Thursday, May 8, 2014

Today's Links

1---Why the Financial Media and Housing Pundits Got It Wrong, Logan Mohtashami, Benzinga Contributor
Logan Mohtashami

2---The Causes of the Great Recession, house of debt

Mortgage credit growth from 2002 to 2006 was strongest in the lowest income neighborhoods. This was one of the first patterns we saw in the data back in 2007 when we started working on household debt issues. It was the basis of our research published in the Quarterly Journal of Economics. The basic point was that mortgage credit was growing most during the housing boom in the poorest neighborhoods, despite the fact that these neighborhoods were seeing no improvement in income.

So what happened during the housing bust? Here are foreclosures by zip code, with darker green zip codes being the worse hit areas. Mortgage credit was expanding in poor neighborhoods despite no real income growth, so we shouldn’t be surprised that foreclosures were also much higher in those same neighborhoods:

3---Why the banks  got away with murder, naked capitalism (video)

4---Consumer Credit Balances Jump, B insider

Consumer credit balances increased by $17.5 billion in March to a total of $3.141 trillion. The gain was a bigger increase than the $15.5 billion expected by economists.

This was the biggest month-over-month growth rate since February 2013, reports Bloomberg.
Nonrevolving debt like college and auto loans grew by $16.4 billion.
Revolving debt like credit cards increased by $1.1 billion.
It's certainly worth noting that February's gain was revised down to $12.9 billion from an earlier estimate of $16.4 billion

5---94% Of March Consumer Credit Was For Student And Car Loans, zero hedge

 Moments ago the Fed reported that consumer credit number for March: at $17.5 billion, it not only blew out the expectation of a $15.5 billion increase (although when one adds last month's $3.5 billion downward revision to $13.0 billion the two month total actually missed), but was the highest monthly increase since February 2013. That's the good news.

The bad news was once again in the composition: of this $17.5 billion $16.4 billion was non-revolving debt, or about 94% of total. The "good", or revolving, credit card debt? Only $1.1 billion..

6--Yellen on the economy, economists view

Current Economic Situation and Outlook The economy has continued to recover from the steep recession of 2008 and 2009. Real gross domestic product (GDP) growth stepped up to an average annual rate of about 3-1/4 percent over the second half of last year, a faster pace than in the first half and during the preceding two years. Although real GDP growth is currently estimated to have paused in the first quarter of this year, I see that pause as mostly reflecting transitory factors, including the effects of the unusually cold and snowy winter weather. With the harsh winter behind us, many recent indicators suggest that a rebound in spending and production is already under way, putting the overall economy on track for solid growth in the current quarter. One cautionary note, though, is that readings on housing activity--a sector that has been recovering since 2011--have remained disappointing so far this year and will bear watching.

7--On the causes of secular stagnation: China, relative prices, and the collapse of manufacturing , VOX (A liberal defense of the status for the same policies that got us to where we are today)

The secular stagnation hypothesis is back. Several prominent economists claim that the US may have entered a prolonged period of anaemic economic growth caused by weak aggregate demand. This column argues that the build-up of trade deficits caused by the appreciation of the dollar can explain most of the decline in manufacturing employment, output and investment in the US. Aggressive monetary policy targeted at increasing inflation could help by effectively taxing the inflow of foreign reserves, thereby leading to a depreciation of the dollar....

Policy implications: A return to free trade
The implication is clear – allowing your trading partners to undervalue their currencies as per the Bretton Woods II system results in the loss of manufacturing jobs. During the 2000s, the Fed was able to offset these job losses with loose monetary policy (feeding the housing bubble). However, now that the US is in a liquidity trap, as Paul Krugman has noted, capital inflows in practice subtract directly from aggregate demand. How best to encourage countries such as China to revalue their currencies? Given that direct negotiation seems unlikely to bear fruit, a passive-aggressive approach is likely to yield better results – i.e. have the Fed aim for higher inflation, which functions as a tax on the Great Reserve Accumulators. This policy also makes sense for other reasons given that US inflation is now extremely low.

8--Krugman : More secular stagnation bunkum, NYT

Secular stagnation is the proposition that periods like the last five-plus years, when even zero policy interest rates aren’t enough to restore full employment, are going to be much more common in the future than in the past — that the liquidity trap is becoming the new normal. Why might we think that?

9---By concerning themselves with the broad ‘economy’ while ignoring both internal and external dynamics the apparent goal of secular stagnation theorists is to create more of the same economic circumstance., Rob Urie, counterpunch (Urie effing "nails it")

Currently being proffered by Larry Summers, the former chief economic advisor to President Barack Obama and demon spawn-nephew of Keynesian-lite economist Paul Samuelson— is the ‘secular stagnation’ hypothesis, the theory that the economies of the West, in particular the U.S., may have entered a period of persistent economic weakness....

For the economically inclined, the basis of the secular stagnation theory is that some combination of slow population growth and slow technological innovation have led to slow growth of ‘the economy.’ Left unanswered, and apparently unasked, is where exactly this ‘economy’ resides? Income distribution data from U.C. Berkeley economist Emmanuel Saez suggests that there are at least two economies— the one that Larry Summers and connected bankers and CEOs exist in and one that everyone else exists in. The number of people who receive food stamps and the otherwise poor suggests that there are multiple economies— significantly more than the one of mainstream fantasy or even the two of the 1% / 99% divide. The secular stagnation theory is one of growing class divisions posed as a unified theory of a unified social order. Over the last thirty years a tiny economic ‘elite’ has seen stupendous growth in ‘the economy’ even as the indicators that mainstream economists defer to have shown relative stagnation. Framed differently, were so much of the income that ‘the economy’ is generating not being taken by a microscopically small proportion of the population the relation of slow economic growth to increasing poverty would be much more straightforward an argument to make. Given the current distribution of income any increase in economic growth, even setting aside its costs in terms of aggregating environmental calamity, would go overwhelmingly to the existing plutocracy. By concerning themselves with the broad ‘economy’ while ignoring both internal and external dynamics the apparent goal of secular stagnation theorists is to create more of the same economic circumstance. Given current social and environmental conditions as well as their trajectories, the last thing that most citizens of the West need is more of the same....

 Framing adverse economic consequences as ‘solvable’ by increasing economic production places them as facts of ‘nature’ rather than as outcomes of the very political economy that produced them. ...

Separately, the idea is again being put forward that currency devaluation would make U.S. manufacturing more competitive by lowering the cost of U.S. exports overseas and raising the cost of goods imported into the U.S. There is also likely a bit of pragmatics here based on belief that government spending on infrastructure through the ‘private’ economy is more saleable than an outright government jobs program and that a second-order ‘market’ mechanism like currency adjustment better fits prevailing ideology than does rethinking capitalism from the ground up. ...

More to the point, as the Citizens United and McKutcheon Supreme Court rulings make evident, government is to a material extent controlled by the same economic interests that benefit from public expenditure—

The popular distinction being made these days between capitalism and neo-liberalism is academic— neo-liberalism is capitalism and New Deal capitalism is technocratic ‘management’ of capitalism in the service of residual plutocracy. The New Deal ended approximately when the threat of political overthrow did in the mid-1970s. The practical background of current economic malaise is that the existing plutocracy of bankers, CEOs and inherited wealth was fully restored from recent catastrophe through means and methods that were ‘political,’ through restoration of economic resources along the lines of division of economic power, and Western economists busied themselves explaining why doing so was necessary...

This doesn’t mean that the secular stagnation crowd isn’t sincere in the present. But it does mean that concern is being kept at a level of abstraction that sees the second-order looting and transfer of trillions of dollars in public funds to culpable bankers as economically ‘neutral’ when they were the central economic accomplishments of the Obama administration and were / are socially catastrophic.....

The dramatic upward redistribution of recent decades is the result of specific government policies and downward redistribution could in theory be accomplished in much the same way. This is an important point— upward redistribution has had little to do with ‘market’ forces and ‘correcting’ it would in capitalist economic theory ‘improve’ market outcomes.

10--The outlook is so bad, housing can’t help but get better, oc housing
11--What's fueling consumer credit growth in the US?, sober look
Source: DB

And it's not just about auto loans - securitization has been heating up in auto leases as well. Tracy Alloway has a great article in the FT (here) on auto lease securitization (which involves taking exposure to residual value of cars that come off lease.) 2014 could be a record year for such issuance. All of this activity has helped to improve consumer credit growth this year.

As an aside, these are precisely the types of markets the ECB would love to jump-start in the euro area (see post). With the banking system still undergoing deleveraging, the central bank is looking for a way to get the "shadow" banking involved in order to boost consumer (and corporate) credit growth.

12--Many false flags in Ukraine, counterpunch

Novosti said it had learned from security circles in Kiev that the Ukrainian secret service SBU had secretly shipped about 200 Russian army uniforms and some 70 forged Russian officer ID into the Eastern Ukrainian protest stronghold of Donetz, to be used to stage a false attack on Ukrainian border patrols...

The whole Ukrainian operation, at least partly directed by Victoria Nuland of the U.S. State Department, has been characterised by false flag operations, most notoriously by the snipers who suddenly spread murder and terror in Maidan square in Kiev, effectively wrecking the internationally sponsored transition agreement.  “Pro-West” insurgents accused President Yanukovych of sending the killers and forced a rump parliament to give government power to Ms Nuland’s protégé, Arseniy “Yats” Yatsenyuk.  However, there has been plenty of evidence to show that the mysterious snipers were pro-West mercenaries: photographic evidence, followed by the telephone statement by the Polish foreign minister to that effect, and finally by the German television channel ARD whose Monitor documentary concluded that the snipers came from the extreme right anti-Russian groups involved in the Maidan uprising.  Indeed, all known evidence points to a fascist false flag operation, and yet Western media and politicians continue to blame everything on Russia.

13--Russia seeks fresh accommodation with US over Ukraine, wsws

...for the Western powers, it is considered politically imperative for the elections to be held to reinforce the claim that the government of oligarchs and fascists imposed by the February putsch has a democratic mandate to rule....

On Wednesday, United States Air Force General Philip Breedlove said that NATO will consider deploying troops permanently in parts of Eastern Europe due to the increased tensions between Russia and Ukraine.
“We need to look at our responsiveness, our readiness and then our positioning of forces to be able to address this new paradigm that we have seen demonstrated in Crimea and now on the eastern border of Ukraine,” said Breedlove, who currently heads the alliance as NATO supreme allied commander Europe and commander of the US European Command.

Breedlove’s statement came after he admitted earlier this week that Russia is unlikely to send troops into eastern Ukraine. This gives the lie to his claim that NATO’s stationing of troops in Poland, Romania and the Baltic states, which he now suggests is to be a permanent arrangement, is “very easily discerned as being defensive in nature.”
NATO leaders are due to hold a summit in Wales in early September, which is expected to decide to bring a number of Eastern European states into the alliance

14---Stein Says Fed May See Bouts of Volatility as It Approaches Exit , Bloomberg

15--Odessa tragedy survivor: ‘Many people strangled after escaping the fire’, RT

16--Putin calls for end to Kiev’s military op, postponing referendum in E. Ukraine, RT
17--Moscow's roadmap for Ukraine settlement sees mixed response, RT

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