Saturday, August 31, 2013

Today's Links

1---The war against Syria and American democracy, WSWS (Today's "must read")

The media today functions openly as a mouthpiece of the government, seeing its central purpose as disseminating state lies and covering up for government secrets. It has been transformed through a process of corporatization, of “embedding” journalists in the military, of the purging of anyone who displayed an ounce of critical thought (e.g., NBC’s firing of Peter Arnett in 2003 over his critical coverage of the Iraq invasion).

The generally authoritarian sentiment that prevails in the media today was expressed by the New York Times’ Roger Cohen in his column Friday advocating war against Syria. Popular sentiment be damned, the liberal columnist wrote. “War fatigue in the United States and Britain is not an excuse for the surrender of a commodity of enduring strategic importance—national credibility—to an ephemeral one—public opinion.”

Ten years after the war against Iraq, launched on the basis of complete fabrications, not a single major corporate-controlled newspaper or media outlet has questioned the litany of lies and unsubstantiated claims emanating from the White House.

How is this transformation to be explained? The crisis over Syria is revealing the deeper reality of political life in America. In May 2003, the WSWS noted that “the massive and blatant character of the lies upon which [the Iraq] war was based, and the indifferent and cynical response of the media, are significant manifestations of the general breakdown of bourgeois democratic norms. The political life of the United States reflects in ever more grotesque forms the increasingly oligarchic character of the American state.”

Ten years later, these tendencies have only metastasized. The corporate and financial aristocracy has utilized the crisis that began in 2008 to concentrate in its hands an even greater proportion of the nation’s wealth. Government policy is determined by the interests of the top one percent of the population.

Foreign policy is inseparably linked to domestic policy. The complete indifference of the institutions of the state to all the social concerns of the masses—poverty, unemployment, the destruction of social services—finds its natural complement in foreign policy. What the lower 90 percent income bracket thinks amounts to nothing, with the media assigned the role of attempting to manipulate this thinking with propaganda and lies

2---Obama has "no proof" Assad used chemical weapons. There is abundant proof that US has used them, wsws

Washington is launching a war based on unconfirmed allegations and speculation that it has fashioned into a pretext for military aggression. Moreover, it has no interest in confirming its trumped-up charges, dismissing the investigation on the ground in Syria by UN weapons inspectors as “irrelevant,” even as they began interviewing Syrian soldiers suffering the effects of “rebel” gas attacks....

One could not convict an individual of a third-rate burglary on the basis of such evidence in a US court of law, where the standard is proof beyond a reasonable doubt. Yet the United States government is proposing to use it as the justification for launching a bombardment on Damascus in which thousands will lose their lives.

Not one word of this is to be believed. If one really wanted to know what happened on that day, it would require the interrogation of the CIA, Mossad and Qatari and Saudi intelligence agents who are arming and directing the murderous operations of the anti-Assad forces and undoubtedly played the leading role in organizing the chemical weapons provocation to lay the groundwork for US military action.
Kerry’s remarks Friday only underscored that a principal qualification for the office of US Secretary of State is being a skilled liar and forger. With his aristocratic manners, Kerry reminds one of no one so much as Hitler’s foreign minister Joachim von Ribbentrop, and the objective content of his speech consisted of a global arrogance and criminality that goes beyond that of the German Nazi regime....

What were napalm and Agent Orange, massively deployed during the war in Vietnam that claimed over 3 million lives, if not chemical weapons? And it is US imperialism alone that has employed the most horrific of weapons, the atomic bomb, killing nearly a quarter of a million Japanese civilians in Hiroshima and Nagasaki.
Every war it has waged over the past period has been based on lies, from the fabricated Gulf of Tonkin incident in Vietnam to the nonexistent weapons of mass destruction in Iraq. The impending war on Syria is no exception.

The claim that Washington is only carrying out a “limited” and “tailored” action is false on its face, as the CIA and the Pentagon have been involved over the past two years in fomenting a sectarian civil war and arming the Al Qaeda gangs that are tearing Syria apart. If the Obama administration were truly interested in stopping the bloodshed than it would get the hell out of Syria and stop interfering in its affairs.

3---Washington’s drive to war is laying the foundations for a terrorist attack on the American public that could dwarf 9/11, wsws

The implausibility of this government carrying out such an action on the very day that United Nations weapons inspectors began their work in Damascus—at the invitation of Assad—is passed over in silence. So too is the extensive evidence that the so-called “rebels,” murderous US-backed militias in which Al Qaeda-linked Islamist formations play the leading role, have access to and have repeatedly used chemical weapons.

In the PBS interview, Obama painted Washington as merely a horrified bystander to the violent struggle that has wracked Syria for the past two years, supposedly limiting itself to diplomatic appeals and humanitarian assistance. This is a bald-faced lie. The CIA has coordinated the massive flow of arms and Islamist foreign fighters into Syria, unleashing a bloody sectarian civil war with the aim of achieving regime change. It has armed and trained anti-government forces in Jordan and sent them back into Syria under effective US command to carry out mayhem.

Despite this massive and barely covert intervention, the war for regime change has turned into a debacle, in large measure because the Syrian people are hostile to both imperialist intervention and the attempt to break up a largely secular society and impose an Islamist regime by means of sectarian slaughter....

Why the US, which slaughtered nearly a quarter of a million Japanese in the atomic bombings of Hiroshima and Nagasaki, is the natural enforcer of “international norms” in the use of weaponry is never questioned by the media. More recently, the Pentagon used depleted uranium and white phosphorous in Iraq to slaughter thousands and leave a legacy of birth defects for generations to come......

Washington’s drive to war is laying the foundations for a terrorist attack on the American public that could dwarf 9/11.
This new war based on lies is being prepared in an atmosphere of political crisis and desperation in Washington that reflects the intense internal contradictions plaguing US imperialism. While the initial target of US cruise missiles may be Damascus, the strategic aims that underlie it lead to an ever-broadening conflict that threatens to engulf Iran, Russia and the entire planet

4---Syria: The path of the pipeline, Daily Paul

In all likelihood, the case of the gas is the "background" most of the war against Syria and especially the war that hit the region of Homs. The daily Al-Akhbar has received information from reliable sources that can be summarized that there is a Qatari plan, approved by the U.S. administration, whose goal is the establishment of a new gas pipeline to transport Qatari gas to Europe, Turkey and Israel are parties.

Increasingly, it is likely that the gas is the real bottom line of the war against Syria. This is from leakage from a Western oil giant that the daily Al-Akhbar obtained reliable information, giving details of a Qatari project, supported by the United States, and for the construction of a new pipeline that would transport gas from Qatar to Europe via the Syrian region of Homs. The city and its region are the "node" or "geographical heart" of the project, which, in turn, would provide strategic advantages to Turkey and Israel in the equation of global gas trade.
This new pipeline would take a "land" which starts of Qatar, through Saudi territory and Jordanian territory avoiding Iraqi territory to arrive in Syria and specifically to Homs. From Homs pipeline would branch off into three directions: Latakia on the Syrian coast, Tripoli in northern Lebanon, Turkey.

The main goal of this project is to route the Israeli and Qatari gas to the European continent for distribution throughout Europe, with a threefold objective. The first: break the Russian gas monopoly in Europe. The second: to liberate Turkey from its dependence on Iranian gas. The third: give Israel a chance to export its gas to Europe by land and cost.
Why Homs?
Overall, the above objectives can not be achieved if the route of the pipeline dream did not pass through the region of Homs to be "the main crossroads in the project," because the Qatari gas has no alternative to reach Europe, except that of using large aircraft by sea, which would be longer, a higher cost, not safe for certain areas of the course.

According to information from the same Western oil company, Qatar also plans to buy miles to develop its maritime cargo transport fleet of gas with the ambition to become involved in a much larger U.S. project to revise the equation the global gas trade. At stake, two significant changes. The first is a function of gas discoveries in the Mediterranean by Israel Sea. The second is based on the potential use of the events in Syria, after creating a political situation that would be the main hub of Homs export of Qatari and Israeli gas to Europe.

5---Most news bad for emerging markets, Reuters


The last few weeks have conclusively demonstrated the idiocy of one of the key investment themes since the 2008 Great Recession – namely that with developed economies burdened with excessive debt and in the throes of multiyear deleveraging, investing in emerging markets would not only produce superior returns but was also less risky,” wrote Albert Edwards, a global strategist at Societe Generale, in a note to clients on Wednesday.

“Regular readers will know we have long railed against this idea, having dubbed the BRIC story a Bloody Ridiculous Investment Concept.”
With an extended selloff under way, emerging market central banks are making apparently frantic efforts to buy stability.

The Reserve Bank of India on Thursday engineered a bounce in the hard-hit rupee from recent all-time lows, unveiling a deal whereby it would provide dollars directly to state-run oil companies, which use them to purchase oil abroad. The Brazilian central bank hiked rates yet again, this time by half a percentage point, to 9 percent, its fourth hike in four meetings. Bank Indonesia also hiked by half a percent in a relatively rare inter-meeting move, taking benchmark rates to 7 percent.

CASH FOR GOLD
India particularly showed a note of panic in its attempts to counteract the 20 percent fall in the rupee. Having unveiled a host of other measures to support the rupee, India is mulling a scheme to have banks buy gold from households, according to a Reuters report.
As with oil, India is a big consumer but not a producer of gold, and must send dollars abroad to bring it home. The idea would be to persuade households, many of which keep substantial wealth in gold, to part with it in exchange for rupees. The gold could then be smelted and reused domestically, thereby avoiding the need to send dollars abroad.

Sound desperate to you?

6---Putin:  Obama wants to attack Syria because US-backed rebels are losing, RT

Russian President Vladimir Putin has declared ‘utter nonsense’ the idea that the Syrian government has used chemical weapons on its own people and called on the US to present its supposed evidence to the UN Security Council.
Putin has further called the Western tactic a ‘provocation...

Syrian government forces are advancing, while the so-called rebels are in a tight situation, as they are not nearly as equipped as the government,” Putin told ITAR-TASS. He then laid it out in plain language:
“What those who sponsor the so-called rebels need to achieve is simple – they need to help them in their fight… and if this happens, it would be a tragic development,” Putin said.
Russia believes that any attack would, firstly, increase the already existing tensions in the country, and derail any effort at ending the war.

"Any unilateral use of force without the authorisation of the U.N. Security Council, no matter how 'limited' it is, will be a clear violation of international law, will undermine prospects for a political and diplomatic resolution of the conflict in Syria and will lead to a new round of confrontation and new casualties," said the Russian Foreign Ministry’s spokesman, Aleksandr Lukashevich, adding that the threats issued by Washington “in the absence of any proof” of chemical weapons use.

On Friday, Washington said a plan for a limited military response was in the works to punish Assad for a “brutal and flagrant” chemical attack that allegedly killed more than 1400 people in the capital Damascus 10 days ago.

The Syrian government has been denying all allegations, calling the accusation preposterous and pointing its own accusations against rebel forces, especially Al-Qaeda-linked extremists who have wreaked havoc on the country in the two years since the start of the civil war.

7---Summers, the bankers' best friend, yahoo (Turning the Fed over to Wall Street)

Summers, on the other hand, is safe and reliable, the bankers’ best friend in politics. From the bankers’ point of view, his record is perfect. Summers late 1990s' advocacy of financial deregulation is of course legendary. In the Obama years, he championed the bank bailouts while also fighting attempts to cap the bankers’ bonuses and to set limits on risky bank behavior, including Summers’ opposition to the Volcker rule to limit banks from trading on their own account.

Summers not only shot down proposals by Senator Dodd and others to limit Wall Street bonuses, but took an even more audacious stand: that the AIG unit that helped trigger the entire calamity by writing reckless credit default swaps should also get their mega-bonuses after the fact. Summers explained to a shocked nation that he did not want to “violate the contracts” of these employees, even as the world economy lay in ruins at their handiwork. Even Gordon Gekko would not have had such audacity.

When Summers left the Obama White House, he made a beeline back to Wall Street, just as he had done after leaving the Treasury in 2001. In a normal moral universe, a leading candidate for the Fed Chairmanship would hesitate to pass through the Washington-Wall Street revolving door so quickly and boldly, for fear of triggering public concerns about financial conflict of interest. Yet Summers quickly took up not just one Wall Street position but many, including with DE Shaw, Citigroup, NASDAQ, and other companies....

Many cynics have put the Fed issue far more succinctly. Since the banking lobby is already so powerful in the White House and Congress, why not simplify matters and just turn the Fed over to Wall Street. In fact, Obama seems on the verge of doing so.

8---Banks earn record profit in second quarter on lower loss reserves , LA Times

The nation's banks posted a record $42.2-billion profit in the second quarter as the improving housing market allowed them to set aside less money for losses on mortgages and other loans, the Federal Deposit Insurance Corp. said Thursday.
Profits were up 22.6% in the April-through-June period compared with a year earlier. It marked the 16th straight quarter that total profits at the nation's approximately 7,000 federally insured banks increased year over year, FDIC Chairman Martin J. Gruenberg said

9---How Stimulatory Are Large-Scale Asset Purchases?, SF Fed

Here's the conclusion to a FRBSF Economic Letter from Vasco Cúrdia and Andrea Ferrero on the question of How Stimulatory Are Large-Scale Asset Purchases?:
... Asset purchase programs like QE2 appear to have, at best, moderate effects on economic growth and inflation. Research suggests that the key reason these effects are limited is that bond market segmentation is small. Moreover, the magnitude of LSAP effects depends greatly on expectations for interest rate policy, but those effects are weaker and more uncertain than conventional interest rate policy. This suggests that communication about the beginning of federal funds rate increases will have stronger effects than guidance about the end of asset purchases.

10---Cooler Spending in U.S. Signals Slow Start for Quarter: Economy, Bloomberg

11---Vital Signs: Saving Rate Is Slipping, WSJ

Weak income growth is forcing many consumers to choose between maintaining a current lifestyle or saving more for the future. So far in 2013, households are choosing to spend now and save less.
According to Commerce Department data, consumers had been socking away between 5% and 6.5% of their aftertax income in 2011 and 2012. (Income brought forward into December 2012 for tax reasons caused the rate to spike at the end of last year.) But the saving rate has fallen this year, holding at 4.4% in July.

 One reason that some households are saving less is that they are reaping in new wealth from rising equity and home values. But many households have little financial cushion should a job loss or emergency expense occur.

12---NYSE margin debt just below all-time high, prag cap

The latest reading on NYSE margin debt was just shy of an all-time high.  Borrowing to execute securities trades has not waned much at all in recent months as the July data showed borrowing of $382.1B which was slightly below the all-time record of $384.3B seen in April of this year.  The July reading is up from $376B in June.  Clearly, there’s still a lot of confidence in the minds of traders who are borrowing to execute trades as NYSE margin debt balances certainly appear to have a long-only bias:
margin_debt

13---The decline of the Union; 11.3%: The share of U.S. workers who were union members in 2012, WSJ

The decline in unionization has coincided with a period of stagnant wages for many Americans. As a share of the economy, wage and salary payments have been trending downward for a decade. But economists are divided over whether the erosion of unions is a cause of weak wage growth or a symptom of broader economic and societal shifts.

14---The no growth, low inflation economy, WSJ

Both overall prices and core prices (excluding food and energy) rose a tepid 0.1% in July from a month earlier, a slower pace than in June, according to the Fed’s preferred inflation gauge, the Commerce Department‘s price index for personal consumption expenditures. From a year earlier, overall prices rose 1.4% while core prices rose just 1.2%.

The year-over-year increase in core prices has remained at 1.2% for four consecutive months now. That’s well below the Fed’s target of 2% inflation. Overall prices have gradually risen year-over-year since April, but also are still below the Fed’s target.

Rising prices often signal that the economy is strengthening, indicating that companies have more leverage to charge more for their products and services, and Americans have more money to spend.
The Fed has been looking for signs of higher inflation as it considers scaling back its $85 billion-a-month bond-buying program, perhaps as early as its Sept. 17-18 meeting. There are some signs that prices have been slowly rising in recent months after stagnating earlier in the year. However, inflation still remains very soft by historical standards.

15---Abenomics; Flat wages, slow growth, and higher prices, WSJ

The key now is whether this greater economic activity will push companies to raise worker wages. For now, wages have failed to rise along with the broader economy. With other data today showing consumer prices are rising strongly, a failure of wages to keep pace could hurt consumer confidence down the road....
GDP grew a weaker-than-expected 2.6% in the quarter according to preliminary data released earlier this month. An upward revision, which is common in Japan these days, would add more weight to the recovery story.

16---It's the consumer, stupid, zero hedge

17---Personal Income, Spending Miss; Employee Compensation Plunges, zero hedge

 

Friday, August 30, 2013

Today's Links

1---Consumer Spending in U.S. Rises Below Forecast on Slow Wage Gain, Bloomberg

Consumer spending in the U.S. rose less than forecast in July as income growth slowed, indicating further job gains are needed to sustain household purchases.

Consumer purchases, which account for about 70 percent of the economy, rose 0.1 percent after a revised 0.6 percent increase the prior month that was larger than previously estimated, the Commerce Department reported today in Washington. The median forecast in a Bloomberg survey of economists called for a 0.3 percent rise. Incomes increased 0.1 percent, down from 0.3 percent the previous month...

Gross domestic product grew at a 2.5 percent annualized rate in the second quarter after a 1.1 percent gain in the first three months of the year, the Commerce Department reported yesterday. Consumer spending in the second quarter climbed at a 1.8 percent annualized rate after a 2.3 percent pace in the first three months of the year, the figures showed.
Adjusting consumer spending for inflation, purchases were unchanged in July compared with a 0.2 percent increase the previous month, according to today’s report.

2---Second Quarter GDP: Strong Growth Ain't What It Used to Be, Dean Baker

The Commerce Department release of revised data showing that GDP grew by more than originally reported in the second quarter was generally reported as very positive news. This is striking since the growth rate was only 2.5 percent. (One fifth of this growth was due to more rapid inventory accumulation.)

Most economists estimate the economy's trend growth rate as 2.2 percent to 2.4 percent. The Congressional Budget Office estimates that the economy is currently operating at almost 6 percentage points below its potential. This means that at the second quarter growth rate it will take between 20 and 60 years to get back to potential GDP.

3---Home-loan applications for purchases have declined 14 percent since the start of May when interest rates surged by the most in two decades, according to the Mortgage Bankers Association, and price appreciation has slowed, albeit from the fastest pace in seven years.

The average rate on a 30-year, fixed-rate purchase loan has risen to 4.51 percent from a record-low 3.31 percent in November, according to McLean, Virginia-based Freddie Mac, as the Federal Reserve said it’s planning to wean the economy from its record stimulus. ....Bloomberg

4---JPM in trouble again: "Is bribery wrong"?, Mark Gongloff

When will Wall Street ever learn? For years it has left evidence of its lawbreaking in emails and instant messages. Now it can't seem to stop documenting its sketchy activity in Excel spreadsheets.
The latest example, allegedly, is JPMorgan Chase, which kept a spreadsheet of all the elite "princelings" it hired in China, along with the deals those princelings were supposed to help the bank win, according to a Bloomberg Businessweek report.
This spreadsheet could be a smoldering gun in the government's probe of whether the biggest U.S. bank violated bribery laws with its hiring practices in Asia

5---Home values rise, but millions still drown in debt, Diana Olick

Currently, 23.8 percent of homeowners with a mortgage, or approximately 12.2 million, owe more than their homes are worth, down from 15.3 million one year ago, according to the report. Some, however, are still so far underwater that even with fast-rising prices, it will take years for them to see any home equity.
 
"Widespread rising home values during the past year have helped chip away at negative equity nationwide, helping many homeowners who were only modestly underwater to come up for air. For those homeowners who are deeply underwater, though, there is still a long row to hoe," said Zillow Chief Economist Dr. Stan Humphries in a release. ....

Negative equity will be a factor in these markets for years to come, constraining the supply of homes for sale and keeping people out of the market who might otherwise get involved," said Humphries.

6---Austerity Test Looms in Australia as Abbott Pledges Cuts, Bloomberg

(More proof that austerity is a global banking coup)

7---Expect Weak Jobs & Housing to End Taper Talk, TrimTabs

the reason I think the August jobs number will be particularly weak is that the BLS sends out its surveys to 140,000 employers – including most government entities and big companies – the week that includes the 12th day of the month, which this year was a Monday. And by the week that began August 12, the slump in wages and salaries was four weeks old. In other words, it took six weeks from the beginning of June for the spike in mortgage rates to slow economic growth by the middle of July.

Remember, I have been saying over the past month, including last week’s video and when I was on with Rick Santelli early August that upcoming real estate data will suck. That’s because the early June spike in mortgage rates ended the two year long bull run in single family housing. Now my view that housing is in trouble seems to be fast becoming conventional wisdom

8--(Repeat) Higher interest rates are slowing the US economy, Trimtabs

Let us start first with the underlying economy. Wage and salary growth is puny to non-existent based upon our analysis of the US Treasury’s daily withheld income and employment taxes. Currently wages and salaries are growing at less than 3% year over year before inflation, and the growth rate has been slowing since mid July. The recent slowdown trails the surge in interest rates by six weeks.

All that means is that the housing market has started to slow but the numbers do not yet show that slowdown. Remember mortgage rates spiked early in June. Since closings take place six to 10 weeks after the contract signing, July existing home sales were based on May to early June contracts.

Yes, many Wall Street types are saying that housing will stay strong even if mortgage rates average five percent. After all, five percent is still close to all time lows. Really? That ignores the fact that at today’s 4.9 percent mortgage rate, you need to be making 40 percent more to qualify for the same dollar amount of mortgage then when rates were 3.5 percent. In other words, home affordability has dropped by 40 percent! A 40 percent spike in home costs has to hurt future home sales. And as we get into September, the home sale numbers will be horrendous.

So while higher interest rates are slowing an already slowly growing US economy, stock prices today are virtually unchanged from when Taper Time started May 21. Why are stock prices doing so well as bond plunge in price? Simple. The Fed is still dispensing $4 billion daily in free drug money, $85 billion monthly.

Therefore, the market is unlikely to plunge until the Fed actually starts creating less new money. But any upside growth could be limited as corporate America has turned bearish over the past three weeks. IPOs and new share sales have swamped announced buybacks and cash takeovers since early August. In addition insider selling not only is more than 12 times insider buying but total August insider selling could be the most for any month this year.

Bottom line. Higher interest rates are slowing the US economy. If corporate America remains a seller, then the downside risks to stock prices seem to be much greater than any upside potential. And if the Fed does Taper in September on top of all of the above, watch out below.

9---Consumers on the ropes, zero hedge

The drawing down of personal savings and the flattening out of government transfers indicate that real wage gains must accelerate to support the optimistic Bloomberg consensus forecast that the U.S. economy will expand at the long-term trend growth rate of 2.5 percent in the second half of the year. Acceleration in wage gains can only happen if the pace of job gains, which has slowed during the past three months, increases.

Based on current data, it is going to be difficult for consumers to eke out a gain in disposable income in July. Real personal disposable income is up 1.7 on a year-ago basis and has increased just 0.4 percent when adjusted for inflation....

The near 2 percent year-over-year pace of real personal consumption expenditures is due to two factors.
First, government transfers have helped fill the gap in wages and spending since the start of the recession.
Second, households have consistently drawn down savings to support higher levels of spending than their incomes alone can support.

These conditions cannot persist indefinitely....
Meanwhile, the gap between inflation-adjusted per capita disposable income and real personal consumption expenditures shows that households have yet to adjust to reduced incomes. While households have increased spending at a 1.7 percent rate, slightly above the 20-year average rate of inflation, they have seen adjusted per capita income gains of just 0.4 percent.

Thus, the ability to increase spending now rests on either households ramping up leverage and continuing to draw down savings, or on the Federal government expanding transfer payments. Neither appears likely given the increasing probability of another game of budgetary brinksmanship in Washington and the low-wage bias that has been a persistent feature of the economic recovery.

10---A decade of flat wages, smirking chimp

The wage and benefit growth of the vast majority ... has stagnated, as the fruits of overall growth have accrued disproportionately to the richest households."

As Mishel and Shierholz note, "The wage-setting mechanism has been broken for a generation but has particularly faltered in the last 10 years ..." Corporate profits have reached historic levels and the top one percent of earners have captured virtually all income growth.
We don't have a problem of inadequate wealth. The problem is inadequate wealth distribution. For 99 percent of Americans, wage growth has lagged significantly behind increases in productivity. As the authors note, this is true "regardless of occupation, gender, race/ethnicity, or education level." Since the Great Recession productivity has grown by 7.7 percent, while wages have actually fallen for the bottom 70 percent of earners.

What's more, as Mishel and Shierholz observe, "This lost decade for wages comes on the heels of decades of inadequate wage growth." Between 2001 and 2012 productivity grew by 22.2 percent, while wages grew only 0.8 percent. This was "the norm in white-collar, blue-collar, and service jobs, with little variation among occupational categories."
These figures challenge the traditional assumption that increased productivity helps everyone. They suggest that something has fundamentally changed, that the wealthiest among us are winning more of our nation's riches than ever before.

The Roots of Crisis
A companion report from EPI, The State of Working America, 12th Edition, identifies some of the causes: Growing inequality. Policy inaction which eroded the value of the minimum wage. The weakening of employees' rights. Tax policy. Wall Street deregulation.

11---Experts become confident Treasury will taper first, Housingwire

MBS acquisitions have positive effect on rates...

In response to the study presented at the Jackson Hole conference, Goldman Sachs conducted its own analysis.
“We continue to expect that Fed officials will adjust the mix of instruments somewhat away from QE towards forward guidance at the September meeting and focus most if not all of the tapering on Treasury purchases rather than (current coupon) MBS purchases,” Goldman Sachs said in its analysis.
“We expect the FOMC to taper its asset purchases at the September meeting mostly if not entirely in Treasurys,” said Jari Stehn of Goldman Sachs.

12---UK Parliament rejects serial warmongers, RT

People are sick and tired of being told by elitist neo-con pundits sitting in comfy offices in London, New York or Washington that 'something must be done' as its a record that we've all heard many times before. Iraq lies in ruins after the invasion of 2003 and Libya is in chaos too. Yet despite the disastrous record of US-led military interventions in recent years, and the lies told to justify them, we plebs were still expected to obediently fall into line and support the latest instalment of the neo-cons' Permanent War- an attack on Syria. Its been truly nauseating to see the people who destroyed Iraq and Libya pose as concerned humanitarians in Syria, but now more people than ever before are seeing through the charade. ....

These serial warmongers told us that 'something must be done' in response to an alleged chemical weapons attack in Syria, producing no evidence to back up their claims that the Syrian government was responsible. But this time- unlike in the cases of Kosovo, Iraq and Libya- they've not been listened to. And the neo-cons and 'liberal interventionists', who trumpet so loudly their commitment to spreading 'democracy' around the globe, are not very happy at this wonderful and long overdue sign of a democratic resurgence in Britain. A newspaper poll showed that just 8% of Britons wanted immediate weapons strikes on Syria, but despite that the 'Democracy by Bombs' brigade are condemning yesterday's vote as a black day for democracy. Oh, the irony!

The vote is a huge blow to the tiny but powerful British neo-conservative clique who must have been confident that they'd get their way once again. But things have changed a lot since 2003, and even since 2011, when the neocons got their 'intervention' against Libya.
The Rupert Murdoch media empire, at the forefront for propagandising for the US-led wars of the last two decades, is now isolated in its obsessive screeching for military action and the facts that MPs ignored bellicose pro-'intervention' editorials in Murdoch papers shows us how much they are declining in influence.

13--Triumph of the 1 percent; Personal Income, Spending Miss; Employee Compensation Plunges, zero hedge

On the surface, today's Personal Income and Savings data was not pretty: with Incomes and Spending both rising at 0.1% in July, both missed the expected growth rate of 0.2% and 0.3% respectively. This also meant that the US consumer's savings rate was unchanged at 4.4% in the month, and the downtrend from recent highs continues as more and more of the savings buffer has to be depleted.



But it was once again below the headlines that the truly ugly data lay. A quick look at the components of income showed something very disturbing. After holding relatively firm for the past five months (excluding the violent swings surrounding the 2012 year end accelerated bonus payouts), compensation of employees - the core component of personal income - tumbled by $21.9 billion. This was the biggest monthly slide since May 2012, and as the chart below shows, the downtrend in sequential wage growth has now resulted in a sequential decline in wages.



We eagerly wait to hear how collapsing wages are spun in the context of the "recovery

14---Actor Matt Damon defends whistle-blower Edward Snowden, wsws

Hooray for Damon

15---Amnesty International; A tool for western militarism, a promoter of foreign intervention

From Amnesty blog UK: The international community also needs to take urgent steps to ease the crippling humanitarian situation inside the country, where more than 4.25 million people are believed to be displaced. In particular, it should ensure that all parties to the armed conflict in Syria allow unfettered access to humanitarian organisations and agencies to provide assistance to a civilian population desperate for relief. As for the Syrian government, they really need to allow cross-border access, as well as cross-line access, and they need to do that quickly.

As my colleague Cilina Nasser recently said, "We are beyond hand-wringing on Syria. Civilians continue to be targeted or killed indiscriminately. The time for action is now." That action must include actively prioritising the human rights of all Syrians.



Thursday, August 29, 2013

Today's Links

1---Jump In Mortgage Rates Dampens Irrational Exuberance in Housing Market, Dean Baker

The Commerce Department reported a 13.4 percent plunge in new home sales in July, suggesting a sharp turning point in the housing market. The new home sales are erratic, so this report should be viewed with some caution, but the drop in sales is consistent with realtor accounts from around the country about the market having slowed sharply since the jump in mortgage rates at the end of June.
hmm-2013-08
The July data on new homes sales are especially important since it provides information on contracts signed in July. Most other data on the housing market, such as existing home sales or the various prices indices, are providing information on closed sales. Since there is typically 6-8 weeks between when a contract is signed and the sale is closed, the sales data are not providing information about the current state of the housing market.
 
 
“The Fed probably shares our concern about the recent numbers, strengthening the argument for continued support for the [mortgage-backed security] market,” even if it begins cutting back on asset purchases next month, Goldman analysts wrote.
 
3---QRM rule. What a joke!, Dave Dayen, naked capitalism
 
If everything written in Dodd-Frank were actually implemented as far as mortgage origination standards, we would certainly have a safer system. The problem is that the plain legislative language often doesn’t match the reality of what the regulators produce. This is exactly the case with the “qualified residential mortgage,” or QRM, rule. To make this completely confusing, there already is a qualified mortgage (QM) rule promulgated by the CFPB, which actually retained at least some, though not all, of its teeth. The QRM rule was in the hands of six different financial regulators, and it was supposed to create “risk retention,” where the originator of the loan would have to hold a 5% stake in the loan on its own books, disabling them from distributing the entire risk. Only “qualified residential mortgages” would escape the risk retention requirements.
After the proposed rulemaking, it appears that the QRM will deliver risk retention in name only.
Six regulators—including the Federal Reserve, Federal Deposit Insurance Corp. and Securities and Exchange Commission—on Wednesday issued new proposed rules that would require banks and other issuers of mortgage-backed securities to retain 5% of the credit risk of the bonds on their books, as mandated by the 2010 Dodd-Frank financial-overhaul law.
However, the proposal carries an exemption so broad it wouldn’t apply to securities containing most mortgages made under today’s stricter lending standards, which are of relatively low risk. Rather, the rule would apply to the types of higher-risk loans that were popular before the 2008 financial crisis. The rule effectively sets boundaries for what kind of loans might be offered, and on what terms, once lending standards relax.
Had the rule been in effect last year, at least 98% of loans would have been covered by the exemption, according to Mark Zandi, chief economist at Moody’s Analytics.
There’s an “alternative rule” that would include a 30% down payment for the exemption, but that’s so out of left field that it’s obviously been placed in there as a red herring. The elimination of the down payment is the one that will get implemented for sure....

For those wanting the technical details, regulators basically took away the downpayment requirement in the risk retention rule, replacing it with CFPB’s “ability to pay” rule, which doesn’t require a down payment. There’s really been only one line of argument on the side of the mortgage industry, which enabled them to decisively win this round. That’s the claim that forcing a 5% risk retention would “contract credit for first time home buyers and borrowers without large down payments, and prevented private capital from entering the market.” As James Kwak points out, this is precisely the rationale for the last housing bubble, that actually putting regulations on the go-go mortgage market would disrupt credit, and you just don’t want to do that. We’ve seen decisively that whatever economic benefits come from the disposition of runaway credit are far outweighed by the risks.

4--Regulators Repeat Exactly What They Did During the Last Housing Boom,  James Kwak

 The Dodd-Frank Act was supposed to require securitizers to retain 5 percent of the credit risk of the mortgage-backed securities that they issued, in order to reduce the risk of a repeat of the last housing bubble. Today, the federal financial regulators said, “Whatever,” and ignored that requirement. In particular, they created an exemption that would have covered at least 98 percent of all mortgages issued last year.
Why? Because
“adding additional layers of regulation would have contracted credit for first time home buyers and borrowers without large down payments, and prevented private capital from entering the market.”
That’s according to the head of the Mortgage Bankers Association.
This is the exact same argument that was made in favor of deregulation during the two decades prior to the last financial crisis, without the slightest hint of irony. It’s further proof that everyone has either forgotten that the financial crisis happened or is pretending that it didn’t happen because, well, maybe it won’t happen again?
Even leaving aside the specific merits of this decision, the worrying thing is that the intellectual, regulatory, and political climate seems to be basically the same as it was in 2004: no one wants to to anything that might be construed as hurting the economy, and no one wants to offend the housing industry.

5---Working Poor Have Dimming Faith In Economic Mobility, Policymakers, Survey Finds, Huff Post

The polling of low-wage workers, conducted by Hart Research Associates, found that nearly six in ten either scrape by each month or fail to meet their basic needs, and more than half have relied on public assistance in order to make ends meet. Nearly 80 percent said they don't have the savings they would need to provide for their families during three months without income.

Nearly all low-wage workers polled said performing their jobs well means a lot to them, and four out of five said it's important that their children someday graduate from college. But despite their optimism for their children, most were in agreement on the underpinnings of the U.S. economy: America tends to be a downwardly mobile society, and the country's policies are skewed more to the benefit of the rich than to the poor, they said.

"The prospects for low-wage workers are worsening rather than improving, resulting in widespread pessimism about economic mobility in America," Oxfam said in its report. "They express disbelief that the government is on their side, and think that Congress is biased in favor of wealthy people."

6--These Four Massive Threats Are Hitting Financial Markets All At Once , Mark Gongloff

Emerging Market Slaughter:

The Fed's taper talk has also hammered stocks and currencies in emerging markets such as India and Brazil. Traders had taken cheap money from the Fed and pumped it into developing economies that promised high returns. Some of these countries, such as India, had big current-account deficits with the rest of the world and really needed that hot foreign money. Once the Fed started talking about making money a little less easy, the emerging market trade got less profitable, and traders started collecting their winnings.

In some cases, the selling has calmed down recently. Brazil's Bovespa stock index has rebounded by about 10 percent, following a 20 percent collapse between late May and early July. Other countries haven't been so lucky -- particularly India, where the rupee is still under steady attack, falling to new lows against the U.S. dollar just about daily. The selling has gotten so ugly that some analysts have warned of a repeat of the 1997 Asian financial crisis. Standard & Poor's on Wednesday dismissed this possibility, but then S&P also rated subprime mortgage-backed securities "AAA" before the financial crisis, so...

7---Takeaway from Jackson Hole, Bruegel

Arvind Krishnamurthy writes that there exists theoretically a role for LSAPs on Treasury and mortgage yields even after stripping out signaling effects. For example, in the context of mortgage-backed securities (MBS), consider a setting in which a certain set of sophisticated investors (banks, dealers, asset managers) are the only investors in the MBS market (i.e., it is costly for new investors to enter the market) and these investors have limited access to capital, so that there are limits to arbitrage. This is an environment in which MBS yields will be inflated relative to an Arrow-Debreu complete markets benchmark in which MBS risks are broadly diversified across all savers. If capital constraints are slack, there will be no effects of an MBS purchase on prices. The economy then resembles the frictionless economy of Woodford (2012) where LSAPs have no effects on asset prices. On the other hand, if capital is scarce, as was likely in 2008/2009, there will be effects on prices.

Arvind Krishnamurthy writes that asset purchases can have effects precisely because the asset is traded in a narrow and segmented market. Nevertheless, spillovers may arise in this channel. First, to the extent that the LSAP strengthens intermediaries’ balance sheets and relaxes capital constraints, other assets that are traded in a segmented market and concentrated in the portfolios of the MBS specialized investors will also rise in price. Second, there is a possible macroeconomic spillover. If the affected assets are central to economic activity, then the policy may have significant macroeconomic effects and this indirectly spills over to other asset prices.

Arvind Krishnamurthy writes that the portfolio balance channel of QE works largely through narrow channels that affect the prices of purchased assets, with spillovers depending on particulars of the assets and economic conditions. It does not, as the Fed proposes, work through broad channels such as affecting the term premium on all long-term bonds.

8---New Census Numbers Show Recession’s Effect on Families, NYT

The analysis also found that the recession profoundly affected American families from 2005 to 2011, resulting in a 15 percent decline in homeownership among households with children and a 33 percent increase in households where at least one parent was unemployed.
The recession also saw more mothers enter the work force and an increasing dependence on food stamps.
      
The number of households with an unemployed parent soared by 148 percent in Nevada and by more than 50 percent in California, Colorado, Connecticut, Florida, Hawaii, New Jersey and North Carolina in those years.
“During the recession, economic well-being worsened for families with children,” said Jamie Lewis, a demographer in the bureau’s Fertility and Family Statistics Branch who helped write the analysis. “Even after the recession officially ended in 2009, these measures remained worse than before it began.”
      
The severity of the decline often depended on whether the parents were married. Nine percent of married families were living below the poverty line and receiving food stamps. The proportion among single-mother households was four times greater.
In another shift that might be recession related, a higher percentage of adults ages 25 to 34 lived in their parents’ home in 2012 than in the early 2000s. The share among men increased to 16 percent from 13 percent; among women, it rose to 10 percent from 8 percent.
 
 
Economists say his options to drive down rates include reviving a bond-buying program currently paused at £375 billion ($583 billion) or cutting the BOE's benchmark rate even further
 
 
 
 
Krugman says, "No prob".
 
13---Obama at the Lincoln Memorial, wsws (Today's "must read")
 
The disgusting hypocrisy of Wednesday’s gathering, epitomized in Obama’s speech—indeed, in his very presence at the event—nearly defies description. King’s power as an orator arose from his ability to articulate the social grievances of the oppressed. He and the organizers of the 1963 march, for all of their political limitations, spoke for a genuine mass movement that mobilized hundreds of thousands of workers and poor in the South and in the cities of the North. This movement was animated by ideals of democracy and equality.

Obama represents the opposite. He is a creature of the state. He speaks for the military-intelligence apparatus and Wall Street. This was reflected in the emptiness, insincerity and affectation of his speech, which consisted of a litany of clichés: “from every corner of our country,” “the doors of opportunity,” “reignite the embers of empathy,” “the road will be long,” etc. As usual, Obama evinced no regard for the intelligence of his audience.

He praised the veterans of the civil rights movement for “willingly [going] to jail to protest unjust laws, their cells swelling with the sound of freedom songs.”
But the Obama administration is seeking the extradition and prosecution of Edward Snowden for exposing the unconstitutional surveillance being carried out by the National Security Agency (NSA), persecuting Julian Assange for publishing revelations of US war crimes in Iraq and Afghanistan, and condemning Private Bradley Manning to spend the next 35 years of his life in prison in retribution for his fidelity to the principles proclaimed at the Nuremburg Tribunal after World War II—that soldiers have a duty to defy illegal orders and oppose war crimes committed by their superiors.

The very principle of civil disobedience that was central to the civil rights movement and praised by Obama on Wednesday is repudiated in practice by his administration, which insists, in the manner of all authoritarian regimes, that any violation of the law for whatever reason is tantamount to treason.
King, were he alive and holding the same positions he did 45 years ago, would doubtless be targeted by Obama alongside Snowden and Manning. In fact, King was hounded by the FBI....

Obama spoke as though these processes had nothing to do with himself or his own actions. But everyone knows his White House has overseen the transfer of trillions of taxpayer dollars to the financial industry, while spearheading the gutting of workers’ wages and savage cuts in jobs and social services. And while he bailed out General Motors, Chrysler and the Wall Street banks, he has lined up behind financial hatchet man Kevyn Orr’s efforts to use the bankruptcy court to slash Detroit workers’ pensions, privatize and gut city services, and sell off the artistic treasures in the Detroit Institute of Arts.

What accounted for the social decline of the past 50 years outlined by Obama? In his remarks, the president blamed the people themselves.

“Legitimate grievances against police brutality tipped into excuse-making for criminal behavior,” he declared. “[What] had once been a call for equality of opportunity, the chance for all Americans to work hard and get ahead,” he continued, “was too often framed as a mere desire for government support…as if poverty was an excuse for not raising your child...”
What Obama dared not raise was the real source of the social crisis—the crisis and decline of American capitalism.

Wednesday, August 28, 2013

Today's links

1---Deluded Optimism in Corporate Earnings Growth (Now Shriveling) , Testosterone Pit

For the S&P 500 overall, earnings forecasts for 2013 were nearly chopped in half, from 12.0% in October to 6.5% now. And darker clouds are moving in: as of last week, Thomson Reuters estimates that earnings for Q2 for all sectors except financials will be $200.5, down 0.35% year over year. Declining earnings!
How long can this dichotomy between reality and “pervasive optimism,” as the insider said, go on? Well, it has been going on unperturbed for a while. Despite estimates getting cut with a cleaver, our fabulous S&P 500 has jumped 18.4% since October 1 to its all-time high of 1,710 on August 2 – though it has now given up 4.7%....

Optimism reigns, come heck or high water, despite crummy sales and ongoing pressure on earnings. However, they did slice earnings growth in the telecom sector from a breath-taking 20.3% to 10.7%. Is reality starting to sink in? But look at tech: earnings in 2014 are suddenly going to grow 11.8%, after stagnating in 2013 – based on what, exactly? I don’t know either

2---Financial Times: "World Is Doomed To An Endless Cycle Of Bubble, Financial Crisis And Currency Collapse", zero hedge

3---Rupee in freefall, sober look

And now two risks of serious collateral damage from this devaluation are becoming increasingly real:  (1) a sovereign ratings downgrade and (2) the equity market collapse due to foreign investors' full blown panic.
JPMorgan: - The stagflationary impact of such depreciation is well-known. But, more worryingly, markets have now begun to question whether the currency has entered a zone that could prompt more serious events. Two clear event risks are now appearing on the horizon. First, more currency weakness and its damaging consequences on the fiscal deficit have re-ignited concerns about a sovereign rating downgrade. Second, the risk of a sharp equity outflow has increased. Foreign equity investment is four times that of debt in India, and sustained corporate stress and slowing growth is testing equity investors’ patience. 
At this stage, rising prices, sharply higher interest rates (see post), and a loss of confidence within the business community will bring the economic growth to a standstill, potentially pushing the country into a full blown stagflation.

4---US-Syria saber-rattling is already damaging the economy , sober look

Worst of all is the tremendous uncertainty associated with rising tensions in the Middle East. An environment such as this is not conducive to investing in growth and hiring. While the situation in Syria is tragic, the US economy simply can not afford a massive blow that would result from this conflict.

5---The 43% DTI cap strongly favors those with no consumer debt, oc housing

6---Why Syria? wsws

The imperialist powers increasingly see war as a means to distract attention from the exposure of their criminal operations directed against the people

A central feature of the global explosion of US militarism is Washington’s drive to secure a dominant position not only in the Middle East, but on the entire Eurasian land mass. In recent years, the writings of the late 19th and early 20th century imperialist strategist Sir Halford Mackinder have once again become essential texts for the policymakers in the State Department, Pentagon and CIA. In numerous books and countless articles published in academic journals, what Mackinder called the “world-island”—stretching from the eastern borders of Germany to the western border of China—is deemed to be of decisive strategic importance to the United States and its West European allies.

As one recent study asserts, “The Eurasian landmass ought to be the focal point of the West’s strategic exertions… If the nascent process of Western decline is to be arrested and reversed, a better understanding of the geopolitical relevance of Eurasia, and the struggle therein, and a concerted effort there, is crucial.” [The World Island: Eurasian Geopolitics and the Fate of the West, by Alexandros Petersen] As with all imperialist strategies for world domination, this entails a struggle against powers that are seen as obstacles to its realization. The drive to dominate Eurasia leads inevitably to escalating conflict with Russia and China.

The series of aggressive wars conducted by the United States since the 1990s—in the Balkans, the Middle East and Central Asia—is part of an agenda that envisions the unchallengeable global dominance of the United States. The fact that world domination cannot be achieved without wars that will cost hundreds of millions of lives, and, very possibly, the destruction of the planet, will not deter Washington from plunging ahead.

This strategy of imperialist conquest may be insane, but so was that of Adolf Hitler—whose geopolitical objectives appear almost provincial in scope, when compared to the ambitions of US imperialism. As Trotsky, foreseeing the evolution of American imperialism, wrote nearly 80 years ago: “For Germany, it was a question of ‘organizing Europe.’ The United States must ‘organize’ the world.”

All the imperialist countries confront an ever-worsening social crisis produced by rising social inequality and class tensions. In the United States—where the wealthiest 10 percent of the population owns nearly three quarters of the wealth, and the top 1 percent monopolizes half of that—cities are being forced into bankruptcy amid a relentless assault on wages and living standards.

In Europe, the European Union is disintegrating amid rising tensions between the European powers and an assault on jobs and living standards symbolized by the social devastation of Greece. The more bitter and intractable the conflicts between the major European powers, the more they turn to external aggression as the only policy upon which they can all agree.
The imperialist powers increasingly see war as a means to distract attention from the exposure of their criminal operations directed against the people

7---Turmoil in emerging economies a symptom of global crisis, wsws

This summer’s crisis of the so-called “emerging market” economies reached a new stage last week, as India, Brazil, Turkey and Indonesia all announced emergency measures in an attempt to stem a plunge in their currencies and stock and bond markets.

India, whose rupee has fallen 15 percent versus the US dollar since the start of the year, announced restrictions on the amount of money individuals and companies can send abroad. Turkey raised its interest rates in hopes of curtailing capital flight that has driven down the lira by 10 percent. Indonesia announced steps to increase the availability of dollars in its markets, increase taxes on luxury items and reduce oil imports. Its rupiah has dropped 8 percent this year...

This third round of so-called “quantitative easing,” along with short-term interest rates that have been kept at near zero since late 2008, depressed long-term interest rates in the US and made virtually free cash available to banks and speculators. In addition to driving up US share values and bond prices and boosting corporate profits, this windfall for the financial elite fostered a flood of speculative capital into the so-called emerging economies.

For five years, beginning shortly after the Wall Street crash of September 2008, the banks and hedge funds flooded cheap dollars into economies such as India, Brazil, Turkey and Indonesia, where higher interest rates and faster economic growth guaranteed huge returns on their investments.
Now, along with the prospect of a reduction and ultimate halt in the money-printing operation of the Fed—which had been duplicated by central banks in Britain, Europe and Japan—has come higher interest rates in the US and a reversal in the flow of capital. Almost overnight, the hot money that had boosted the emerging economies has stopped pouring in, and these countries have been hit with a massive flight of capital back to the US and other so-called developed countries.

Some figures provide an indication of the scale of the financial shockwaves hitting these economies. According to Société Génerale, the emerging markets’ bond and stock funds registered net outflows of $20 billion and $26.5 billion respectively over the three months ending August 21.
Investors removed a record $37 billion from emerging market stock and bond funds in June. In the week ending August 21, $1.76 billion was pulled out of emerging market equity funds—more than double the amount that was removed the previous week.
Funds have flowed out of emerging market bonds for 13 straight weeks. In the week ending August 21, another $1.3 billion was removed, up almost $500 million from the previous week....

In many of these countries, banks and corporations took advantage of the relatively high exchange rate of their currencies, under conditions where the Fed’s policies were cheapening the dollar, to take on dollar denominated debt. Now they are finding it difficult to meet their debt payments because it costs much more to purchase dollars with their national currencies.
The crisis is particularly sharp for countries that built up large current account deficits and used the hot money pouring in to cover their debts. Now they face the possibility of insolvency. India is one such country. It has a huge current account deficit and a large government debt. There is already talk of India applying for a bailout loan from the International Monetary Fund.

Other countries in this predicament include Brazil, Turkey, South Africa and Indonesia. The last of these recently reported a sharp growth in its current account deficit in the second quarter of this year.
Underlying the financial problems of emerging market countries is the absence of any genuine recovery in the real economies of the United States, Europe or Japan and, instead, a further deterioration in the global economy. The massive infusion of cheap money by the central banks of the US, Europe and Japan into the financial markets is itself an attempt to pump life into a near-dormant world economy.

But while it subsidizes corporate profits and the fortunes of the rich and the super-rich, it does virtually nothing to address mass unemployment, declining living standards and growing poverty. On the contrary, the ruling classes and governments of the US, Europe and Japan all combine vast handouts to the banks with austerity for the masses of working people. Their talk of promoting growth and job-creation is always linked to so-called “structural reforms”—a euphemism for the destruction of all forms of economic security for workers, wage-cutting, the casualization of labor, privatization and the gutting of business regulations.

Tuesday, August 27, 2013

Todays links

1---Amid cuts and closures--A new school year begins in Chicago (austerity agenda smacks Chicago), wsws

Over the summer, CPS instituted the largest school closures in American history, shutting about 50 schools and laying off more than 3,000 teachers and staff. Due to the closures, an estimated 10,000 students will walk longer, more dangerous routes to school each day.

Across the city, and concentrated on the south and west sides where most of the 50 schools were closed, shiny new “Safe Passage” signs contrast with run down or abandoned lots, homes and businesses, pot-holed streets, and closed school buildings. Some parents protested this morning in front of the closed schools....

For some schools, this means spending per-pupil will drop as much as 20 percent, with cuts per school totaling in the millions of dollars. Raise Your Hand, an education advocacy group, reports that 92 schools have lost art teachers, 58 lost physical education teachers, 54 lost music teachers, and 40 lost librarians. Over 160 CPS schools do not even have a library.

This is only a portion of the thousands of staff that have been laid off this year. In May, 550 probationary appointed teachers were let go. In June, 855 staff, including 545 teachers, were laid off as a result of the school closures. In July, more than two thousand—1,036 teachers and 1,077 support staff—were let go. In early August, 200 more lunchroom workers were laid off.

2---As investors shift, housing is the new stock market, CNBC

Housing has morphed from a form of shelter to one of the most popular tradable assets, thanks to a huge influx of institutional investors in a mammoth, albeit decreasing, supply of distressed properties. That is why it should come as no surprise the housing market is now nearly as volatile as the stock market.
"We've seen more volatility in real estate in the past five years than we have in the past 500," said Glenn Kelman, CEO of Redfin, an online real estate sales company.
Nothing proved that better than news last week that sales of newly built homes had plunged over 13 percent month-to-month in July while another report showed healthy gains in sales of existing homes in July. Suddenly, bulls became bears, and blame poured from every blog. Rising mortgage rates, sagging confidence, tight credit, tight supply, even bad weather made the long list of woes, but one stood out in particular—investors pulling out of the housing market....

Investors made up just 16 percent of home buyers nationally in July, according to the National Association of Realtors, compared with 22 percent in February and 25 percent at the beginning of 2009. During the worst of the foreclosure crisis, in some of the hardest hit markets, investors had made up more than half of all buyers.
Large funds like Colony Capital, Blackstone and Waypoint bought thousands of properties, and drove prices higher, faster than most expected. Now they are focusing on filling those houses with renters

3---Japan's pump-primed recovery proves US deficit hawks wrong, Dean Baker, Guardian

Prime minister Shinzo Abe is kickstarting Japan's economy with expansionary policies. So why must the US have a 'lost decade'
 
 
At the end of 2010, the interest rate on a 30-year mortgage was just under 5 percent… 4.97% to be more precise.  Over the next 28 months actions taken by the Fed pushed that rate down as low as 3.42%....
 
But, according to the Wall Street Journal on August 15, 2013… an analysis conducted by economists at Goldman Sachs showed that more than half of all homes sold in in 2012 and 2013 were purchased for all cash… as in without a mortgage.  The Goldman analysis estimated that only 44 cents of every $1 of homes sold currently is being financed.

The Goldman study used figures from the Census Bureau and the National Association of Realtors to analyze  home sales, and the Mortgage Bankers Association and Lender Processing Services provided the data on mortgage-originations.

 The study also stated that, “purchase-mortgage origination volumes have fallen from around $1.5 trillion in 2005, when the housing market peaked, to around $500 billion in each of the last two years.”
Wow.  From $1.5 trillion to $0.5 trillion?  Gosh, I don’t have a calculator with me, but offhand I’d say that’s quite a drop… like, correct me if I’m wrong, but on an annual basis, isn’t that showing a U.S. housing market today that’s only about one third of the size that it was back in 2005… which is like 8 YEARS AGO?...

About July’s decline in new home sales, Bloomberg said, “Last month’s decline was the biggest since May 2010,” which as I recall was the last time our housing markets fell off a cliff as some other stimulus program came to what should have been an expected end, nonetheless “surprising” absolutely everyone.

5---Wage Stagnation and Market Outcomes, NYT

new paper from the Economic Policy Institute provides both diagnosis and prescription of what is arguably the fundamental problem of the United States economy in recent years: wage stagnation.  I’ll briefly describe the findings, but given that these trends have persisted for a long time, it’s more important to think about solutions, particularly ones that go beyond conventional wisdom.
From the report:
Between 2002 and 2012, wages were stagnant or declined for the entire bottom 70 percent of the wage distribution. In other words, the vast majority of wage earners have already experienced a lost decade, one where real wages were either flat or in decline.
This lost decade for wages comes on the heels of decades of inadequate wage growth.

For virtually the entire period since 1979 (with the one exception being the strong wage growth of the late 1990s), wage growth for most workers has been weak. The median worker saw an increase of just 5 percent between 1979 and 2012, despite productivity growth of 74.5 percent — while the 20th percentile worker saw wage erosion of 0.4 percent and the 80th percentile worker saw wage growth of just 17.5 percent...(gov should be employer of last resort) 
6---Real Durable Goods Orders: US Manufacturing Remains In A Slow Motion Collapse, Testosterone Pit

The headline number on durable goods orders was shockingly bad, which we all know is bullish. For a change the SA data wasn’t misleading. Underlying the seasonally massaged (SA) headline data (see Note below), the actual data, not seasonally adjusted (NSA), was just as bad. After backing out inflation, real durable goods orders continue to trend down, a fact that virtually no one in the mainstream media, Wall Street, or economic establishment is paying any attention to, partly because they think there’s no inflation. So we keep hearing BS about the US manufacturing renaissance when the reality is US manufacturing remains solidly entrenched in a secular downtrend with no sign of recovery.
New orders for manufactured durable goods in July decreased $17.8 billion or 7.3 percent to $226.6 billion, the U.S. Census Bureau announced today. This decrease, down following three consecutive monthly increases and followed a 3.9 percent June increase. Excluding transportation, new orders decreased 0.6 percent. Excluding defense, new orders decreased 6.7 percent.
Transportation equipment, also down following three consecutive monthly increases, led the decrease, $16.7 billion or 19.4 percent to $69.7 billion. This was led by nondefense aircraft and parts, which decreased $14.5 billion......

Nominal durable goods orders including inflation apparently track with stock prices pretty well, but that simply camouflages the reality that manufacturing remains in a slow motion collapse while rising stock prices include inflation. But don’t tell the Fed or the “no inflation” crowd that.  Their heads would explode.

 7---What's wrong with Abenomics? Plenty, Testosterone Pit


Abenomics not good for disposable income of the average Japanese: only 6.8% of the Japanese found that their disposable income has increased, while 17.0% lamented a decrease, and 76.1% figured it stayed the same, according to a survey by Orix Bank, a subsidiary of leasing, lending, and financial services mega-conglomerate Orix Corp. But the consumption tax hikes from 5% to 8% scheduled to take effect in April 2014, and to 10% in 2015, are already influencing behavior as we have seen big-ticket items, such as homes, starting to fly off the shelf, so to speak, before the tax hike makes them more expensive. And so to dodge that increase, 14% of the respondents are planning to buy appliances, 13.8% might buy a car, and 13.3% would blow some money on domestic travel. If they do that, it will frontload consumer spending and create – it is already creating in some areas – a mini-bubble that will deflate when the tax hike takes effect. That’s what happened when the consumption tax was hiked in 1997 from 3% to 5%, and Japan fell into a recession afterwards. But it looked good beforehand!

Inflation sneaks further into Japanese economy: The Corporate Services Price Index in July rose 0.4% over July last year, the fourth month in a rose of year-over-year gains. While some sectors saw price decreases, such as information and communication services (down 0.9%), prices in most sectors were up – they rose 0.8% in the huge Finance and Insurance sector. The transportation sector jumped a red-hot 2.7%, after a 1.9% rise in June. Among the items: prices for ocean freight transportation soared 18.3% and international air freight 27.5%, result of the weakened yen. This is going to be lovely for exporters that are already facing tough competition, and it gives them one more reason to offshore production to be closer to their markets.

Abenomics and the price of gasoline in Japan: one of the goals of Abenomics is to devalue the yen, and this has been accomplished very quickly earlier this year. Now the weaker yen is used to buy more expensive oil (currently $104 per barrel), with the predictable consequence that the average price of regular gasoline has been stuck for the third week in a row at the highest level in nearly five years, at ¥160.2 per liter, or $6.12 per US gallon, according to the Agency for Natural Resources and Energy. But in 2008, when the peak occurred, oil sold for $150 per barrel. Just one more detail how Abenomics is raking Japanese consumers over the coals with higher prices.

Japanese luxury sales up, the rest not so much: Same-store sales at convenience stores, where average workers buy onigiri and chilled tea for lunch, slid 0.8% in July, from prior year. During the first half of the month, as the heat wave weighed on the country, sales of drinks, ice cream, and summer items were holding up, but then cooler weather settled over northern regions, and sales slowed. But... the major chains had added 5.7% more stores during the 12 months, and overall sales, including at the new stores, rose 4.6%. Sales at department stores, the upscale shopping enclaves, fell 2.5% in July, the first drop in three months. But luxury items were flying off the shelf. Sales of art and jewelry jumped 14.2% in July, and for June and July combined, they jumped 15.2%, up for the 11th straight month – the true impact of Abenomics (the Fed’s money printing accomplished the same in the US). Clothing sales were soft. The Japan Department Stores Association, which reported these numbers, said that August sales would be solid as hopes were riding high that expensive items would once again do exceedingly well.

Japanese pile into foreign debt to diversify out of harm’s way, from Japan toward the perceived safer shores overseas: they bought a net of ¥1.61 trillion ($16.4 billion) in foreign bonds and notes in the week of August 4-10, the largest net purchase of overseas debt since August 2010, and the sixth week in a row of net buying. Biggest buyers: banks. For months, the BOJ has told banks to unload their vast holdings of JGBs (to the BOJ!), ostensibly so that they would lend that money to businesses and stimulate economic activity, but in reality so that they would get out from under that pile that is likely to lose value and threaten the survival of these banks. As readers of this column saw on August 2, the three TBTF banks got rid of ¥23.8 trillion ($242 billion) in JGBs in the April-June quarter, with Sumitomo dumping about half of its holdings, after having already dumped a bunch in the prior quarter! But the banks aren’t lending; there just isn't any demand for loans as corporations still aren’t investing. Instead, in an ingenious move, banks parked the money they got from the BOJ at the BOJ, and excess reserves at the BOJ soared sevenfold from mid-January through mid-June! Now, the banks found another place to park their money: foreign bonds. How any of this is helping the Japanese economy remains unknown


 
 
From the text (jumbled)---the s&p case-shiller index showing home prices rising a the a slower pace in June. earlier on squawk on the street we talked to index co-author Robert Shiller. well, none of this is for real. the housing market has gotten very speculative and it goes to big cycles. i think there's a risk of a weakening housing market. it's a speculative market. and this has been my research, it's driven by irrational exuberance. and that can just suddenly change. it's a story. it's an evolving story and there's nobody that can really predict this for sure. it's risky. using a phrase he himself came up with. let's get to rick santelli. you have some thoughts on this, rick. yeah. not only do i some thoughts but maybe more importantly i think mark nson has some thoughts. welcome. first time with me as a guest. can you react to robert schiller's comments? i think that's right on the nail there. i was surprised to see june case-shiller actually not increase as much as we even estimated. that's from april, may, and june closings which means february, march, and april contracts, right in the middle of the spring busy season. i was expecting it to be a lot -- up a lot more than it was. and you brought up a great point. sometimes the simple things elude many. i was passing your little note around what you were saying, that prices come before contracts and these are very old. let's go to another area. you know, the who, won't be fooled again. stimulus, how did it affect housing and how does it affect the psyche of the housing players?
 
Mark Hanson---In 2003 when house prices reached a level, they became unaffordable. the banks and investment banks created leverage in structure, interest-loans. house prices collapsed to reset to the going 30-year fixed rate mortgage. then again in 2011 on operation twist, e4, rates created 20% more affordability out of thin air. over the last 20, 22 months, house prices have responded to that. now that's gone again. we're back to 5%. i don't know exactly how it's going to go forward, but if new home sales in july were any sign of what we're going to see, demand has fallen off a cliff and house prices have to again reset to the new levels of finance.
 
all right. inventory. that seems to be the big bullish thread that many are still clinging to in the housing industry, all the analysts. what are your thoughts on current inventory and current irntory levels? one house is too much inventory in a city of dead people. if demand drops, which i think it already has given the interest rate surge catalyst, and we see people listing their properties, even at the same level they were, but i believe it's going to come increasingly as investors get out, as retailers always late to the party list their houses in bigger numbers on the rise in interest rates, we could wake up 24 days from now when the existing home sales number is released and find out we have more supply than we have had in the past 24 months. 
 
9---Housing takes a bearish turn,(Housing's toxic cocktail" Diana Olick, Realty Check, CNBC video
 

From the text--jumbled--- Just when we with thought housing was on solid footing, rising interest rates and may be threatening that recovery. diana is in washington with the story. hey, diana. reporter: they certainly are. the enormous drop in july new home sales really shocked the market and today the bears are taking on the bulls in force. let's recap for a second. july new home sales dropped over 13% month to month. existing home sales actually bumped up a healthy 6 .5%. why the skep? new home sales numbers are based on signed contracts in july and existings are based on closings which were contract signed in may or june. there is the mortgage. if you take a look where rates went from may through july, the jump from 3.5 to over 4.5% according to analyst mark hanson made houses 15% more expensive and it is just the rates. home prices up over 8% from a year ago according to a new report today from lender processing services and this is a lower reading than others like case schiller out toep. they claim a larger survey sample and more accurate way of accounting for the impact of distressed sales on home prices, we know fewer stressed sales and you have rising rates and rising home prices and i call it a toxic cocktail for housing on the new home numbers sea breeze partners says housing, quote, blew up and others claim it is just seasonal.
 
one more factor is investors. this he have been fueling housing for the past few years and pumping up prices in the hardest hit markets and they made up just 16% of buyers in july according to the realtors and that's down from 22% in february and first time buyers are not filling in, not coming back and still at less than a third of the market and should be over 40%. so the bulls are saying, well, one month does not a trend make. i will say i have never heard more bears out than i have today, not in the last couple years anyway.
 
 diana, stick around while we talk about this with mike murphy, our resident housing bull. i mean, it is undeniable at this point it is having an impact if you listen and look at diana's report and the charge that she showed. you have a serious issue, investors dropping off and first time home buyers. here is one thing i point out. the numbers don't lie. you talked about rising mortgage rates. i would argue being bullish on this space, i would argue that mortgage rates have raisen and that's the past, and going forward, there is nothing out there really to tell you that rates are going to continue to rise and they have leveled off here and we also know and i think this is a key point, we know that the administration is very focused on keeping the housing recovery going. would you agree? yeah, but i would argue that you saw this jump up in rates two months ago and that had a lot of people on the fence jump off and jump into housing and worry that rates were going to go even higher and so you did have that bump up in sales that we saw through the summer and i wonder if that's not going to be pulling numbers forward from the fall home sales. i just got off the phone with greg kelman and he is seeing a huge slow down in existing home buyers now and says arm chair investors who are using credit are getting out. we may think that mortgage rates aren't going much higher, but a lot of folks out there think they still may. diana, thanks as always. housing guru diana olick and
 
10---On The Global QE Exit Crisis, Stephen Roach, project syndicate
The global economy could be in the early stages of another crisis. Once again, the US Federal Reserve is in the eye of the storm.

As the Fed attempts to exit from so-called quantitative easing (QE) – its unprecedented policy of massive purchases of long-term assets – many high-flying emerging economies suddenly find themselves in a vise. Currency and stock markets in India and Indonesia are plunging, with collateral damage evident in Brazil, South Africa, and Turkey.

The Fed insists that it is blameless – the same absurd position that it took in the aftermath of the Great Crisis of 2008-2009, when it maintained that its excessive monetary accommodation had nothing to do with the property and credit bubbles that nearly pushed the world into the abyss. It remains steeped in denial: Were it not for the interest-rate suppression that QE has imposed on developed countries since 2009, the search for yield would not have flooded emerging economies with short-term “hot” money.

As in the mid-2000’s, there is plenty of blame to go around this time as well. The Fed is hardly alone in embracing unconventional monetary easing. Moreover, the aforementioned developing economies all have one thing in common: large current-account deficits...

Central bankers have done everything in their power to finesse these problems. Under the leadership of Ben Bernanke and his predecessor, Alan Greenspan, the Fed condoned asset and credit bubbles, treating them as new sources of economic growth. Bernanke has gone even further, arguing that the growth windfall from QE would be more than sufficient to compensate for any destabilizing hot-money flows in and out of emerging economies. Yet the absence of any such growth windfall in a still-sluggish US economy has unmasked QE as little more than a yield-seeking liquidity foil.

The QE exit strategy, if the Fed ever summons the courage to pull it off, would do little more than redirect surplus liquidity from higher-yielding developing markets back to home markets. At present, with the Fed hinting at the first phase of the exit – the so-called QE taper – financial markets are already responding to expectations of reduced money creation and eventual increases in interest rates in the developed world.

Never mind the Fed’s promises that any such moves will be glacial – that it is unlikely to trigger any meaningful increases in policy rates until 2014 or 2015. As the more than 1.1 percentage-point increase in 10-year Treasury yields over the past year indicates, markets have an uncanny knack for discounting glacial events in a short period of time....

Developing economies are now feeling the full force of the Fed’s moment of reckoning. They are guilty of failing to face up to their own rebalancing during the heady days of the QE sugar high. And the Fed is just as guilty, if not more so, for orchestrating this failed policy experiment in the first place.

3---Interview with Bashar al Assad,  global research