Wednesday, March 30, 2016

Today's Links

1---Chart Of The Day: 30 Million Independent Workers——Solopreneurs Vs. Side-Giggers


2--Europe's Bond Shortage Means Draghi Is About to Shock the Market

3--Stocks Breaking Down, Corporate Profits Imploding, and the US in Recession

This is hitting as new evidence suggests corporate profits are collapsing at a pace not seen since the 2008 meltdown.

4--Japanese economy continues to show signs of faltering

The Japanese government downgraded its assessment of the economy last Wednesday following a similar move by its central bank the previous week. Notwithstanding the initial hype which surrounded it, Prime Minister Abe’s economic agenda—so-called Abenomics—is now a dead letter so far as any economic revival is concerned. Growth has continued to contract while wages remain stagnant....

The movements in financial markets are a reflection of the confusion over the direction of the economy and the growing sentiment that the government has no viable program. Consumer spending reflects the same trend as households cut expenditure, fearing the introduction of negative interest rates means the economic outlook must be worse than they had thought....

The movements in financial markets are a reflection of the confusion over the direction of the economy and the growing sentiment that the government has no viable program. Consumer spending reflects the same trend as households cut expenditure, fearing the introduction of negative interest rates means the economic outlook must be worse than they had thought....

The highly unpopular increase in the consumption tax is another attack on workers. In 2014, it rose from 5 percent to 8 percent, sending the economy into recession. A planned increase to 10 percent is scheduled for April 2017. ...For workers, wages have remained stagnant with the median wage level remaining almost entirely unchanged in the past 20 years.

5--Impeachment looms in Brazil as PT’s largest coalition partner deserts government

To be placed on the chopping block are a number of programs that were initiated by the PT in an attempt to dampen class tensions in what is one of the most socially unequal countries on the planet. These include “Minha Casa, Minha Vida,” which provides subsidized housing, and “Bolsa Familia,” a poverty program involving direct income transfers to roughly a quarter of the population. The newspaper reported that the PMDB is considering putting a new cap on the second program that would limit it to only the poorest 10 percent of Brazilians living on less than one dollar a day.

A policy paper issued by the party last year calls for reversing the economic crisis by attracting foreign investment through improved “competitiveness.” This is to be achieved, it indicates, by slashing the living standards of the working class through measures such as raising the retirement age, ending constitutional mandates for health and education funding, and reducing real wages.

6--Private companies added 200K jobs in March, matching estimates: ADP

7--U.S. consumer spending, trade data signal sluggish growth

U.S. consumer spending barely rose in February and inflation retreated, suggesting the Federal Reserve could remain cautious about raising interest rates this year even as the labor market rapidly tightens.

Monday's report from the Commerce Department also showed consumer spending in January was not as strong as previously reported. That, together with other data showing a widening in the goods trade deficit in February, indicated economic growth remained sluggish in the first quarter.

"It speaks to the weakening in domestic economic momentum at the start of this year, further reinforcing the Fed's cautious monetary policy bias," said Millan Mulraine, deputy chief economist at TD Securities in New York.

Consumer spending edged up 0.1 percent as households cut back on goods purchases after a downwardly revised 0.1 percent gain in January. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was previously reported to have increased 0.5 percent in January.

8--Negative rates? Not so fast

Negative rates have been introduced by some central banks worldwide. In theory doing so should both devalue their currency, making their exports cheaper and imports more expensive, and at the same time encourage consumer spending. It should also boost lending by financial institutions, as the value of capital being held by both individuals and banks is ever decreasing.

Sadly this theory when put into practice has been found wanting. The Bank of Japan introduced a negative interest rate of minus 0.1% in January 2016 and the yen subsequently increased in value compared to its competitor currencies. Indeed in 2016 the yen is the best performing G10 currency against the US$.

Similarly the Swiss National Bank flagged a negative interest rate of minus 0.25% to be introduced in January 2015, but the inflow of funds into the Swiss franc continued and the rate was finally reduced on its introduction to minus 0.75%, with the aim of discouraging capital inflows. However despite these moves the Swiss National Bank continued to accumulate foreign exchange reserves into the second half of 2015.

The European Central Bank (ECB) further increased its negative interest to minus 0.4%, on bank deposits held at the ECB in mid March 2016, as it attempted to manipulate downward the value of the Euro. The impact of this was undermined somewhat by allowing the European banks to borrow from their central bank at the same minus rate, depending on how much they lend to businesses and consumers. An initial dip in the value of the Euro when the minus 0.4% was announced was then followed by a sharp rise, as the implications of the whole package became clearer.

The aim of this is to lower the cost of borrowing for both consumers and corporations, as the banks borrow money from the ECB at no cost to them. This is intended to help stave of the threat of deflation in the eurozone by stimulating investment and consumption....

Recently published research from the Bank for International Settlement (BIS) found that in some cases savings accounts had been insulated from the impact of negative interest rates and that some mortgage rates in Switzerland had “perversely increased”. The conclusion from the BIS was then,“if negative interest rates do not feed into lower lending rates for households and firms, they largely lose their rationale”.

The Governor of the Bank of England has argued that if central bank policies are structured in ways that shield retail bank customers from minus interest rates, then they are unlikely to do much to stimulate domestic demand. Instead the main effect will be on exchange rates and this will result in the provoking of currency wars, as central banks attempt to out do each other in negative interest. Negative interest rates are intended to boost domestic demand by forcing banks to lend money out and encouraging consumers to both borrow and spend....

If the weapon of negative interest rates does not work as expected on currency values or domestic consumption and investment, what else is there left to deploy to prevent deflation and a further slow down in economic actively? Economics indeed truly is dismal science.

9--Financial Implosion and Stagnation”:

“It was the reality of economic stagnation beginning in the 1970s, as heterodox economists Riccardo Bellofiore and Joseph Halevi have recently emphasized, that led to the emergence of “the new financialized capitalist regime,” a kind of “paradoxical financial Keynesianism” whereby demand in the economy was stimulated primarily “thanks to asset-bubbles.” Moreover, it was the leading role of the United States in generating such bubbles—despite (and also because of) the weakening of capital accumulation proper—together with the dollar’s reserve currency status, that made U.S. monopoly-finance capital the “catalyst of world effective demand,” beginning in the 1980s. But such a financialized growth pattern was unable to produce rapid economic advance for any length of time, and was unsustainable, leading to bigger bubbles that periodically burst, bringing stagnation more and more to the surface.

A key element in explaining this whole dynamic is to be found in the falling ratio of wages and salaries as a percentage of national income in the United States. Stagnation in the 1970s led capital to launch an accelerated class war against workers to raise profits by pushing labor costs down. The result was decades of increasing inequality.” (Financial Implosion and Stagnation, John Bellamy Foster and Fred Magdoff, Monthly Review)

10--Graph: Compensation of Employees, Received: Wage and Salary Disbursements/Gross Domestic Product

Screen Shot 2015-01-14 at 7.45.48 PM

(The Great Economic Misdirection, Rob Urie, CounterPunch)

12--Average income growth in US recoveries: top 10% versus the bottom 90%. (Graph: Pavlina Tcherneva)

(Smart Charts: An Economic Recovery for the 1%, Bill Moyers)

13--Gig Economy Take II: Nearly Entire Increase in Employment Since 2010 is in Gigs!

14--Stephen Roach on negative rates (excellent)

15--Policies that saved the banks deny homeownership to Millennials

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