Saturday, November 9, 2013

Today's Links

1---How Republicans Have Trashed The Economy, In 1 Chart, mark gongloff

Public investment in the US has hit its lowest level since demobilisation after the second world war because of Republican success in stymieing President Barack Obama’s push for more spending on infrastructure, science and education," write Robin Harding, Richard McGregor and Gabriel Muller. ..

That is austerity, and it's a big reason -- maybe the big reason -- the recovery has been so sluggish. Yet Republicans still aren't satisfied, wanting another round of cuts, which is why we'll probably have another destructive budget fight all over again early next year.

2---The jobs report, gongloff

....there was an absolutely huge drop in the number of people working or looking for work last month. That's not good! The labor-force participation rate, the percentage of the working-age population in the job market, tumbled to 62.8 percent from 63.2 percent the month before, the lowest since 1978. Again, not good!
Low labor-force participation artificially lowers the unemployment rate because it means people you'd ordinarily count as unemployed have just dropped out altogether and aren't counted. It's a depressing problem that's been afflicting us for a while. So that nice, low, "clean" unemployment rate is probably too low.

3---Why Quantitative Easing Isn't Printing Money, cnbc

4---The NINJAs Have Taken Over The Subprime Lunatic Asylum, zero hedge

...even the mainstream media is finally catching on to the fact that all the "gains" in the best economic sector have been on the back of subprime.
While surging light-vehicle sales have been one of the bright spots in the U.S. economy, it’s increasingly being fueled by borrowers with imperfect credit. Such car buyers account for more than 27 percent of loans for new vehicles, the highest proportion since Experian Automotive started tracking the data in 2007. That compares with 25 percent last year and 18 percent in 2009, as lenders pulled back during the recession.

Issuance of bonds linked to subprime auto loans soared to $17.2 billion this year, more than double the amount sold during the same period in 2010, according to Harris Trifon, a debt analyst at Deutsche Bank AG. The market for such debt, which peaked at about $20 billion in 2005, was dwarfed by the record $1.2 trillion in mortgage bonds sold that year.

Of course, the enablers of this destructive behavior see nothing wrong, and live under the delusion that sub-500 FICO borrowers will actually pay them back....

An influx of new competitors into subprime auto-lending since 2010 is sparking concern of eroding underwriting standards, according to S&P. About 13 issuers have accessed the asset-backed market to fund subprime auto loan originations this year, according to Citigroup Inc.

 ..The average loan-to-value ratio, or LTV, on vehicle sales to consumers with spotty credit is 114.5 percent this year, compared with a peak of 121 percent in 2008.
It is so bad that even Morgan Stanley now gets it:

Perhaps more than any other factor, easing credit has been the key to the U.S. auto recovery,” Adam Jonas, a New York-based analyst with Morgan Stanley, wrote in a note to investors last month. The rise of subprime lending back to record levels, the lengthening of loan terms and increasing credit losses are some of factors that lead Jonas to say there are “serious warning signs” for automaker’s ability to maintain pricing discipline.

5---How to tell if the job market is improving,  Mark Thoma

The government's latest jobs report shows unemployment increasing from 7.2 percent in September to 7.3 percent last month. In many ways, however, the employment-to-population ratio is a better indicator of labor market conditions. And even as the economy was adding many more jobs than forecasters had predicted, that key metric fell to 58.3 percent, down 0.3 percentage points from the previous month....

anne said in reply to Robert Zonis...
The several unemployment rates are of less importance than the employment to population ratios, and the employment to population ratios have been consistently recorded since 1948 and can be reliably used even if a given month is argued over.
What the employment to population ratios show is a series of declines first since 2000 and second since 2007 with notably little gains so far during the recovery from recession whether the ratios of August or September or October are looked to.
We are 70 months from the beginning of the recession in December 2007, where are the recoveries in the employment to population ratios? We have never experienced this decline and malaise before

6---Dow Hits New Record On October Jobs Report, AP

The Dow Jones industrial average is closing at another record high after the government reported an unexpected surge in hiring last month.
The Dow rose 167 points, or 1.1 percent, at 15,761. JPMorgan Chase and Goldman Sachs rose the most in the Dow. The index also closed at a record high on Wednesday.
The Standard & Poor's 500 rose 23 points, or 1.3 percent, to 1,770, just one point below the all-time high it set on Oct. 29.
The Nasdaq composite rose 61 points, or 1.6 percent, to 3,919.
Trading volume was heavier than usual.
Treasury prices fell after the U.S. reported that employers added 204,000 jobs last month, more than economists expected. The yield on the 10-year note jumped to 2.75 percent, the highest in six weeks.

7---Consumer confidence in homebuying hits all-time low, housingwire

Looming government uncertainty, lack of affordability weigh on industry...

The share of consumers who believe it’s a good time buy a house declined to 65% — an all-time low — ...
“Also, affordability has worsened: both rising mortgage rates and rising home prices have pushed more homes out of reach of the middle class, which would also lead to a decline in people thinking it’s a good time to buy,” he added.
The gap between the share of consumers who say the economy is on the wrong track and those who believe all engines are a-go widened from 16 percentage points in September to 40 percentages points in October — a record month-over-month change....

the share of consumers who said their personal financial situation would get worse in the next 12 months hit a new high of 22%.
Consequently, the amount of respondents who say the economy is on the right track fell 12 percentage points, which is the biggest monthly record change in the survey’s history.

8---Asset Bubbles (All ahead full), Bloomberg

The easy monetary policy around the world may come at a price if it ends up inflating asset-price bubbles that burst and damage economies. The RBA yesterday said there could be “concerns from the perspective of financial stability” if household leverage rises, while Swiss National Bank President Thomas Jordan yesterday said low rates threatened to inflate a real-estate bubble.

Speculation that the Fed may nevertheless accelerate a withdrawal of stimulus grew yesterday as American employers added more workers to payrolls in October than forecast by economists. Still, the Commerce Department reported that the Fed’s preferred measure of inflation, the personal consumption expenditures price index, slowed to 0.9 percent in September, matching a four-year low reached in April.

The U.S. is growing slowly and low inflation levels are in “unacceptable, dangerous territory at the moment,” Bill Gross, the founder of Pacific Investment Management Co., said in a radio interview on “Bloomberg Surveillance” with Tom Keene yesterday.

9---All cash buyers keep market afloat, cnbc

10--Rep. Frank: Revamped Mortgage Rules a ‘Grave Error”, WSJ

11---The Crisis as a Classic Financial Panic, Ben Bernanke, Fed

The recent crisis echoed many aspects of the 1907 panic. Like most crises, the recent episode had an identifiable trigger--in this case, the growing realization by market participants that subprime mortgages and certain other credits were seriously deficient in their underwriting and disclosures. As the economy slowed and housing prices declined, diverse financial institutions, including many of the largest and most internationally active firms, suffered credit losses that were clearly large but also hard for outsiders to assess. Pervasive uncertainty about the size and incidence of losses in turn led to sharp withdrawals of short-term funding from a wide range of institutions; these funding pressures precipitated fire sales, which contributed to sharp declines in asset prices and further losses. Institutional changes over the past century were reflected in differences in the types of funding that ran: In 1907, in the absence of deposit insurance, retail deposits were much more prone to run, whereas in 2008, most withdrawals were of uninsured wholesale funding, in the form of commercial paper, repurchase agreements, and securities lending. Interestingly, a steep decline in interbank lending, a form of wholesale funding, was important in both episodes. Also interesting is that the 1907 panic involved institutions--the trust companies--that faced relatively less regulation, which probably contributed to their rapid growth in the years leading up to the panic. In analogous fashion, in the recent crisis, much of the panic occurred outside the perimeter of traditional bank regulation, in the so-called shadow banking sector.5 
The responses to the panics of 1907 and 2008 also provide instructive comparisons. In both cases, the provision of liquidity in the early stages was crucial. In 1907 the United States had no central bank, so the availability of liquidity depended on the discretion of firms and private individuals, like Morgan. In the more recent crisis, the Federal Reserve fulfilled the role of liquidity provider, consistent with the classic prescriptions of Walter Bagehot.6 The Fed lent not only to banks, but, seeking to stem the panic in wholesale funding markets, it also extended its lender-of-last-resort facilities to support nonbank institutions, such as investment banks and money market funds, and key financial markets, such as those for commercial paper and asset-backed securities.
In both episodes, though, liquidity provision was only the first step. Full stabilization requires the restoration of public confidence. Three basic tools for restoring confidence are temporary public or private guarantees, measures to strengthen financial institutions' balance sheets, and public disclosure of the conditions of financial firms. At least to some extent, Morgan and the New York Clearinghouse used these tools in 1907, giving assistance to troubled firms and providing assurances to the public about the conditions of individual banks. All three tools were used extensively in the recent crisis: In the United States, guarantees included the Federal Deposit Insurance Corporation's (FDIC) guarantees of bank debt, the Treasury Department's guarantee of money market funds, and the private guarantees offered by stronger firms that acquired weaker ones. Public and private capital injections strengthened bank balance sheets. Finally, the bank stress tests that the Federal Reserve led in the spring of 2009 and the publication of the stress-test findings helped restore confidence in the U.S. banking system. Collectively, these measures helped end the acute phase of the financial crisis, although, five years later, the economic consequences are still with us. ....

 regulatory and supervisory reforms, such as higher capital and liquidity standards or restriction on certain activities, can directly limit risk-taking. Second, through the use of appropriate carrots and sticks, regulators can enlist the private sector in monitoring risk-taking. For example, the Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) process, the descendant of the bank stress tests of 2009, requires not only that large financial institutions have sufficient capital to weather extreme shocks, but also that they demonstrate that their internal risk-management systems are effective.

12---Mortgage rates move higher on strong economic forecasts, housingwire

Economic data, government reopening pushes up market confidence...

Additionally, the U.S. expanded by an annual pace of 2.8% in the third quarter, which is the biggest increased in a year as a result of a large buildup in business inventories and trade improvement, according to the government.
Market participants are confident that the economy will continue to improve into 2014, fueling a rising in rates.
For instance, nearly 46% of corporate directors expect better economic conditions a year from now, according to the National Association of Corporate Directors.
The 30-year, fixed-rate mortgage came in at 4.16%, up from 4.10% last week, and also up from 3.40% last year, Freddie Mac said in its Primary Mortgage Market Survey.

“Production in the manufacturing industry expanded for the fifth month in a row in October to the strongest pace since April 2011,” said Freddie Mac vice president and chief economist Frank Nothaft.
He said, “Similarly, the non-manufacturing sector grew for the second consecutive month in October and beat the market consensus forecast of a decline. These increases were widespread across the nation, from Chicago to Milwaukee to New York.”

13---What can we learn from the Depression? , economist

According to some monetarist historians, the four waves of banking crises in the 1930-33 period that bankrupted half of America’s banks were caused by the Federal Reserve tightening monetary policy in response to gold outflows. Similar effects were seen in Europe too. Austerity in Germany and Austria lead to a wave of bank failures in 1931, plunging the central European economy into its most severe period of contraction. According to research by Mr Eichengreen, countries that escaped the gold standard and changed to floating exchange rates first, such as Britain in 1931 and America in 1933, tended to recover earlier and far faster. The critique of monetary policy as a conduit of Depression dates back to Milton Friedman and Anna Schwartz's "Monetary History of the United States", first published in 1963.

Policy-makers have drawn some lessons from the 1930s. Unlike in the Depression, central banks in Britain and America avoided unnecessary monetary tightening. Instead, they slashed interest rates and used unconventional monetary stimulus such as quantitative easing in an effort to fend off deflation (a scourge of the Depression). The role of banking crises in turning a normal recession into a deep depression has also been recognised. Governments pulled out the stops to prevent the Lehman failure from generating a global financial meltdown, keenly aware of the role of financial contagion in the 1930s.

14---From comments...economists view

anne said in reply to raskolnikov...
In the years that the Employment-Population Ratio is high, do wages trend upwards??? (or is that a dumb question?)
[ A terrific question, the answer to which is decidedly and importantly "yes." Immediately we find that the Kennedy-Johnson and Clinton years when employment-population ratios were increasing most strongly, so too were real wages. Real wages increased during the Kennedy-Johnson years, fell from 1972 through 1993 then finally rose through the rest of Clinton years from 1995 on. ]

15---If only Barack could have been more like Ronnie Raygun, prag cap

Barack Obama is on pace to preside over the only Presidency in the post-war era to average negative government employment growth.   Since 2009 when he took office the total size of the government workforce has declined by 706K jobs.  That’s about 3.1% of the government workforce.  That’s not a huge number, but let’s put that into perspective.  During Ronald Reagan’s first 5 years in office the government created 623K jobs which expanded the size of the government workforce by 3.8%.  Ronald Reagan was a huge creator of government jobs.  In fact, over the course of his entire presidency the size of the government workforce expanded by 9%.

Now, what if Barack Obama were more like Ronald Reagan?  What if the government workforce had expanded by 3.8% up to this point during the recovery rather than contracting by -3.1%?   There would be about 1.5 million more people employed today than there actually are.    The total size of the workforce would be roughly 138 million people in this case.  And instead of talking about the declining participation rate we’d be talking about how we’re at all-time highs in employment.
If only Barack could have been more like Ronnie.

16--Euthanasia of the economy?, prag cap

17---Labor Blues, WSJ

The American labor force shrank by 720,000 in October, the Labor Department said Friday, the biggest one-month decline since 2009. As a share of the population, the labor force is now the smallest it’s been in 35 years. That suggests an acceleration of an already worrisome trend of declining labor force participation. But take Friday’s numbers with more than a grain of salt.

18--Chinese Communist Party plenum to unveil “free market” blueprint, wsws

19--Has QE Stimulated Credit?, naked capitalism


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