Thursday, February 20, 2014

Today's links

“This state of affairs, incidentally, has nothing to do with the fact that the people are divided, but rather, is to be explained by loss of confidence in the so-called system. In order to maintain the system, the empowered ones begin to act as rulers and resort to force. They substitute force for the assent of the people. That is the turning point.”    Hannah Arendt


1---Cold weather sinks U.S. home building in January, Reuters


U.S. housing starts recorded their biggest drop in almost three years in January as harsh weather disrupted activity, but the third month of declines in permits hinted at some weakness in the housing market....


"The housing sector already slowed down in the fourth quarter and it's not picking up," said Thomas Costerg, a U.S. economist at Standard Chartered Bank in New York. "There is more than the weather at play and the underlying dynamics are not as favorable as people thought they were."...


Demand for loans to purchase homes plunged last week and a report on Tuesday showed confidence among home builders tumbled in February, with some complaining about a shortage of labor, materials and building lots.
Investment in home building fell in the fourth quarter for the first time since the third quarter of 2010.


FIRST-QUARTER GROWTH ESTIMATES CUT
Some economists lowered their first-quarter growth estimates on the back of the weak starts data. Goldman Sachs trimmed its forecast by a tenth of a percentage point to a 1.8 percent annual rate. Barclays cut its estimate by 0.3 percentage point to a 1.9 percent rate.


2---Euro-Area Recovery Loses Pace as Manufacturing Weakens: Economy, Bloomberg


3---China February flash PMI hits seven-month low, spooks markets, Reuters


Activity in China's factories shrank again in February, a preliminary private survey found on Thursday, reinforcing concerns of a minor slowdown in the economy and spooking markets across the region.
The flash Markit/HSBC Purchasing Managers' Index (PMI) fell to a seven-month low of 48.3 in February from January's final reading of 49.5, where a reading below 50 indicates a contraction while one above shows expansion.


4---Record Japan trade deficit highlights risk of economic stumble, Reuters


(Liberal economists applaud while Lower wages and higher taxes steer Abenomics towards cliff)


If the economy weakens further after a sales tax hike, policymakers could resort to fiscal stimulus as early as summer....Abe's reflationary policies have weakened the yen by about 20 percent in the year to January, supporting the value of export receipts in yen terms and helping exporters' earnings. But they have so far failed to shore up volumes....


The government will increase the sales tax in April to 8 percent from 5 percent, and consumers have been buying cars, homes and durable goods before the increase....


Japan suffered a record trade deficit in January as growth in exports spurred by a weak yen was far outstripped by a surge in import costs, raising fresh doubts about Prime Minister Shinzo Abe's strategy to spark an economic revival.
The trade numbers came on the heels of a survey showing manufacturers' sentiment worsened in February in a sign that businesses were bracing for a chill in demand after a planned sales tax increase takes effect in April.


The drumbeat of disappointing data threatens to slam the brakes on the world's third-largest economy barely a year after Abe set about recharging growth with a potent mix of fiscal and monetary stimulus.
Exports rose 9.5 percent in January, Ministry of Finance (MOF) data released on Thursday showed, though growth slowed for the third straight month with the effect of the softer yen on shipments outweighed by a substantial rise in import costs.


The trade balance came to a deficit of 2.79 trillion yen ($27.30 billion) in January -- a record 19th straight month of shortfalls -- as imports rose 25 percent to a record amount.
The ballooning deficit is a reminder that a weak yen alone cannot boost exports as Japanese firms are shifting production abroad, while overseas demand lacks strength needed to offset a blow from the planned sales tax hike.


5---Chile's students demand free college education, naked capitalism (Hooray)


The student movement ....demands include universal access to free public schooling and massive increase in state support to universities, which currently rely mainly on tuition fees. Achieving this will require significant revenue mobilisaiton by the state, which is where the proposals on tax reform and increasing the share of tax revenues raised from corporations and rich households are important.


6---Household Debt Rose Because Foreclosures Fell, Dean Baker


The NYT had an article discussing a release of data on household debt by the NY Fed. The article noted that debt rose rapidly and highlighted the increase in mortgage debt in the fourth quarter, the first since before the downturn.
Actually, the main reason that mortgage debt increased in the fourth quarter, as compared to declines in prior quarters, was due to a lower rate of write-downs of bad debt. There was no surge in new mortgage debt in the fourth quarter.


7---Keynes: "On the Money", Delong


Consider the book's preface, where Keynes writes:
[The economy] cannot work properly if the money... assume[d] as a stable measuring rod, is undependable. Unemployment, the precarious life of the worker, the disappointment of expectation, the sudden loss of savings, the excessive windfalls to individuals, the speculator, the profiteer--all proceed, in large measure, from the instability of the standard of value.


It is often supposed that the costs of production are threefold... labor, enterprise, and accumulation. But there is a fourth cost, namely, risk; and the reward of risk-bearing is one of the heaviest, and perhaps the most avoidable, burden on production....[T]he adoption by this country and the world at large of sound monetary principles, would diminish the wastes of Risk, which consume at present too much of our estate....


The belief that monetary instability--inflation and deflation--is the principal, or at least a principal, cause of other economic evils; the hope that sound monetary principles can be identified and, when identified, would greatly diminish uncertainty and risk; the focus on the job of the public sector being to provide the private economy with a stable measuring-rod and a stable environment--all these are core ideas of whatever we choose to call monetarism
...


The last chapter contains Keynes's "Positive Suggestions for the Future Regulation of Money". Keynes's suggested policies are the same as Irving Fisher, or indeed as Milton Friedman: spend money to construct a good price index, and then tune monetary policy so as to stabilize internal prices. As Keynes wrote in his preface:
We leave Saving to the private investor.... We leave the responsibility for setting Production in motion to the business man.... [T]hese arrangements, being in accord with human nature, have great advantages. But they cannot work properly if the [value of] money, which the assume as a stable measuring-rod, is undependable...


8---Scorched Earth: US pursues violent upheaval and chaos in Ukraine, RT


The problem now is that we have passed the situation where there is an obvious political solution....


A country of almost 15 million people is being held hostage by a very small radical group, namely 2 or 3 thousand very aggressive rioters, with some of them toting firearms and Molotov cocktails, Professor Mark Almond of Oxford University told RT.


RT: Extreme violence, 10 dead, and chaos in a major city. Russia and Ukraine accuse the EU and US of interference, but are they really to blame for this?


Mark Almond: Well, only time will tell when the archives open, but there is a great deal of prima facie evidence that Americans and Europeans wanted some kind of chaotic denouement to this crisis. Remember, if we go back to 2004, they pushed through a compromise solution to the crisis and there was a rerun of the elections. Now what is wanted is a clean sweep or a revolution... It means abolishing the constitution, it means outlawing the losing side, and what I think the West really wants to see is the pushing away from any position of power, any chance of coming back to power, of the president’s government and its supporters...


One of the problems of this crisis is that there isn't a constitutional way out because, in fact, about half of the country, the Western third of the country at least, is already controlled by these very radical groups who suppress any opposition. If you go to Lviv, if you go to Ivano-Frankovsk, people don’t agree with the paramilitary groups… it's rather like meeting dissidents in Ceaușescu's Romania 25 years ago. And so if you were to hold an election you would find a situation where a large part of the country has a completely bogus situation, for example inflated by large numbers of non-existent people - that happened already in 2004. So the claim, the argument “let’s have elections,” if you have an election with the paramilitaries in control at the polling stations, I’m afraid you are not going to get a genuine result.


9--US Policy Spreads global addiction: Afghanistan occupation creates world's biggest heroin producer, counterpunch


In the late 1990s Afghanistan’s poppies supplied about 70 per cent of the world’s heroin, but a very astute United Nations team contacted the Taliban leader, the bigoted, vicious Mullah Omar, and suggested he declare poppy growing for heroin production to be unIslamic and should order that it would be punished.


He did; and it was; and poppy growing almost ceased,  which shows what can be done if it suits the people in power.  And if Washington had joined in at that time and provided cash, know-how and markets for alternative crops the world would be a better place than it is now.


But then came the US attack on Afghanistan in 2001, and the Taliban government and the deal collapsed. The evil Mullah Omar realized that his Taliban thugs would make lots of money by encouraging poppy growing. Suddenly it wasn’t unIslamic. (Flexibility is a principle of war but it seems that it’s also a principle of Taliban-interpreted Islam.  What a bunch of humbugs.)


10---US-backed regime change in Libyan turns to chaos, counterpunch


...The militias are growing in size. The central government is growing irrelevant. Jail breaks are reported regularly. And Libyans find safety in holding on tighter to their tribal and clan affiliations. What future awaits Libya is hard to predict, but with western and Arab intelligence fingerprints found all over the Libyan bedlam, the future is uninviting.....


where hundreds of militias rule the country with an iron fist. In fact, the prime minister was himself kidnapped by one militia last October. Hours later, he was released by another militia. Although both, like the rest of the militias, are operating outside government confines, many are directly or loosely affiliated with government officials. In Libya, to have sway over a militia is to have influence over local, regional or national agendas. Unfortunate as it may be, this is the ‘new Libya.’


Some will find most convenient ways to explain the chaos: ‘East Libya is inherently unruly’, some would say; ‘it took a strong leader like Ghaddafi to maintain the national cohesion of a country made of tribes, not citizens,’ others would opine. But the truth is oftentimes inconvenient and requires more than mere platitudes.


Libya is in a state of chaos, not because of some intrinsic tendency to shun order. Libyans, like people all over the world, seek security and stability in their lives. However, other parties, Arab and western, are desperate to ensure that the ‘new Libya’ is consistent with their own interests, even if such interests are obtained at the expense of millions of people.


11---Russia leads world back into slump: Sliding ruble to drag Russian economy into recession, RT


Russia’s GDP growth turned negative in January, with the lowest investment since 2010. Analysts say uncertainty surrounding the ruble, which hit its all-time low against the euro on Wednesday, is weighing on the economy and could drag it into recession.


12---Fed's "Taper" generates currency crisis in emerging markets, RT


We are in the final part of this cycle. Which comes next is probably the mandate for change. We all need to change, the export-driven business model isn’t sustainable,” Jacobsen told RT in an interview at his Moscow office.


2013 has been a train wreck of a year for emerging currencies, which are taking a huge beating from the euro and dollar as their respective economies regain post-crisis strength.
India’s rupee has had one of its worst years ever, and in 2013 lost 11 percent against the dollar. The ruble has hit a 5-year low against both the dollar and euro, soaring above 48 rubles against the euro, and over 35 rubles against the dollar.
The rand hit a 5-year low at 11.3785, the highest since October 2008. The Turkish lira and Mexican peso fell in response to the big dip.

Devaluation is being fueled by policymakers in emerging markets. In an effort to make the ruble a free-floating currency, the Russian central bank is cutting its monetary intervention and increasing the boundaries of a currency corridor, which is sending the currency to record lows against both the euro and the dollar.


“Policymakers are always seeking the easy answer, and the easy answer right now is weakening the currency. But by doing that you have to remember that the only reason anyone buys into an emerging market is because you expect the currency to appreciate. Pursuing devaluation long term will hurt the appetite of long term investors,” Jacobsen explained.
“We don’t need to go to a full-blown crisis mode here,” Jacobsen said, but warns if all emerging markets pursue similar devaluation strategies, nothing will change.


13---Multigenerational Households on the Upswing, NYT


More families living together due to shitty economy.


14--China a Growing Worry Among Fund Managers, wsj


Global investors are increasingly worried about a sharp slowdown in China, which has eclipsed the U.S. Federal Reserve’s cutbacks in its bond-buying as the biggest perceived threat to the global economy, according to a survey of fund managers by Bank of America-Merrill Lynch.
Nearly half of those surveyed, or 46%, pointed to a hard landing for China’s economy, and an accompanying collapse in commodity prices, as the biggest risk. That’s up from up from 37% last month and 26% in December....-


China is getting serious about deleveraging,” Société Générale said in a report this week. “This should make economic growth slower, but more balanced. There is a risk, however, that deleveraging gets out of control and leads to a hard landing, in which growth slows to 2% y/y at the trough.”


15--Housing Sales Armageddon: The problem is “the disconnect between prices and incomes.” Testosterone Pit
....


It’s called the “wealth effect.” The Fed’s ingenious invention. It has kicked in gloriously. After five years of money-printing and bond-buying with the express purpose to inflate stocks, derivatives, mortgage-backed securities, farmland, housing, bank balance sheets, and what not, and after blowing the largest credit bubble in history, the Fed has succeeded in creating a situation where, increasingly, buying a median home is something only the wealthy can do.
But that’s where the economics of the ingenious wealth effect fall apart. There aren’t that many wealthy people to buy all these median homes. And wealthy people don’t want to buy median homes. Hence, cratering sales. Forget the weather. The problem is, as Blomquist put it, “the disconnect between prices and incomes.”
....
the largest drop occurred in the sub-index for the West, including the West Coast where most of the West’s construction takes place, a region that was cursed with more sunny weather instead of much needed rain: confidence plunged 14 points!


Blaming the weather is convenient. Yet, purchases by first-time home buyers – the crux of the housing market – dropped to just 27% of all purchases in December, from 28% in November, from 30% in December 2012, and from the 30-year average of 40%. First-time buyers have been pushed out not by bad weather but by higher home prices, higher mortgage rates, and a flood of cash buyers – 62.5% of all buyers in Florida – many of whom are investors.
But not a word from the NAHB about soaring prices and higher interest rates, and how they’ve pushed homes once again beyond the reach of many hardworking Americans.


16---US and EU step up support of fascist paramilitaries to topple Russia-friendly gov of Ukraine, wsws


political leaders in Washington, Berlin and Brussels are prepared to split the country, drive it into civil war and risk a conflagration across the entire region to achieve their geopolitical goals.
Following the failure of the Ukrainian opposition and its Western supporters to overthrow President Viktor Yanukovych by means of demonstrations and replace his regime with an EU-friendly government, armed fascist gangs are being mobilized to achieve the same aim
....
The fact that Berlin and Washington are prepared to exploit the services of paramilitary fascist gangs for their own purposes exposes the official propaganda, which states that what is at issue in Ukraine is the rule of law and democracy. In fact, the aim is to replace the regime of Yanukovych with one that will distance itself from Russia, subordinate itself to the European Union and impose brutal austerity policies on the Ukrainian working class.
This is also the aim of the opposition led by Klitschko, Yatsenyuk and Oleh Tyahnybok, whose Svoboda party openly celebrates the Nazi collaborator Stepan Bandera and espouses anti-Semitism and racism.


The battle for Ukraine is part of efforts by the US and the European powers to incorporate all of Eastern Europe into their sphere of influence and isolate Russia. This process began with the restoration of capitalism, continued with the incorporation of the former Eastern Bloc countries and the Baltic States into NATO and the EU, and is now to be extended to large parts of the former Soviet Union.
Ukraine, with its network of energy pipelines, strategically important military bases and heavy industry, is a major target of American and European imperialism. On two occasions in the last century, in 1918 and 1941, German imperialism invaded Ukraine. In World War II, Hitler’s armies massacred millions of Ukrainians....


The installation of a client regime in Ukraine or imperialist carve-up of the country is ultimately aimed against Russia itself. Various think tanks are studying the ethnic and political tensions that could be exploited to bring about regime change in Russia and dismember that country as well.


17---Housing prices stall as sales tumble, DS News

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