Thursday, February 6, 2014

Today's links

1--Real Japanese Wages Slip, Posing Challenge to ‘Abenomics’, WSJ

Prime Minister Shinzo Abe appears to be succeeding in his fight to end Japan’s long bout of deflation. But that could actually be bad news for workers, whose real wages — those adjusted for inflation — seem to be slipping.

Government data released Wednesday showed base wages adjusted for inflation declined last year to levels around those during the global recession of 2009. ....there is no sign such pay rises will be the norm anytime

2---Fed Flails About To Squash “Misleading” (Very Inconvenient) Unemployment Measure , Tsetosterone Pit
(If you don't like the facts, then discredit the way the data is collected)

The Employment-Population ratio – the number of employed divided by the size of the working-age “non-institutionalized” population – is not affected by “discouraged” job seekers that are statistically eliminated from the unemployed. It’s not dogged by seasonal and other adjustments. It is not beautified in the myriad ways of the unemployment rate. It’s the broadest most realistic measure the BLS produces. It peaked in April 2000 at 64.7%, zigzagged down, recovered some, then crashed during the financial crisis. In December 2013, it was 58.6%, mired at the bottom of its range, despite QE and ZIRP.

What a fiasco for the Fed! And now the propaganda machine at the Federal Reserve Bank of New York, which decided and handled the multi-trillion-dollar bailouts during the Financial Crisis, has launched an attack on the Employment-Population ratio. And it published a paper to kick off its campaign.
Since the end of the recession, the E/P ratio has largely remained constant – that is, virtually none of the decline in the E/P ratio from the Great Recession has been recovered to date. An implication is that the 7.6 million jobs added since the trough of employment in February 2010 has essentially just kept pace with growth in the working-age population.
Indeed, the very inconvenient “implication” is that the Fed’s policies succeed in inflating the values of financial assets and enriched those who held them but failed in the real economy. “The E/P ratio would seem to depict a much weaker labor market than indicated by the unemployment rate.”

3---Consumer Spending Reflects New Priorities after the Recession, Cleveland Fed

The average American household is facing a very different landscape than it was prior the Great Recession of 2008-2009. Fiscal restraint and uncertainty, slowly declining yet still-elevated rates of unemployment, modest growth in disposable personal income, and modest growth in household asset values have all combined to slow the rate of increase in personal consumption expenditures during the recovery.

However, while these forces have slowed the growth, they have not reversed it. Consumers are spending more, but more notably, their consumption preferences have also appeared to change. Consumers appear to be more focused on consuming based on need versus want; durables that yield value over the long term such as cars, furniture, and other household equipment, have eclipsed growth in temporary service-based consumption such as food services and accommodations. Whether or not these compositional preference shifts remain or reverse throughout the recovery period remains to be seen, but if they do remain, they will have implications for future trends in labor, production, and the overall growth in the economy.

4---Marx Was Right, HP

(Marx) work still shapes our world in a positive way as well. When he argued for a progressive income tax in the Communist Manifesto, no country had one. Now, there is scarcely a country without a progressive income tax, and it's one small way that the U.S. tries to fight income inequality. Marx's moral critique of capitalism and his keen insights into its inner workings and historical context are still worth paying attention to. As Robert L. Heilbroner writes, "We turn to Marx, therefore, not because he is infallible, but because he is inescapable." Today, in a world of both unheard-of wealth and abject poverty, where the richest 85 people have more wealth than the poorest 3 billion, the famous cry, "Workers of the world uniteyou have nothing to lose but your chains," has yet to lose its potency.

5---"Trickle down" decreases annual consumption by $500 bil, NYT

Alan B. Krueger, a Princeton economist who was a top economic adviser in the Obama administration from 2009 to 2013, estimates that had the shift in income gains to the wealthiest earners since 1979 been more uniformly distributed, annual consumption would be $400 billion to $500 billion higher today, equal to about 3.5 percent of gross domestic product.

To be sure, some skeptics will say that Mr. Krueger has a dog in the political hunt as a former official in the Obama White House, which has made inequality and opportunity a key talking point. But some economists on Wall Street, hardly a bastion of left-wingers, tend to agree with Mr. Krueger’s take.
Guy Berger, United States economist at RBS, says the divergent trajectory of richer and poorer consumers has most likely sapped the broader growth rate of consumer spending in recent years.

That, in turn, is one reason that economic growth since the end of the Great Recession has compared so unfavorably with previous recoveries.

Since the end of 2009, consumer spending has risen by 2.4 percent annually, Mr. Berger noted, compared with nearly 3 percent annually in the middle of the last decade and 5 percent a year in the late 1990s boom.
“It isn’t that we are not back to where we were in the 1990s,” he said. “We’re not even back to where we were in the mid-2000s.”

6---Fannie bought shitty loans despite warnings, HW

During a five-month period of time, from the end of January 2013 through June 2013, over 56,000 appraisals uploaded into the portal generated at least one of the 25 warning messages about potential violations of Fannie Mae’s underwriting requirements. Over 4,500 of these appraisals generated more than one warning message (up to 9 messages per appraisal). Despite these alerts, Fannie Mae purchased all of the loans for over $13 billion.

7---Would rising mortgage delinquencies cause another housing downturn?, oc housing

8---Iran never had a nuclear weapons program, antiwar

The IAEA report showed that the primary intelligence basis for the US charge of an Iranian nuclear weapons program for more than a decade had been erroneous.

That dramatic development in the Iran nuclear story went unnoticed in news media reporting on the IAEA report, however. By then the US government, the IAEA and the news media had raised other evidence that was more dramatic – a set of documents supposedly purloined from an Iran laptop computer associated with an alleged covert Iranian nuclear weapons program from 2001 to 2003. And the November 2007 NIE had concluded that Iran had been running such a program but had halted it in 2003.

Despite the clear acceptance of the Iranian explanation by the IAEA, David Albright of ISIS has continued to argue that the telexes support suspicions that Iran’s Defense Ministry was involved in the nuclear program.

In his February 2012 paper, Albright discusses the procurement requests documented in the telexes as though the IAEA investigation had been left without any resolution. Albright makes no reference to the detailed documentation provided by Iran in each case or to the IAEA’s determination that the issue was “no longer outstanding”.

Ten days later, the Washington Post published a news article reflecting Albright’s claim that the telexes proved that the PHRC had been guiding Iran’s secret uranium enrichment program during the 1990s. The writer was evidently unaware that the February 2008 IAEA report had provided convincing evidence that the intelligence analyst’s interpretations had been fundamentally wrong.

9---Fracking is draining water from US areas suffering major shortages - report, RT

10--US CEOs made tens of billions on stock market rally, wsws

The vast increase in the wealth of the super-rich is fueling significant growth in the luxury market. “If you think the economy is not recovering very quickly, it seems no one told that to the people who buy Lamborghinis, Bentleys and Rolls-Royces,” wrote the Wall Street Journal. “Sales of those cars are soaring.” The luxury art market is likewise hitting records. An art auction by Christie’s auction house early last year reported the highest sales figure of any art auction in history.

Meanwhile programs that keep the poor, hungry, and jobless from destitution are being slashed, nominally because there is no money to pay for them. The US Senate voted Tuesday to pass $8.7 billion in cuts to the Supplemental Nutrition Assistance Program (SNAP), also known as food stamps, as part of a package of agricultural legislation. This comes on top of a cut to food stamps last November that slashed $11 billion from the program through 2016.

11--Homeownership rate for young adults drops further, marketwatch

12--The housing market is addicted to the easy financing juice of Wall Street: What happens if the juice is taken away?, Dr Housing  Bubble

13--China's shadow bank problem; State bails out small investment firm fearing Lehman type crash, wsws

Instead, the trust was bailed out just four days prior to maturation by an unnamed third party. It is widely believed that Chinese authorities were involved in the bailout. Investors will reportedly receive their principal, and a 2.8 percent return for the third year, well below the forecast amount.
International ratings agencies criticised the bailout, having called for authorities to allow the prospective default to occur in an attempt to rein in the shadow banking sector. Days before the bailout was organised, Standard and Poor’s called the crisis an opportunity for Chinese authorities to “instill market discipline” by allowing the default to go ahead.

Jonathan Cornish, an analyst at Fitch, warned that by carrying out the bailout “authorities are perpetuating moral hazard within the Chinese financial system—and this risk may in fact have become a whole lot bigger.”

Moody’s noted that the bailout was prompted by the fear that a default could trigger a wider financial crisis. However, the agency continued, it “reinforces the perception that investors will be bailed out one way or another when the products go sour, which is contrary to the establishment of sound market discipline and a healthy credit market....

The growth of the shadow banking sector assumed almost gargantuan proportions last year. According to China Trustee Association statistics, the value of assets managed by China’s 67 major trust companies grew to $1.67 trillion as of September 2013, a rise of 60 percent on the previous year. The sector is now estimated to be equivalent to around 40 percent of the country’s gross domestic product.

The shadow banking sector largely developed following the onset of the global financial crisis in 2008, which resulted in a major drop in levels of productive investment, and left around 20 million workers unemployed. In response, the government initiated a huge stimulus package, with state banks pumping cheap credit into the economy.
The shadow banks effectively functioned as intermediaries, borrowing from state-owned banks at low rates, and lending to property developers and highly leveraged business that were being denied state credit. Charging high interest rates, they also financed local government projects.
Various financial products were developed, for the purpose of evading government restrictions on financial speculation. The bulk of them are not priced according to the risk of the underlying asset....

According to Bank for International Settlements figures, quoted in the Sydney Morning Herald, foreign currency loans booked in China had risen from $270 billion in 2009 to $880 billion by March 2013. Some estimates now place the figure at more than one trillion dollars.
In addition to destabilising the global financial system, the eruption of a new financial crisis in China would have a major impact on many countries that depend heavily on China as an export market.

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