Friday, February 28, 2014

Today's Links (Monster weekend reading list)

1---Household wealth still down 14 percent since recession (QE made "rich richer"), eurekalert
New study contradicts rosier picture painted by Federal Reserve

COLUMBUS, Ohio – Household wealth for Americans still has not recovered from the recession, despite last summer's optimistic report from the U.S. Federal Reserve, a new study suggests.
Economists at The Ohio State University found that the mean net worth of American households in mid-2013 was still about 14 percent below the pre-recession peak in 2006. Their analysis suggested that middle-aged people took the biggest hit.

In a report last June, the Federal Reserve said that net worth of Americans – which includes the value of homes, stocks and other assets minus debts – had essentially recovered since the recession of 2007 to 2009. In fact, the Fed claimed wealth was the highest it had been in nominal terms since records began in 1945.
But the Fed's analysis included four data issues that gave a significant boost to its optimistic reading of the economy, said Randy Olsen, co-author of the study and a professor of economics at Ohio State.
The four problems with the data: It didn't adjust for inflation or population growth; it included accounts held by foreigners living outside of the United States; and it included wealth held by nonprofits and not just households.

"All four of these issues with the Fed report pointed in the same direction, leading toward a conclusion that was far rosier than what exists in the real world," Olsen said...

Those who suffered the most were people aged 35 to 54, Olsen said. In 2012, they were 27 percent below their peak net worth recorded in 2006.
"What we're seeing in these middle-aged people is very disheartening, because they are in what should be their peak earning years, when they should be accumulating assets before retirement," he said.
"We might be seeing people who have lost their jobs and are forced to spend their assets because they can't find work. Some of them may have given up looking."
Olsen said much of the recovery in net worth that has occurred since the recession can be attributed to the rise in value of financial assets, such as stocks. This tends to help those who are already wealthy, he noted.
This increase has occurred because of the Federal Reserve's policy of quantitative easing, which means the Fed has bought large amounts of longer-term bonds and other financial assets, boosting their prices.

"Without quantitative easing, we probably would show even lower levels of household net worth," Olsen said.
"As much as the Federal Reserve might want people to believe we have recovered from the recession, the bottom line is that we haven't."

2---No Recovery? Blame declining Gov spending " and declining expected rate of house price appreciation", angry bear

the current US recovery has been horrible for two reasons: low government purchases of goods and services (G) and low housing investment. Consumption, fixed non residential investment, and inventory investment have recovered normally. Net exports didn’t fall. - ...

the key graph explaining the slow recovery of housing investment shows the low and declining expected rate of house price appreciation. In addition to their well known house price index Case and Shiller survey the expected rate of increase of housing over the next ten years. The average over the random sample of 2000 is shown in the graph I steal below (via DINA ELBOGHDADY) The dramatic decline in expected medium term house price appreciation is greater than the decline in the mortgage interest rate (about 3% from the business cycle peak to the low point of mortgage interest rates in 2013) so the expected cost of owner occupied housing services is extraordinarily high (meaning it is positive given maintenance and property taxes). The decline is 9% from the peak mania and about 5% from the business cycle peak. This is a sufficient explanation for low housing investment. -

I have long guessed that the issue is declining expectations of house price appreciation, but only now found Case and Shiller’s graph (I should have used the google). -

3---Fourth-quarter growth cut to 2.4 percent, (revised from 3.2%)  Reuters

The U.S. government slashed its estimate for fourth-quarter growth as consumer spending and exports were less robust than initially thought, leaving the economy on a more sustainable path of modest expansion.
Gross domestic product expanded at a 2.4 percent annual rate, the Commerce Department said on Friday. That was down sharply from the 3.2 percent pace reported last month and the 4.1 percent logged in the third quarter.

Economists polled by Reuters had expected growth would be cut to a 2.5 percent pace.
It is not unusual for the government to make sharp revisions to GDP numbers, as it does not have complete data when it makes its initial estimates. In fact, the latest figures will be subject to revisions next month as more information is received.
The revision left GDP just above the economy's potential growth trend, which analysts put somewhere between a 2 percent and 2.3 percent pace.

Consumer spending accounted for a large chunk of the revision after retail sales in November and December came in weaker than assumed.
Consumer spending was cut to a 2.6 percent rate, still the fastest pace since the first quarter of 2012. It had previously been reported to have grown at a 3.3 percent pace.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, contributed 1.73 percentage points to GDP growth, down from the previously reported 2.26 percentage points. As a result, final domestic demand was lowered two-tenths of a percentage point to a 1.2 percent rate.

4---Janet Yellen Nails The Economy's Biggest Problem, The Solution Not So Much, mark gongloff

Like her predecessor Ben Bernanke, Yellen offered a couple of the usual stock explanations for widening inequality: technological change and globalization. But those two trends didn't just abruptly get much worse in 1987, leading to the sudden spike in inequality that is plain to see on the chart above.
Instead, President Ronald Reagan cut income-tax rates on the wealthy in 1986, directly contributing to the mid-80s spike in inequality, according to a 1999 Cleveland Fed study.

Asked what Congress could do to help, Yellen offered more stock solutions: More education and training for workers and kids. Those could help with the issues of technological change and globalization, maybe -- although more education sure hasn't helped raise the incomes of low-wage workers.
Yellen did not mention another approach that could also help with the problem: Rolling back those massive tax cuts for the wealthy that started the whole ball rolling back in the 1980s.

5--NYT Says Homeownership Advocate Doesn't Realize House Prices Are High, CEPR

Actually, house prices are not low. While they have not returned to bubble peaks, they are well above trend levels. This means that people buying into the current market have a substantial risk of losing money on a home. This risk will be especially high if interest rates rise in the years ahead, as is almost universally predicted. 

6---The Robber Barons of the For-Profit College Sector, NYT

7---Federal Budget Deficit Falls to Smallest Level Since 2008, NYT
(Obama opts for budget cuts over jobs)

Closing the books on a fiscal year in which the federal budget deficit fell more sharply than in any year since the end of World War II, the Treasury Department reported on Thursday that the deficit for 2013 dropped to $680 billion, from about $1.1 trillion the previous year.

In nominal terms, that is the smallest deficit since 2008, and signals the end of a five-year stretch beginning with the onset of the recession when the country’s fiscal gap came in at more than $1 trillion each year. As a share of the nation’s economy, the budget deficit fell to about 4.1 percent, from a high of more than 10 percent during the depths of the Great Recession.
The report comes days before the White House is scheduled to release a new budget for the fiscal year beginning Oct. 1 that avoids cuts in spending and focuses on ways to help spur the still-tepid recovery through additional government investment. ...

Over the same period, total government spending barely grew, rising to $3.9 trillion, from $3.8 trillion a year earlier, the Treasury said. (Federal budget outlays — the number most often cited as annual spending — were about $3.5 trillion in both years. The Treasury included a fuller accounting in this analysis, including costs incurred but not paid out.)
“Thanks to the tenacity of the American people and the determination of the private sector we are moving in the right direction,” Treasury Secretary Jacob J. Lew said in the report. “The United States has recovered faster than any other advanced economy, and our deficit today is less than half of what it was when President Obama first took office.”

8---Obama's Fifth Year Job Approval Ratings Among Most Polarized, gallup
Job approval 82% among Democrats, 11% among Republicans

Obama is on course to have the most politically polarized approval ratings of any president, with an average 69-point gap during his presidency, a full eight points higher than was the case with Bush. There have always been party differences in presidential ratings, but these have become more extreme in recent decades, averaging 34 points before Reagan's presidency and 58 points after. This is due more to presidents receiving comparatively lower approval ratings from the opposition party than it is from extremely high support from their own party, though both are factors.

9---U.S. Retail Chains See First Profit Decline Since Recession , Bloomberg

U.S. retailers last quarter suffered their darkest days since the recession.
With results in from 62 of 122 retail chains, the industry has posted its first profit quarterly drop since the economic contraction that ended in 2009, according to Retail Metrics Inc. Revenue also rose at the lowest rate since that year, the research firm found.

The results paint a grim picture of an industry hit hard by the sluggish job recovery and slow wage growth, which have turned U.S. consumers into a nation of penny pinchers. Earnings are expected to drop 6.1 percent on average during the holiday quarter, according to Retail Metrics data. The broader pool of Standard & Poor’s 500 Index companies, meanwhile, are estimated to see profit rise 8.5 percent. ....

Teen retailers were the hardest hit, based on adjusted earnings per share. Their profit is decreasing 37 percent, Retail Metrics found. Electronics chains are down 17 percent, and discounters are dropping 12 percent, the firm said.

10---4 reasons Americans are losing interest in owning a home, yahoo

Americans now view a home as a poor investment. The Case-Shiller-Thompson survey of home buyer expectations shows potential buyers, on average, expect a home to appreciate just 3% per year over the next decade. ...

More young people may prefer renting.

Institutional buyers may be largely responsible for the housing rebound. ...

Americans are spooked about the entire economic outlook. Consumer confidence has been up and down and remains far below where it was before the recession. The portion of Americans who feel the country is on the wrong track is more than 30 points higher than those who feel things are going right. Buying a home generally requires a sense of optimism about your own circumstances and, more broadly, the economy in general. Americans aren’t feeling it.

11---Housing looks "frothy" says Economist

TWO years after house prices ended their precipitous fall, housing across America is beginning to look frothy again. New data released by Standard & Poor’s on February 25th showed the Case-Shiller index of 20 cities rising in December at the fastest rate for nine years.

12---Home prices fall for 2nd consecutive month, SF Gate

13---Investors and owner-occupants purchase fewer homes , oc housing

14---Institutional Investor Sales Decline, DS News

15--Mortgage applications at lowest level in two decades,( Ivy Zelman) cnbc

16---Housing 'nirvana' around the corner: Star analyst, cnbc

17---US housing starts plunge 16% as cold weather blankets country, cnbc

18--Existing home sales tank. Idiots blame weather, cnbc

Sales of existing and newly built homes were down in December from November; existing home sales were down nearly 9 percent from December 2012, while sales of newly built homes were up 4.5 percent. Reports of lackluster buyer traffic in January don't bode well for those sales numbers either. They will be reported next week.

"The Northeast and the Midwest truly, those weather patterns have impacted the listing market," said Richard Smith, CEO of Realogy, whose brands include Coldwell Banker, Century 21 and Sotheby's International. "So until we see some relief there, you're going to see lower inventory levels, and then one day it's going to spike, and it will be sometime in early spring, of that we're fairly optimistic, but I can't predict that any more than you can."

19---Europe cannot afford to ignore its deflation problem, FT
Remember what happened in Japan? Once its economy settled to a new steady state with negative inflation and zero growth rates during the 1990s, it got stuck in a hole. There is still a dispute over whether fiscal or monetary policy is the more suitable instrument in such a situation. But there is no dispute that a policy mixture that consists of fiscal rigour, excessive monetary tightness and a refusal to deal with the zombie banks is not going to work. The ECB always says Europe is not Japan. Indeed, it is not. Europe’s position is potentially worse

20---Deflation Is Not Benign, Frances Coppola, Forbes

When broad money contracts, the value of money rises relative to goods and services, causing a fall in the general price level. So you can buy more stuff both now and in the future. Consumers rejoice, because their shopping bills shrink. Savers rejoice, because their savings increase in value.
At this point most of you are probably scratching your heads and thinking “I don’t get it. Why is this not benign?”

It’s all because of how money is created. For broad money to be created under our fiat system, someone has to borrow. So for our monetary system to work at all, there must be debt. When the value of money increases because some are paying off their debts (or defaulting on them), the value of debt for the remaining borrowers increases. That includes households, governments and businesses. All of them become MORE INDEBTED relative to their incomes when the value of money rises. This is because although incomes tend to flex with the value of money, the stock of debt does not. Debt is nominal.

If this isn’t clear, let me give you an example. If you have a debt of $1000, and the value of money increases by 5% (outright deflation), you still have to pay $1000. You don’t get a reduction in your nominal debt because the value of money has risen. So your lender benefits from the increased value of money. But you don’t get a pay rise. In fact you may even get a pay cut. After all, from your employer’s point of view, your pay is costing him an extra 5%. The fact that you will have to pass that straight on to your lender doesn’t concern him.

There are a lot of highly indebted people out there, and highly indebted companies and governments, too. Outright deflation would increase their debt burdens, forcing them to cut spending and defer investment decisions. It may even force some of them to default: if defaults are sufficiently widespread, the money supply falls abruptly. When people, businesses and banks are highly indebted, slow deflation can all too easily change to virulent debt deflationary collapse.....

Furthermore, productivity improvements enabling companies to make money while lowering prices do not necessarily follow through into higher real wages, and may result in higher levels of unemployment. This is actually what happened in the Long Depression: yes, there was economic growth, and prosperity for many of those in work, but there was also high unemployment and poverty. The “technological changes cause benign deflation” argument is in my view seriously flawed.

I am unconvinced that the benefits of falling prices ever outweigh the problems they create, even when the money supply is fixed. But of one thing I am certain. In an economy in which the production of money depends on the production of debt, there is no such thing as benign deflation.

21---The problem with Abenomics, JT (Gret article!)

(zero rates and QE cannot counter no demand and vicious austerity)

The moderate inflation we have now comes in part from demand-killing increases in import prices, and from a buying rush bound to result in an equal or greater demand slump when the consumption tax rises in April.
Japan, and now increasingly the other developed economies, face demand deficiency problems much more serious than they realize....

(Keynes to the rescue!)
The only way out of all these dilemmas is for governments to rely on their own increased spending to provide the needed demand — the Keynesian solution. Abe has promised us a ¥5 trillion fiscal stimulus to do that. But that is a mere drop in the bucket, and will in any case be more than neutralized by the planned ¥5 trillion increase in the consumption tax.
Promises of future “fiscal consolidation” (the new word for cutting government spending) will do even more damage...
Will “Abenomics” succeed? Prime Minister Shinzo Abe, claiming economic success, says “numbers do not lie.” But one number does give lie to his claim: Before Abenomics, gross national product per head in Japan stood at $46,000.
Today, thanks to a 30 percent depreciation of the yen, that figure is now around $37,000 per head — the level of Italy and Hong Kong. “Japan is Back,” Abe likes to tell the world. Well, in one sense it really is back — all the way back to the per capita income of the early ’90s.

The recovery we see now is almost entirely due to that massive 30 percent depreciation, which in turn is the result mainly of the large annual ¥3 trillion increase in imports of fossil fuels caused by the Fukushima nuclear disaster. That currency depreciation, in turn, gives the support to exporters, and to domestic producers competing with imports, that sustains the present recovery — which in turn gives the psychological boost this economy needed so badly
22---Washington warns Moscow over Ukraine, RT

German Defense Minister Ursula von der Leyen said it was important “that we prevent a breakup of the Ukraine, and that special forces in the country are strengthened,” Ruptly TV reported.

“NATO stands ready to support democratic development, defense reforms, military cooperation and democratic control over the security sector,” Rasmussen said after the session of the NATO-Ukraine Commission. NATO, which “has a long-standing partnership” with Ukraine is set to continue its engagement and support the country “on the path of democratic and inclusive reforms,” he added. ....

At the same time, the EU-brokered agreement to settle the Ukrainian political crisis which was signed on February 21 and certified by the foreign ministers of Germany, Poland and France “is still not being implemented,” Russia said.

“Militants, who still haven’t surrendered arms and not vacated administrative buildings, announced their intention to ‘bring order’ to all Ukrainian regions,” the Russian ministry said.
The agreement to jointly investigate violence, as well as to form a national unity government “fell into oblivion,” Moscow said. “Instead, as it was announced on [Kiev’s] Maidan ‘a government of winners’ has been established which includes nationalist extremists.”

23---Austerity and fascism arrive in Kiev, wsws

The task of the new government is to implement the “extremely unpopular steps” that Prime Minister Yatsenyuk complained had not been carried out by previous governments. i.e., hikes in energy prices, the closure of large sections of heavy industry and massive social cuts.
The country faces a financial crisis and needs an estimated $35 billion in bailout loans to be able to pay its bills for the next two years. Nearly half of this sum, $15 billion, is owed to western banks.

International Monetary Fund managing director Christine Lagarde said Thursday that the IMF would send a team to Ukraine to assess the economic situation and spell out to the newly installed regime “the policy reforms that could form the basis of a Fund-supported program.” In previous dealings with the Yanukovych government, the IMF already dictated such “reforms,” i.e., extreme austerity measures, including drastic cuts in wages and pensions and an end to gas subsidies, which would send consumer prices soaring.

Since the outbreak of the global financial crisis in 2008, the European Union with US support has installed unelected governments in Greece and Italy to implement austerity and remunerate western banks. Now, for the first time, the same imperialist alliance mobilized extreme nationalist and fascist forces to topple an elected government and install a new pro-western regime.

No less than three posts, including that of deputy prime minister, have been given to the fascist Svoboda party, whose militants played a decisive role in attacking security forces last week and ousting President Viktor Yanukovych.
Svoboda Party deputy Oleksandr Sych was appointed deputy prime minister. In his career as a parliamentary deputy, Sych sought to introduce legislation to ban all abortions, including pregnancies caused by rape. His contribution to Svoboda’s glorification of “Ukrainian family values” was to call upon women to avoid rape by not drinking alcohol and “controversial company.”

Two other Svoboda members have taken over the ecology and agriculture ministries. The new agriculture minister, Oleksandr Myrnyi, is, according to Forbes, in the top five of Svoboda’s highest earners, with an estimated income of Hr 17 million ($1.6 million) in 2012. His main business interests are concentrated in agriculture—a blatant conflict of interests with his new appointment.
Another Svoboda member, Oleh Makhnytsky, heads the strategically important general prosecutor’s office. Appointed a week ago, Makhnytsky issued an international arrest warrant this week for the ousted president Viktor Yanukovych, who is allegedly seeking asylum in Russia.

Another key post is to be occupied by Andriy Parubiy, who was a cofounder of the forerunner of Svoboda, the Social-National Party of Ukraine. Parubiy founded the organization in 1991 together with Oleh Tyahnybok, the current head of Svoboda. Parubiy, who led the right-wing militias that conducted the assaults on Yanukovych’s security forces, has now been appointed head of the National Security Council.

According to the LibĂ©ration newspaper, Dmitri Yarosh, the leader of the pro-Nazi Right Sector group, is to be Parubiy’s deputy. This means that Svoboda and other ultra-rightists head key posts in the security apparatus and will be responsible for organizing the shock troops to repress future social unrest.
The key post of Finance Ministry in the new regime has been taken by Oleksandr Shlapak , a former deputy head of PrivatBank regarded as a guarantor of the interests of finance capital.

24---GCHQ, NSA collected webcam images from 1.8 million Yahoo users, wsws

The Guardian reported that the webcam material “included large quantity of sexually explicit images,” estimating the quantity of sexually explicit material at between 3 and 11 percent of the images collected. As the GCHQ document put it, “it would appear that a surprising number of people use webcam conversations to show intimate parts of their body to the other person.”

These latest revelations further expose the contempt of the US and British governments for the democratic rights and privacy of the world’s population. Far from narrowly targeted operations directed against terrorists and criminals, these agencies are running mass data collection programs directed against the population as a whole. The state is seeking to accumulate as much information, in whatever form it can use, for the purpose of targeting political organizations and individuals.

25---The Worst Snowden Revelation of Them All, antiwar
(gov smear campaign against everyone)

So let’s be clear about this: individuals, groups, and private companies accused of no crime are having their reputations destroyed, their private lives exposed and their financial affairs disrupted by a government-orchestrated smear campaign extending all across the globe.

If that doesn’t unmask our rulers as the ruthless authoritarians we libertarians always said they were, then I don’t know what will. Behind the mask of "democracy" and "progressivism" lurks the same old ugly face of a J. Edgar Hoover, only updated to look like the dome-headed professorial Cass Sunstein.

26---The ECB receives another disinflationary warning, sober look
The ECB received another warning today: the German CPI rate came in below expectations. The disinflationary pressures are no longer just about the Eurozone periphery.
Moreover, the euro area private loan balances continue to contract and the broad money supply growth remains weak.
Reuters: - "Weak money supply growth is not only condemning the euro zone to stagnant recovery, but it is raising the odds that the single-currency area could easily slip back into recession again," said David Brown at New View Economics.

"The ECB still needs to think outside the box to get the euro zone motoring into the fast-lane," he added. "A change of heart on quantitative easing still beckons ahead."

The ECB, worried that inflation risks getting stuck in a "danger zone" below 1 percent, is considering whether to take fresh policy action next Thursday to support the economy.
Bunds rallied on the news, with the market still anticipating an easing action from the ECB. The 2-year German note yield dropped down below 10bp again.


While the ECB has been counting on improving business confidence in the Eurozone to stabilize the recovery, surveys may end up being misleading. With a great deal of the euro area expansion relying on exports and China's (and other EM nations) growth slowing, sentiment can turn very quickly.

27---Felix Zulauf Warns Of "Another Deflationary Episode" As "The Mother Of All Bubbles" Pops, zero hedge (archive)

28---The IMF's "roundtrip" loans: "85 percent of the funds received (in IMF loans to Ukraine) should be later returned to legal entities of the countries involved in their provision, pravda

The EU has a wealth of experience in providing financial assistance to its members in such a way that this assistance is not seen by these countries," told Pravda.Ru Serbian economist Branko Pavlovic. "In the case of Greece, it was only formally aid to Greece, but in reality funds were allocated to banks owned by legal entities from Germany and France. For example, Romania was allocated 8 billion euros, but Romania did not manage to fulfill the conditions under which it could spend the money, so in reality it only managed to use one billion euros.
Third, when the recipient country manages to get money from the EU, 85 percent of the funds received should be later returned to legal entities of the countries involved in their provision. In fact, funding by the EU is at best a cover for the financing of the economies of the first tier and never leads to the development of the economy of the countries receiving the assistance. Moreover, the economy weakens and debts only increase."
The collapse may occur as early as March if capital flight continues at the same rate," warned the IIF. Therefore Ukraine will be only provided a loan because of a political motivation, and will be much smaller than Ukraine requested and under strict conditions. "The big bailout plan Ukraine is currently seeking will not be implemented through international donors and non-inclusive weak government," told Bloomberg senior economist of IHS Global Insight in London Lilit Gevorgyan
Political conditions include the signing of the Association Agreement with the EU and legitimization of the government. Relevant agreements have been reached between the parties, and the agreement will likely be signed after the presidential elections in Ukraine on May25. The conditions include: reduction of the budget deficit that means devaluation of hryvnia, cuts in  pensions, benefits and salaries to state employees, raising of the retirement age, the removal of subsidies to coal and other underperforming industries, the growth of natural gas prices, and other unpopular measures.

("Are you with us or against us"?)

Those sentiments are directly at odds with the core element of US national and global security strategy in operation since the late 19th Century. Those strategies employ the USA's considerable  instruments of national power to: 1) actively destabilize "elected" governments (Ukraine, Venezuela) through the use of NGO's, intelligence agencies and proxy groups;  2) prop up brutal regimes (Bahrain, Saudi Arabia, Egypt) through a US congressionally approved program, executed by the US military, called Foreign Internal Defense; 3) information operations conducted via the printed press, social media, radio, television and film that seek to shape the cognitive local to global environment in favor of US national interests.; and 4) existentially destroy foreign governments through direct military action in conjunction with the weaponry of finance capitalism to create new markets

All of this is codified in one form or another in US political and military doctrine. Every American president from George Washington to Barack Obama has trumpeted in some fashion what President Obama and President Bush George W, Bush both proclaimed. The former indicated that the US will pursue its own interests no matter what any other nation on the planet thinks, even invoking God's plan to put the care of the global environment in America's hands. The latter put it more simply, "You are either with us or against us." The heads of foreign governments-and their opponents-- are well aware of US strategy, tactics and operations.

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