or income trap much more than a liquidity trap. And exactly at this point the Japanese story turns into a more general story of the dangers of overly flexible labour markets that applies to the US after the crisis of 2008 as well as to large parts of Europe. The walk into that trap is usually triggered by sharply rising unemployment that is unrelated to specific labour market developments like wages rising too much. High unemployment as the result of a financial crisis, for example, is the scenario for pressure on wages and mass incomes even if wages and incomes were depressed already before the occurrence of the crisis. High unemployment and workers trying to price themselves flexibly back into the markets, as the OECD had once called it (UNCTAD, Trade and Development Report 2012), create the perfect storm for economic policy. - ...

Monetary policy is restricted by the zero bound for interest rates and fiscal policy would need to implement a huge stimulation programme to overcome the reluctance of consumers to spend in face of their uncertain outlook on jobs and on wages. Hence, in the US today as in Europe investment is restricted by demand and demand is restricted by income expectations of private households at very high levels of unemployment. At no point is it a story of the “willingness” to save or to invest “at full employment” as Krugman holds (and with given income or income growth at full employment, as he should have added). It is a story of a dysfunctional labour market, where unemployment can rise sharply without wages being “too high”. And the lesson is that without fully discarding both, the monetarist inflation theory and the neoclassical labour market theory, there is no consistent critical theory of economics - ...

high unemployment depresses wages, depressed wages depress private consumption and depressed consumption does not allow the economy to recover despite enormous profits in the company sector and desperate attempts of monetary policy. The only way out without resorting to unconventional instruments like income policies would be the direct improvement of the labour market conditions by an incredibly huge fiscal stimulus – but that is blocked for political reasons. Indeed, it is a global disease. Large parts of Europe are heavily infected. In the troubled regions of the European Monetary Union (EMU) extremely high unemployment meets with severe absolute cuts in mass income. But instead of healing the sickness of unemployment, falling mass income depresses domestic demand and increases unemployment further. Clearly, the labour market cure is destabilizing the overall economy wherever domestic demand is more important than external demand -

we may wish but we cannot be all net exporters ....its mercantilist approach has hit the wall.

18---Document Evidences Destabilization Plan Against Venezuela , postcards from the revolution

During the past few months, the Venezuelan government led by President Nicolas Maduro has denounced multiple incidents of sabotage against the country’s electrical infrastructure along with an ongoing campaign to undermine the nation’s economy. A majority of international media, together with private media in Venezuela, have ridiculed the Venezuelan President’s accusations, and have instead attempted to pin responsibility on the government for the instability and harm caused to the country by these actions. Nevertheless, an internal document authored by three organizations from Colombia and the United States, evidences a sinister plan against the Venezuelan state to provoke violence – even death – with the intention of justifying an international intervention in anticipation of municipal elections scheduled for next December 8.

The document, titled “Strategic Venezuelan Plan”, was prepared by the Democratic Internationalism Foundation (http://fidauv.org), headed by ex Colombian president Alvaro Uribe, together with the First Colombia Think Tank (http://www.pensamientocolombia.org) and the US Consulting firm, FTI Consulting (http://www.fticonsulting.com). Dated June 13, 2013, the plan was developed during a meeting between representatives from these three organizations, leaders of the Venezuelan opposicion, including Maria Corina Machado, Julio Borges and Ramon Guillermo Avelado, expert in psychological operations J.J. Rendon and the Director of the US Agency for International Development (USAID) for Latin America, Mark Feierstein.

The strategic plan to destabilize Venezuela has the primary goal of debilitating the government before the December 8 municipal elections, as revealed in the document: “The objectives put forth in the present plan are essentially geared towards the municipal elections set for December 8, while at the same time including the accelerated deterioration of the government, facilitating an opposition victory for this event...” Though the text states further, “...but if it could be done beforehand, that would be even better”.
 
Expectations U.S. monetary stimulus will stay in place for some time were fueled by dovish comments this week from Federal Reserve Vice Chairman Janet Yellen, who is undergoing a confirmation hearing to take over the top spot at the central bank from Ben Bernanke.
 
 
21---Vilifying Venezuela’s Maduro, global research
 
Chavez was granted enabling law power four times. They impacted Venezuela’s development positively. For six months in 1999, 53 decrees were approved.
For one year in 2000-01, 49 were enacted. For 18 months in 2007-08, 59 became law.
For 18 months in 2010-12, another 54 were approved. Chavez used enabling law power to make government more efficient, transparent and honest.
He permitted more citizen participation. He reformed Venezuela’s civil service. He reduced corruption.

He enhanced social justice. He advanced economic policies based on more equitable wealth distribution. He did so in areas of healthcare, education, social security and others.
He modernized Venezuela’s financial sector. He improved science and technology initiatives.
He reformed public health, prisons and migration regulations. He improved Venezuela’s judiciary. He upgraded the nation’s infrastructure, transport and public services.

He permitted greater state control over Venezuela’s energy sector. He established territorial organization norms in states and communities. He did so relating to voting and constituency size.
He initiated land reform. He advanced housing issues. He improved credit access for small businesses and entrepreneurs.
He enabled greater equity for small v. large fishers. He increased hydrocarbon state revenue
 
22---Bubbles Are Not Funny, Dean Baker
 
while the economy may presently need asset bubbles to maintain full employment (a point I made in Plunder and Blunder: The Rise and Fall of the Bubble Economy), it doesn't follow that we should not be concerned about asset bubbles. The problem with bubbles is that their inflation and inevitable deflation lead to massive redistribution of wealth.
 
In the case of the housing bubble in particular we saw millions of people lose much or all of their wealth from buying homes at bubble-inflated prices. The loss of housing wealth is especially devastating because housing is a highly leveraged asset even in normal times and it is an asset often held by middle and moderate income households. It was great that the bubble was able to spur growth and get the economy close to full employment, however the subsequent crash was pretty awful. It would be incredibly irresponsible to go through another round like this.
 
The second qualification is that it is reasonable to believe that aggregate consumption levels will depend at least in part on the distribution of income. The upward redistribution in the last three decades, from middle and lower end wage earners to the high end wage earners in the 80s and 90s, and to corporate profits in the last decade, likely had an effect in depressing consumption. The question here is whether the marginal propensity to consume out of income is higher for a retail clerk or factory worker than a doctor or CEO. I would be willing to argue that it is, which means that the upward redistribution of income over this period had a depressing effect on consumption. (As a practical matter, this depressing effect was offset by the asset bubbles in the 1990s and 2000s.)
 
(trade deficits--US is losing jobs and overconsuming, while developing economies get the jobs and are saving too much)


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