Thursday, January 9, 2014

Today's links

1--95% Of Total Consumer Credit Lent In Past 12 Months Is For Student And Car Loans, zero hedge

putting it all into perspective, of the total $178 billion in consumer credit expansion in the past 12 months, a tiny $9 billion, or just 5% of total, was to fund credit card purchases. The rest went - you guessed it - into purchases of cars and paying for tuition, for which GM and strateospheric college tuitions are most grateful. And that is the New Normal economy in a nutshell.

2---Banks May Have Mispriced Things That Had No Price , Bloomberg

3---Fed Issues Asset-Bubble Warning , Testosterone Pit

Now even the Fed is worried. In the minutes of the December policy meeting, hidden in the middle of an interminable paragraph on page 8 of 25 pages of wooden and convoluted prose, the Fed issued a doozie of a warning.
In its own abstruse manner, it admitted that its asset purchases had inflated asset prices to such levels that they’d become “financial vulnerabilities” that were starting to threaten “financial stability and the boarder economy.” They carefully inserted language to the effect that such risks were “moderate” – to avoid an instant panic.
And they went on (emphasis added):
In their discussion of potential risks, several participants commented on the rise in forward price-to-earnings ratios for some smallcap stocks, the increased level of equity repurchases, or the rise in margin credit. One pointed to the increase in issuance of leveraged loans this year and the apparent decline in the average quality of such loans.
Did the Fed finally read TP and other sites outside the MSM that have been hammering on these very issues for months, if not years? Hardly....
Forward price-earnings ratios. However high they may be, they’re fictitious...

Increased level of equity repurchases. Our corporate heroes borrow at rock-bottom interest rates then plow that moolah into their own stock...

Rise in margin credit. On the New York Stock Exchange, margin credit has been hitting new records for months. All three mega-crashes in my investing lifetime have been accompanied by record-setting peaks in margin debt....

Issuance of leveraged loans with a decline in quality.....

4---Interest Rates Are Manipulated (along with everything else) Washingtons blog

5---QE FAILS to Produce Jobs, zero hedge
I want to draw your attention to the last five years of this chart below. The US Federal Reserve began its first QE program, called QE 1, in November 2008. Since that time it has launched three other such programs, spending over $2 trillion in the process.

During this period, the labor participation rate has not once experience a sustained uptrend. Put another way, job creation has never outpaced population growth to the point of creating a significant turnaround in the jobs market. This has happened despite the recession officially “ending” in mid-2009.

 The evidence here is clear. QE does not generate jobs in the broad economy

6---Fed Minutes Reveal "Waning Benefits Of QE", Mentions Risk Of "Capital Losses", zero hedge

Regarding the marginal efficacy of the purchase program, most participants viewed the program as continuing to support accommodative financial conditions, with a number of them pointing to the importance of purchases in serving to enhance the credibility of the Committee’s forward guidance about the target federal funds rate. A majority of participants judged that the marginal efficacy of purchases was likely declining as purchases continue, although some noted the difficulty inherent in making such an assessment. A couple of participants thought that the marginal efficacy of the program was not declining, as evidenced by the substantial effects in financial markets in recent months of news about the likely path of purchases.

Uhm yeah: remember "The Fed Now Owns One Third Of The Entire US Bond Market", and that the Fed now has a DV01 of over $3 billion. Someone at the Fed finally got the memo.

On the risk of bubbles:

The staff presented a short briefing summarizing a survey that was conducted over the intermeeting period regarding participants’ views of the marginal costs and marginal  efficacy of asset purchases. Most participants judged the marginal costs of asset purchases as unlikely to be sufficient, relative to their marginal benefits, to justify ending the purchases now or relatively soon; a few participants identified some possible costs as being more substantial, indicating that the costs could justify ending purchases now or relatively soon even if the Committee’s macroeconomic goals for the purchase program had not yet been achieved. Participants were most concerned about the marginal cost of additional asset purchases arising from risks to financial stability, pointing out that a highly accommodative stance of monetary policy could provide an incentive for excessive risk-taking in the financial sector. It was noted that the risks to financial stability could be somewhat larger in the case of asset purchases than in the case of interest rate policy because purchases work in part by affecting term premiums and policymakers have less experience with term premium effects than with more conventional interest rate policy. Participants also expressed some concern that additional asset purchases increase the likelihood that the Federal Reserve might at some point suffer capital losses.

7---Gov guide to screwing homeowners--"Struggling homeowners .... shouldn’t have to decide between foreclosure and a balloon payment to the IRS", Dave Dayen

The need for mortgage relief is pressing. The most recent statistics show nearly 4.5 million homes are in some stage of delinquency. And more than 6 million homes are “underwater,” with the homeowner owing more than the home is worth. These homes are at risk of foreclosure, but many lower-income borrowers who can’t afford the tax bill will have to turn down mortgage help. Housing advocates were hopeful that the confirmation of Mel Watt to run the Federal Housing Finance Agency, the conservator for Fannie Mae and Freddie Mac, would lead to those agencies (which own or guarantee 90 percent of all new mortgages) finally offering principal reductions to prevent foreclosures. But the tax situation makes Watt’s confirmation irrelevant on this point....

Perhaps worst of all, federal and state regulators recently secured two financial fraud settlements—with JPMorgan Chase and the mortgage servicer Ocwen—that required those firms to reduce mortgage principal by at least $3.5 billion. The principal reductions for tens of thousands of homeowners will now be taxable. So a benefit to homeowners—compensation for being abused by financial institutions—will end up actively harming them. In JPMorgan Chase’s case, the bank vowed to offer principal write-downs to hard-hit areas like Detroit. As if As if Detroiters didn’t have enough problems, now they must beware a bank bearing gifts that will penalize them.

Seemingly oblivious to the damage this will cause, federal officials have cited both the JPMorgan and Ocwen settlements as a template for future enforcement actions. “This has the effect of pulling people up with one hand, and hitting them in the face and knocking them over the cliff with the other,” said Senator Jeff Merkley recently

8---NY Times lectures China on shadow banking, NYT

The shadow system has grown in recent years because the Chinese government has too tightly controlled traditional banking. It keeps the interest rates that conventional banks pay to depositors extremely low and gives out cheap loans to state-owned enterprises and favored companies that might not be able to repay the money.

The low rates, of course, have led savers to invest money in speculative real estate projects or dubious investments known as wealth management products offered by banks and finance companies that promise higher rates of return. Much of that money is then lent to private businesses and local governments, which cannot get conventional bank loans because regulated banks are required to give preferences to state-owned companies.

Chinese officials have to tread carefully in changing this system. The Chinese Academy of Social Sciences estimates that the size of the shadow sector is equal to 40 percent of the country’s gross domestic product. If the government cracks down on shadow banking too hard and too quickly, it could cause a panic. If it does not move forcefully enough to curb unregulated lending, bad debts will proliferate and become harder to resolve later on.

9---Fed Watch: FOMC Minutes - The Quick Review, Tim Duy

Regarding the marginal efficacy of the purchase program, most participants viewed the program as continuing to support accommodative financial conditions, with a number of them pointing to the importance of purchases in serving to enhance the credibility of the Committee's forward guidance about the target federal funds rate.
Still, their faith in the program is wavering:
A majority of participants judged that the marginal efficacy of purchases was likely declining as purchases continue, although some noted the difficulty inherent in making such an assessment.
Basically, they don't really have any basis for quantifying the marginal benefits of the program now. That said, there is push back:
A couple of participants thought that the marginal efficacy of the program was not declining, as evidenced by the substantial effects in financial markets in recent months of news about the likely path of purchases.
And what will financial stability issues means for future policy? Read carefully:
A couple of participants offered views on the role of financial stability in monetary policy decisionmaking more broadly. One proposed that the Committee analyze more explicitly the potential consequences of specific risks to the financial system for its dual-mandate objectives and take account of the possible effects of monetary policy on such risks in its assessment of appropriate policy. Another suggested that the importance of financial stability considerations in the Committee's deliberations would likely increase over time as progress is made toward the Committee's objectives, and that such considerations should be incorporated into forward guidance for the federal funds rate and asset purchases.

10---Commercial lenders to expand their appetites, HW (Hope springs eternal)

91% of top firms predict more originations

Foreign militia groups fighting inside the country are financed by the West, by Turkey, by the Gulf monarchies. These are not Syrian groups and these are not opposition. They are not political groups working inside the country. We have to imagine or see those groups more like militant gangs, sort of like the mafia, kidnapping people, killing civilians, occupying industrial complexes and selling the industrial goods to other countries, or stealing them as it happened in the industrial area of Aleppo. That's where militant groups stole industrial compounds and put them in Turkey.

RT: There's no formal representative of the Syrian opposition. What's the point of having this peace conference? What hope do you have for it?
MO: Those groups that claim they represent the moderate opposition or the moderate rebels don't have any influence on the battleground. We know, meanwhile, even the mainstream media had to realize the fights on the ground are carried out by Islamic extremists, by Sunni extremists, by Al-Qaeda-related groups. These so-called moderates don't have any influence

12---Fukushima failure: Decontamination system stops functioning, RT (No help from Obama)

13---Fallujah erupts, wsws

As for the supposed threat from Al Qaeda, that is also largely of Washington’s own making. The ISIS has been vastly strengthened by the US-backed war for regime change across the border in Syria, where it has been armed and funded by the US’s closest allies, particularly Saudi Arabia. The hypocrisy and cynicism of US policy in the region is summed up in Washington’s denunciation of Syria’s bombardment of ISIS forces in Aleppo, even as it rushes more missiles to Iraq so that Maliki can bomb them in Fallujah.

Embodied in this glaring contradiction is the dual use that Washington makes of Al Qaeda, employing it as a proxy where it suits is purposes—as in Afghanistan in the 1980s, and more recently in Libya and Syria—and then using it as a bogeyman to justify intervention, as in Afghanistan and Iraq a decade ago and once again in Iraq today.

The prospect that US imperialism may be able to further warm its hands over the fire it has ignited in Fallujah was indicated by the New York Times on Monday, in an article highlighting the “common enemies” shared by Washington and Tehran in Iraq. It suggested that the rapprochement between the US and Iran can extend beyond a deal on the Iranian nuclear program into turning Iran into a force for “stability” in the region.

14---Obama’s cheap-labor “promise zone” fraud, Obama to announce creation of corporate plantations, (Today's "must read") wsws

Meanwhile, Obama is proposing alongside his “promise zones” another $5 billion in tax incentives for businesses that take advantage of the poverty-wage labor being offered up.
The zones do not constitute an antipoverty program at all. They involve no government-funded jobs, but are rather, like free enterprise zones internationally, an inducement to private companies to profit from highly exploited, low-paid labor.

The White House is attempting to palm itself off as the champion of the poor and unemployed even as it pushes a new raft of attacks on the working class. Last month, besides allowing long-term jobless benefits to expire, it endorsed a new budget that continues the automatic “sequester” cuts in social spending, forces federal employees to pay more into their retirement funds, and further reduces spending for Medicare. It backed congressional Democrats in enacting a bipartisan measure cutting food stamp benefits for 47 million Americans. More food stamp cuts are currently being negotiated.
The administration intervened in court to support the bankruptcy of Detroit, which is being used to slash the pensions and health benefits of city workers and sell off public assets, including masterpieces at the Detroit Institute of Arts.

And it launched its “Obamacare” health care overhaul, which is already being exposed as a massive attack on health care for tens of millions of workers and a profit bonanza for the insurance companies. The program includes $700 billion in Medicare cuts, opening the door to the gutting of Medicare and Social Security, the two bedrock social programs dating from the 1960s and 1930s.
These measures mark an intensification of a policy that has already effected the biggest transfer of wealth from the working class to the corporate-financial elite in US history. This is captured in figures showing that the bottom 50 percent of the population own 1.1 percent of the country’s net worth, while the top 10 percent own 74.5 percent and the top 1 percent own 34.5 percent.

In the guise of combating inequality, the Obama administration, acting in behalf of the banks and corporations, is spearheading a social counterrevolution.

In a White House speech Thursday promoting his supposed offensive against inequality, President Barack Obama will formally name five communities as so-called “promise zones.” The White House on Wednesday released a statement identifying impoverished neighborhoods in Philadelphia, Los Angeles and San Antonio, as well as Southeastern Kentucky and the Choctaw Nation of Oklahoma, as the first such zones. Another fifteen regions are to be designated in the coming months......

In an attempt to lend an aura of progressive reform to the measures it is proposing, the administration scheduled the speech for the week of the 50th anniversary of Lyndon Johnson’s declaration of a “War on Poverty.” Besides the “promise zones,” these measures include a restoration of three months of jobless benefits for the long-term unemployed and a small increase in the federal minimum wage.

The counterposition of these paltry proposals to the last significant social reforms in the US, including Medicare, Medicaid and food stamps, only underscores the repudiation by the political establishment and both big business parties of social reform and their joint drive to dismantle the reforms of the past. Obama’s claims to be fighting inequality are belied not only by his past record, but by the further attacks on the working class he is presently pursuing.....

Obama’s singled-minded focus on covering the bad bets of Wall Street and further enriching the financial elite, in part by driving stock prices and corporate profits to record highs, has fueled a staggering increase in social inequality. The total wealth of billionaires has more than doubled since the stock market hit bottom in March of 2009. Since then, the Standard & Poor’s 500 stock index has risen by 170 percent. More than 95 percent of all income gains in the US during Obama’s first term went to the richest 1 percent of the country.

On the other side of the ledger, Obama has combined an unprecedented assault on social spending with a relentless drive to slash workers’ wages and increase their exploitation. At the center of the 2009 forced bankruptcy of General Motors and Chrysler, engineered by Obama’s Auto Task Force, was a 50 percent cut in the wages of new-hires as well as sharp reductions in the benefits of active and retired workers. This became the trigger for a nationwide assault on workers’ wages and benefits.

15---Keynes’s 1933 and 1938 Letters To Roosevelt, counterpunch
Why FDR Did Not End the Great Depression – and Why Obama Won’t End This One

Secular stagnation leaves the nation with a large number of permanently un- and unemployed persons devoid of hope for themselves or their children. But it is just this hope that constitutes the “American dream.” With the dream become a nightmare, we are on the path to social dislocation on a potentially terrifying scale: higher rates of crime, suicide, domestic violence, psychological depression and other forms of social disorder characteristic of periods of intense material insecurity. These are forms of unorganized resistance, and cannot be “wrung out” of the system like idle plants. They will be repressed. The powers that be have been putting in place for some years now, surely in anticipation of widespread social turbulence, the infrastructure of a police state. This comes as no surprise. Historically, capitalism in deep and protracted crisis and without an organized and active Left generates the makings of fascism. If the Left remains dormant, we are in for big trouble.....

we are seeing both the mass destruction of full-time jobs, many of which will never return, and record levels of long-term unemployment (unemployed for 15 weeks or longer).

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.
Summers’s forecast shows that this has not been entirely lost on the economics establishment.....

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. Ironically, Summers and Krugman have unwittingly made the case that orthodox, acceptable demand boosters are inadequate to the task of providing working people with material security. Large-scale public employment is, as Keynes argued, the only alternative to mass immiseration.

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