Sunday, March 30, 2014

Today's Links

1---Measuring Wealth Inequality, House of Debt


Here is the bottom line from the preliminary findings: the top 0.1% of the wealth distribution has seen a dramatic rise in the fraction of total wealth held, rising from a steady level of 10% from the 1940s to the 1970s, to over 20% in 2013. Here is the key chart:

houseofdebt_SaezZucman1

The top 0.1% have seen incredible gains over the past 30 years that have take them to the same fraction of national wealth that they enjoyed in the 1920s.
The other interesting finding in the Saez-Zucman study is that the increase in wealth is primarily about the top 0.1%. When we look at the top 1% excluding the top 0.1%, there is no gain. Here is another chart:

houseofdebt_SaezZucman2

The gray and black line show that the top 1% to 0.1% have not seen large increases in the share of total wealth. Instead, the rise is completely driven by those in the top 0.1%. These are the very richest households in the country.


Simple measurement is often a bit boring, but it is also absolutely crucial for thinking about the overall economy. Saez and Zucman have taken an initial step toward measuring wealth inequality in the United States, and it shows a rising amount of inequality driven by the very top of the wealth distribution.


2---Capital ownership and inequality, House Of Debt


Here is the distribution of financial asset holdings across the wealth distribution. This is from the 2010 Survey of Consumer Finances:
 houseofdebt_20140319_1

The top 20% of the wealth distribution holds over 85% of the financial assets in the economy. So it is clear that the direct income from capital goes to the wealthiest American households. For more evidence on this pattern through history, see the working paper by Edward Wolff. He shows that the share of financial assets held by the top 20% of the wealth distribution has been increasing since 1983.


3---If You're Bullish About Stocks, You Should Ponder This Warning From One Of The Smartest Investors Ever, BI



Someday, financial markets will again decline. Someday, rising stock and bond markets will no longer be government policy – maybe not today or tomorrow, but someday. Someday, QE will end and money won’t be free. Someday, corporate failure will be permitted. Someday, the economy will turn down again, and someday, somewhere, somehow, investors will lose money and once again come to favor capital preservation over speculation. Someday, interest rates will be higher, bond prices lower, and the prospective return from owning fixed-income instruments will again be roughly commensurate with the risk.
Someday, professional investors will come to work and fear will have come to the markets and that fear will spread like wildfire. The news flow will be bad, and the markets will be tumbling.
...
Six years ago, many investors were way out over their skis. Giant financial institutions were brought to their knees...
The survivors pledged to themselves that they would forever be more careful, less greedy, less short-term oriented.
But here we are again, mired in a euphoric environment in which some securities have risen in price beyond all reason, where leverage is returning to rainy markets and asset classes, and where caution seems radical and risk-taking the prudent course. Not surprisingly, lessons learned in 2008 were only learned temporarily. These are the inevitable cycles of greed and fear, of peaks and troughs.
Can we say when it will end? No. Can we say that it will end? Yes. And when it ends and the trend reverses, here is what we can say for sure. Few will be ready. Few will be prepared.....

Some people, though — Jeremy Grantham, Seth Klarman, John Hussman, Robert Shiller, and many others — are looking at the current level of stock prices and comparing them to average prices over the past 150 years. And, based on these prices (and other factors, like the Fed), they are concluding that stocks have a lot of downside risk. So much so that, Klarman at least, is forgoing fees to avoid getting clobbered by this risk.

4---Inflation Slows Again, Bouncing Around Four-Year Low , wsj


Inflation isn’t just going nowhere. It may be slipping again.
The Commerce Department’s latest read of consumer prices on Friday showed price pressures moving in a direction many Federal Reserve officials find uncomfortable. The personal consumption expenditures price index — the central bank’s preferred inflation gauge — slowed to an annual gain of less than 1%.
The PCE index’s 0.9% annual increase in February marked the weakest reading since October, when year-over-year inflation touched a four-year low.


The latest data suggests the U.S. faces little risk of rapidly accelerating inflation as the Fed slows the amount of stimulus it’s pumping into the economy. Earlier this month, the central bank said it would lower the pace of monthly bond buying by another $10 billion to $55 billion.
Friday’s report showed the pace of food inflation increased in February after holding virtually flat the previous five months. But that gain was largely offset by declining prices for long-lasting durable goods and energy last month.


The consumer price index, a separate inflation measure calculated by the Labor Department and released earlier this month, rose 1.1% in February from a year earlier. That, too, was a slowdown from January.


5---Accounting Trick Helps Banks Dodge Capital Pain, wsj


Last year, many banks, especially big ones, entered into long-term relationships with their securities portfolios, promising hundreds of billions of dollars of assets will be "held to maturity." As a result, the banks may appear to have higher book values and be better capitalized in the eyes of regulators even if the value of these securities declines.


That should make investors wary.
The amount of securities banks pledge to hold to maturity rose last year by 61%, to $492.3 billion. J.P. Morgan Chase increased the amount of securities it designates this way by nearly $20 billion in last year's fourth quarter.
When securities are classified as held to maturity, they are carried at their original cost, typically face value. Declines in market values hit neither book value nor earnings. Their value is written down only if they are considered to be permanently impaired.

It's no coincidence this occurred as long-term interest rates started rising, which sends bond prices lower. The greater use of the held-to-maturity classification helped banks to potentially avoid billions of dollars in losses.
That is because most securities held by banks are designated as trading instruments or as being available for sale. In the former instance, gains and losses are based on market values and flow through earnings. In the latter, bonds are marked to market prices, but the change runs through shareholders equity; while earnings aren't affected, book values are.


The eurozone has been in paralysis a long time, first in the face of financial crisis and now the clear and present danger of deflation ...

please don’t call it deflation.
To the extent that prices, wages and asset values are indeed falling in certain parts of the eurozone, this is not, according to the ECB, deflation, but a “relative price adjustment”, which will eventually make these countries more internally competitive. Unfortunately, it also only further increases the weight of already intolerable debt burdens. To ease this plight, the ECB should actually be running an inflation target of more like 3pc or 4pc, but never mind quantitative easing, there is absolutely no chance of Mr Weidmann agreeing that.


7---A Question of Justice: Complex financial crimes were the lowest priority for the criminal investigative division., NYT


Here is one of the report’s conclusions: “We found that, despite public statements by the Financial Fraud Enforcement Task Force and the department about the importance of pursuing financial fraud cases, including mortgage fraud, the F.B.I. Criminal Investigative Division ranked complex financial crimes as the lowest of the six ranked criminal threats within its area of responsibility, and ranked mortgage fraud as the lowest subcategory threat within the complex financial crimes category. Additionally, we found mortgage fraud to be a low priority, or not listed as a priority, for F.B.I. field offices in the locations we visited, including Baltimore, Los Angeles, Miami, and New York.”
Got that? Complex financial crimes were the lowest priority for the criminal investigative division.

8---Abenomics: Hidden tax hike surprises await unwary consumers, JT

Tuesday’s consumption tax hike will in principle affect all domestic purchases of goods or services, but there are still gray areas where consumers may get surprised by unexpected levies, government officials warn.


The consumption tax reform law, part of integrated social security and tax changes aimed at doubling the sales levy to 10 percent in 2015, will raise the tax to 8 percent from 5 percent on April 1, and “there are no changes in nontaxable areas,” a National Tax Agency spokesman said.
The tax is levied on all goods and services purchased or consumed within Japan, as well as all assets leased, including DVDs and office space. That means any consumption deemed to take place outside the country is basically not subject to the levy.


9---Can Protests at the University of Southern Maine Be the Flashpoint That Reverses the Mallification of American Higher Education?, naked capitalism
A professor for over 40 years, Ginsburg argues that such data are commensurate with a calculated effort in college administrations to achieve neoliberal, profit-based goals such as erasing tenure tracks, reducing political speech, and increasing focus on student job placement rather than encouraging knowledge and critical thinking.
And at USM, “mallification” goes under the guise of turning USM into something called a “metropolitan university,” ....


. The Coalition of Urban and Metropolitan Universities originated in 1990 with a vaguely stated goal of streamlining its educational models across the country. Since that time, it’s become increasingly implemented in public and private schools, both in the United States and internationally. Structurally speaking, it’s a branded organizational framework with ideas increasingly in line with corporate-driven models of education reform, such as utilizing online learning platforms like MOOCs (Massive Open Online Courses), increasing student-to-faculty ratios, teaching to a test, employing performance- or outcome-based funding, eliminating and avoiding union and tenured professorship (with a subsequent greater reliance on adjunct professors and lecturers), broadening administrative staffs, and placing greater emphasis on answering the calls of the business community. In the case of USM, as presented in Wednesday’s public meeting, it would mean all of the above.
So clearly, that’s the agenda, rotten in its own terms. Our university is to become a big mall with lovely facilities, a few very well-paid investors, executives, and administrators, and a retail experience for consumers. And retail wages and working conditions for the workers




10---Turkish officials plan false-flag attacks to create pretext for war with Syria, wsws


In a devastating exposure of the criminality of the US-led proxy war in Syria, Turkish officials have been caught planning an attack on their own forces to manufacture a pretext to attack Syria.


This is the content of a leaked audio recording, posted to YouTube, of a meeting between top Turkish diplomats and intelligence officials, including Foreign Minister Ahmet Davutoglu and Hakan Fidan, the head of Turkey’s National Intelligence Organization (MIT). At one point in the meeting, these officials discuss the possibility of organizing an attack from inside Syria across the Turkish-Syrian border, or on the Tomb of Suleiman Shah. Under the 1921 Treaty of Ankara between Turkey and France, then the colonial power in Syria, this tomb is a piece of sovereign Turkish territory inside Syria, guarded by Turkish forces.


Davutoglu says: “The prime minister said that in the current conjuncture, this attack [on Suleiman Shah Tomb] must be seen as an opportunity for us.”
Fidan replies: “I’ll send four men from Syria, if that’s what it takes. I’ll make up a cause of war by ordering a missile attack on Turkey. We can also prepare an attack on Suleiman Shah Tomb if necessary.”


Turkish officials responded to the leak by attempting to suppress it, banning access to YouTube inside Turkey. They did not contest the authenticity of the recording, however. Instead, in a speech in Diyarbakir, Prime Minister Recep Tayyip Erdogan denounced the leaking of national security meetings as “immoral.”
The Turkish Foreign Ministry called the recording “partially manipulated” and a “wretched attack” on Turkish national security.


The leak is an unanswerable indictment of the war on Syria led by Washington and the European powers. Recklessly arming Islamist opposition militias linked to Al Qaeda in a semi-covert dirty war for regime-change in Damascus, the Western powers have devastated Syria and created fertile ground for the type of provocations exposed by the leak.


The leak provides evidence of a conspiracy to attack a state that has not attacked Turkey—implicating Turkey, a NATO member state, in crimes against peace, a violation of international law for which Nazi officials were hanged at Nuremburg after World War II....


Tensions between the AKP and other sections of the ruling elite, including the army brass and the CIA-linked Islamist Gülen movement, are intensifying. Some reports suggest the leak was the result of spying operations within the Turkish state by the Gülen movement or its allies.
Erdogan’s foreign policy has become increasingly aggressive and incoherent. After the Egyptian revolution began, he abandoned his “zero problems with neighbors” policy and positioned the AKP as a model for an Islamist-led Middle East, backing the Syrian war despite its unpopularity in Turkey. This policy collapsed after last July’s US-backed coup in Egypt ousted Islamist President Mohamed Mursi, and Obama in September stepped back from military strikes against Syria.


The Western imperialist powers themselves have turned on the AKP, issuing various hypocritical criticisms of Erdogan, including over the Turkish military’s recent decision to shoot down a Syrian fighter jet. One European official told Al Monitor that it was part of a policy of backing Islamist opposition militias inside Syria, which he called “a stupid move by the Turkish side.”


“Turkey picked up the strategy of helping these radicals. This cannot be reversed now,” he told Al Monitor. “The bombing of the Syrian [MIG-23 fighter jet] was for helping these radicals.”


Since the Erdogan regime “picked up” the “stupid” strategy of arming Al Qaeda forces from the CIA, it only underscores the criminal character of NATO policy in Syria. NATO officials indicated that their main objection to Turkey’s moves to launch a war with Syria was that it would distract from their campaign to back the ultra-right regime they recently installed in Ukraine and isolate Russia.
A NATO source told Al Monitor: “In next week’s NATO foreign ministers meeting [on April 1 and 2]… I assume that people will directly share their concern with Minister Davutoglu over Turkish behavior. They will probably give the message that they do not want to be dragged into the Syrian quagmire while the Ukraine issue is keeping them busy at this stage.”


No one warned, however, of the vast and dire implications of a Turkish decision to launch a war with Syria. Such a war would threaten to escalate into a conflagration involving Turkey’s NATO allies and Syria’s main backers, Iran and Russia, as nearly happened last September.


11----Venezuelan generals arrested in alleged coup plot, wsws


12---Lavrov Speaks, zero hedge




Over a month ago I raised the issue of the Right Sector and the necessity to dissociate from the radical forces with our Western partners. I asked them a very simple question: “If you agree that we need to defuse the situation, why won’t you publicly say what the Right Sector really is?” Same to a degree goes for the Svoboda party, whose platform references The Declaration of June 30, 1941, which expressed support of Nazi Germany and its efforts to establish a new world order. According to the party’s charter, it’s still committed to this principle. US Secretary of State John Kerry told me that after close scrutiny they concluded that the Right Sector was trying to become a political movement. The subtext was that it’s a good thing, and Svoboda is moving towards [the] mainstream. That’s a quote.....


We were promised that NATO would not bring its military infrastructure closer to our borders – and we were cheated. We were promised there would be no military installations on the territory of the new NATO members. At first, we just listened to those promises and believed them. Then we started putting them on paper as political obligations, and serious people, Western leaders, signed those documents. But when we asked them how come those political obligations were ignored and whether we can make them legally binding, they told us, “No, political obligations are enough, and anyway, don’t worry, whatever we do is not against you.”


  • Eastern Partnership – as well as NATO expansion – was simply an instrument used to quickly take control over geopolitical territory. The EU was ready to push this project through at any cost. It completely ignored legitimate economic interests of both Ukraine’s neighbors, like Russia and other countries, and even the nations that were part of this program. There have been many studies on this issue. No wonder even Yatsenyuk says that Ukraine needs to take a closer look at the economic section of this agreement.
  • Isolation” is a term invented by our Western partners who act with nostalgic neo-imperial ambitions in mind. The instant something isn’t to their liking they draw out this sanctions stick. The times when such strategy could be employed are long gone.... I’m surprised at how obsessively they’re trying to – create rather than find – proof of Russia’s isolation.


    13---Credit expansion underway in US, sober look


    The reduction in nearterm uncertainty with respect to the US fiscal impasse (see story on federal budget and on debt ceiling) is likely to be helping the situation as well. Loan growth acceleration in recent weeks has been quite pronounced.

    Total loans in the US banking system (YoY

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