Tuesday, December 31, 2013

Today's Links

1--Most US Workers Ill-Prepared To Retire, Survey Finds, IBT

Fifty-seven percent of U.S. workers surveyed reported less than $25,000 in total household savings and investments aside from their homes, EBRI reports. Only 49 percent reported having so little money saved in 2008.
   
Furthermore, 28 percent of Americans have no confidence they will have enough money to retire comfortably -- the highest figure in the study's 23-year history. Still, a majority express some level of confidence (13 percent are very confident and 38 percent are somewhat confident).

2---More Americans delaying retirement until their 80s, CNN

As they struggle to save for retirement, a growing number of middle-class Americans plan to postpone their golden years until they are in their 80's.
Nearly one-third, or 30%, now plan to work until they are 80 or older -- up from 25% a year ago, according to a Wells Fargo survey of 1,000 adults with income less than $100,000.

3--Americans Are $6.8 Trillion Short On Retirement Savings , AP

4---Japan Consumer Prices Seen Rising Five Times as Fast as Wages, Bloomberg
(Workers get schumpted, but stocks head for the moon. Nikkei up 57% on the year.)

Japanese employers will fail in the next fiscal year to heed Prime Minister Shinzo Abe’s goal of wage increases that outpace inflation, highlighting risks that the nation’s recovery will stall, surveys of economists show.

Labor cash earnings, the benchmark for wages, will increase 0.6 percent in the year starting April 1, according to the median forecast in a poll of 16 economists by Bloomberg News. Consumer prices will climb five times faster, increasing 3 percent, as Japan raises a sales tax for the first time since 1997, a separate Bloomberg survey shows.

The squeeze on consumers from higher prices risks undermining public support for Abenomics and dragging on retail spending, unless Abe can convince companies to boost wages to cushion the blow.

“Wage increases will be slower than the rise in prices at least until 2015, dealing a blow to Prime Minister Abe,” said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo. “It will take a while for companies to change their mind-set, which is still mired in deflation.”

5---US mortgage applications tumble to a 13-year low, NYT

The number of Americans applying for mortgages has fallen 63 percent since a May peak, reflecting a cooling housing market and higher borrowing rates
 
 
More working Americans are lining up at emergency food banks and going hungry, as cuts to those programmes take effect...
 
Deep cuts to the US food stamps programme, designed to keep low-income Americans out of hunger in the aftermath of the economic recession, have forced increasing numbers of families such as theirs to rely on food banks and community organisations to stave off hunger.
 
An expansion of the programme, put in place when the recession was biting deepest, was allowed to expire in November, cutting benefits for an estimated 48 million people, including 22 million children, by an average of 7%. 
 
As these cuts begin to bite, even harsher reductions are in prospect. Republicans in the House of Representatives have proposed $38bn cuts over 10 years, in their latest version of a long-delayed farm bill that would also require new work requirements and drug tests for food stamp recipients.
 
The cuts have forced poor families to make tough choices. The Guardian spoke to beneficiaries of the food stamps scheme, known as the Supplemental Nutrition Assistance Programme (Snap), in San Antonio, Texas. As the second most populous US state after California, Texas suffered the second-biggest cut to its Snap programme, affecting 4 million recipients
 
 
 
The ACA is not a government health insurance program and it has absolutely nothing in common with socialized medicine. The central component of the law—the “individual mandate”—requires individuals and families without insurance to purchase coverage from private insurance companies on the “marketplaces” set up under the law, or pay a penalty.
 
The more information that comes to light about the plans being offered through Obamacare demonstrates that, in their rapacious drive to increase profits, private insurance companies are not only charging steep premiums—some 30 percent higher than in the present individual market—but are peddling cut-rate policies with staggering out-of-pocket costs, which also limit access to doctors and hospitals. Despite Obama’s claim that the legislation heralds a new era in access to “near universal, quality health care,” the plans people are mandated by law to purchase will actually have the effect of rationing access to medical care.
 
A recent Kaiser Health News (KHN) story exposes one of the shocks awaiting people who have purchased one of the least expensive “bronze” plans on the Obamacare exchanges. It turns out that many of these plans require the full deductible to be paid before it will cover many doctor visits. As the majority of these “affordable” plans carry deductibles in excess of $5,000, this means that this amount must be spent out of pocket before any coverage even kicks in. As KHN notes, “Experts worry that some enrollees will be discouraged from seeing doctors if they have to pay the full charge, rather than simply a copayment.”...
 
Some of the most important features of the Affordable Care Act revealed since its passage include:
  • By the government’s own estimate, legislation that pledged “near universal coverage” will leave an estimated 31 million Americans uninsured by 2016, according to the Congressional Budget Office (CBO).
  • Obamacare is undermining employer-sponsored health coverage. The CBO estimates that 6 million fewer people will receive employer-sponsored health insurance in 2016 compared to 2013. Employers are increasingly shifting to high-deductible, “consumer driven” coverage.
  • The Affordable Care Act will slash more than $700 billion from the Medicare program for seniors and the disabled over the next decade. Politicians of both big business parties look to Obamacare as a model for the gutting and privatization of Medicare and Social Security.
8---Snowden exposed a genuine totalitarian surveillance system, wsws

One of the presentation slides states that a critical TAO goal is to “subvert endpoint devices.” These include the many main devices that make up modern communication technologies including “servers, workstations, firewalls, routers, handsets, phone switches, SCADA systems, etc.”

Der Spiegel explains, “SCADAs are industrial control systems used in factories, as well as in power plants” and notes that the “most well-known and notorious use of this type of attack was the development of Stuxnet, the computer worm whose existence was discovered in June 2010. The virus was developed jointly by American and Israeli intelligence agencies to sabotage Iran’s nuclear program, and successfully so.”

The TAO has developed various means to gain access to the PCs of Internet users. One slide reveals that TAO is able to gain “passive access” to a machine via Microsoft’s automated PC crash reports. Der Spiegel notes, “even this passive access to error messages provides valuable insights into problems with a targeted person’s computer and, thus, information on security holes that might be exploitable for planting malware or spyware on the unwitting victim’s computer.”

9---Banks as Payday Lenders, NYT (archive)

Monday, December 30, 2013

Today's links

1---Abe rewards Speculators: Abenomics drives Nikkei to highest yearly gain since 1972, Telegraph
(QE works the same everywhere)

Japan's Nikkei stock index climbs 57pc in 2013, its highest in more than 40 years
Japan's main bourse has posted its steepest annual rise in more than 40 years following 12 months of "Abenomics", the new Japanese premier's suite of measures to catapult the economy out of a decades-long slump.
The Nikkei rose for a ninth consecutive session to close 0.7pc higher on its final trading day of the year, bringing its full-year climb to 57pc, the highest since 1972....

 the Nikkei is still well below the dizzying heights reached in the last days of 1989 before Japan's asset bubble burst, when it ran at nearly 39,000. ...

Legislators have passed a bill that paves the way for an opening up of the electricity sector and Abe is pushing through an attempt to strip away protections for the agricultural sector. But it remains to be seen if deeper reforms are in the offing.
And with a sales tax rise planned for April, there are fears that consumer spending will take a dive and stall a budding recovery.
Tokyo has committed about $54bn in extra spending to blunt the impact of the tax rise, while there is growing speculation the Bank of Japan will step in with another round of monetary easing to prop up growth.

2---House Passes Banker-Backed Bill, American free press

The word on Capitol Hill is that this bill, which the White House claims to oppose, would wipe out Section 716 of Dodd-Frank, “Prohibition Against Federal Government Bailouts of Swaps Entities.”

That section “requires banks to use a non-bank entity for trading commodity, energy and other swaps. In other words, if the legislation becomes law, financial institutions could return to conducting high-risk trading with funds that are backed by the FDIC (i.e. the taxpayer),” AllGov.com pointed out, while adding: “Citigroup was responsible for recommendations made in 70 lines of the 85-line bill,” citing the research of New York Times writers Eric Lipton and Ben Protess. According to these reporters, the bill contains a couple of essential paragraphs copied “word for word” from a draft submitted by Citigroup, which Citigroup had developed “in conjunction with other Wall Street banks,” AllGov.com also noted. Thus, Wall Street institutions, if they get their way, could return to gambling with risky “investments” and make the taxpayer cover

3--- Homeownership Expected to Decline, DS News

This year, home value gains will slow down significantly because of higher mortgage rates, more expensive home prices, and more supply created by fewer underwater homeowners and more new construction,” said Dr. Stan Humphries, Zillow’s chief economist. “For buyers, this is welcome news, especially for those in markets where bidding wars were becoming the norm and bubble-like conditions were starting to emerge.”

Second, the company predicts mortgage rates will reach 5 percent by the end of the year—a level not seen since early 2010—as the economy improves and the Federal Reserve adapts its policies. 

4---Did the predatory lending target the inner city, lower income African American communities?  You bet it did, mandelman matters

Did the predatory lending, however, target the inner city, lower income African American communities?  You bet it did.  In fact, I wrote an article about that abomination last year, titled: “Wells Fargo’s Ghetto Loans and the Mud People.”  And if you haven’t read it, you should.  Everyone should.
Our foreclosure crisis is not a race issue.  And, at the same time, it very clearly is.
...

while the CRL study correctly points out that, African Americans, Latinos and other ethnic minorities will pay a higher price as a result of the crisis widening, it will be the legacy of disparity in incomes and education that will be the cause.  This effect will not be the result of the crisis discriminating but from the realities of life in America, a nation still trying to recover from the inequity of segregation.
At the same time, I do believe that there have been racial undertones preventing our society from taking faster action to prevent this crisis.  This crisis was initially mischaracterized as being a “sub-prime” crisis, and because there are racial undertones and racial realities associated with the term “sub-prime,” it is also, I believe, unquestionably true that that our nation has done less to address the crisis to-date than we would have had the affected segment of society been seen as predominantly “white”.  And to the extent that’s the case, all involved should be deeply ashamed.
......


These programs and policies have led to three notable outcomes:
  1. Our banking system didn’t fail, but the toxic assets that were threatening the solvency of our institutions are right where they were in the fall of 2008.
  2. We are much deeper in debt as a result of the massive borrowing and spending associated with “saving” institutions that remain insolvent absent government support.
  3. The money that made the banks appear profitable, combined with no lending and essentially risk-free trading, resulted in a citizenry forced to watch literally hundreds of billions in bonuses handed out to the very individuals that caused the crisis in the first place.
After almost 20 years, Japan should have shown us by now that you can in fact deficit spend for decades without result.  Greece, Spain and others to be named later should show us what happens when the ability to do so runs out....

According to the U.S. Census Department, here’s how the color chart in this country breaks down as of 2000, which we can assume hasn’t changed all that much compared with today in percentage terms.  And please know that I did not write the words below, it’s how the Census describes things.

White alone, non-Hispanic:            199,491,000
Black, or African American:             41,127,000
Hispanic or Latino                        46,944,000
So…

7 percent of white families is: 13,964,370.
11 percent of black or African American families is: 4,523,970
And 17 percent of Hispanic or Latino families is: 7,980,480

Want to know what those numbers show more than anything else?  They show that more than 25 million American families are about to be wiped out, and endure a life changing event because Wall Street’s bankers abused the mortgage securitization process, knowingly creating bonds that appeared to ratings agencies to be “triple A” but weren’t, which was necessary in order to sell them to pension plan investors, because at the same time they distorted and abused the usage of credit default swaps that allowed them to place bets against the defective bonds at 50:1 odds.  Okay, so that’s both an over-simplification and a run-on sentence, but my point is the same.

These same banks leveraged themselves 30 and 40 to one, based on the absurd belief that housing prices would never reverse themselves.  They created toxic mortgage products designed for nothing more than refinancing in a year or two, and then used predatory lending strategies and tactics to take advantage of people of ALL COLORS, of all ethnicities.

5---I worked on the US drone program. The public should know what really goes on, Guardian

6---Obama Signs NDAA, Maintaining Indefinite Detention Provision, truthdig

7---As 2013 draws to a close, capitalist breakdown is intensifying, wsws
(Good summary)

The year has ended with no indication that, more than five years after the deepest financial crisis since the 1930s, the world economy is anywhere nearer to returning to what was once considered “normal” economic growth. Rather than an upturn taking shape, warnings of “secular stagnation”—characterised by permanent low growth, recession, falling investment, ever-lower real wages and persistently high unemployment—are proliferating.

The past 12 months have seen a series of unprecedented monetary policies, most notably the money-printing “quantitative easing” (QE) programs of both the US Federal Reserve and the Bank of Japan, in which trillions of dollars have been provided virtually free of charge to the major banks and financial institutions.

The Fed alone has expanded its balance sheet by more than $1 trillion this year, taking its asset holdings to more than four times what they were at the start of the financial crisis in 2008. The Bank of Japan, in charge of monetary policy in the world’s third largest economy, is committed to doubling the money supply in that country.

Both these programs have been implemented with the claim that they are aimed at stimulating the economy. But the only beneficiaries have been the major banks and financial speculators. While the US economy has grown at an average rate of just 2.3 percent since the recession officially ended in June 2009—compared to a 4.1 percent average for the first four years of other expansions since World War II—the stock market has ended the year at or near record highs. This growth of financial parasitism is reflected in the doubling of the wealth of the world’s global billionaires since 2009.

The flood of money being provided to financial markets as a result of the actions by the Fed and other central banks is laying the foundations for another financial crash even more serious than that of 2008. Bloomberg, for example, has reported that the amount of risky junk-rated loans increased to $693 billion this year, a new record, exceeding the level of $593 billion reached in 2008.

Those predicting an “upturn” in the US economy for 2014 will no doubt point out that the official jobless rate has been falling in the recent period. Such prognoses ignore the fact that most of the new jobs are at significantly lower wage rates—the halving of the wages of new-hires at auto plants under the Obama administration’s 2009 restructuring program set the benchmark in this regard—and that much of the “improvement” is due to increasing numbers of people dropping out of the workforce. Over the past 43 months, more people have left the US labour market than have entered it.

The “quantitative easing” program initiated by the Abe government and the Bank of Japan earlier this year provided an initial boost to the Japanese economy, but the effects are starting to wear off. Last week, the government forecast that real gross domestic product for the fiscal year starting next March would be only 1.4 percent, down from an estimated 2.6 percent for the current year.

It is a measure of the underlying stagnation of the Japanese economy that a report which indicated that real wages had not fallen for the past month, after 17 consecutive monthly declines, was regarded as “good news.”

One of the key indicators of the underlying breakdown of the global capitalist economy is the growing divergence between the accumulation of profits and the level of investment—the central driving force for the expansion of the real economy.

It has been estimated that global corporations are sitting on cash holdings of around $4 trillion—half of which is in the US—because there are so few profitable outlets for new investment. Rather than employing profits to finance expansion of production, companies are increasingly using their cash holdings to finance share buybacks in order to boost equity values, thereby providing financial profits to the hedge funds, banks and investment houses which are the major shareholders of large corporations. This is being accompanied by a major “restructuring”, such as in the global auto industry, leading to the closure of factories and other facilities, some of which have been operating since the early 1950s.

The social effects of “restructuring” are most graphically illustrated in the euro zone, where investment levels are down by as much as 30 percent on pre-2008 levels. Combined with the impact of the austerity programs being implemented by all governments in accordance with the dictates of the banks, the restructuring is bringing social devastation.

A study by the International Red Cross published in October stated that Europe was sinking into a protracted period of poverty, mass unemployment, social exclusion, increased inequality and collective despair as a result of the austerity agenda. “The long-term consequences of this crisis have yet to surface,” the report noted. “The problems caused will be felt for decades even if the economy turns for the better in the near future.”

In the aftermath of the eruption of the global financial crisis, the claim was put forward that China, as well as other “emerging markets”, would be able to decouple from the major economies and provide a new base for global expansion.

That assertion has been well and truly shattered in the past 12 months. An economic conference convened by Chinese authorities earlier this month warned that the world’s second largest economy was facing downward pressure. Chinese industries confronted serious overcapacity and large debts, particularly those held by local governments, threatening financial stability, the conference concluded.

Reactions in the middle of 2013 to the prospects of a “taper” in the Fed’s QE program underscored that, far from decoupling, “emerging markets” are extremely vulnerable to highly volatile capital movements. Turkey, India and Indonesia, to name just some of the most prominent economies, experienced major financial outflows in response to an increase in US interest rates, bringing warnings of a repeat of the Asian financial crisis of 1997–98, only this time on a wider scale, with far-reaching consequences for the stability of the global financial system as a whole.

All of these tendencies are set to deepen in 2014, ruling out the prospect of any recovery in the global economy. The ruling classes have no solution to the crisis other than the impoverishment of the working class and increased repression. The working class the world over must take stock of the situation and use the coming year to develop its own political initiatives based on an international socialist program to confront the ongoing capitalist breakdown

Sunday, December 29, 2013

Today's Links

1---Academics Who Defend Wall St. Reap Reward, NYT
(Lavish rewards for selling out)

2---Americans Still Pessimistic About Economy, TIME

Almost 70 percent think the economy is in bad shape

3---Many Americans feel economy isn't improving, CNN Money

A new CNN/ORC poll released Friday showed people were pessimistic that the economy was improving. Nearly 70% said the economy is generally in poor shape, and only 32% rated it good.

Two-thirds of respondents said most of the economic news they've heard recently was bad news. More rural than urban dwellers said the economy was in poor shape.
And just over half expected the economy to remain in poor shape a year from now.

By some metrics, the economy has moved ahead this year. The stock market, for example, has surged -- the Nasdaq is up nearly 40% since January. Unemployment is at a five-year low point. Auto sales are at a seven-year high. Gas prices have dropped. And the housing sector, which dragged the U.S. into recession five years ago, is rebounding.

The Federal Reserve sees signs of strength, too. In December the central bank pulled back slightly on the stimulus that has boosted investor confidence this year.
But behind those numbers are the long-term unemployed, the under-employed and those who have dropped out of -- or never even entered -- the workforce. They're not sharing in the surging stock market, and many are about to lose jobless benefits.

Those people aren't buying big-ticket items like furniture or appliances, and some were cutting back on essentials. Thirty-six percent said they were cutting back spending on food or medicine, up from 31% in late 2008, the year the housing market collapsed

4---US broad money supply growth slows , sober look
 
The US broad money supply expansion has slowed materially in the last few months, with the year-over-year growth now at the lowest level since mid 2011. Except for certain components of M2 such as money market funds, the broad money supply is an indicator of the nation's overall credit expansion. This may, at least in part, explain the relatively low inflation the US has experienced in recent months (see post).

5---We have no federal public debt problem, Mark Weisbrot

....we have no federal public debt problem: net interest payments on the U.S. public debt are currently about 1 percent of GDP. This is about as low as it has been in the post-World-War II period, and is very small by any measure. The fact that our government is still trying to reduce economic growth and employment while we have more than 20 million people unemployed or underemployed is testimony to the unbridled power of the special interests that dominate debate over economic policy in the United States.....

most senior citizens get most of their income from Social Security, and at an average benefit of $1300 a month it isn’t enough. In fact, Senator Elizabeth Warren — a potential Democratic presidential contender for 2016 — has proposed increasing benefits, and that makes a lot more sense. Most of the baby boomers that will retire over the next two decades have very little savings for their retirement, with many having lost a lot of it when the housing bubble burst in 2006-2007. The whole idea that Social Security has any serious financial problems to begin with is an urban legend that has duped millions for decades, including (sadly) many journalists. It’s long past time to retire that nonsense.

The lesser good news is that some of the automatic or “sequestration” cuts in non-military (why does anyone use the euphemism “defense”?) spending for fiscal years 2014 and 2015 have been reduced. This would be expected to add about 250,000 jobs next year as compared to the sequester cuts. Unfortunately this is about cancelled out by the decision to cut off federal Emergency Unemployment Compensation for 1.3 million workers just after Christmas, since the loss of this spending will reduce growth and employment by about an equivalent amount. (Another 3.5 million would lose benefits during 2014.) This is especially mean to the long-term unemployed, since long-term unemployment is currently at twice or more than the level at which federal benefits have been eliminated in any of the previous recessions since 1959. A much richer nation we have today, but not kinder or gentler to the unemployed.

We won’t know until further legislation is passed exactly how the approximately $31 billion in non-military, discretionary spending that has been restored by this budget will be distributed. So we don’t yet know, for example, whether the 57,000 children cut off from the Head Start pre-school programs last year will get a reprieve.

More bad news: no tax loopholes will be closed. Super-rich hedge fund managers will still have income taxed at rates lower than teachers. Billionaires will still be able to avoid paying most estate taxes. And as for corporate welfare payments, the $20 billion dollars that was scheduled to be cut from the military will be restored. Can anyone tell us why our bloated military needs that $20 billion? The sequester cuts would have brought Pentagon spending back to the level of 2007 — still more, in inflation- adjusted terms than it was at the height of the Vietnam War.

6---Global Markets Hit New Highs and Lows, NYT

Ho hum

7---Join the Army and get raped: Reported sexual assaults in US military jumped by 50% in 2013, RT
(US Military is still a boy's club where anything goes. ANYTHING)

Reported sexual assaults in the US military increased by over 50 percent in 2013, new data reveals. The boost punctuates a year filled with damning disclosures of a culture that has failed to protect the enlisted from systemic levels of sexual violence.

Data obtained by AP shows there were more than 5,000 sexual assault reports during the 2013 fiscal year, which ended on Sept. 30. By contrast, there were 3,374 incidents reported in 2012.
Of the total reports in 2013, around 10 percent involved incidents that happened before the victim was officially in the military - up from 4 percent in 2012. The increase in cases has led military officials to suggest there is more confidence among service members in reporting incidents of sexual assault than in the past.

"Given the multiple data points, we assess that this is more reporting," said Col. Alan R. Metzler, deputy director of the Pentagon's sexual assault prevention and response office, according to AP. Metzler said that more victims are stepping up to make official complaints instead of simply seeking medical care while avoiding formal accusations.

Pentagon officials announced in May that sexual assault incidents have increased by 35 percent between 2010 and 2012, bringing the annual total to 26,000 cases of some type of unwanted sexual contact or sexual assault last year. The results came via an anonymous survey.
The Department of Veteran Affairs also found that 85,000 US veterans received medical treatment for sex abuse trauma last year, which indicates that the effects of assault have far-reaching consequences, both financially and emotionally.

8---They Win, We Lose: Taliban back in the saddle in Afghanistan by 2017 - leaked intel report, RT

Stupidest statement of the year award: "Whether it’s a worse or better stalemate depends on the rate at which Congress defunds the war,” Stephen Biddle, a defense policy expert at the Council on Foreign Relations

Any success the US and its allies have enjoyed in Afghanistan in the past three years will be dramatically reduced by 2017, even if a US military presence remains in the country, according to a US intelligence report.
The National Intelligence Estimate calculates that the Taliban and other regional players, including Al-Qaeda, will begin to assert themselves as the United States winds down military operations in the war-torn country, the Washington Post reported, quoting officials familiar with the classified report.
The estimate includes analysis from the country’s 16 intelligence services.

The situation will deteriorate even more rapidly in the event that Washington and Kabul fail to sign a security agreement that allows a US-led military contingent on Afghan territory beyond 2014, an agreement that also promises to free up billions of dollars in financial aid to Afghanistan.

"In the absence of a continuing presence and continuing financial support," the intelligence estimate "suggests the situation would deteriorate very rapidly," the newspaper quoted one US official familiar with the report as saying. ...

By no means has the surge defeated the Taliban,” the official said, but it did help to “reverse the Taliban’s momentum and give the government more of an edge. I think we achieved that.”
Afghan President Hamid Karzai has kept Washington waiting on the Bilateral Security Agreement that would allow a US-led contingency, including some 15,000 American troops, to remain in the country beyond 2014. The reason is clear: Karzai, under Afghan public opinion pressure, is reluctant to grant immunity for any US troops left on the ground in Afghanistan, following the declared 2014 pullout date. ....

The Afghan people have witnessed too much indiscriminate killing of innocent citizens to give license for more such behavior. On the American holiday of Thanksgiving, for example, a US drone attack left one child dead and two women injured as NATO forces claimed they were trying to kill a lone "known militant" in Helmand Province.
Meanwhile, analysts fear that Kabul’s grip on power is likely to become increasingly irrelevant as it loses “purchase” over various regions of the country, another official said.
The White House refused to comment on the NIE’s report. A senior administration official said intelligence assessments are “only one tool in our policy analysis toolbox.”

One of the intelligence community’s principal duties is to warn about potential upsides and downsides to US policy, and we frequently use their assessments to identify vulnerabilities and take steps to correct them,” the statement said. “We will be weighing inputs from the [intelligence services] alongside those of the military, our diplomats and development experts as we look at the consequential decisions ahead of us, including making a decision on whether to leave troops in Afghanistan after the end of 2014.” ...

Whether it’s a worse or better stalemate depends on the rate at which Congress defunds the war,” he said.
At the moment Washington still has 63,000 troops on the ground. Earlier in December, an Associated Press-GfK poll found that 57 percent of Americans say going to war in Afghanistan as response to the September-11 terrorist attacks was probably the “wrong thing to do.” A minority of US citizens is in favor of the current withdrawal plan, with 53 percent saying the process is taking too long and 34 percent responding that the troop withdrawal is about right.

9---Three things to ponder over Christmas, Lance Roberts

(PCE-personal consumption expenditures)
Chart Of The Day via Zero Hedge
Tyler Durden at Zerohedge posted a terrific chart that really sums up 2013 and sets the stage as we ponder the outcome of 2014.
Zerohedge-COTD-122713

There

Read more at http://pragcap.com/5-things-to-ponder-this-weekend#yKk3Fib3cZOkBBYs.99
The next chart clearly shows the high degree of correlation between PCE and the economy.
PCE-GDP-YOYChg-121213The reason that I bring these particular points up is because there are exceedingly high hopes that the consumer is ready to "take off" in the months ahead fostering the support needed for the predictions of a strong economy.  However, is that really the case and can the holiday shopping season give us any clues?
 
The October 2010 core CPI of 0.61% was the lowest ever recorded, and two months later the core PCE of 0.95% was an all-time low.
 
 
11---Eurozone 'sleepwalking into a decades-long deflation trap’, Telegraph

12---Japan's deflation era is not yet a thing of the past, Telegraph

There are still risks from a consumption tax increase and foreign investment pushing up the yen. Shinzo Abe will take no chances

Is deflation in Japan a thing of the past? The financial markets certainly think so.

Tokyo's Nikkei Dow has just topped the 16,000 level for the first time in six years following a 50% increase since the start of the year.

That's an impressive performance, even though the Nikkei has still lost more than half its value since its peak at the end of the 1990s. But two lost decades and innumerable policy errors later, there is now hope that the anti-deflationary package dubbed "Abenomics" has finally done the trick.

It is a bit early to claim final victory. The main reason the headline consumer price index was 1.2% higher in November than a year earlier was that the yen has fallen by 40% since late 2011, raising the cost of imports.

While a weaker currency was a central aim of Abenomics, it is noteworthy that core inflation – which strips out movements in food and energy prices and is much less sensitive to the level of the yen – rose by 0.6% in the year to November. That suggests the economy could easily slide back into deflation.

There are two significant risks looming in 2014. The bigger of the two is the planned increase in consumption tax in April, which is deemed necessary to tackle a budget deficit in excess of 200% of national output. In the short run, consumer spending will be strong as households race to get their purchases in before the tax hike, but there is the chance the economy could "hit the wall" in the spring.

The second threat comes from the global economy. In the past, any slowdown in the rest of the world has tended to result in investment flowing into the yen, pushing up the value of the Japanese currency, thus reducing import prices and adding to deflationary pressure. At present, this looks unlikely but events since the financial crisis began in the summer or 2007 have taught policy makers to expect the unexpected.

What all this means is that Shinzo Abe's government will be taking no chances in the months ahead. There will be additional quantitative easing in an attempt to keep the yen low and extra spending on public works to ensure that growth does not slacken and that inflation continues to rise towards its 2% target.

Saturday, December 28, 2013

Today's Links

1---Vegas Down!, HW
(Investors vamoose?)

The Las Vegas market turned into the comeback kid after investors flooded the city in the wake of the real estate bust.

While investor activity drove up prices and helped restore one of the hardest hit housing markets in recent years, it appears their influence is starting to wane.
New research from DataQuick shows that last month, home sales in Vegas fell to their lowest level for any November recorded in the past five years. Waning home affordability, constrained supply and a decline in investor activity took most of the blame for interrupting investors' reign.

Inquiring investors found the median sale price dipping a bit from October to November, but the median price still hovered 26% above year ago levels, leaving buyers with less attractive pricing when compared to the deep discounts available after the housing downturn.

Overall, 3,539 new and resale homes and condos closed in escrow last month in the Las Vegas-Paradise metro area – down 15.4% from a month earlier and a 14.6% decline from last year, San Diego-based DataQuick said.
This is also the lowest number of November sales recorded since 2008 when 3,325 homes sold. Coincidentally, that was also at the beginning of the housing meltdown.

2---Bond Worries: U.S. Treasury Bond Yield Climbs Past 3% for the First Time in More Than Two Years, WSJ

Investors have sold Treasury bonds en masse this year to seek higher returns in stocks and riskier fixed-income assets. Through November, U.S. bond funds targeting Treasury debt suffered a net outflow of $40.2 billion in 2013, according to data provider Morningstar Inc.
In contrast, funds that invest in low-rated "junk bonds" issued by U.S. companies have attracted $2.6 billion from investors.

 
Treasury bonds are on track to suffer their biggest annual loss since 2009, according to Barclays PLC.
As of Friday, the Dow Jones Industrial Average was up 26% so far this year, on pace to finish with the benchmark index's strongest annual gain since 1996. The Dow slipped 1.47 points Friday to 16478.41, snapping the longest winning streak since a 10-session run that ended in March. For the week, the index rose 1.6%.
Stocks have remained strong despite the Federal Reserve's announcement this month that it will start scaling back its $85 billion-a-month bond buying in January.
That is the central bank's first major step to wind down its monetary stimulus five years after the financial crisis hit.
 
Some investors see no end in sight to the move into stocks from Treasury bonds. A continued exodus would push bond prices even lower and the 10-year yield higher.
"If we carry the economic momentum into next year and break above 3%, then one has to look for larger moves with an eye toward the 2011 yield highs at 3.75%," said Jason Evans, co-founder of hedge fund NineAlpha Capital LP in New York.
 
Rick Rieder, co-head of Americas fixed income at asset-management giant BlackRock Inc., said he doesn't expect interest rates to rise sharply. The reason: Fed officials have pledged to keep rates low through at least early 2015.
As a result, "risky assets will be in good shape for a while," said Mr. Rieder.
 
What the average worker wage would be in 2014 if it kept up with productivity: $71,697.
What it actually will be (according to projections): $55,644.
worker pay
A decline in unionization may be in part to blame for the abysmally slow growth in workers’ wages. After all, drops in union membership typically correspond to periods of high income inequality, according to EPI

4---A cruel Christmas gift: Jobless benefits cut off for 1.3 million Americans, wsws

The ruthless assault on the working class and the funneling of public funds to the banks and corporations are two sides of the same ruling class strategy, whose aim is an even more massive redistribution of wealth from the bottom to the top. Nothing is off limits in the rapacious drive of the capitalist class to grab every bit of social wealth it can. Every social gain of the past century is in its crosshairs: public education, medical care for seniors and the poor, pensions, restraints on child labor, health and safety rules, environmental regulations, workers’ compensation, public museums and libraries.

What is unfolding is nothing short of a social counterrevolution.
The one “reform” touted by the Obama White House—the Affordable Care Act—is already being exposed as a scheme to reduce and ration medical services for the vast majority of Americans, while boosting the profits of the insurance companies and corporations
 
Extended unemployment benefits will end today for 1.3 million Americans, just three days after Christmas. The cruel cutoff of income for the long-term jobless and their families exemplifies the contempt of the Obama administration and the entire political establishment for the working class. The move threatens millions of unemployed workers and their families with poverty.

Never before in the post-war history of the United States has the government cut off extended unemployment benefits while jobless levels remained as high as they presently stand.
In the course of 2014, another 3.6 million workers will exhaust their state unemployment benefits and be left with nothing. Taking into account family members who rely on these benefits as their sole source of cash income, some 5 percent of the US population will face destitution as a result of the cutoff of these funds.

A renewal of the extended benefits was left out of the budget deal reached in Congress earlier this month, with the approval of the White House and congressional Democrats. The total cost of extended unemployment benefits would be $25 billion in 2014, less than 1 percent of overall federal spending...

More than four years after the official end of the recession, the United States is a nation plagued by growing poverty and widening social inequality. But for the financial oligarchy, things have never been better.
The Wall Street Journal on Tuesday carried a front-page article with the celebratory headline “Big Rally Pumps Up Wall Street Bonuses.” With the Dow Jones Industrial Average up 24 percent this year, the newspaper explained, annual compensation for investment bankers is expected to rise 6 percent and stock traders are projected to earn 12 percent more this year than last.
For the vast majority of Americans, conditions continue to deteriorate. A recent study by the US Conference of Mayors found that 83 percent of the 25 cities it surveyed reported an increase in emergency food requests, while 64 percent saw an increase in the number of homeless families. The answer of the ruling elite to these conditions has been to slice even more deeply into what little remains of the social safety net in the US.

On November 1, the federal government began implementing $11 billion in cuts over three years to the Supplemental Nutrition Assistance Program (SNAP), commonly known as food stamps. These cuts, the first in the program’s history, reduced benefits to less than $1.40 per person per meal and eliminated the equivalent of two days of food every month for 47.7 million people. Democrats and Republicans in Congress are currently negotiating the terms of further cuts in the food stamp program.

The budget deal reached this month keeps in place the vast majority of the “sequester” cuts, slashing hundreds of billions of dollars across a wide range of government departments and social programs, affecting tens of millions of working people and their families. It also increases the proportion of their salaries new federal employees will pay into their pension fund, setting the stage for deeper attacks modeled on the looting of Detroit workers’ pensions in that city’s bankruptcy.
The growth of poverty alongside ever more obscene levels of wealth for a tiny financial elite is not simply the result of impersonal economic tendencies. It is the intended outcome of policies carried out by the Obama administration and the Federal Reserve Board in behalf of the American corporate-financial aristocracy.

5---Is the Labor Force Participation Rate about to Fall Again?, macblog

What will those 1.3 million Americans do when their benefits run dry? According to a recent study by Princeton University’s Henry Farber and the San Francisco Fed’s Robert Valletta—also presented at a conference hosted here at the Atlanta Fed in October—on balance, the affected individuals are likely to leave the labor force:
We examined the impact of the unprecedented extensions of UI [unemployment insurance] benefits in the United States over the past few years on unemployment dynamics and duration and compared their effects with the extension of UI benefits in the milder recession of the early 2000s. We found small but statistically significant reductions in unemployment exits and small increases in unemployment durations arising from both sets of UI extensions. The magnitude of these overall effects is similar across the two episodes...
We find that the effect on exit from unemployment occurs primarily through a reduction in labor force exits rather than through exit to employment (job finding). This is important because it implies that extended benefits do not delay the time to re-employment substantially and so do not have first-order efficiency effects. The major effect of extended benefits is redistributive, providing income to job losers who would have exited the labor force otherwise (consistent with Card et al. 2007). [link mine]
In other words, if a significant decline in unemployment benefits comes to pass, we may well see another bump downward in the labor force participation rate

6---Too scared to quit? Krugman, NYT

 And how..., at this point, after-tax profits are more than 60 percent higher than they were in 2007, before the recession began. We don’t know how much of this profit surge can be explained by ... the ability to squeeze workers who know that they have no place to go. But it must be at least part of the explanation. ...
What’s more, I don’t think it’s too much of a stretch to suggest that this reality helps explain why our political system has turned its backs on the unemployed..., the economy may be lousy for workers, but corporate America is doing just fine. ...
Too many Americans currently live in a climate of economic fear. There are many steps that we can take to end that state of affairs, but the most important is to put jobs back on the agenda
7---Turkey first of Fed Taper victims as political crisis scares investors, Telegraph

8---Mortgage Rate Swings May Mean “Bumpy” 2014 Housing Market, WSJ

Climbing mortgage rates in 2013 corresponded with declines in home buying, a trend that could to some extent continue in coming months as interest rates adjust to shifts in the Federal Reserve’s monetary stimulus effort.
The average of 30-year fixed-rate mortgage interest rates so far this year compared against new-home sales illustrates that inversely proportional relationship: When interest rates go up, demand from would-be homeowners drops

When rates as measured by Freddie Mac started rising in May and averaged 3.54% for the month, the seasonally adjusted annual rate of new home sales dropped by 4% from the prior month, according to the most recent housing data from the Commerce Department. Meanwhile, in October, mortgage rates dropped by three-tenths of a percentage point just as new home sales surged 18%.
The trend could continue in 2014, experts said, especially if rates change significantly.
“Particularly if we see a pretty quick rise – maybe a half a percentage point to percentage point rise — it’ll make for some bumpy demand in 2014,” said Ellen Haberle, an economist at Redfin, an online real-estate firm.
 
 Mortgage rates first spiked in May after the Fed signaled it was considering pulling back its bond-buying program meant to keep a lid on long-term interest rates. The housing market initially stumbled, but started to recover once the central bank decided against any changes to the stimulus effort throughout the summer and into the fall.
 Mortgage rates are still at historical lows, but they are already starting to creep upward once again. Freddie Mac said Thursday the average 30-year fixed rate mortgage was at 4.48%, its highest level since mid-September.
 
 The interest rate on U.S. Treasurys is also going up. On Thursday, the yield on 10-year notes hit 3%, its highest level since September and the second time this year it has reached that mark. That threshold could signal higher interest rates ahead because it is used as a reference point for the cost of borrowed money for U.S. consumers and businesses. A higher yield can push up mortgage rates.
 
9---Another Lost decade in USA, marketwatch
 
...Nobel Prize–winning economist Joseph Stiglitz put it succinctly in “The Price of Inequality”: “America likes to think of itself as a land of opportunity.” But today the “numbers show that the American dream is a myth … the gap’s widening ... the clear trend is one of concentration of income and wealth at the top, the hollowing out of the middle, and increasing poverty at the bottom.” ...
 
Yes, inequality is the No. 1 bubble certain to pop in America’s new Lost Decade, before 2024. As former Labor Secretary Robert Reich recently put it on CNN: “The 400 richest people in the United States have more wealth than the bottom 150 million put together.”....
 
 
record after adjusting for inflation.” Now “investors finally could put behind them ... the sometimes-terrifying events of the past 14 years ... the Internet bubble, Sept. 11, 2001, terrorist attacks, accounting scandals such as Enron Corp., the housing bubble, collapse of Lehman Brothers Holdings Inc. and other costly stumbles.”
                                        
Get it? Finally, after 14 years in negative territory, Wall Street was breaking even on an inflation-adjusted basis, after suffering “two deadening crises” and “terrifying events” that wasted trillions for 95 million Main Street investors. Big deal? Stocks broke even after 14 years?
Zero-sum economics: Wall Street ‘treaded water’ for 14 long years
Then Browning’s gut punch: “It would mean that the ‘lost decade’ during which stocks never surpassed their values of the 1990s finally is over, at least for the Dow. Of course, a new inflation-adjusted high also would be a reminder that stocks have done no better than tread water since 2000.”
“Drowning” would be more accurate.
                                       
So we start 2014 asking why Wall Street’s stock market did “no better than tread water since 2000.” And why did Wall Street lose trillions in retirement savings for America’s Main Street investors?
Why? Because in today’s zero-sum real world, “aggressive” government stimulus policies, plus Bernanke’s “determination to keep interest rates low” were rewarding Wall Street with cheap money, while killing Main Street’s retirement stocks and downgrading the American economy. That’s how zero-sum works: Wall Street wins, Main Street loses.
                                       
In fact, since the conservative political revolution a generation ago, the rich became the Super-Rich. And the income of America’s other 99% flat lined for three decades.
10 bubbles that will pop in a new Lost Decade

10--Payday Loans, NPR    

11---Work Until You Die? More Middle Class Americans Say They Can Never Retire, Forbes  

An alarming 37% of middle class Americans believe they’ll work until they’re too sick or until they die.
Another 34% believes retirement will come at the ripe age of 80. Just two years ago only 25% of respondents felt the same way.

It’s a grim look at the state of retirement which seems to be getting worse for middle class Americans.
Wells Fargo WFC -0.09% interviewed 1,000 Americans between age 25 and 75 and with household income ranging between $25,000 and $99,000.
More than half (59%) said their top day-to-day financial concern is paying the monthly bills; that’s up from 52% who said the same last year.

“We do this survey every year and for the past three years, the struggle to pay bills is a growing concern and the prospect of saving for retirement looks dim, particularly for those in their prime saving years,” Laurie Nordquist, head of Wells Fargo Institutional Retirement and Trust, says in the report.
And here’s something for leaders in Washington DC to consider: One third of those surveyed said their primary source of retirement income will come from social security.

That figure gets even bigger for those who make less than $50,000–48% of those earners say social security is going to be their primary retirement income.
One of the reasons for that? Almost half of those surveyed said they don’t have a written retirement plan.
Only 24% said they are confident in the stock market as a place to invest their money. A whopping 45% say the stock market wouldn’t benefit them.

Those between age 25 and 29 are the most apprehensive about stocks with 58% of them saying they’d rather put $5,000 in a savings account or CD than in the stock market.
“There is a striking amount of fear about the stock market among all investors.  The middle class just isn’t making the link between being invested and the potential growth of their savings, but on top of this fear is apathy – there is no interest in learning more about investing,” Nordquist says.                               
 
 

 
 

Friday, December 27, 2013

Today's Links

1---TREASURIES-U.S. 10-year yield hits 2-year high, seen higher in 2014, Reuters

US Treasuries set for 3rd worst year in 4 decades-Barclays
    * U.S. 10-year yield breaks above 3 percent on light volume
    * Two-to-10-year yield gap grows to widest since 2011
 U.S. benchmark Treasuries
yields rose above 3 percent to their highest level in more than
two years on Friday, nearly assuring 2013 becomes one of the
bond market's worst years in decades.

    Traders further pared their bond holdings in anticipation of
a further increase in yields in 2014, when the Federal Reserve
will buy fewer bonds, after Fed policy-makers expressed some
confidence the economy can grow with less monetary stimulus.
   
The key challenge facing investors in coming months is
preparing for how quickly bond yields might rise, analysts say.
    "The 10-year yield has been normalizing as the data have
been coming in stronger," said Quincy Krosby, market strategist
with Prudential Financial in Newark, New Jersey, which has $1
trillion in assets under management.
    Barring a massive rally before year-end, the Treasuries
market should book one of its worst years on record.

2---Preliminary sign of a coming contraction, angry bear

Enjoy this Christmas because next year Christmas may not be as Merry…

 As real GDP nears the effective demand limit, we should see some signs of the economy turning the corner toward a contraction. So, do we see any signs? … Well, yes. This graph plots the aggregate profit rate against the savings rate of capital income. Aggregate profit rate uses the left axis. Capital income’s saving rate uses the right axis. (vertical red lines are starts of recessions.)

 I have adjusted the axes so that the lines come together and then split apart through time. The economy reaches its limit of expansion when the lines are “far” apart. A recession occurs as the lines come back together. The most recent data implies that the economy is reaching the limit of its expansion - ...

I realize many economists celebrate the strong real GDP growth of over 4% in the 3rd quarter 2013, and they forecast more strong growth for years to come… Many people get enthusiastic too. It is easy to celebrate the height of an expansion. However, everything needs to be put into the context of a larger picture. The dynamics of profit and savings for capital income are signaling the limit of the economic expansion. -

3---US credit risk appetite hits euphoria, sober look
 
as monetary conditions in the US begin to tighten and interest rates rise, credit spread compression has to slow or reverse. The current trend is simply not sustainable.....

4---The unintended consequences of Abenomics, sober look

The danger of Japan's current policy (Abenomics) is that the outcome could turn out to be the exact opposite of what was originally intended. With wages stagnant, these import-driven price increases are hitting the Japanese consumer quite hard. As a result, spending on domestically produced goods and services could end up falling, constraining domestic prices instead of increasing them...

 We maintain the year-long view that Abenomics would impose a relative price shock that would force wage- and credit-constrained consumers to spend more upon what they have to (food and energy) by restraining spending elsewhere in the economy in disinflationary fashion on the second- and third-round effects. That’s a very different inflation dynamic than would be the effects of a generalized increase in economy-wide prices in that it counsels future effects that will be bearish for the outlook for Japanese consumers.

5---What Happens Next, Now That The 10-year Treasury Yield Hit The Psycho-Sound Barrier Of 3%      Testosterone Pit

6---When Soaring Margin Debt, Sign of Investor Confidence, Turns Into A Nightmare On Steroids  , Testosterone Pit

In July 2007, margin debt soared to $381.4 billion, or about 2.60% of GDP. The market peaked in October before crashing in a legendary manner, with the S&P 500 plunging 57%.
In November, margin debt hit $423.7 billion, or 2.51% of GDP. Are we there yet?

7---Stock Rally Fails to Spur Big Inflows Into Mutual Funds, WSJ

Individual investors keep tiptoeing back into the U.S. stock market. And that might be a problem.
According to data provider Lipper, investors put $5.6 billion into U.S. stock mutual funds in the week ended Wednesday. The move puts total inflows for 2013 on track to exceed $60 billion, which would be the first yearly gain since 2005.
                         But the latest weekly data underscored a worry that has gnawed at some experts for months. With the stock market at an all-time high, including a 122.33-point jump by the Dow Jones Industrial Average on Thursday to its 50th record high of the year, even more money ought to be flowing into stock-oriented mutual funds, these experts say.
 
"The surprise is that people are only dipping their toes into a market that's up so much from its low," said Jeff Tjornehoj, Lipper's head of Americas research. "You'd think people would get excited about that."
This year's move back into stocks still is a trickle by historical standards, especially since the Dow's gain of 26% is on pace to be the biggest yearly advance since 1996. From 2006 to 2012, investors withdrew $451 billion from stock mutual funds, but this year's inflows are smaller than the $126 billion that headed out the door last year. The figures exclude exchange-traded funds.
 
Despite growing signs that the economy is gaining steam and the relentless climb of stocks even after the Federal Reserve said last week it will shrink its monthly bond purchases, many investors still feel tepid about the overall stock market...
 
Investors still are apprehensive," said Michael Loewengart, director of investment strategy at brokerage firm E*Trade Financial Corp."The magnitude of the losses during the financial crisis just stayed with people."

8---Worst. Loan Creation. Ever, zero hedge

9----Why Corporations Might Not Mind Moderate Depression, Krugman, NYT

from a profits point of view it’s not a depressed economy at all. Look at profits versus compensation of employees (that’s wages and benefits combined) since the slump began at the end of 2007; both are expressed as indexes with 2007Q4=100:
Profits took a hit during the financial crisis, but have soared since then, and are now 60 percent above pre-crisis levels; meanwhile compensation has grown hardly at all, and indeed fallen in real per capita terms.
The point is that we have a depressed economy for workers, but not at all for corporations. How much of this is due to the bargaining-power issue is obviously something we don’t know, but the disconnect between the economy at large and profits is undeniable. A depressed economy may or may not actually be good for corporations, but it evidently doesn’t hurt them much.
Now, about the political economy: I don’t think we have to believe in a cabal of CEOs trying to keep the economy depressed. All that we need is for the big money to find the state of the economy OK from its point of view, so that politicians who listen to that money lose interest in the unemployed. You can round up a who’s who of CEOs for Fix the Debt; you can’t even get started on a power-list drive to Fix the Economy.

10---The Japanese Feel The Heat From The Big Lie Of Abenomics, zero hedge

Inflation without compensation. Hapless Japanese households get to bear the brunt of Abenomics. Inflation is whittling away at their real incomes. As they feel their belts being tightened, they adjust their spending. So average household spending in November was up 0.3% in nominal terms from a year ago. But adjusted for inflation, it dropped 1.6%.

Hidden in this awful number are even more awful numbers. The consumption-tax hike from 5% to 8%, effective April 1, 2014, is motivating households to do what they did last time the consumption tax was raised: frontloading of big-ticket items to save 3%. Household purchases of durable goods jumped 25.2% in November from prior year. It made retail sales look good (up 4% year over year). But households cut spending in other areas, including services by 3.7% and education by 14.2%.

The hangover will hit in 2014 – when durable goods purchases will plunge. Every adult in Japan knows how that works. Been there, done that. The government knows it too. Hence its ¥5.5 trillion “supplementary budget” that will be handed out to various constituents, particularly Japan Inc., to compensate for the loss of household purchases. But these households won’t see any of that stimulus money. Instead, they’ll see the consumption tax hike which will add 3% to nearly everything they pay for.

This is where they will feel the heat from the lie of Abenomics.

11---Fatal error in ‘wedding party’ drone strike prompts UN condemnation, RT

12---Survey of Consumers, U of Michigan, Thomson Reuters

Is the American Dream Dead?

Consumer Behavior Adapts to Fundamental Changes in Expectations
Richard Curtin, University of Michigan
 
 
 
 
 
 
 
 


Monday, December 23, 2013

Sorry, no posting until December 27.

Saturday, December 21, 2013

Weekend supplement: Japan's Lost Decade

1---Japan: "Lost Decade" or US-backed propaganda aimed at keeping Asia divided and thwarting the formation of any regional economic bloc involving China, wikipedia

Economist Richard Koo wrote that Japan's "Great Recession" that began in 1990 was a "balance sheet recession". It was triggered by a collapse in land and stock prices, which caused Japanese firms to become insolvent, meaning their assets were worth less than their liabilities. Despite zero interest rates and expansion of the money supply to encourage borrowing, Japanese corporations in aggregate opted to pay down their debts from their own business earnings rather than borrow to invest as firms typically do. Corporate investment, a key demand component of GDP, fell enormously (22% of GDP) between 1990 and its peak decline in 2003. Japanese firms overall became net savers after 1998, as opposed to borrowers. Koo argues that it was massive fiscal stimulus (borrowing and spending by the government) that offset this decline and enabled Japan to maintain its level of GDP. In his view, this avoided a U.S. type Great Depression, in which U.S. GDP fell by 46%. He argued that monetary policy was ineffective because there was limited demand for funds while firms paid down their liabilities. In a balance sheet recession, GDP declines by the amount of debt repayment and un-borrowed individual savings, leaving government stimulus spending as the primary remedy.[

Economist Scott Sumner has argued that Japan's monetary policy was too tight during the Lost Decade.[

Economists Fumio Hayashi and Edward Prescott argue that the anemic performance of the Japanese economy since the early 1990s is mainly due to the low growth rate of aggregate productivity. Their hypothesis stands in direct contrast to popular explanations that are based in terms of an extended credit crunch that emerged in the aftermath of a bursting asset “bubble.” They are led to explore the implications of their hypothesis on the basis of evidence that suggests that despite the ongoing difficulties in the Japanese banking sector, desired capital expenditure was for the most part fully financed. They suggest that Japan’s sluggish investment activity is likely to be better understood in terms of low levels of desired capital expenditure and not in terms of credit constraints that prohibit firms from financing projects with positive net present value (NPV). Monetary or fiscal policies might increase consumption in the short tun, but unless productivity growth increases, there is a legitimate fear that such a policy may simply transform Japan from a low-growth/low-inflation economy to a low-growth/high-inflation economy.

Financial Journalist Eamonn Fingleton argues there was no lost decade or decades in Japan and the appellation is complete media-created myth perpetuated for the benefit of certain vested interests. In his articles “The Myth of Japan’s Failure”[3] and “The Myth of Japan's Lost Decades'”[17] he demonstrates that when one measures the success of the Japanese economy by standard of living and other types of economic indicators such as the strength of the yen and Japan’s trade surplus, a very different picture of Japan emerges. He states concerning Japan’s so-called “lost decades”, “… that presentation of Japan is a myth. By many measures, the Japanese economy has done very well during the so-called lost decades, which started with a stock market crash in January 1990. By some of the most important measures, it has done a lot better than the United States.[3]

He argues that there is no such thing as “recovering” from a “crash” if stock prices and asset valuations were artificially high in the first place. The “crash” itself is the recovery, that is, recovering to sensible and rational levels of asset valuation. Specifically stating “In any case the implosion since 1991 [of the stock market and real estate prices] has merely restored some sanity to valuations that had previously become -- very temporarily -- outlandish”.[17] In terms of Japan’s allegedly slow “growth rate” averaging 1% per year over the past 20 years, he sees this as immaterial as the standard of living in Japan has been unaffected and has in fact improved over the ensuing years. Stating, “Japanese people have enjoyed one of the biggest improvements in living standards of any major First World nation in the interim [of the so-called “lost decades”]."[17] In fact, he alleges that when proper accounting methods are used (i.e., adjusting gross domestic product results on a per-capita basis, and rejecting the “hedonic method” of adjusting for inflation as used by the United States) Japan actually comes out ahead of the United States in terms of economic performance.[3]

According to Fingleton, the motives behind promoting the myth of the “lost decades” are manifold. On the Japanese side, Japanese officials benefit from the myth as it effectively mutes the opposition levied against the country during the 1980s. During that time, manufacturers in the West (most notably the American automobile industry) lamented Japan’s economic rise and claimed they were unable to compete fairly with Japanese exports, subsequently directing hostility towards Japan and the Japanese. The myth of the “lost decades” effectively deflects and mutes this economic animosity once levied towards Japan.[3] That criticism is now levied instead against China. On the Western side, the myth of the “lost decades” makes it appear that the American and European economic situation is not as bad as it really is when comparing it to Japan’s economic malaise.

Further, from a geo-political perspective promoting the notion of Japan’s “decline” may be an attempt to foster fear and insecurity in the Japanese people in order to make them more susceptible to nationalist sentiments (thus keeping Asia divided and thwarting the formation of any regional economic bloc involving China); more accepting of the American military presence in Japan (as a “weak” Japan needs outside help to defend against China and North Korea); and finally more willing to enter into international trade agreements such as the Trans-Pacific Partnership (advocated by the United States) as the “cure” for Japan’s so-called economic decline. Specifically, Noah Smith stating, “Increased trade is probably Japan’s best bet in getting out of its current economic doldrums,” said Noah Smith, an assistant professor of finance and economics at Stony Brook University. “If Abe can actually push this [Trans-Pacific Partnership] through, this will be his economic legacy, and it will be a positive legacy.[18] However, some believe the Trans-Pacific Partnership will actually destroy Japan economically and seriously undermine Japan's standard of living especially in terms of health insurance. "A nationwide association of doctors opposes the [Trans-Pacific Partnership] pact, arguing that it will force Japan to open its state-controlled health industry to American-style health insurance, eroding its universal insurance system.".[18]

Mr. Fingleton claims to have made an offer to the top ten advocates of the “lost decade(s)” theory if any of them would debate him in Washington D.C., he would donate $5,000 to their favorite charity. He also claims to have made an offer to U.S. ambassador to Japan, John Roos, offering him $10,000 to his favorite charity for a similar debate.[19] There were no takers for any of his offers.

Today's Links

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

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

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

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

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

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

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

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

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

The Fed’s Stimulus Never Achieved Escape Velocity



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

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

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

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

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

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

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

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

5---Steve Keen on Krugman, naked capitalism

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

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

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

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

rising debt directly adds to aggregate demand.

6---Michael Hudson interview, naked capitalism

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

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

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

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

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

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

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

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

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

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

10---Japan GDP=1.4%, CNBC

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

14--Calculating record profits, WSJ

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

15--Millennial disaster, WSJ

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

16---QE Fatigue, WSJ


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

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

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

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

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

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

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