Thursday, February 28, 2013

Today's links

1---Deficit hawks' 'generational theft' argument is a sham, LA Times
The idea that we're spending much more on our seniors than our children is wrong on the numbers and wrong on the implications.

2--Shiller’s Bottom Line: Risk Lingers in Housing, WSJ

WSJ: Why are you more worried than most people?
Mr. Shiller: Part of the reason the indexes have gone up is because the foreclosure boom has receded. Foreclosed homes sell at a lower price, and the share of those sales has been falling. People might be deceived by this by looking at the indexes. The question is whether the gains will be sustained.

There isn’t any sign of the real enthusiasm we saw during the last bubble. The question is whether this could be the very vague beginning of a new boom? I guess it could. I just don’t know. Then there are issues with what the government does to support housing. They’re doing everything they can. They say they’re going to stop some day. When will people start worrying about that?

3---The Only Ones Who Recovered from the Recession are the Top 1%, economic populist
During the Great Recession, from 2007 to 2009, average real income per family declined dramatically by 17.4%, the largest two year drop since the Great Depression. Average real income for the top percentile fell even faster (36.3 percent decline), which lead to a decrease in the top percentile income share from 23.5 to 18.1 percent. Average real income for the bottom 99% also fell sharply by 11.6%, also by far the largest two year decline since the Great Depression. This drop of 11.6% more than erases the 6.8% income gain from 2002 to 2007 for the bottom 99%.
Beyond the rich making all of the income recovery post the financial crisis, the study also shows we have returned to 1917 in terms of income share going to the rich. Anyway you slice it, with capital gains made from the stock market or not, all of the economic justice of the past century has been wiped out.
Excluding realized capital gains, the top decile income share in 2011 is equal to 46.5%, the highest ever since 1917 when the series started....
top1 percent income

We need to decide as a society whether this increase in income inequality is efficient and acceptable and, if not, what mix of institutional and tax reforms should be developed to counter it. 
 
4---Analysis: Cuts unlikely to deliver promised budget savings, Reuters (Duh)

5---U.S. Entered Recession in January Yet Fed Fix Keeps Stocks Pumped, Trimtabs

Meanwhile, that brings us to today’s reality where the U.S. economy is in a recession and the U.S. stock market is percentage points from an all time high. But U.S. company insiders know what’s really going on. So it is no surprise that insiders at U.S. companies have bought the least amount of shares in any one month and that the ratio of insider selling to buying is now 50 to 1. These are both monthly records since TrimTabs starting tracking insiders in 2004.

And yes, companies are still buying each other and their own shares back. But companies are using balance sheet cash, not only earning nothing, but in many cases costing nothing. Perfectly logical to me for companies to be big net buyers of their own shares while insiders are bailing.

Chairman Bernanke signaled this week that the fix is still in and the Fed will keep buying $4 billion of existing bonds each trading day. So far the mass delusion is holding that newly created money is worth just as much as pre-existing cash. Debasing the currency to pay government bills is not new. The Roman Empire did, as did many others. And We are doing it know.

6---Builders Find Investors Eager to Finance Housing Growth, Bloomberg

7---Bernanke Elaborates on Exit Strategy, WSJ

8---Low Interest Rates, Overheating, and Household Indebtedness, Carola Binder

Monetary policy is a blunt instrument when it comes to counteracting the build-up of financial bubbles, but financial imbalances can lead to major problems for companies and households and ultimately cause lower growth and higher unemployment. Just the fact that the Riksbank has talked about the risks entailed in the high level of household debt has contributed to stabilising the household debt ratio, albeit at a high level, according to Ms af Jochnick.As those comments make clear, one concern in particular is that low interest rates are contributing to a higher household debt ratio. This struck me as somewhat strange because household debt to GDP in the United States has been falling steadily despite our low interest rates (see FRED graph at bottom.) I wonder if she is correct that the Riksbank has actually managed to stabilize the household debt ratio just by talking about the risks of high levels of household debt! An article in Reuters says:

Swedish Riksbank Governor Stefan Ingves, who is also the head of the Basel Committee on Banking Supervision, has warned low rates are adding to the risk of driving up household debt.
In minutes of the bank’s Feb. 12 meeting, Ingves said, “With the current low interest rates, one must be aware of the link between household debt and monetary policy.”...

Svensson's conclusion was that "The potential risks of household indebtedness have to be managed by
other means, means that have a significant effect. We should not use monetary policy to limit household indebtedness. This will only serve to run the economy into the ground.

9---US-Backed Afghan Police Poison, Massacre 17 of Their Comrades, antiwar

The perpetrators were reportedly Taliban infiltrators, retaliating for "atrocities and crimes" by Afghan police


10---Draining excess reserves and the exit strategy, sober look

Bloated excess reserves may ultimately impact the value of the dollar.

. There are concerns that over a longer period, excess reserves could distort certain markets, creating financial bubbles - as banks seek to deploy cheap capital (in real estate for example).

11---Fed chairman reassures markets on dollar-printing “quantitative easing” program, wsws

The release of the minutes followed a speech earlier this month by a member of the Fed Board of Governors, Jeremy Stein, who warned that the Fed’s policy of near-zero interest rates into the indefinite future encouraged the type of reckless, high-risk speculation that brought down the financial system in September of 2008.

The panicked response on stock exchanges last week underscored the degree to which the financial system has become addicted to massive injections of cash from the major central banks. Taking their cue from the Fed, the European Central Bank, the Bank of England and the Bank of Japan have all launched their own “quantitative easing” programs. This flood of cheap credit from the central banks amounts to an immense subsidy to the major banks and financial institutions, which are able to leverage the virtually free money to make huge profits from speculative operations.

As a result, share values, corporate profits and executive pay have spiraled upward even as the real economies of most of the industrialized countries have contracted and unemployment and poverty have continued to soar, in large part due to brutal austerity policies aimed at making the working class pay for the vast expansion of debt. The economies of the US, Britain, the euro zone and Japan all contracted in the final quarter of 2012.

The Federal Deposit Insurance Corporation reported Tuesday that profits at US banks jumped almost 37 percent in the final three months of 2012, reaching the highest level for a fourth quarter in six years. The agency said that for all of 2012, bank earnings rose 19 percent to $141.3 billion, the second-highest annual level ever.

12---The Italian election: A political watershed, wsws

The class struggle will increasingly assume more militant and open forms. European politicians have responded by publicly stating that they will not accept the electorate’s will as expressed in its vote against the austerity policies of the EU. The most blatant statement in this regard came from European Commission President Jose Manuel Barroso.

Commenting on the Italian election, he declared: “The mistake now would be to cave in to populism. We must now ask the question: Should we define our economic policy on the basis of short-term electoral considerations or by what is required to lead Europe on the path of sustainable growth? For me the answer is clear. We should… not yield to immediate party political considerations.”

In other words, the people can vote however they choose, but it will have no impact on state policy. We will stick to the social counterrevolution. Similar statements were made by other politicians and media commentators.

European ruling circles will react to Monti’s electoral disaster by increasingly turning to authoritarian methods of rule and the forcible suppression of resistance to their reactionary policies.

13---Italian politics in deadlock as Beppe Grillo rules out deal, Guardian

Former comedian says he will not back Democratic party and brands leader a 'dead man talking'

Wednesday, February 27, 2013

Today's links


1---"Model development zones,"---Rise of the corporate state, Guardian
 Honduras is set to host one of the world's most radical neo-liberal economic experiments under a plan to build from scratch the rules, roads and rafters of a "charter city" for foreign investors.
The Central American nation hopes the plan for model development zones, which will have their own laws, tax system, judiciary and police, will emulate the economic success of city states such as Singapore and Hong Kong.

2--Bernanke Defends Asset Buying as Benefits Outweigh Risks, Bloomberg


We do not see the potential costs of the increased risk- taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery,” Bernanke said today in testimony to the Senate Banking Committee in
Washington. “Inflation is currently subdued, and inflation expectations appear well anchored.” ...

Bernanke said that a “potential cost” of Fed policies that central bankers take “very seriously” is the “possibility that very low interest rates, if maintained for a considerable time, could impair financial stability.”
Policy makers have publicly debated the risk of financial instability, with Fed Governor
Jeremy Stein saying earlier this month that some credit markets, including leveraged loans and junk bonds, show signs of potentially excessive risk-taking. Kansas City Fed President Esther George has warned of risks from farm land prices at “historically high levels.”


“All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. The vast majority of mortgages, including even subprime mortgages, continue to perform well. Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable.” – Ben Bernanke – May 17, 2007


3---Where O Where Did My Two Trillion Go?, dshort

Click to View
Click for a larger image

4---Transcript of "Lost Decades: The Making of America's Debt Crisis and the Long Recovery", IMF
 


5---Home Prices Soar on Short Supply, Investor Demand, Realty check

Yes, home prices are on the rise for non-distressed properties, which accounted for 65.0 percent of total home purchase transactions tracked by HousingPulse in January," according to the survey. "But no, home prices for REO [Real Estate Owned—or bank owned] properties in need of repair—the type banks look to unload after a foreclosure—have not been rising along with prices for non-distressed properties. They have been moving in the opposite direction."

Prices for damaged foreclosures are at their lowest level in over four years, due to reduced demand by current and first-time home buyers. Investors have increased their purchase share of these properties, accounting for 65.4 percent of sales, up from 58 percent a year ago, according to the survey. Since investors largely buy in bulk, they get bigger discounts.

While home prices continue to surge, they are still 29 percent below their peak in 2006.

With the all-important spring season knocking on housing's door, price gains will depend on how many more homes are listed for sale. Demand is already waiting.

6---Stalemate: Italy votes against austerity. Grillo storms to victory, naked capitallism

German economy minister Philipp Rösler was putting a brace face on events, saying that he could imagine a better result for the pro-reform parties.
But in a statement, Rösler insisted there was no other way:
There is no alternative to the structural reforms that are already underway and which include consolidating the budget and boosting competitiveness.
Ah, but there are alternatives! As Ambrose-Pritchard noted, Italy could depart the eurozone, and my German-reading colleagues say that there was also discussion of Germany leaving the Eurozone. The German concern is that they are facing open ended rescues of those profligate Latins (which are in reality rescues of those profligate French and German bankers, somehow that part is never included in the equation). But the rescues were destined to continue until Germany addressed its chronic trade surpluses. Trade surpluses entail financing your trade partners. The alternative proposed by economists like Yanis Varoufakis is for Germany to invest heavily in the periphery countries, to increase the wealth of their population and enable them to make products that Germans would buy. It appears the German plan (if there was a plan, I think the Germans have been driven by their desire to avoid embarrassing questions about banks and their emotional attachment to manufacturing dominance and the virtues of saving) was to impose a German diktat on the periphery, which would make their governing apparatus irrelevant (that is pretty much the state of play in Greece) and enable them to acquire assets on the cheap. The problem is, if Greece is the model, is that you destroy so much of the economy that there is not much left worth salvaging. You not only destroy your cheap takeover opportunity, you also destroy your trade partner. Whoops!
The German foreign minister also banged the same empty drum. Again, from the Guardian:
Germany’s foreign minister, Guido Westerwelle, has now weighed in, becoming the third German politician to argue that Italy must stick with Monti’s reform plan.
Speaking in Berlin, Westerwelle said it was important that a stable Italian government is formed quickly – one that is committed to Monti’s policies
 
7--Missile defense is a threat to Russian national security, RT-

Methodical attempts are made to rock the strategic balance in one way or another. The US has practically started the second stage of its plan to set up a global missile defense system and there are probes into the possibility of NATO’s further eastward expansion. The danger of militarization of the Arctic exists,”the Russian President said at the Wednesday session with the Defense Ministry’s collegium – the panel of top military officials and commanders chaired by the recently appointed Defense Minister Sergey Shoigu.

8--- If you thought the European crisis was over... it’s probably only just beginning, zero hedge

European Banks remain Rotten to the Core: If austerity has failed economies, it’s singularly failed to address the banking crisis. The US has spent the last 5-years deleveraging and recapitalising its banking system, and that is now paying off with growth in personal and commercial lending, restoring housing markets and seeding growth.

What did Europe do? Debated banker salary caps and the self-immolation of the financial system through a transactions tax! The Elites singularly failed to address bank’s previous fatboy lending practices – they remain essentially over-levered, over-regulated and dangerously exposed to European risk. Every policy response, like long term LTROs or even OMT, was a hasty panicked infusion of liquidity to keep the banks in pretend and extend mode. Draghi did a superb job keeping the illusion going.

But aside from that, all Europe has done to address the banking crisis at its core is make a series of promises about “save the Euro at all costs”. Talk is cheap. And has done nothing to make Europe’s bad banks safer. Instead, they became even more bloated and exposed to Euro risk!

Sovereigns remain in Crisis: The poor South is caught with the wrong currency – uncompetitive, unproductive and unable to deflate to compete. Even Ireland’s status as the poster boy of austerity is bogus – economic growth is largely on the balance sheet of tax sheltering multinationals.

The results of austerity are all too obvious – rising unemployment, social tensions, and electoral dismissal. Although some of the crisis economies have done much to try to restructure and redirect their economies, in the teeth of the Austerity gale it’s proved pretty much impossible. It takes years for economies to become as lethargic as the south has become, and it can’t be turned around overnight.

Renewed Fears for the Euro: The core tenant of belief of the Euro – austerity is failing. There is no easy way to redirect the institutions of the Euro to create growth. The bloated Brussels bureaucracy would be a highly imperfect tool to sponsor European growth – although I am sure they will tell us otherwise.

The ECB’s reluctant acceptance of its de-facto role of lender of last resort is heavily qualified by the need for countries to sign up to austerity prior to ECB OMT support – that is increasingly politically unacceptable in the wake of the Italy election. A new easier OMT will be required with all the national votes and treaty changes that will require.

If you thought the European crisis was over... it’s probably only just beginning

9---The end of the Third Republic, Beppe Grillo blog

10---Everybody Listen Up! The Deficit Is Actually Shrinking, Despite Beltway Propaganda, alternet

94 percent of Americans don't know the deficit is falling.
 
 
12---Grand Old Parity, Sheila Bair, NYT
 
Italy's electoral earthquake is “a catastrophe for the euro and the European Union”, according to Luxembourg’s foreign minister, Jean Asselborn
 
Bond buying under the OMT can begin only after countries in trouble request a rescue from the EU’s bail-out fund under strict terms. This then requires a vote in the Bundestag.
Germany’s ECB board member, Jorg Asmussen, backed the plan when it was unveiled in August, signalling the crucial acquiescence of Chancellor Angela Merkel. The concern is that Germany could withdraw that assent if provoked.

Mr Roberts said: “The big unknown is how much Germany is going to buckle over the next six months. German leaders want to keep up the appearance that the eurozone crisis has been solved, at least until their elections in September.”
 
In one sense, Italy is in a weak bargaining position. It must raise €420bn (£368bn) this year, making it acutely sensitive to the latest surge in borrowing costs. Yields on 10-year bonds surged 34 basis points on Tuesday, pushing the spread over German Bunds to 330, with traders eyeing the 400 level where stress begins in earnest. Italian bank shares tumbled in Milan, with Intesa Sanpaulo down 8.4pc on fears of losses on sovereign bonds.

Yet Italy is big enough to bring down the eurozone if mishandled. It is also the one Club Med country with enough fundamental strengths to leave EMU and devalue, if it concludes that would be the least painful way to restore 35pc of lost competitiveness against Germany since the launch of the euro.
It has low private debt and €9 trillion of private wealth. Its total debt level is 265pc of GDP, lower than in France, Holland, the UK, the US or Japan.

Its budget is near primary balance, and so is its International Investment Position, in contrast to Spain and Portugal. It could in theory return to the lira without facing a funding crisis, and this may be the only way to avoid a crisis if the ECB withdraws support. Any attempt to force Italy to knuckle down risks backfiring disastrously for EMU creditors.

14---Workers rebel against right-wing unions, wsws

15---Italian voters reject the European Union’s austerity measures, wsws
      Italian voters have unambiguously rejected the politics of the Monti government and the European Union. This has triggered panic and outrage in Europe's capitals and unleashed ferocious tremors on the international finance markets.

Some 55 percent of the electorate voted for parties that spoke out against the EU in their campaigns. The slate headed by outgoing Prime Minister Mario Monti, which was supported by Brussels, Berlin, the Catholic Church and numerous Italian businessmen, only received 10 percent of the vote.

The Five Stars Movement of the comedian Beppe Grillo has become the single strongest party in the Chamber of Deputies, the lower house of the Italian parliament, winning slightly more than 25 percent of the vote. It came just ahead of the Democratic Party of Pier Luigi Bersani. The joint slate of the Democratic Party and Sinistra Ecologia Libertà (SEL) is the strongest force in the lower house and is thus awarded 340 of the 630 seats under existing electoral law.

Grillo won support by raging against the EU and the entire political caste on his blog and on town squares. He heaped insults upon them, calling them irresponsible, incompetent and extravagant, and demanded, “They must all go.”...

No list has a majority in the upper house, the Senate, where the seats are not awarded nationally, but are based on the results of the twenty regions. Bersani won 119 seats, Berlusconi 117, Grillo 54 and Monti 18. Since all laws must be passed by both chambers of parliament, Bersani needs the support of Berlusconi or Grillo to form a working majority for his government.

This has led to outrage in the capitals of Europe and the media. “Italy is paralysed and ungovernable”, ran the comments in numerous editorials, which blamed the Italian electorate for this situation and berated them for it. Some read as if the author wanted to abolish free elections sooner rather than later.

For example, the Frankfurter Rundschau accused Italian voters of a “flight from reality”. “If one were being malicious, you might come to the idea that Italian voters were for sale”, the paper, which is close to Germany’s trade unions wrote. “They prefer the political show-boating of two entertainers like Berlusconi and Grillo to the sober analysis of the economic politician Mario Monti and the social democrat Pier Luigi Bersani, who do not hide the fact that the way out of the debt crisis is and will remain painful for everyone”.

In reality, Mario Monti is anything but a sober professor of economics. The former EU commissioner is a trusted steward of international finance capital. He has worked for the investment bank Goldman Sachs and was a board member of the Bilderberg Conference, an informal gathering of influential people in big business, the military, politics, the media, academia and the aristocracy.
Following his defeat, Monti will hardly play a role in the next Italian government. But it cannot be excluded that Bersani may reach an agreement with Berlusconi or Grillo to continue Montis austerity programme.....

Grillo’s programme is a muddled collection of unrelated demands, such as can be found with the Pirate Party, the Greens, and liberal and right-wing parties: free internet access for all, ecological energy, no money for defence and major transportation projects, benefits for all, protection of domestic industries from international competition, restriction of politicians’ salaries, cutting jobs in the state apparatus, and so on.
The fact that opposition to the austerity measures of Monti and the EU has benefited the populist Grillo and right-wing demagogue Berlusconi is a result of the utter bankruptcy of the so-called Italian left.

Tuesday, February 26, 2013

Today's links

1---Fed Faces Explaining Billion-Dollar Losses in QE3 Exit Test, Bloomberg

Federal Reserve Chairman Ben S. Bernanke’s efforts to rescue the economy could result in more than a half trillion dollars of paper losses on the central bank’s books if interest rates rise abruptly from recent levels.

That sum is the difference between the value of securities in the Fed’s portfolio on Dec. 31 and what they may fetch in three years, according to data compiled by MSCI Inc. of New York for Bloomberg News. MSCI applied scenarios devised by the Fed itself for stress-testing the nation’s 19 largest banks.
MSCI sees the market value of Fed holdings shrinking by $547 billion over three years under an adverse scenario that includes an economic contraction and rising inflation. MSCI puts the Fed’s mark-to-market loss at less than half that, or $216 billion, if the economy performs in line with consensus forecasts of gradually rising growth, inflation and interest rates.
The potential losses are unprecedented in the Fed’s 100- year history, and Bernanke has never used congressional testimony to give a detailed explanation of the consequences of shifting hundreds of billions in interest-rate risk from private portfolios onto the Fed’s balance ...

The first two rounds of bond purchases “may have raised the level of output by almost 3 percent and increased private payroll employment by more than 2 million jobs, relative to what otherwise would have occurred,” Bernanke said in an Aug. 31 speech in Jackson Hole, Wyoming.

‘Diminishing Returns’

“There’s a cost to very significant stimulus -- and that’s OK if the stimulus is a good investment -- and I think a lot of what the Fed has done is a very, very good decision,” said Representative John Delaney, a Maryland Democrat and member of the House Financial Services Committee, where Bernanke testifies tomorrow. “Their actions right now are having diminishing returns and increasing the severity of this future loss that will be incurred as rates go up.”

2---Housing Smoke And Mirrors, GEI

The consensus opinion on the US Housing Market is that it is in recovery mode. Closer analysis of the data reveals that this recovery is artificial; and that the tools that made the recovery have built in a self-destruct mechanism.....

The slow death is easy to visualize. Loans with vintages from 2005-2007, when the bubble was inflating, were the first to have problems. Federal programmes have now got the delinquency rate of these 2005-2007 vintages falling. Loans taken out after 2008 are all accelerating into delinquency. This signals that borrowers since 2008 cannot afford to meet their current debt obligations. This could be because the economy is weak. It could also be because the size of the loans (i.e. the value of the underlying houses) is still too large....

The current rising delinquency line, albeit less steep than in 2008 and 2009, still signals that the housing market is in stress and prices are still too high for buyers. Even with modifications and low interest rates, thanks to the Government and the Fed, the market remains unsustainable. The Federal Programmes and the Federal Reserve have prevented true price discovery from occurring in the present; this price discovery however cannot be avoided. They hope that the discovery will be made in conditions of economic growth, so that the adjustment to realistic market prices for houses is higher rather than lower. The housing market is therefore the hostage of economic growth and not the signal of economic growth.

3---Payday Predators Move to the Internet, economic populist

Payday loans have to be the poster child for exploiting the poor. People should never get a payday loan. Selling blood or begging in the streets is a better option. The Pew Chartable Trust has been on the warpath to expose these exploitive sorts of financial ripoffs which it turns out are quite the profitable business.
Twelve million Americans take out payday loans each year, spending approximately $7.4 billion annually at 20,000 storefronts and hundreds of websites, plus additional sums at a growing number of banks. Though they are marketed as short-term products for temporary needs, payday loans are typically used for ordinary expenses not unexpected emergencies. The average customer ends up indebted for five months and pays $520 in finance charges.
Some of these loans are charging interest rates of 500% and Pew reports the average person taking out a payday loan coughs up $520 in interest and finance charges for just $375 in principle. Who needs the mob and loans sharks when we have payday loans?
The New York Times reports major banks are enabling these predatory lenders evade new state laws which cap interest rates or ban payday loans altogether.

4---Euro debt crisis looms again as Italians defy EU austerity demands, Telegraph

The eurozone’s debt crisis strategy was in chaos on Monday night after anti-austerity parties appeared on track to win a majority of seats in the Italian parliament, vastly complicating efforts to forge a government able to carry through EU-imposed reforms

In an earthquake result, the Five Star protest movement of comedian Beppe Grillo looked likely to emerge as the biggest single party in the lower house. The scourge of bankers and corrupt elites, Mr Grillo has campaigned for a return to the lira and a restructuring of Italy’s €1.9 trillion (£1.64 trillion) public debt.

even though Mr Monti himself suffered a serious defeat.
His Civic List won just 9pc of the vote in what amounted to a popular rejection of his hair-shirt policies. “It is a disaster for Monti, calling into question every thing he has done. He must regret that he ever got drawn into politics,” said Gary Jenkins from Swordfish.

Mr Monti took power 15 months ago at the head of a technocrat team after Mr Berlusconi was forced from office in murky circumstances.

Mr Berlusconi, Italy’s richest man, alleges that he was the victim a “coup d’etat” orchestrated by EU officials and German political leaders, and has made no secret of his thirst for revenge.

“This election is close to being the worst-case scenario for the markets. If there is one wild card in the European pack willing to do anything, it is Silvio Berlusconi, and he is sitting on the biggest barrel of gunpowder in Europe,” said Mr Jenkins.

“Italy is big enough to blow up the whole eurozone. That means Italy’s leader can take a tough line in the pyschological game with Germany. The question is what markets will do. The Italian debt auction on Wednesday will be very interesting to watch.” ...

Mr Monti pushed through draconian fiscal tightening – mostly tax increases – to comply with EU demands, even though Italy’s primary budget was already near balance. Critics say this tipped the economy into needlessly deep recession,

Output contracted by 2.1pc last year, and is expected to fall 1.4pc this year. The economy will have shrunk by almost a tenth from its peak by 2014. The youth jobless rate has reached 37pc. By any measure, it has become a depression.

5---Death by Davos, NYT

This is the way the euro ends: not with the banks but with bunga-bunga.

OK, the euro isn’t doomed — yet. But the Italian election signals that the eurocrats, who never miss an opportunity to miss an opportunity, are getting very close to the edge.

The fundamental fact is that a policy of austerity for all — incredibly harsh austerity in debtor nations, but some austerity in the European core too, and not a hint of expansionary policy anywhere — is a complete failure. None of the nations under Brussels/Berlin-imposed austerity has shown even a hint of economic recovery; unemployment is at society-destroying levels

6---From S&P: Home Prices Closed Out a Strong 2012 According to the S&P/Case-Shiller Home Price Indices, cal risk
Data through December 2012, released today by S&P Dow Jones Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, showed that all three headline composites ended the year with strong gains. The national composite posted an increase of 7.3% for 2012. The 10- and 20-City Composites reported annual returns of 5.9% and 6.8% in 2012. Month-over-month, both the 10- and 20-City Composites moved into positive territory with gains of 0.2%; more than reversing last month’s losses.

In addition to the three composites, nineteen of the 20 MSAs posted positive year-over-year growth – only New York fell.

“Home prices ended 2012 with solid gains,” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Housing and residential construction led the economy in the 2012 fourth quarter. In December’s report all three headline composites and 19 of the 20 cities gained over their levels of a year ago. Month-over-month, 9 cities and both Composites posted positive monthly gains. Seasonally adjusted, there were no monthly declines across all 20 cities.
 
7---Japan Reflation Inspired by Braintrust Created by Shinzo Abe, Bloomberg

Dramatic Shift

“The reflationists have come in from the cold to sit right by the fireplace next to the prime minister,” said Takahiro Sekido, a strategist in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd. who formerly worked at the Bank of Japan. “Their influence was limited until Abe came back, and right now we are on the verge of a dramatic shift in the nation’s monetary policy.” ...

What we are using is a very standard theory of international finance,” Takahashi said in an interview this month. “If you ease monetary policy, the currency will weaken. If you do that, exporters will benefit and shares will rise. It will also encourage inflation and real interest rates will fall, which will also lead to higher share prices and improve capital spending and the economy will improve.”

Economic Outsiders

Economists in favor of reflation were “on the outside for nearly a decade” after the government switched focus to boosting the economy through deregulation instead of keeping pressure on the Bank of Japan, according to Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG in Tokyo and a former Bank of Japan official. “Lawmakers often paid lip-service to fighting deflation, but their heart wasn’t in it.”
Investors are cheering Abe’s brand of economics, with theNikkei 225 (NKY) Stock Average advancing for 12 weeks through Feb. 1, the longest winning streak since 1959. The index is up 22 percent in three months, the largest gain in 18 global stock market indexes tracked by Bloomberg, with Mazda Motor Corp. (7261) more than doubling on the improved export outlook. ...

Deepest Slump

After leaving office in September 2007, Abe watched as the economy sank into its deepest recession since at least the 1950s in the aftermath of the Lehman Brothers Holdings Inc. collapse and ensuing credit storm. The LDP was ousted from office in 2009 after dominating Japan’s government for half a century...

Study Sessions

Abe began attending study group sessions on monetary policy, hosted by Yamamoto, with economists including Hamada, Gakushuin University Professor Iwata and Tokyo University’s Takatoshi Ito, an inflation targeting-advocate rejected in 2008 as a BOJ deputy governor candidate. Other discussants with Abe included Nobuyuki Nakahara, an intellectual father of the BOJ’s first stab at quantitative easing, in 2001, when he was a board member.
“Their ideas entered his head like water soaking into the desert,” Yamamoto said in an interview this month. The current administration’s economic platform “started from there,” he said.
Abe began echoing publicly the view of economists including Iwata and Takahashi. In a broadcast on BS Fuji television in October 2011 he said that the central bank ought to enlarge the monetary base -- or the amount of cash in circulation plus financial institutions’ reserves at the BOJ -- to get out of deflation. Abe declined an interview request from Bloomberg Newslast month.

Japan’s deflationary economy cannot be resolved through monetary policy alone,” Yukari Sato, an upper house LDP lawmaker and former Credit Suisse First Boston economist, said in an interview last week. “It provides an entry point for resolution, which will also require support for demand via fiscal stimulus that will stimulate private demand.”

8---Che dreamed of united Latin America standing strong against the US’ – Guevara’s daughter, RT

9---Deficit Is Falling Dramatically, But Only 6% Know That, smirking chimp

10---Russia is back, in Syria, that is, oilprice

Russia is back. President Vladimir Putin wants the world to acknowledge that Russia remains a global power. He is making his stand in Syria

11---American NGOs pull out of Russia, wsws

A series of events over the past two months point to a marked deterioration in US-Russian relations. The much-hyped “reset” in relations, declared jointly by US Secretary of State Hillary Clinton and Russian Foreign Minister Sergei Lavrov in March 2009, has proved to be ephemeral

The curtailment of foreign-controlled NGOs in Russia is widely understood as the official response to the role those NGOs played in providing assistance to liberal oppositionist groups, which began organizing mass protests in Russia following parliamentary elections in December 2011 that were widely believed to be falsified. The liberal opposition has sought, under the banner of defense of democratic rights, to promote a right-wing agenda aimed at further opening up the country to foreign investment, instituting austerity measures, and building closer ties with Washington.

Friction between NGOs and the Russian government has been building for some time. It reached new heights last October with the official expulsion from Russia of USAID, the United States Agency for International Development. USAID had provided funding for Golos, an election monitoring group that criticized the 2011 elections.

In November, the National Democratic Institute for International Affairs (NDI) evacuated its senior staff from Russia to Lithuania after it was threatened with criminal prosecution by Russian officials. The International Republican Institute (IRI) likewise evacuated its entire staff to Lithuania in December.

It is no secret that these so-called “nongovernmental” organizations are, in fact, funded by the United States government (in the case of the NDI, via the National Endowment for Democracy). Furthermore, many ostensibly independent NGOs operating in Russia receive indirect support from the US government through thousands of circuitous channels. Given the central role that US-backed organizations played in the “color revolutions” of the mid 2000s, which saw the installment of political figures with close ties to Washington in a series of countries in Russia’s traditional sphere of influence, the Kremlin’s fears of US meddling in its internal affairs are by no means groundless....

What lies behind the deteriorating relations are more fundamental geo-political conflicts. The two countries are at loggerheads over Washington’s promotion of Islamist forces in the Middle East and North Africa, its drive for regime-change in Syria, and its participation in the new imperialist scramble for Africa, all of which threaten Russian political and commercial interests.

12----Stalemate in Italy elections, wsws

The poor performance by Monti demonstrates the extent of the popular hatred for the austerity measures dictated by the EU. In late 2011 and under pressure from the EU, the former EU commissioner Monti took over as head of a non-elected technocratic government and introduced drastic austerity measures. They have lowered the living standards of broad sections of the population, while youth unemployment has soared to more than 37 percent.
Monti was supported by the ruling classes throughout Europe and highly praised by the media. Italian voters did not share this enthusiasm, however, as the election result makes clear.
Bersani had long been regarded as the undisputed favorite to win the election. In the last polls published two weeks ago he was still well ahead of Berlusconi. As a result of his insistence on continuing Monti's austerity measures, this lead evaporated quickly.
....
The fact that more than half of all those who went to the polls voted for the list of Berlusconi or Grillo’s Five-Star Movement, both of which conducted campaigns against the EU, indicates the growth of opposition to the European Union in a country traditionally regarded as pro-EU.
The anger against Monti and the European Union could be exploited by right-wing figures because they faced no opposition from the nominal “left”. In common with the Social Democrats in all other European countries, the Democratic Party in Italy fully supports the austerity policies of the EU

13---It's Always the right time to buy,  The Burning Platform

The Incredible Shrinking Inventory

We are told by good old Larry Yun that there are only 1.74 million homes left for sale in this country and at current sales rates we’ll run out of inventory in 4.2 months. Oh the horror. You better buy now, before it’s too late. We must be running out of houses. Someone call Bob Toll. We need more houses built ASAP, before this becomes a crisis. But there seems to be problem with this storyline. Existing home sales are falling. Even using the NAR seasonally manipulated numbers, sales in January were lower than in November. In a country with 133 million housing units, there were 291,000 existing home sales in January. If there is an inventory shortage, why have new home sales fallen every month since May of 2012? There were a total of 10,000 completed new homes sold in December in the entire country. Housing starts plunged by 8.5% in January. Does this happen when you have a strong housing market? Do you believe the NAR inventory figure of 1.74 million homes for sale? The last time the months of supply was this low was early 2005 – during the good old days.....

Let’s examine a few facts to determine the true nature of this shocking inventory shortage. According to the U.S. Census Bureau:
  • There are 133 million housing units in the United States
  • There are 115 million occupied housing units in the country, with 75 million owner occupied and 40 million renter occupied.
  • For the math challenged this means that 13.5%, or 18 million housing units, are vacant.
  • Only 4.3 million are considered summer homes, and 3.9 million are available for rent. That leaves 9.8 million homes completely vacant.
  • The Census Bureau specifically identifies 1.6 million of these vacant housing units as up for sale.
So, with 9.8 million vacant housing units in the country and 1.6 million of these identified as for sale, the NAR and media mouthpieces have the balls to report only 1.74 million homes for sale in the entire U.S. This doesn’t even take into account the massive shadow inventory stuck in the foreclosure pipeline. Of the 75 million owner-occupied housing units in the country, 50 million have a mortgage. Of these houses, a full 10.9% are either delinquent or in the foreclosure process. This totals 5.4 million households, with 1.9 million of these households already in the foreclosure process. The number of distressed households is still double the long-term average, even with historically low mortgage rates, multiple government mortgage relief programs (HARP), and Fannie, Freddie and the FHA guaranteeing 90% of all mortgages. Do you think the NAR is including any of these 5.4 million distressed houses in their inventory numbers?...


Then we have the little matter of a few home occupiers still underwater on their mortgages. After this fabulous two year housing recovery touted by shills and shysters, only 27.5% of ALL mortgage holders are underwater on their mortgage. This means 13.8 million households are in a negative equity position. Those with 5% or less equity are effectively underwater since closing costs usually exceed 6% of the house’s value. That adds another 2.2 million households to the negative equity bucket. Do you think any of these 16 million households would be selling if they could? ...

The media, NAHB, and certain bloggers look at this chart and declare that new home sales are up 20% from 2011 levels. Sounds awesome. I look at this chart and note that 2011 was the lowest number of new home sales in U.S. history. I look at this chart and note that new home sales are 75% below the peak in 2005. I look at this chart and note that new home sales are lower today than at the bottom of every recession over the last fifty years. I look at this chart and note that new home sales are lower today than they were in 1963, when the population of the United States was a mere 189 million, 40% less than today’s population. Do you see any signs of a strong housing recovery in this chart?

The housing cheerleaders look at the chart below and crow about a 75% increase in housing starts. I look at this chart and note that housing starts in 2009 were the lowest in recorded U.S. history. ...

distressed homes (foreclosed & short sales) now make up 23% of all home sales and have accounted for well over 30% of all home sales since 2010. Another 28% of home sales are all-cash sales to investors looking to turn them into rental units or flip them for a quick buck. Lastly, 30% of homes are being bought by first time home buyer pansies who have been lured into the market by 3.5% down payment loans through the FHA, with the future losses born by middle class taxpayers who had no say in the matter. Prior to the housing crash, normal buyers who just wanted a place to live, accounted for 90% of all home purchases. Today they make up less than 30% of home buyers.....
 

Monday, February 25, 2013

Today's links

1---S&P 500 Falls Most Since November Amid Italy Elections, Bloomberg

2---Krugman on austerity, economists view

.....austerity hasn’t even achieved the minimal goal of reducing debt burdens. And because austerity policies haven’t been offset by expansionary policies elsewhere, the European economy as a whole ... is back in recession...
Given all of this, one might have expected some reconsideration and soul-searching on the part of European officials, some hints of flexibility. Instead, however, top officials have become even more insistent that austerity is the one true path. ...
 
3---Social counterrevolution in Greece, wsws

In 2010, the social democratic PASOK regime in Greece imposed the first of five austerity programmes. Its aim was nothing less than to turn back the clock of history by reducing the working class to levels of poverty not witnessed in decades. These attacks were carried out to the letter according to the dictates of the troika—the International Monetary Fund, European Union (EU) and European Central Bank—acting on behalf of international finance capital and the Greek ruling elite.

Within the space of three years, a social counter-revolution has taken place. Mass unemployment now exists, with many others classed as part of the “working poor”, unable to meet their basic needs. People face the real prospect of starvation, relying on soup kitchens and general food distribution programmes to eat, with the Church of Greece alone distributing approximately 250,000 daily rations. There are regular reports of children fainting in school due to low calorie intake. The level of homelessness in Greece now unofficially stands at 40,000.

Public health care is near collapse, and basic provision is either no longer available or unaffordable for millions. Half of all Greece’s unemployed have no health insurance. The Medical Society of Athens, the largest professional body of its kind, recently described the situation in Greece as a “humanitarian crisis”, and sent a formal letter to the United Nations asking for it to intervene.

4---Bernanke’s Stimulus Spurring U.S. Employment in Housing, Bloomberg

5--- The Obama sellout, American Prospect

President Obama has explicitly offered cuts in Social Security and Medicare if the Republicans will go along with higher taxes. For those who oppose cuts to these programs, the generous view of this maneuver is that he knows that the Republicans won’t budge on taxes; by offering a compromise, he is simply making them look unreasonable. The less generous view is that he is actually willing to make cuts in these programs, sharing the view of Washington Post-centrist types that seniors are living too high on the hog.
While the odds are against a “grand bargain” that couples tax increases with cuts to Medicare, Medicaid, and Social Security, it remains a possibility. However, it’s more likely that President Obama and Congress will agree to some scaled-down version of the sequester... This will have the deficit hawks yelling and screaming, but that would be the best plausible outcome from the standpoint of the economy. ...
 
6--The Euro Depression, VOX

7--There is no housing bubble in Southern California, scpr

8---Sequester to spearhead historic assault on US social programs, wsws

9---Leveraged loan market on fire, sober look

10--The Fed to face challenges as it ultimately exits the unprecedented monetary expansion, sober look

11---Is the US facing a housing shortage, sober look

12---2 Big Bailouts, oc housing

13---Fed Exit Strategy a Work in Progress, WSJ

14--The Rise of finance, WSJ



The graph above shows that the financial industry now makes roughly half of all nonfarm corporate profits in the U.S., a share which has risen five-fold since the end of World War II.

15---MBS Market Wrong on QE3 Timing, Analysts Contend, WSJ

Sunday, February 24, 2013

Today's links

1---Drop-off in first-time homebuyers troubling, Seattle Times

2--Housing starts fall as confidence declines, yahoo finance

3---Big banks are as risky as ever, economist warns, CBS

From putting in a safety net in order to have a safer system, we ended up enabling more borrowing," Admati said. "As a result, equity levels declined almost continuously from 25 percent down to the single digits over the 20th century. And then, in the last 20 or 30 years, banks have found clever ways to borrow through derivatives markets and other innovations. That allowed more borrowing and also more hiding of leverage."
Debt-laden banks have little margin for error. When financial conditions sour and their assets lose value, they can get into trouble in a hurry. Indeed, this debt "overhang" can destabilize lenders even before a downturn hits. That's because borrowing amps up a bank's financial gains -- including executive bonuses -- while losses are shared by creditors. Given this misalignment in incentives, borrowing begets borrowing.
"We have to fight back against this addiction to debt," Admati said. "It's as if someone is driving too fast -- we have to slow them down. There's too much collateral damage."...

Admati's preferred fix is for big banks to use much more equity to fund their assets and investments and much less debt. After all, just as homeowners are less likely to get foreclosed the more equity they have in their houses, so banks are more likely to remain solvent the more equity they have in their business. Enhancing a financial institution's ability to absorb losses by requiring them to hold more equity also reassures a lender's depositors and creditors, guarding against the kind of crippling bank runs that paralyzed the financial system in September 2008

4---The Wage Theft Epidemic, In These Times

5---Is the US facing a housing shortage?, sober look

Homes available for sale as well as the housing supplies measured in months are now at pre-recession levels, while household formation continues to recover (see post). This development was predicted by William Wheaton back in 2009

Forbes: - Most striking however is the fact that inventory has contracted to its lowest level since December 1999, more than 13 years ago. The number of available homes, which is not seasonally adjusted, fell 4.9% from December and is 25.3% lower than a year ago. With 1.74 million homes on the market, at the current sales pace, supply will be exhausted in just over four months. It represents the lowest housing supply since April 2005. In a normal market, a healthy supply level is about six months.A number of economists continue to talk about the shadow inventory - the millions of homes that are "about to hit the market" as homeowners have or shortly will fail on their mortgages. Some evidence suggests that in the more depressed housing areas banks are indeed sitting on foreclosed properties, unwilling to sell. But a number of banks have also been aggressively modifying mortgages, reducing principal and interest, and therefore cutting delinquencies.

Clearly many more homes will be hitting the markets this year. But it really doesn't make much difference if people who move out of these homes end up buying or renting - they need to live somewhere. And according to the Census Bureau, rental vacancies are near a 10-year low.

6---Major Banks Aid in Payday Loans Banned by States, NYT

7---Insane Levels of Inequality – Which Hurt the Economy – Are Skyrocketing, washington's blog

But inequality in America today is actually twice as bad as in ancient Rome , worse than it was in in Tsarist Russia, Gilded Age America, modern Egypt, Tunisia or Yemen, many banana republics in Latin America, and worse than experienced by slaves in 1774 colonial America.

Bloomberg reports:
The financial industry spends hundreds of millions of dollars every election cycle on campaign donations and lobbying, much of which is aimed at maintaining the subsidy [to the banks by the public]. The result is a bloated financial sector and recurring credit gluts.
Indeed, the big banks literally own the Federal Reserve. And they own Washington D.C. politicians, lock stock and barrel

8---The stock market bubble, wsws

9--Marx vs Keynes, Yanis Varoufakis

Marx’s theory of capitalism is, thus, a splendidly narrated tragic tale which captures beautifully the basic contradictions built into capitalism’s foundations. However, and here I think Keynes’ contribution enters the stage, there is something important missing in Marx’s analysis of crashes and crises. What? The possibility that, when the ‘faeces hits the fan’, and some monumental, as opposed to run-of-the-mill, Crash occurs (as it did in 1929 and then again in 2008), capitalists will simply fail to play the game that Marx said they will. What game is that? Of investing in capital goods, production, labour, every penny they have accumulated as a result of past and present profits. Instead, as Keynes so eloquently said: “The modern capitalist is a fair-weather sailor. As soon as a storm rises, he abandons the duties of navigation and even sinks the boats which might carry him to safety by his haste to push his neighbour off and himself in.

The main point here is that Keynes rejects a standard assumption all his predecessors made, including Marx: that all profits are automatically re-invested. Keynes’ argument is that whether they are or not depends on average optimism; recall the little game that I used in the original post as an illustration of the importance of optimism. Marx left no room for optimism in his analysis. This is why crises, in his theory (e.g. Vol. 1 of Das Kapital), are redemptive: they generate misery but, also, they immediately start the process for the next recovery.

Why did Marx not consider the possibility that a recession, a crisis, can lead to a depression, a capital ‘c’ Crisis? Because, the answer is, he was in the business of, what David and I refer to, immanent criticism (see below for more). And what is immanent criticism? In brief, it is the following: You take the establishment theory, the dominant paradigm, and you refrain from criticising its basic presumptions. What you do is to show that, by its own criteria, on the basis of its own assumptions, the model (or theory) which the Establishment accepts as valid, produces ‘subversive’ results. Nothing upsets the Establishment more than to have something like this demonstrated; that its ‘favourite’ theory recommends views and policies which are detrimental to the Establishment’s own ideology.

In practical terms, what Marx did was to take the model of capitalism that had the most kudos in his time (i.e. the theories of Adam Smith ad David Ricardo) and show that, by their own criteria, and under the force of their own assumptions, even the most efficient, most competitive, corruption-free capitalism would, unavoidably generate crises. To show this, Marx strove to demonstrate that, even if all profits were automatically saved, capitalism would periodically fall in deep holes of its own making. This was quite an achievement; one with lasting value. For it alerts us to reasons why crises occur in capitalism; reasons that go well beyond the creation of (Austrian, Hayek-like) bubbles, of a depletion in optimism (negative animal spirits, as Keynesians might have called it), of over-indebtedness by governments, corporations etc.

And Keynes? Without ever having acknowledged Marx’s contribution, he instinctively understood something important about capitalism that Marx did not allow himself to dwell upon: that when capitalism digs a hole and then falls into it, it is perfectly capable of failing to climb out again. You see, the difference between Keynes and Marx was that Keynes believed in capitalism; he thought of it a little like Churchill thought of democracy (a terrible form of government but the best of all available alternatives). In fact, Keynes was eager to save capitalism from itself; to identify faults in its functioning and fix them so as to prevent crises from turning into implosions with the capacity to undermine its long term future.

Marx, on the other hand, had an agenda for transcending capitalism (socialism, he called the ‘next’, more developed, phase). For this reason, his analytical endeavours were all about concentrating on a utopian capitalism (one in which, for example, all profits are automatically invested) in order to show that, even in its utopian guise, capitalism is irrational, inefficient, unnatural, wasteful.

Which brings us to Great Recessions and the likelihood that they may turn into Depressions. Marx had no time for this question, dedicated as he was to showing that even an ideal form capitalism ought to be ‘overcome’. Keynes did. Having questioned the automatic investment of all accumulated profits, his mind was ready to explain the 1930s Depression in terms of a failure of the redemptive powers of the capitalist dynamic. Today, here in Europe, Keynes would busily apply this insight to explain the eurozone’s failure to respond to austerian policies and to recover even though labour costs and interest rates are falling fast. Whether Marx would have done the same, or rather concentrate on treating the Crisis as an opportunity for bringing about a socialist eurozone, is not a question that I think it is fair (to Marx) to answer.
So, back to David’s original question: Am I overly concerned about ‘recovering’ the ‘real’ Keynes? No. Indeed, I am utterly uninterested in any of the dead white men per se. I am just keen to retrieve Keynes’ precious idea during the time of Crisis (and, in the case of Greece, a Depression): that once negative expectations dominate the mind of capitalists, drops in wages and interest rates will do nothing to restore investment and growth. Why? Because these negative expectations suffice to generate a negative-expectations (a ‘bad’) equilibrium that Keynes grasped (in the manner I explained in my previous post) but which his IS-LM-Samuelsonian ‘Keynesian’ followers are forced to bypass (courtesy of their models’ construction).
Finally, at the political level, David’s question boils down to this: Is the Crisis not an opportunity to go beyond a discussion of how to bring about capitalism’s recovery? Is it not the right time to discuss ways and means of transcending capitalism? My answer is simple: Like David, I too disagree with Keynes on the intertemporal merits of capitalism. Marx was right: capitalism cannot be civilised by means of some benevolent government that applies the right dosage of fiscal and monetary policy at the right time.

Saturday, February 23, 2013

Today's links

1--The Never Ending Shrinking European Economy, economic populist

2---They Bailed On Their Homes - Now They Want Back In, CNBC

3---Osborne vows to stick to Coalition's economic plan despite loss of Britain's triple A credit rating, Telegraph (The stupidest man on earth?)
George Osborne has vowed to stick to the Coalition’s economic plans even after Britain lost its cherished AAA credit rating amid concern about weak growth and rising debt.

4---Eurozone crisis as it happened: EC admits recession will be deeper than feared, Guardian

 
 
Does the arrival of the latest wave signal another bubble in the making?
       
Assuming it continues, the current merger boom is still in its early stages, far from the excesses that characterized previous peaks. The wave that began in 2005 lasted nearly three years before cratering.
“We’re nowhere near the frothy part of the cycle,” Mr. Schwarzman said. “People are doing sensible things.”
He pointed to this week’s announcement of talks between OfficeMax and Office Depot, a classic example of a merger between two companies in the same business that would save costs and reduce competition.
The same could be said of the proposed US Airways-American Airlines merger. The cable giant Comcast is buying the rest of NBCUniversal. And there are obvious synergies between a food company like Heinz and 3G Capital, which owns Burger King. None of these deals are being driven by high debt or dubious financing.
Joshua M. Brown, vice president for investments at Fusion Analytics, went so far as to call this the “healthiest M.& A. boom in decades” on his “Reformed Broker” blog. “People are so pessimistic that the second anything positive happens, they call it a bubble. But this is not 2007. Most of these are cash deals. They’re very responsible. What would be irresponsible would be for Warren Buffett to sit around on $20 billion in cash which is earning nothing.” ...
 
The warning signs are always the same,” Mr. Schwarzman said. “High prices, very high multiples, low cost of money, stock deals rather than cash, companies buying businesses they know nothing about, and sometimes very high leverage.”
 
 
The window of opportunities to reach consent on the US missile shield in Europe is elapsing, PM Dmitry Medvedev told Cuban media, as Russia will have to retaliate to protect national strategic interests - no matter who is in charge in the Kremlin.
Russia and the US should reach an agreement on the American missile shield being deployed in Europe before 2020, or it will become meaningless, said Medvedev in an exclusive interview to Prensa Latina news agency.

“While serving my presidential term I specified that we’re approaching the event horizon for this decision, which is the end of this decade, maybe even a bit earlier,” Medvedev said.

“If we cannot make a deal, the consequences for the international relations are going to be highly unpleasant, because we will have to adopt retaliatory measures. Any Russian government or head of state will riposte, simply because this is in our strategic interest,” Russian PM explained.

Dmitry Medvedev acknowledged that the missile shield issue remains the main stumbling block in Russia-US relations and little progress has been reached so far.

“Unfortunately, all our efforts to explain to the Americans that European missile shield in its current form is aimed against Russia, its nuclear capabilities and undermines world’s nuclear balance have been in vain. Our arguments have been heard neither in America nor in NATO,” Medvedev said.

“They try to soothe us saying this is against ‘some other states’. Unfortunately, such speculation does not appear convincing for us. We have delivered our arguments before,” Russian PM argued.

7---America’s most contaminated: Radioactive waste leaks into northwestern river, RT

Radioactive waste is leaking from six underground tanks at America’s most-contaminated facility in Washington, the state’s government announced on Friday. Just how much toxic stew got into the Columbia River’s underground basin is unclear.
The leak at the Hanford Nuclear Reservation has so far not posed an immediate health risk to the public, Governor Jay Inslee said, because it will take a long time, years perhaps, for the waste to reach the groundwater. But the leakages have not been stopped yet.

The US Department of Energy spokeswoman Lindsey Geisler promised federal officials will to collaborate with Washington State to deal with the emergency.

US Senator Ron Wyden from Oregon, who chairs the Senate's Energy and Natural Resources Committee, said that “This should represent an unacceptable threat to the Pacific Northwest for everybody. There are problems that have to be solved, and the Department of Energy cannot say what changes are needed, when they will be completed, or what they will cost

8---Winding down the Fed's balance sheet? No problem says Dean Baker, CEPR

First, the Fed does not have to sell off the bonds. It can simply hold its bonds until maturity as those of us who are a few years ahead of mainstream economists pointed out a while back.

If the Fed were to go this route it could reach its targets for restricting money supply expansion by raising reserve requirements. This shouldn't be that hard a concept to understand, the option appears in every intro textbook. While changing the base of reserves, rather than the money multiplier by changing the reserve requirement, is the preferred manner for the conduct of monetary policy, a set of higher reserve requirements scheduled long in advance should not be too disruptive to the banking system. We did use to have much higher reserve requirements. Also, China's central bank routinely uses reserve requirement changes to conduct its monetary policy.

The other point that should jump out at folks is that the projected drop in bond prices, which is the reason that the Fed is projected to lose money, presents a great opportunity for the government to reduce its debt burden. The idea is that long-term bonds issued at the current low interest rates will sell at sharp discounts later in the decade, if interest rates rise as projected.

These discounted prices will give the government the opportunity to reduce its debt by hundreds of billions of dollars -- perhaps more than $1 trillion -- simply by buying these bonds back at lower prices. Such a move would be utterly pointless since it would not change the country's interest burden at all, but since we currently live in a political environment where the debt to GDP ratio is an object of worship, this would be a great way to appease that god. It sure beats big cuts to Social Security and Medicare.

9---What Is The Purpose of QE?, Big Picture

what is QE supposed to do? Bernanke told us in his speech over the summer in Jackson Hole:
“After nearly four years of experience with large-scale asset purchases, a substantial body of empirical work on their effects has emerged. Generally, this research finds that the Federal Reserve’s large-scale purchases have significantly lowered long-term Treasury yields. For example, studies have found that the $1.7 trillion in purchases of Treasury and agency securities under the first LSAP program reduced the yield on 10-year Treasury securities by between 40 and 110 basis points. The $600 billion in Treasury purchases under the second LSAP program has been credited with lowering 10-year yields by an additional 15 to 45 basis points.12 Three studies considering the cumulative influence of all the Federal Reserve’s asset purchases, including those made under the MEP, found total effects between 80 and 120 basis points on the 10-year Treasury yield.13 These effects are economically meaningful.
 
LSAPs also appear to have boosted stock prices, presumably both by lowering discount rates and by improving the economic outlook; it is probably not a coincidence that the sustained recovery in U.S. equity prices began in March 2009, shortly after the FOMC’s decision to greatly expand securities purchases. This effect is potentially important because stock values affect both consumption and investment decisions.
 
 
Several major banks are desperately trying to free up billions of dollars in capital by finally selling what is left of the complex credit portfolios that brought Wall Street to its knees in the 2008 crisis.
...
These books typically consist of credit default swaps used to create exposure to banks and companies, often as synthetic collateralised debt obligations.
     

Still around

CDOs epitomised the excessive financial engineering that helped to lead to the financial crisis, and it may seem surprising that banks still hold billions of dollars worth of them. But as correlation soared in 2008, bank credit desks began haemorrhaging money and many institutions opted to hold on to their positions and hope for improvement, rather than conduct a fire sale....

So even as the total outstanding volume of synthetic CDOs has shrunk to US$25bn from US$105bn in 2007, those still lurking on balance sheets are continuing to wreak havoc – even though correlation has fallen, and most are now in the black....

Some banks may seek to shed assets in a more piecemeal fashion given the difficulty of executing large-scale deals. Either way, CDOs may continue to be a thorn in banks’ sides for a couple more years to come.

11--The Greek Trap, Real News video

12--US blocks UN resolution condemning Damascus terror bombings, wsws

Yesterday US officials blocked a Russian-sponsored resolution at the United Nations Security Council condemning Thursday’s multiple terror bombings in the Syrian capital, Damascus.
The death toll of the bombings, which came amid the ongoing US-led proxy war to oust Syrian President Bashar al-Assad, rose to 83 yesterday, with over 200 wounded. Some 22 people died in three car bombings in northern Damascus. The main car bomb in central Damascus near the ruling Baath Party headquarters and a school killed 63, including many children.

Though no one has taken responsibility for the bombing, it was widely suspected to be the work of the Al Nusra Front, an Al Qaeda-linked group active in the US-backed opposition to Assad, which recently declared that it would launch an offensive to “liberate Damascus.”

When Russian officials presented a UN Security Council Resolution condemning the Damascus terror bombings, the US delegation refused to pass it. Whatever tactical differences exist in Washington over how extensively to arm Al Qaeda and the broader, Islamist-dominated Syrian opposition, the US government stands behind terrorism and mass murder as tools of its Middle East policy.

13--Forecasting more recession and unemployment, the EU demands more austerity, wsws

Cutting the deficit in order to fill the coffers of the banks and major corporations is a shared global imperative—whatever the formal political colouration of governments. Indeed, Rehn’s declaration the previous day that more attention needed to be paid to long-term recovery, and his proposal, in line with IMF recommendations, that repayment schedules for some countries be extended by a year, met with criticism from the European Central Bank, Germany and Austria....

Europe required “reform for the sake of sustainable growth and job-creation, and reform to reinforce the competitiveness of European industry,” said Rehn, alluding not only to the gutting of social welfare programmes, but also to labour market “reforms” that will eliminate protections against layoffs and speedup.
“Constructive social dialogue” between employers and the trade unions “has been a key factor in the successful management of economic crises and structural change,” he continued, calling for the creation of an EU tripartite format involving governments, corporations and trade unions....
      
The European Commission (EC), the administrative arm of the European Union (EU), issued a grim economic report Friday. Its Winter Forecasts predicted that 2013 will mark the second straight year of negative growth in the 17-nation euro zone and a mere 0.1 percent increase in the gross domestic product (GDP) of the whole of the 27-nation EU.
Unemployment will hit a new record of 10.7 percent for the EU in 2013, up from 10.3 percent in 2012, and rise further to 11.0 percent in 2014, the EC said. Joblessness in the nations using the euro currency will hit 12.2 percent this year, with the unemployment rate in Spain rising to 26.9 percent.
All of the economic growth projections were revised downward from those contained in a November report, and the unemployment figures were revised upward. The numbers provide only a pale reflection of social misery and impoverishment already on a scale not seen since the 1930s and about to increase.
Acknowledging that the deepening slump was caused mainly by depressed consumption resulting from severe austerity measures, making it impossible for nations such as France to meet their deficit-reduction targets, Olli Rehn, the European commissioner for economic and monetary affairs, nevertheless demanded that EU member states “stay the course of reform and avoid any loss of momentum.”
Rehn hardly bothered to conceal his role as spokesman for the banks and financial interests, declaring that easing off on the dismantling of social services and slashing of jobs, wages and pensions “could undermine the turnaround in confidence that is underway.” He called the EC Winter Forecasts a “building block” in the effort to regain the trust of investors.
The EC predicted that euro zone GDP will shrink by 0.3 percent in 2013, as against the 0.1 percent growth previously anticipated. Euro zone GDP contracted by 0.6 percent in 2012, belying EC predictions of a 0.1 percent expansion.
The new forecast has economic growth crawling along in 2014 at 1.6 percent for the EU as a whole and 1.4 percent for the euro zone

Friday, February 22, 2013

Today's Links

1---Bubbbles? What bubbles? Bloomberg

Some Fed policy makers already are concerned. Esther George, president of the Federal Reserve Bank of Kansas City, voted against continuing asset purchases at the central bank’s January meeting out of concern about “the risks of future economic and financial imbalances,” according to the minutes.
Prices “of assets such as bonds, agricultural land, and high-yield and leveraged loans are at historically high levels,” George said in a speech Jan. 10.
Farmland values in the Midwest jumped 16 percent last year, the third-largest annual gain since the late 1970s, the Federal Reserve Bank of Chicago said in a Feb. 14 report. Values in Iowaclimbed 20 percent, the most among the five Midwest states.
Fed Governor Jeremy Stein said on Feb. 7 that some credit markets, such as corporate debt, are showing signs of potentially excessive risk-taking, while not posing a threat to financial stability.
“We are seeing a fairly significant pattern of reaching-for-yield behavior emerging in corporate credit,” Stein said in a speech in St. Louis.

Speculative Grade

Stein, who voted in favor of continued asset purchases at the Fed’s January meeting, singled out the speculative grade bond market as an example of potential over-heating.
Investors have piled into speculative-grade bonds, rated below Baa3 by Moody’s Investors Service and lower than BBB- at Standard & Poor’s, driving yields down. The extra yield investors demand to hold the securities rather than Treasuries has fallen to 4.92 percentage points as of Feb. 20 from the record high of 21.82 percentage points in December 2008, according to the Bank of America Merrill Lynch U.S. High YieldIndex. (SPX)
In his Feb. 7 speech, Stein also discussed mortgage real estate investment trusts, which he said had “grown rapidly” by using low-cost, short-term financing to fund purchases of longer-term debt.
Mortgage REITs’ holdings of government-backed home-loan securities rose to about $350 billion last year, from about $90 billion in 2008, according to Nomura Securities International estimates last month.

2---Government by Poll, Bloomberg

Majorities also say overhauls of Social Security and Medicare -- including changes disproportionately aimed at wealthier recipients -- are “necessary” to lower the deficit. ...

Entitlement Changes
Fifty-one percent of respondents say overhauling Social Security is necessary to substantially reduce the deficit, and 58 percent say so of Medicare. Large majorities say they favor changes to curtail those programs, including 59 percent who back creating a sliding income scale for Social Security in which poorer people get more benefits and wealthy people fewer; 63 percent support such a system for Medicare; and 64 percent back curbing the cost-of-living increase for Social Security benefits....

Misunderstood Deficit
At the same time, the size and trajectory of the U.S. deficit is poorly understood by most Americans, with 62 percent saying it’s getting bigger, 28 percent saying it’s staying about the same this year, and just 6 percent saying it’s shrinking. The Congressional Budget Office reported Feb. 6 that the federalbudget deficit is getting smaller, falling to $845 billion this year -- the first time in five years that the gap between taxes and spending will be less than $1 trillion.

Americans also have a skewed picture of what drives federal spending.
At least half correctly pegged defense programs, Social Security and Medicare and Medicaid -- both of which comprise about one fifth of the federal budget -- as accounting for at least 20 percent of federal spending. Yet almost a third of respondents say the same about education -- which actually comprises 2 percent of the budget -- and foreign aid -- which registers at just 1 percent of federal spending. Almost 40 percent of respondents say the social safety net, including food stamps and jobless benefits, make up at least a fifth of the federal budget; in fact, such programs amount to about 13 percent of total spending.

3----China Home-Price Gains May Presage Policy Tightening: Economy, Bloomberg
Real-estate Bubble
In Hong Kong, where home prices have doubled in four years in part due to an influx of buyers from the mainland, the government said today it will double the stamp duty on all properties costing more than HK$2 million ($258,000) amid efforts to prevent a real-estate bubble. The tax will rise to as much as 8.5 percent of the purchase price, Financial Secretary John Tsang said at a briefing.

4---EU extends slump into 2013, Bloomberg

The euro-area economy will shrink in back-to-back years for the first time, driving unemployment higher as governments, consumers and companies curb spending, the European Commission said.

Gross domestic product in the 17-nation region will fall 0.3 percent this year, compared with a November prediction of 0.1 percent growth, the Brussels-based commission forecast today. Unemployment will climb to 12.2 percent, up from the previous estimate of 11.8 percent and 11.4 percent last year.

5----Mortgage applications shrink, Housingwire

6---Bubble Trouble in Calif Housing, oc housing

California is blowing up another. This may seem like good news to homeowners and speculators alike but it could further accelerate the demise of the state’s middle class and push more businesses out of the state.
On its face, a real estate turnaround should be a strong sign of an economic recovery. In Southern California, home sales have jumped 14 percent over last year and the median price is up 16 percent, some 25 percent in Orange County. We may not quite be at 2007 super-bubble levels but we’re getting there, particularly in the more desirable areas.
Asking prices are up almost 30% over the last year, and with the limited inventory, some sellers are getting their WTF asking prices.
Yet, before opening the champagne, we need to look at some of the downsides of this asset recovery. We are not seeing much new construction, particularly of single-family homes, so the supply is not being replenished as inventory sinks. Meanwhile, many of the homebuyers are not families seeking residences, but flippers, Wall Street types and foreign investors. A remarkable one-in-three Southern California home purchasers paid with cash, up from 27 percent from last year.
The high percentage of investor buyers and the large percentage of underwater borrowers will cause the move-up market to suffer for another decade.
It’s clear that this increase is not being fueled primarily by income growth among middle-class Californians; these “prices are rising disconnected from household incomes,” notes one analyst.
The entire so-called housing recovery is entirely based on federal reserve stimulus. Low interest rates give potential buyers much more borrowing power on their stagnant incomes. The danger in this is what happens when this stimulus is removed. The federal reserve has pledged to keep rates this low through 2015, but there is dissension in the ranks, and Bernanke is up for reappointment in 2014, and he likely won’t retain his position. The future of federal reserve policy is anything but certain.
Indeed, California incomes have been dropping somewhat more rapidly, down $2,600 per household from 2007-11, according to the American Community Survey, compared with a $200 drop nationwide....
 
The new bubble can be seen elsewhere in the state. The most prominent inflation in housing values can be seen in the San Francisco Bay Area, which has enjoyed the most buoyant recovery from the recession. Never a cheap area, in 2006, San Francisco reached a median multiple of10.8 and Silicon Valley (San Jose) rose to 9.3. When the bubble imploded, the median multiple fell to 6.7 in both metropolitan areas, still well above any level recorded before the housing bubble. But now, amidst a concentrated boom in the western side of the Bay, the median multiple rose the equivalent of 1.1 years of income in San Francisco (to 7.8) and 1.0 years of income in San Jose (7.9) in a single year.

7---Housing inventory heads back to the 1990s: Housing inventory reaches decade lows and causes unusual trends in the housing market., Dr Housing Bubble

A big part of the market right now is being driven by investor money and low down payment buyers. The little inventory on the market is being fought after like a group of hyenas trying to wrestle away a carcass from a lion. In essence, that is our market today. Historically low inventory being fought after by big Wall Street funds and those seeking to buy. Where does inventory stand?

Current inventory figures
It helps to put the current inventory numbers in perspective:
existing inventory 2013
This is the lowest number of homes for sale on the market in well over a decade. Keep in mind that we have added 34 million more Americans since 2000 and we have virtually the same number of homes available for sale. ...

Inventory in Culver City has fallen by a whopping 80 percent. This is a dramatic decline but also highlights why it is so difficult to purchase a home in today’s market if you are a normal family looking to get in. There are limited numbers of properties available and you are competing with big funds that have heavy target numbers....

Middle class in California is six-figures and up. How many households make more than $100,000 a year? 26 percent. So it should come as no surprise why so many households feel pinched when they are looking to buy. It also helps to explain why only 54 percent of households in California actually own their home. With all the current investor buying, it will be interesting to see if this pushes the renter percentage up as single family homes are pulled off the market as income producing assets. As we discussed in the opening of this article, the buy-sell reaction of a typical sale is muted with these all cash buys. You have one action (buy) and then the property is locked up either as a rental for years or as a flip in less than a year. This part of the calculus is a big reason why we don’t see a net add for each home that is sold given the giant number of investor buying over the last few years

8---Homeowners Rise Above Water on Mortgages, CNBC

Fewer U.S. homeowners owe more on their mortgages than their homes are currently worth, according to a new report from online real estate company Zillow. Nearly two million came out from underwater in 2012, and Zillow analysts estimate another one million more will see positive home equity in 2013. That sounds like a lot, but an estimated 13.8 million borrowers are still lacking any home equity, or 27.5 percent of all homeowners with a mortgage.
 
"Freed from negative equity, homeowners will have more flexibility, and some will likely choose to list their home for sale, helping to ease inventory constraints and moderating sometimes dramatic, demand-driven price increases in some markets," said Zillow Chief Economist Dr. Stan Humphries. "But negative equity is still very high, and millions of homeowners have a very long way to go to get back above water, even with current robust levels of home value appreciation in most areas. As a result, negative equity will remain a major factor in the market for the foreseeable future."
Still millions more are in a "near-negative equity" position, with less than five percent home equity. That makes it impossible for them to sell without having to pay various fees out of pocket. It also gives them nothing to put down on another home....

One cautionary note is that the 90 day delinquency rate increased by 8 basis points, reversing a fairly steady pattern of decline and the largest increase in this rate in three years," notes the MBA's chief economist Jay Brinkmann....

There are currently just 1.74 million homes for sale, the lowest since December of 1999.

9---Sequestration suicide, economic populist

10--Banks Use Punishment to Ditch Troubled Loans: Mortgages, Bloomberg

11---Fed Watch: Fed's Commitment In Question, economists view
http://economistsview.typepad.com/economistsview/2013/02/fed-watch-feds-commitment-in-question.html

12---Confidence is Just around the Corner!, economists view
Kevin O'Rourke:
The good news: confidence is just around the corner, by Kevin O’Rourke, Irish Economy Blog: You might have thought that the disastrous but wholly unsurprising eurozone GDP numbers indicate that the bloc is in a bad way, and will continue to be so until the current macroeconomic policy mix is jettisoned.
Happily, Olli “Don’t mention the multiplier” Rehn hasgood news for us:
The current situation can be summarised like this: we have disappointing hard data from the end of last year, some more encouraging soft data in the recent past and growing investor confidence in the future.
Thank goodness for that.
As noted in the comments of the post, Rehn alsosays:
Rehn urged nations to keep cutting budgets and overhauling their economies in the face of slowing growth. In a statement, he said any shift away from fiscal consolidation would prolong the downturn.
“The decisive policy action undertaken recently is paving the way for a return to recovery,” Rehn said. “We must stay the course of reform and avoid any loss of momentum, which could undermine the turnaround in confidence that is under way, delaying the needed upswing in growth and job creation.”
See also "A week after official figures showed a steep fall in euro-zone output in late 2012 the European Commission has added to the gloom by unveiling some gloomy forecasts for 2013. ..."

13---North Korea: Preparing for War, oilprice

14---Yanis Varoufakis: Europe Needs a Hegemonic Germany, naked capitalism
 

In a sense, a hegemonic Germany will be playing the role that Washington did in the 1950s, adopting an activist policy to re-balance Europe’s economy through efficient surplus recycling. But how can this be achieved, when Germany cannot afford to unleash a Marshall Plan? What institutions will this recycling require?
Two things are clear: Germany should not rely on the failed nexus between national governments and Brussels, which has been responsible for inefficient and corrupt uses of the EU’s structural funds. Also, it is futile to attempt moving in a federal direction, a move that Europe’s peoples are not ready for and whose glacial pace is certain to be outpaced by the galloping crisis. Is there a third way? Yes, there is.
Germany should take another leaf out of the New Dealers who put it on the road to recovery all those years ago: Europe needs its own New Deal, funded by a new class of public finance instruments. Germany can realise such a Recovery Program centred around the European Investment Bank. The EIB already has a proven track record of creating a liquid market for debt instruments that fund successful projects. In collaboration with, and supported by, the European Central Bank, an EIB-ECB partnership has the capacity to energise mountains of hitherto idle savings on pure banking principles, with minimal involvement of member-states and no need for Treaty changes.
All it will take is a German resolve to shift from panicky authoritarianism to a hegemonic, to an enlightened self-interestedness.

15---Watch the data, naked capitalism

For instance, one of the things you’ll hear regularly (more like all the time) is how terrific corporate earnings are. Now on the one hand, corporate earnings have hit the highest proportion of US GDP in recorded history. But when stock touts are talking about corporate earnings, they mean of public companies. S&P 500 earnings peaked in the first quarter of 2012 and have fallen each quarter since then. Third quarter 2012 S&P 500 earnings were 6.3% below the year earlier level.
...

Similarly, this blogger and Sober Look have taken note of the fact that in each of the last three years, the economy strengthened in the first quarter and then the “recovery” petered out. Regular NC commentor and sometime guest blogger Hugh looked under the hood and has more cheery observations:
….note the second graph with the national data from Markit’s US PMI. The tenor of the article is that there have been similar spring peaks in business expansion in each of the last 3 years. But the seasonally unadjusted data for this year is considerably worse this year than the the previous 3. As I keep pointing out, the unadjusted data is where we and the economy actually are at any given point in time. The adjusted data is a trendline. So it is not surprising that the trend is going up in 2013 because that’s what happened in 2010-2012. That is the adjusted (trend) line is going up in 2013 precisely because that’s what it did in spring 2010-2012. In 2010-2012 the trend was being driven and supported by a spike in the unadjusted numbers. The difference this time is that it isn’t. That is there is no support from the unadjusted data (where the economy is) for the spike in the adjusted trendline. I would consider this quite worrisome.
 
16---The corporate buyout surge and economic parasitism, wsws

This month has seen a surge in corporate mergers and acquisitions on a scale not seen since before the 2008 financial meltdown. ....

These buyouts, despite coming amidst a string of indices showing a further weakening of the real economy, have prompted much talk in the media of an economic turnaround. “Mergers Make Comeback: Market Rises and Economy Strengthens,” declared a front page headline of the New York Times last Friday. The claim was rendered particularly absurd by the fact that on the previous day the euro zone had reported its worst quarterly economic contraction since 2009.
Far from heralding a genuine economic recovery, these mergers and acquisitions are entirely parasitic. They do not add one iota of real value to the economy; they do not expand the productive capacity of society; they do not provide new jobs. They are purely financial operations enabling speculators to grow richer through an expansion of paper values that only add to the already existing mountain of debt....

The actual economic and social impact of these types of mergers and buyouts is destructive. They are the prelude to downsizing and cost-cutting involving the closure of facilities and elimination of jobs, inevitably accompanied by new demands for wage cuts and speedups.
These financial manipulations are the means by which the ruling class redistributes wealth from the bottom to the top of society. The ballooning debt that sustains the obscene personal fortunes of the financial aristocrats must, in the end, be paid back. And it is the working class that is to be made to do the paying—through brutal austerity policies backed up by state violence and repression.

The renewed surge in the most predatory forms of speculation is not simply the result of impersonal economic forces. It is, rather, the intended outcome of definite policies pursued by governments and central banks throughout the world, led by the Obama administration and the Federal Reserve in the US. They are seeking to inflate the prices of financial assets—stocks, bonds, derivatives—while they prosecute an economic war against working people....

One of the means of leveraging this cheap credit into mega-profits is to buy up corporations, banks, etc., get control of their cash hoards, load the merged company up with debt, and ruthlessly slash the jobs and wages of the workers.
The souped-up prices on global stock markets facilitate such deal-making, which, in turn, tends to propel stock prices even higher. Global equities hit a new record Wednesday, and the NASDAQ, having fully recovered its losses from 2008, has hit highs not seen since the dot-com bubble at the beginning of the 2000s.
Further contributing to the wave of buyouts is the vast hoard of cash sitting unused on corporate balance sheets. In the third quarter of 2012, corporations held $1.7 trillion in cash, according to the Federal Reserve. But investment in productive activity is contracting. Last quarter, the US economy shrank and business investment seized up even further.

The very fact that four-and-a-half years after the crash, under conditions where there has been no recovery in the real economy, the speculative frenzy is reaching new heights, not just in one or another country, but all over the world, points to the fact that this type of parasitism is integral to the capitalist system, and not a mere blemish on an otherwise healthy organism.
One might add the fact that not a single executive of any major financial institution responsible for plunging the world into the economic abyss has been held accountable. Why? Because this parasitic financial elite exerts a de facto dictatorship over governments and official institutions, and is, in practice, above the law.

All talk of reining in financial speculation while retaining the framework of capitalism, or reforming the system to make it more rational and just, is the product either of naivety, self-delusion or deliberate deception. The system cannot be reformed. It must be replaced....

The current financial boom cannot last. It rests on foundations of sand. A vast edifice of speculative and financial manipulation, sustained by constant injections of central bank cash, bestrides a stricken economy that is sinking further into the abyss. The house-of-cards character of the situation is seen in the panicky response of the markets this week to the publication of Federal Reserve minutes reflecting concerns over the massive expansion of the central bank’s balance sheet. Any hint of a slowdown in the mainline injections of cash sends shudders throughout the financial system.

17---The capitalist crisis and the return of history, David North, wsws

Martin Wolf of the Financial Times wrote on March 8:

It is impossible at such a turning point to know where we are going... Yet the combination of financial collapse with a huge recession, if not something worse, will surely change the world. The legitimacy of the market will weaken. The credibility of the US will be damaged. The authority of China will rise. Globalization itself may founder. This is a time of upheaval.
 
In another column, the Financial Times quotes the following statement by Bernie Sucher, the head of Merrill Lynch operations in Moscow:
 
Our world is broken—and I honestly don't know what is going to replace it. The compass by which we steered as Americans has gone. The last time I saw anything like this, in the sense of disorientation and loss, was among my friends [in Russia] when the Soviet Union broke up.