Saturday, December 21, 2013

Today's Links

1---Average 30-year mortgage rate moves up to 4.47%, USA Today (The 'danger zone')
(Uh oh)
Mortgage buyer Freddie Mac said Thursday the rate on the 30-year loan increased to 4.47% from 4.42% last week. The average on the 15-year fixed loan rose to 3.51% from 3.43%.

Mortgage rates peaked at 4.6% in August and have stabilized since September, when the Federal Reserve surprised markets by taking no action on starting to reduce its $85 billion-a month bond purchases. The Fed decided this week that the outlook for the economy appeared strong enough for it to reduce the monthly bond purchases starting in January by $10 billion.

The purchases are designed to keep long-term rates such as mortgage rates low.

Data from the National Association of Realtors released Thursday showed the number of people who bought existing homes last month declinedfor the third straight month as higher mortgage rates made home-buying more expensive. In addition, the lingering impact of the partial government shutdown in October may have deterred some sales. Still, the Realtors' association projects that total U.S. home sales this year will be 5.1 million. That would be the strongest since 2007, when the housing bubble burst.

2---Jamie Dimon’s perp walk: Why it could be this year’s Christmas miracle, Salon
(Fat chance)

As Judge Jed Rakoff recently wrote in a scathing essay in the New York Review of Books, the failure to prosecute those responsible for the biggest financial crisis since the Great Depression “must be judged one of the more egregious failures of the criminal justice system in many years.” Law enforcement officials had the tools, from Sarbanes-Oxley on down, to hold the perpetrators to account. They failed, because they wanted to fail. They didn’t want to disrupt the financial industry by exposing its corruption.

And the predictable result is a lack of deterrent for a continuing series of crimes. Open the business pages at random and they often read like the police blotter. One day, it’s contractors of Bank of America scamming homeowners seeking loan modifications (in ways substantially similar to the scams I reported on this summer for Salon). The next, it’s JPMorgan Chase settling allegations that it failed to inform authorities about its banking client Bernie Madoff and his Ponzi scheme (the settlement reportedly includes a “deferred prosecution agreement,” where JPMorgan and the government agree that a crime has been committed but that nobody will actually be indicted for it).

3---The End of the Synthetic Economy , Testosterone Pit

But what’s most disconcerting is that the velocity of money has plummeted, which means that the huge amounts of money that has been printed by the Fed really hasn’t been used, if at all, though consistent with the tepid recovery (see chart below).

The Fed’s Stimulus Never Achieved Escape Velocity



When the Fed withdraws its stimulus the question is what if anything will spur banks and companies (with trillions on their balance sheet) to hire and lend. And certainly the velocity of money is a key indicator for inflation. According to the quantity theory of money, if the quantity of money goes up, then inflation  goes up, as long as real GDP growth and what is called the velocity of money (the amount of times you use money) is held constant. But both real GDP growth and the velocity of money has been at all time lows.....

Consumer demand still remains weak, despite improvement over the last few months. The problem continues to be the crisis-battered American consumer.  “In the 22 quarters since early 2008, real personal-consumption expenditure, which accounts for about 70 percent of US GDP, has grown at an average annual rate of just 1.1 percent, easily the weakest period of consumer demand in the post-World War II era. That is the main reason why the post-2008 recovery in GDP and employment has been the most anemic on record,” according to a paper by Stephen Roach, former chief economist at Morgan Stanley and Yale lecturer

4---The State of Work (Most believe their children will be "worse off" than them), American prospect

This May, a Pew poll asked respondents if they thought that today’s children would be better or worse off than their parents. Sixty-two percent said worse off, while 33 percent said better. Studies that document the decline of intergenerational mobility suggest that this newfound pessimism is well grounded......

The decline of the American job is ultimately the consequence of the decline of worker power. Beginning in the 1970s, corporate management was increasingly determined to block unions’ expansion to any regions of the country (the South and Southwest) or sectors of the economy (such as retail and restaurants) that were growing. An entire new industry—consultants who helped companies defeat workers’ efforts to unionize—sprang up. Although the National Labor Relations Act prohibits the firing of a worker involved in a union-organizing campaign, the penalties are negligible. Firings became routine. Four efforts by unions to strengthen workers’ protections during the Johnson, Carter, Clinton, and Obama presidencies came up short. By 2013, the share of private-sector workers in unions declined to just 6.6 percent, and collective bargaining had been effectively eliminated from the private-sector economy.

The collapse of workers’ power to bargain helps explain one of the primary paradoxes of the current American economy: why productivity gains are not passed on to employees. “The average U.S. factory worker is responsible today for more than $180,000 of annual output, triple the $60,000 in 1972,” University of Michigan economist Mark Perry has written. “We’re able to produce twice as much manufacturing output today as in the 1970s, with about seven million fewer workers.” In many industries, the increase in productivity has exceeded Perry’s estimates. “Thirty years ago, it took ten hours per worker to produce one ton of steel,” said U.S. Steel CEO John Surma in 2011. “Today, it takes two hours.”

In conventional economic theory, those productivity increases should have resulted in sizable pay increases for workers. Where conventional economic theory flounders is its failure to factor in the power of management and stockholders and the weakness of labor. Sociologist Tali Kristal has documented that the share of revenues going to wages and benefits in manufacturing has declined by 14 percent since 1970, while the share going to profits has correspondingly increased. She found similar shifts in transportation, where labor’s share has been reduced by 10 percent, and construction, where it has been cut by 5 percent. What these three sectors have in common is that their rate of unionization has been cut in half during the past four decades. All of which is to say, gains in productivity have been apportioned by the simple arithmetic of power.

Only if the suppression of labor’s power is made part of the equation can the overall decline in good jobs over the past 35 years be explained. Only by considering the waning of worker power can we understand why American corporations, sitting on more than $1.5 trillion in unexpended cash, have used those funds to buy back stock and increase dividends but almost universally failed even to consider raising their workers’ wages.

5---Steve Keen on Krugman, naked capitalism

In really simple terms, there is a “loanable funds” market in which borrowers and savers meet to determine the price of lending. Keynes argued that investors could have a change in liquidity preferences, which is econ-speak for they get freaked out and run for safe havens, which in his day was to pull it out of the banking system entirely. [John] Hicks endeavored to show that the loanable funds and liquidity preferences theories were complementary, since he contended that Keynes ignored the bond market (loanable funds) while his predecessors ignored money markets.

But that’s a deliberate misreading. Keynes saw the driver as the change in the mood of capitalists; the shift in liquidity preferences was an effect. (In addition, Keynes held that changes with respect to existing portfolio positions, meaning stocks of held assets, would tend to swamp flow effects captured by loanable funds models.)

Making money cheaper is not going to make anyone want to take risk if they think the fundamental outlook is poor. Except for finance-intensive firms (which for the most part is limited to financial services industry incumbents), the cost of money is usually not the driver in business decisions, Market potential, the absolute level of commitment required, competitor dynamics and so on are what drive the decision; funding cost might be a brake. So the idea that making financing cheaper in and of itself is going to spur business activity is dubious, and it has been borne out in this crisis, where banks complain that the reason they are not lending is lack of demand from qualified borrowers. Surveys of small businesses, for instance, show that most have been pessimistic for quite some time.

If you want to put it in more technical terms, what is happening is a large and sustained fall in what Keynes called the marginal efficiency of capital. Companies are not reinvesting at a rate sufficient rate to sustain growth, let alone reduce unemployment....

rising debt directly adds to aggregate demand.

6---Michael Hudson interview, naked capitalism

Michael: In today’s paper there was a report about Madoff’s people, for the Ponzi scheme, and they’re on trial and they were asked in court about in 2006 they begin to think “Something is wrong” and they said “I wonder if Madoff has an exit plan?” And finally they asked him, “Do you have an exit plan in the Ponzi scheme?” and the answer was “No, there’s no exit plan”. When you’re in a scheme that can only crash you don’t have an exit plan; you go on as long as you can and then it crashes. That’s how the game works....

...“One section of society exacts from another a tribute for the permission of inhabiting the Earth. Private property in land implies the privilege of the landlord to exploit the body of the globe, the boughs of the Earth, the air and with them the conservation and development of life”. Now, that was Karl Marx in Das Kapital Volume III on page 898.

7---The Hidden Motives Behind The Federal Reserve Taper , zero hedge
(Food for thought)

"The powers of financial capitalism had (a) far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland; a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank... sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world." - Carroll Quigley, member of the Council on Foreign Relations

8---"The Commerce Department reported that the nation’s gross domestic product grew at a 4.1 percent annual rate during the third quarter — the best showing since 1992."(mostly inventory accumulation) Dean Baker

Furthermore, as the article notes in passing, most of the better than expected performance was due to inventory accumulations which added 1.7 percentage points to the growth reported for the quarter. The economy reportedly accumulated inventories at annual rate of $115.7 billion in the third quarter, an absolute pace exceeded only by the $116.2 billion rate in the third quarter of 2011. In the fourth quarter, if the economy adds inventories at the same rate as it did in the prior two years, and the rest of the economy grows at the same pace as it did in the third quarter, then the growth rate will be less than 1.0 percent

9---Sales of bank-owned homes surge, Diana Olick

Sales of bank-owned (REO) homes accounted for 10 percent of all residential property sales in November, according to RealtyTrac. That is up from 9.1 percent in October and accounted for the third consecutive month of increases in REO sales.

Lenders are taking advantage of this environment to unload more of their bank-owned inventory and in-foreclosure inventory at the foreclosure auction," said RealtyTrac's Daren Blomquist in a release.
"But as the backlog of distressed inventory available dries up in many of the markets with the most efficient foreclosure processes—namely California, Arizona and Nevada, with Georgia not far behind—overall sales volume is declining and will continue to do so until more nondistressed sellers enter the market."

investors, who drove the distressed sales market over the past few years, dropped off earlier this year, faced with bidding wars in some of the previously hot markets. Now they appear to have revived interest.
Their purchases represented 7.7 percent of all home sales in November, up from 6.3 percent a year ago. This may be because price gains are slowing down, and more inventory is coming on the market.
"We have seen an uptick in REO offerings, which is a little surprising for this time of the year," said Rick Sharga, executive vice president at Auction.com.
Sharga said his company, which auctions off properties online, got 3,000 REOs last week that had never been marketed before. "We are seeing more properties sold at trustee sales, and we are seeing more properties that are coming from servicers priced to sell at trustee sales."
(Read more: Homes get makeovers as more mortgages are back in black)
Previously, mortgage servicers had put foreclosed properties up for sale at the full value of the loan, but those usually went back to the bank, as investors sought a larger discount. Ironically, as prices are rising, servicers are discounting the homes more.
In turn, the share of all-cash sales is rising again. While the Realtors put it at 32 percent of all sales, RealtyTrac, which may get more data on distressed sales, puts the share at 42 percent, the highest level since it began tracking all-cash purchases in January 2011.

10---Japan GDP=1.4%, CNBC

The Japanese government forecast on Saturday that the country's real gross domestic product will grow by 1.4 percent for the fiscal year starting March 2014, slowing from an expected 2.6 percent growth for the current year as a planned sales tax increase is seen dampening consumption

11---Obama: A bigger liar than Nixon, wsws

What emerges is a state intelligence apparatus of genuine totalitarian dimensions that acts as a direct partner of giant corporations—that in turn willingly cooperate with the NSA’s illegal operations—while spying relentlessly on the masses of people.

Underlying this development is social structure that has turned increasingly aristocratic in character, with a narrow financial and corporate oligarchy having amassed an unprecedented share of the country’s wealth, while living in fear that the glaring levels of social inequality will spark a revolt from below. There exists within this ruling layer, and the Democratic and Republican parties that defend its interests, no constituency for democratic rights. Rather it strongly supports authoritarian methods to suppress growing opposition among working people.

Under the phony cover of the “war on terror”—and in the real context of endless war abroad—the US government under Obama has arrogated to itself vast powers to spy on the entire population, subject its perceived enemies to indefinite military detention and even summarily kill anyone, including US citizens, without due process.
The threat of police state dictatorship emerges more clearly with each passing day.
..... 
Just hours after receiving a report from his hand-picked advisory panel on National Security Agency surveillance operations, President Barack Obama used his end of the year press conference Friday to deliver an Orwellian defense of unrestrained US spying both at home and abroad.

“I have confidence that the NSA is not engaging in domestic surveillance and snooping around,” Obama said, despite the cascade of revelations proving just the opposite. These revelations, including the latest from former NSA contractor Edward Snowden, have established that the agency is collecting and storing billions of files recording the phone calls, text messages, emails, Internet searches and even the daily movements of virtually ever US citizen, not to mention those of hundreds of millions of people abroad.

“The United States is a country that abides by rule of law, that cares deeply about privacy, that cares deeply about civil liberties,” he added. Who, at this late juncture, does the American president think he’s fooling? One only has to read the ruling by a Washington, DC Federal District Court judge—which was then stayed in the interest of “national security”—finding the surveillance methods of the NSA to be “almost Orwellian,” and its activities unconstitutional, i.e., criminal.

On Snowden, without whose courageous actions the NSA’s illegal activities would still be concealed from the public, Obama refused to address calls to grant him amnesty, insisting, falsely, that he has been indicted, and that his fate is in the hands of the US attorney general and the courts

12---Italy's Forconi (“Pitchfork”) movement, wsws

13---Japan's slide towards fascism, JT

I dub the last national legislative session of 2013 the “Terror Diet,” because Shigeru Ishiba, the ruling Liberal Democratic Party’s secretary-general, alarmed the nation by likening anti-secrecy-law demonstrators to terrorists — so expressing an unsettling disdain for democracy and constitutional rights.

The state secrets law promotes a cocoon of impunity for government officials, a sure recipe for poor governance. Nonetheless, Abe lamely tried to defend the law at a Dec. 9 press conference, asserting that the new powers it grants bureaucrats to unilaterally designate documents “special secrets” — without any oversight mechanism — would not affect citizens’ daily lives. The problem is that the law grants sweeping discretionary power to bureaucrats who prefer to operate in secrecy without the annoyance of the media or any public scrutiny.

Rikki Kersten, a professor of Japanese politics at the Australian National University, asserts that “Abe has returned Japan to 1945 and negates the past 60 years of demonstrating that Japan is a responsible democracy contributing to regional peace and prosperity.”

She said that several Japanese people have told her they want to leave Japan because they don’t want to raise their children in this atmosphere of saber-rattling and repression. She waggishly suggested that Abe’s theme song must be “My Way.”

Alas, Abe-rule unleashes the bureaucrats and allows them to act with impunity. Banri Kaeda, hapless leader of the opposition Democratic Party of Japan, pointedly suggested that the secrets law is “of the bureaucrats, for the bureaucrats and by the bureaucrats.”

Indeed, the cascade of scandals involving officials over the past two decades demonstrates the need for greater transparency and accountability — not far, far less.

Aside from numerous tales of embezzlement and misuse of taxpayer money, bureaucrats actually condoned distribution of HIV-tainted blood products to Japan’s hemophiliacs, causing an epidemic among them. Why? Because Big Pharma has pull and profits matter more than citizens....

Do we want a muzzled media unable to expose the collusive relations between government officials and Tokyo Electric Power Co. that compromised safety at its Fukushima No. 1 nuclear power plant?

Three investigations into the three reactor meltdowns there following the March 11, 2011, Great East Japan Earthquake and tsunami helped people understand that it was negligence and human error that caused Japan’s Chernobyl, and now we know that bureaucrats’ fingerprints are all over that catastrophe.

Don’t we also have the right to know that Foreign Ministry officials actually betrayed their government by coaching the United States on how to counter then-Prime Minister Yukio Hatoyama’s plan to relocate the U.S. Marines’ Futenma Air Base outside Okinawa — thereby undercutting the elected government?.....

Kersten says that Abe will throw fuel on the fires of public discontent by securing a reinterpretation of the so-called “war-renouncing” Article 9 of the Constitution to allow for collective self-defense — “but the real story is not about strengthening the U.S. alliance,” she says. “Abe has contradictory goals: Shoring up the alliance but also gaining greater autonomy and not being beholden to the U.S.
“He seeks to boost Japan’s military capabilities in line with the needs of collective self-defense, but not mainly for that purpose. The defense community here is eager to create a Japanese version of the U.S. Marines to replace them as they pull out.”

14--Calculating record profits, WSJ

$2.287 trillion: Profits before tax (without inventory valuation and capital consumption adjustments) This reflects what companies collectively report on their tax returns, more closely following accounting rules than economic growth calculations.
$1.869 trillion: Profits after tax (without inventory valuation and capital consumption adjustments) This is the real-world number. Businesses actually do pay taxes and must account for their unique depreciation and changes in inventory value. This number best aligns with corporate earnings statements. It accounts for all corporations, including publicly traded firms and privately held companies.

15--Millennial disaster, WSJ

49.6%: Share of American 16-24 year-old that will be working or looking for work in 2022, down from 66.1% in 1992, according to the Labor Department.
It has been a rough few years, to say the least, for America’s young people. The unemployment rate for 16-24 year-olds neared 20% during the recession, and remains a brutal 14.1% even after four and a half years of economic recovery. Less than half of Americans under 25 were working in November; less than a quarter were working full-time. Economists now speak openly about the prospects of a “lost generation” of American youth.

16---QE Fatigue, WSJ


Listen to Fed Chairman Ben Bernanke make a forceful case for a second round of bond buys back in 2010 at the Kansas City Fed’s Jackson Hole conference:

“I believe that additional purchases of longer-term securities, should the FOMC choose to undertake them, would be effective in further easing financial conditions.”

Contrast that with his rather tepid endorsement of the program’s third incarnation at the same symposium in 2012, just before the Fed launched QE3: “It appears reasonable to conclude that nontraditional policy tools have been and can continue to be effective in providing financial accommodation, though we are less certain about the magnitude and persistence of these effects than we are about those of more-traditional policies.”

17---Big Banks Offer Payday Loans At 300 Percent Interest: Study, Mark Gongloff

18--Mark Hanson: Housing “Bubble 2.0″; Same as “Bubble 1.0″, only different actors

Houses first became “unaffordable” in 2002.  Then, exotic loans were introduced in 2003 allowing people to keep buying more house without income following suit.  When the exotic loans all went away at the same time in 2008 house prices “reset” to the real “affordability” using a 30-year fixed rate mortgages requiring proof of income and assets.  The market ticked higher slightly in 2010 on the Homebuyer Tax-Credit then “double-dipped” as the stimulus was removed.  Of course, the third major stimulus aimed at housing in the last 10 years came in Q4 2011, exactly when housing caught it’s most recent bid.  The past two-year move was so fast and large that the subsequent “reset” should be ‘another’ one for the record books.
CA Med Price and Payment using popular loan progs - Bar vs Lone chart

c)  The Smoking Gun 2
Like the chart above, this shows the typical monthly payment for the median CA house from 2001 to 2013.
Bottom line:  Houses have NEVER BEEN MORE EXPENSIVE” on a monthly payment basis than right now.

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