Friday, January 10, 2014

Today's Links

1---Sales Of Hitler's Mein Kampf Are hedge

This can't be good

2---Japanese Consumer Sentiment Slumps - Biggest 6-Month Drop Since 2007, zero hedge

This is the lowest print since Abenomics was unveiled...

3---Eight Million Jobs Are Still Missing In America , mark gongloff

4--More on the "secular stagnation" debate, naked capitalism

What remains unstated in mainstream discussions is that the slow recovery and the looming secular stagnation is characteristic of economies suffering from a balance-sheet recession, as forcefully argued by Nomura’s Richard Koo as well as by many Keynesian economists. The key point indeed is that private investment is down ...not because of “policy uncertainty” or “increased regulation”, but because business-sector expectations about future profitability have become dramatically depressed — and rationally so — in a context characterized by heavy indebtedness (of both households and corporations) and austerity.

Let the 1930s—a period of balance-sheet recession as well—provide some perspective. Roosevelt was no socialist, but his New Deal did frighten many businesses. That effect has to have been much bigger then than anything Obama ever did. But when public investment and hence aggregate demand expanded, the economy grew anyway.

5---The Loopholes In The Volcker Rule, Forbes

6--Transition, torpor and deflation, Trading Floor

The key metric for understanding the coming paradigm shift in emerging Asia is investment as a percentage of GDP. This measure shows how much new capacity and production is being added to an economy. In a balanced economy during normal business cycles, investment as a percentage of GDP should track overall GDP growth.

But this is not a balanced global economy. In developed markets, the investment-to-GDP ratio has fallen and is now slowly trying to return to normal levels. No surprise there. Emerging Asia, however, shows a significant rise in investment from 2008, when real GDP growth was 10 percent and investment to GDP was 37 percent.

Fast-forward to today and investment is now a staggering 43 percent of GDP in emerging Asia and growth is down to barely 6 percent. ....The most significant impact on the economy, besides slower growth, will be de-accelerating inflation and even deflation. ...

Meanwhile, the law of mean reversion is forcing European and US inflation down towards zero as there is excess capacity globally now (which structurally reduces price margins), as well as a negative demographics dividend (mainly in Europe) because of an ageing population.

It’s been a long time since the stars of macro indicators have aligned so perfectly. The good news? This is the beginning of the end of this crisis. The 2014-2015 period will see a transition away from quantitative easing and easy money towards better-quality growth and, hopefully, a mandate for real change. The world has got so out of balance that things can only improve from here.

7---Is Larry Summers Right About “Secular Stagnation”?, New Yorker

Writing in the Washington Post earlier this week, Summers warned that relying on low interest rates to boost the economy for long periods “virtually ensures the emergence of substantial financial bubbles,” and he called for more public and private investment. ...

The argument that the economy is currently being held back by inadequate demand isn’t controversial—at least, it shouldn’t be. Since the recovery began, in the summer of 2009, G.D.P. has expanded at an annual rate of just two per cent, which is pretty feeble compared to previous recoveries. This weak growth reflects the decisions, by households and firms, to economize on their expenditures in the wake of a big asset-price bust; at the same time, the government (federal, state, and municipal taken together) has also been trimming budgets and laying people off, after an initial burst of spending during the Obama stimulus. To be sure, the Federal Reserve has tried to speed things up by slashing interest rates and pumping money into the bond markets (otherwise known as quantitative easing), but its efforts haven’t been enough to offset the shortfall in demand. Consequently, the economy has been running at well below its full-capacity output, which is what all the businesses and workers in the country could supply if they were going full out......

The immediate question is whether, given current policies, the economy can return to growth rates of three per cent or higher, which is what would be needed to bring the unemployment rate down to around 5.5 per cent. (That is the unemployment rate that the Fed believes is consistent with stable inflation.) But Summers, while acknowledging some positive signs in recent months, remains skeptical. “We have seen several false dawns—just as Japan did in the 1990s,” he warns. ....

What has held the economy back is restrictive fiscal policy and a reluctance on the part of businesses to invest in new capacity. (For the first time in decades, gross capital investment has fallen below twenty per cent of G.D.P.) ....

Between the start of 1997 and the third quarter of 2003, he reported in a recent study, output per hour in the business sector rose at an annual rate of 3.6 per cent. (No wonder Alan Greenspan and others thought they had spotted a “new economy.”) But between the third quarter of 2003 and the second quarter of 2012, the latest period for which Fernald had reliable figures, the annual rate of growth for output per hour was just 1.6 per cent. ...

Can anything be done to address these findings, which seem to imply that slow growth, if not full-blown stagnation, is the inevitable fate of the U.S. economy? The answer is yes.
Running the economy at a high level of demand, which is the policy that Summers is arguing for, has two advantages. In the short term, it boosts hiring and moves the economy toward full employment. But it also has long-term benefits. By spurring capital investment and productivity-enhancing innovations, and by drawing discouraged and retired workers back into the labor force, buoyant demand can boost the economy’s growth potential—something we witnessed in the nineteen-nineties. ....
Secular stagnation is not inevitable,” Summers wrote earlier this week. But averting it requires making the right policy choices, “ending the disastrous trend towards ever less government spending and employment each year and taking advantage of the current period of economic slack to renew and build out our infrastructure.”
It’s not a little ironic that Summers, after spending the Clinton tears as a vocal supporter of deficit reduction and Rubinomics, has reĆ«merged as a Keynesian standard-bearer...

Unless something else comes along, it looks like we will be left with the old formula of cheap money and rising asset prices. And, as Summers points out, we all know where that leads.

8---Japan households less upbeat on economy despite 'Abenomics': Survey, india times

80% oppose price increases (inflation)

9--Low-End Retailers Had a Rough Holiday, WSJ

10--Public support for Afghanistan drops to 17%, antiwar

The responses of Americans to the Iraq and Afghanistan wars provide telling examples. In 2003, according to opinion polls, 72 percent of Americans thought going to war in Iraq was the right decision. By early 2013, support for that decision had declined to 41 percent. Similarly, in October 2001, when U.S. military action began in Afghanistan, it was backed by 90 percent of the American public. By December 2013, public approval of the Afghanistan war had dropped to only 17 percent
In fact, this collapse of public support for once-popular wars is a long-term phenomenon. Although World War I preceded public opinion polling, observers reported considerable enthusiasm for US entry into that conflict in April 1917. But, after the war, the enthusiasm melted away. In 1937, when pollsters asked Americans whether the United States should participate in another war like the World War, 95 percent of the respondents said "No." ....

Although the Afghanistan and Iraq wars produced fewer American casualties, the economic costs have been immense. Two recent scholarly studies have estimated that these two wars will ultimately cost American taxpayers from $4 trillion to $6 trillion. As a result, most of the US government’s spending no longer goes for education, health care, parks, and infrastructure, but to cover the costs of war. It is hardly surprising that many Americans have turned sour on these conflicts.
But if the heavy burden of wars has disillusioned many Americans, why are they so easily suckered into supporting new ones?

A key reason seems to be that that powerful, opinion-molding institutions – the mass communications media, government, political parties, and even education – are controlled, more or less, by what President Eisenhower called "the military-industrial complex." And, at the outset of a conflict, these institutions are usually capable of getting flags waving, bands playing, and crowds cheering for war.

From CNN Poll
Washington (CNN) – Support for the war in Afghanistan has dipped below 20%, according to a new national poll, making the country's longest military conflict arguably its most unpopular one as well.
The CNN/ORC International survey released Monday also indicates that a majority of Americans would like to see U.S. troops pull out of Afghanistan before the December 2014 deadline.

Just 17% of those questioned say they support the 12-year-long war, down from 52% in December 2008. Opposition to the conflict now stands at 82%, up from 46% five years ago.

11---NSA---Worse than you thought, antiwar

The EU report summarizes the findings from the past six months. On page 16, the text says that the recent revelations in the press by whistleblowers and journalists, together with the expert evidence given during the inquiry, have resulted in "compelling evidence of the existence of far-reaching, complex and highly technologically advanced systems designed by US and some Member States' intelligence services to collect, store and analyze communication and location data and metadata of all citizens around the world on an unprecedented scale and in an indiscriminate and non-suspicion-based manner."

12---Obama’s phony campaign against inequality, wsws

The declared focus on social inequality is a marketing strategy aimed at rehabilitating the image of the Obama administration amid growing popular anger over its right-wing social policies, its illegal domestic spying programs, and its foreign policy of militarism and war......

He stood in front of a group of students from the Harlem Children’s Zone, a charter school funded by tens of millions of dollars in corporate donations that has become a model for the assault on public education being spearheaded by the Obama administration. The school’s CEO, Geoffrey Canada, a leading figure in the movement to convert public schools to charters, appeared in the 2010 documentary Waiting for “Superman”, which blamed public school teachers and principals for the problems caused by poverty and lack of funding...

He went out of his way to make clear that his initiative was business-friendly. “This month I’m going to host CEOs here at the White House, not once, but twice,” he said.
The speech came a day after the White House published a fact sheet on its “promise zones” program, which made clear that the initiative was nothing more than a repackaging of various pro-business, anti-public education programs. The real content of the proposal is to offer business tax cuts in each of the zones. The fact sheet concluded by saying, “President Obama has proposed, and called on Congress to act, to cut taxes on hiring and investment in areas designated as Promise Zones... to attract businesses and create jobs....

He spoke even as his administration was intensifying the austerity policies that had inflicted pain and deprivation on tens of millions of Americans. It was widely reported Thursday that congressional Democrats had agreed to cut $9 billion in food stamp benefits on top of the $5 billion cut that was implemented last November.

The White House’s rhetorical pivot on inequality coincides with an administration-backed budget deal that leaves in place over a trillion dollars in sequester cuts while slashing federal workers’ retirement benefits and imposing regressive consumption taxes.
The administration has backed the plans of Detroit Emergency Manager Kevyn Orr to use bankruptcy to slash the retirement and health benefits of city workers and sell off the artwork at the Detroit Institute of Arts.

Meanwhile, the Affordable Care Act, popularly known as Obamacare, is being exposed every day as a scam to slash health benefits for tens of millions of Americans and boost the profits of insurance and health industry corporations. It is the first step in an assault on the key social programs—Social Security and Medicare—that Obama cynically invokes for public consumption, even as he plots with the Republicans to cut and ultimately privatize.

The declared focus on social inequality is a marketing strategy aimed at rehabilitating the image of the Obama administration amid growing popular anger over its right-wing social policies, its illegal domestic spying programs, and its foreign policy of militarism and war. The phony campaign is being coordinated with the trade unions, in conjunction with their fast food protests and lobbying for a rise in the minimum wage, backed by the allies of the union bureaucracy in liberal and pseudo-left circles

13---Keynes’s 1933 and 1938 Letters To Roosevelt, counterpunch

The basic issue, Keynes insisted, is “Recovery,” whose object is “to increase the national output and put more men to work.” An increase in output depends on “the amount of purchasing power… which is expected to come on the market.” Recovery depends upon increasing purchasing power. There are, Keynes pointed out, three factors operating to raise purchasing power and output. The first is increased consumer spending out of current income, the second is increased investment by capitalists, and the third is that “public authority must be called in aid to create additional current incomes through the expenditure of borrowed or printed money.”

Since the vast majority of consumers are workers, increased consumption expenditure is impossible on the required scale during a period of high unemployment and low wages. Business investment will eventually materialize, but only “after the tide has been turned by the expenditures of public authority.” Government investment in employment-generating public works must come first. Only after large-scale government investment can private investment be expected to kick in.....

Most revealing is that long-term unemployment has been rising since the late 1960s, well before the triumph of neoliberalism. The short-term unemployed have been a shrinking percentage of all unemployed throughout the entire postwar period. Looking at the business cycle over the last forty years, an ominous trend emerges: in each business-cyclical expansion, the long-term unemployment rate remains either at or above the level of the previous expansion. In a word, for the last forty years the short-term unemployed have been a declining, and the long-term unemployed an increasing, percentage of all unemployed. By Keynes’s own standards, pretend-Keynesian fiscal policy has been a seventy-year bust....

The conclusion drawn by both Summers and Krugman is that bubbles appear to be required to sustain not merely the listless growth of the post-Golden-Age era, but even the exceptionally sluggish growth rates of the new millenium. So powerful is the tendency to stagnation that even zero interest rates are insufficient to create jobs -much less full employment- or to get the economy running at full capacity. In sum, full-throttle monetary stimulus functioning to sustain bubbles is necessary to keep the economy from falling below stagnation levels of output and rates on unemployment. Bluntly put, if you don’t want a full-fledged Depression, you’ve got to keep the bubble going. Slow growth, high un- and underemployment and low wages are the best we can do.

Expect no relief, says Summers: “The underlying problem may be there forever.” Krugman puts it in the form of a rhetorical question: “[W]hat if the world we’ve been living in for the past five years is the new normal? What if depression-like conditions are on track to persist, not for another year or two, but for decades?” (“A Permanent Slump?”, New York Times, November 17, 2013) To his credit, Krugman saw the handwriting on the wall well before the Summers speech. In his June 27, 2010 column, he wrote: “We are now, I fear, in the early stages of a third depression…[T]he cost – to the world economy and, above all, to the milliions of lives blighted by the absence of jobs – will… be immense.”

In none of this discussion is there mention of the Keynesian solution, government as a permanent and increasingly essential provider of productive employment

14---How the College Bubble Will Pop, WSJ

A key measure of the benefits of a degree is the college graduate's earning potential—and on this score, their advantage over high-school graduates is deteriorating. Since 2006, the gap between what the median college graduate earned compared with the median high-school graduate has narrowed by $1,387 for men over 25 working full time, a 5% fall. Women in the same category have fared worse, losing 7% of their income advantage ($1,496).

A college degree's declining value is even more pronounced for younger Americans. According to data collected by the College Board, for those in the 25-34 age range the differential between college graduate and high school graduate earnings fell 11% for men, to $18,303 from $20,623. The decline for women was an extraordinary 19.7%, to $14,868 from $18,525.

Meanwhile, the cost of college has increased 16.5% in 2012 dollars since 2006, according to the Bureau of Labor Statistics' higher education tuition-fee index. Aggressive tuition discounting from universities has mitigated the hike, but not enough to offset the clear inflation-adjusted increase. Even worse, the lousy economy has caused household income levels to fall, limiting a family's ability to finance a degree.

It’s normal for a family to have at least Y100,000 or Y200,000 stashed around their homes so they can get at it easily, plus Y30,000 or Y40,000 in their wallets,” said a representative from Security House Center Co.

Getting the nation’s money moving again is one of the goals of Mr. Abe’s economic program launched a year ago. He hopes that by creating inflation, people will rush to use their bank deposits and cash before prices rise, eroding the value of money stashed at home.

There are signs this could be happening. Consumer prices are rising, with signs Japan is nearing an end to deflation. Major department stores sales were solid in January.

Some economists propose more radical solutions. One idea is for the central bank to tax cash and bank deposits, while not taxing financial assets such as stocks and foreign bonds. That would encourage people either to spend or invest. 

17---Show Me The Money: Japanese Companies Coy About Pay Raises , WSJ

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