Friday, March 4, 2016

Today's Links

1--"240,00 jobs created but hours worked declined by .2 of an hours which is equivalent to 700,000 jobs" (Video CNBC)

2--"Full Employment?" What a fucking joke.: Wages: The shadow hanging over the jobs market

For American workers, it's a familiar refrain: Jobs are plentiful but they don't pay very much. The unemployment rate is falling, but it's because the workforce is shrinking. The economy is growing, but the benefit distribution has been uneven....

Many of the jobs were concentrated in lower-wage occupations, with fully 95,000 coming either from retail establishments or bars and restaurants. There were still six million Americans at work part-time for economic reasons — the underemployed — and average weekly wages actually declined 3 cents an hour, or 0.1 percent, translating to an annualized increase of just 2.2 percent. Also, weekly wages lost 0.7 percent on a monthly basis. That was the sharpest drop since at least 2006, according to Greg Daco, head of U.S. macroeconomics at Oxford Economics.

The 2.16 million workers unemployed for more than 27 weeks was 58 percent higher than just before the Great Recession began in December 2007. The average duration of unemployment was 29 weeks, its highest level since Mary 2014 and 68 percent higher than pre-crisis levels...

workers likely will be left with more headlines about job "growth" that hasn't quite made it to their paychecks

3--Hoisted From Comments: Banks Supporting the War on Cash

4--Roundup in your beer?

5--Red ink rising--China cannot escape the economic reckoning that a debt binge brings

6--Jobs report: It stinks

hours worked and average pay were both down, which means personal income and probably output is that much less, which is not good. Additionally, the downward revision in earnings for last month and the negative print this month tell me ‘the market’ is telling us there’s still substantial ‘slack’ in the ‘labor market’

7--Jobs Report and the Fed: Slow Down to Speed Up

The economy added 242,000 jobs in February, the Labor Department reported on Friday, with revisions to prior months tacking an additional 30,000 jobs to the count. The unemployment rate held steady at 4.9%, but for the good reason that more people went on the hunt for jobs and entered the labor pool. The weak point was wages...

So if the Fed wants to raise rates at all this year—which it does—the best strategy may be for it to hold back for now, see what effect, if any, the recent turmoil has had and let the economy run for a bit. Then, in the latter half of the year, it can get back to the business of raising rates.

For investors, that amounts to a message that the Fed isn’t going to get in their way for a while. But if they start partying, they should be mindful that there is a curfew.

8--Negative Rates and Insurers: Be Afraid  

Interest rates are critical to insurers’ investment returns, and moves into negative territory present a growing threat

9--Bill Gross: Negative Rates Are Finance Economy’s Last, Dying Gasp

Instead of historically generating economic growth via a wealth effect and its trickle-down effect on the real economy, negative investment rates and the expansion of central bank balance sheets via quantitative easing are creating negative effects,” he wrote. Negative rates threaten bank profits as well as any business models that depend upon 7-8% annual returns on assets. He’s talking mainly about insurance companies and pension funds, a topic he’s hit on a number of times. “And the damage extends to all savers; households worldwide that saved/invested money for college, retirement or for medical bills. They have been damaged, and only now are becoming aware of it.”

Negative rates are “an enigma to almost all global investors,” he says, that undermine the basic architecture of the financial markets. “But central bankers seem ever intent on going lower, ignorant in my view of the harm being done to a classical economic model that has driven prosperity – until it reached a negative interest rate dead end and could drive no more.”

Mr. Gross takes note of the “somewhat suspicious uniform attack on high denomination bills,” the sudden crop of arguments against the $100 U.S. bill or the €500 euro. Why might that be? “ It appears that the one remaining escape hatch for ordinary citizens is being closed,” he wrote. “The cashless society which appears over the horizon may come sooner than the demise of the penny.” If actually banning cash doesn’t do the trick, the central bankers might be forced into literal “helicopter” drops of money (or perhaps, in the parlance of the times, that should be drone drops).

“Can any/all of these policy alternatives save the system?” he asked. “We shall find out, but current evidence of the past seven years’ experience would support only a D+ report card grade. Barely passing. As an investor though – and as a citizen in this election year – you should be aware that our finance based economic system which like the sun has provided life and productive growth for a long, long time – is running out of fuel and that its remaining time span is something less than 5 billion years.”

10--The New Cash Hoarders--Negative interest rates have the law-abiding scrambling for bills, WSJ

Are Japan and Switzerland havens for terrorists and drug lords? High-denomination bills are in high demand in both places, a trend that some politicians claim is a sign of nefarious behavior. Yet the two countries boast some of the lowest crime rates in the world. The cash hoarders are ordinary citizens responding rationally to monetary policy.

The Swiss National Bank SNBN 0.00 % introduced negative interest rates in December 2014. The aim was to drive money out of banks and into the economy, but that only works to the extent that savers find attractive places to spend or invest their money.

With economic growth an anemic 1%, many Swiss withdrew cash from the bank and stashed it at home or in safe-deposit boxes. High-denomination notes are naturally preferred for this purpose, so circulation of 1,000-franc notes (worth about $1,010) rose 17% last year. They now account for 60% of all bills in circulation and are worth almost as much as Serbia’s GDP.

Japan, where banks pay infinitesimally low interest on deposits, is a similar story. Demand for the highest-denomination 10,000-yen notes rose 6.2% last year, the largest jump since 2002. But 10,000-yen notes are worth only about $88, so hiding places fill up fast. That explains why Japanese went on a safe-buying spree last month after the Bank of Japan 8301 4.61 % announced negative interest rates on some reserves. Stores reported that sales of safes rose as much as 250%, and shares of safe-maker Secom spiked 5.3% in one week. ...

Which is where the fear-mongering about terrorists and gunslingers comes in. “In certain circles the 500 euro note is known as the ‘ Bin Laden,’” former U.S. Treasury Secretary Larry Summers wrote last month in calling for a global ban on notes worth more than $50 or $100. He noted interest from European Central Bank President Mario Draghi and said that “if Europe moved, pressure could likely be brought on others, notably Switzerland.”

Fellow Harvard economist Kenneth Rogoff wants to retire cash altogether, primarily because “a significant fraction, particularly of large-denomination notes, appears to be used to facilitate tax evasion and illegal activity.” But he doesn’t hide the additional monetary-policy motive: “Getting rid of physical currency and replacing it with electronic money,” he wrote in 2014, would allow central bankers to set negative interest rates without people “bailing out into cash.”

The current hoarding in Switzerland and Japan thus underscores one of many ways in which cash is a basic tool of economic liberty: It lets people shield themselves from monetary policies that would force their savings into weak economies that can’t attract sufficient spending or investment on their own. These economies need reforms that boost incentives to work and invest, not negative interest rates and cash limits that raid the bank accounts of law-abiding citizens.

11--Syrian ceasefire holds, paves way to transition – Putin, European leaders

12--Arms supplied daily to Syria militants via Turkey border: Russia

13--US Republican Party in crisis as Romney denounces Trump

It is unprecedented in US history for the titular leader of one of the two major capitalist parties to go on national television to denounce his likely successor in such terms. With this declaration, Romney would seem to have burned any bridges to supporting Trump if he goes on to win the Republican nomination.

Trump’s rise has been fueled by his demagogic and empty appeals to widespread anger, under conditions in which the Democratic Party and what passes for the “left” in American politics, no less than the Republicans, have pursued a policy entirely dedicated to the enrichment of Wall Street. The immense tensions within the United States are provoking sharp conflicts within the ruling class itself and threatening to break apart political institutions that have existed for generations.

Romney’s remarks followed the issuing Wednesday of an open letter signed by 95 Republican foreign policy experts denouncing Trump and declaring they could not support him in the November election if he won the nomination. The group consists of some of the most ruthless defenders of the interests of American imperialism, but they attacked Trump for advocating trade war and torture, and for using “hateful, anti-Muslim rhetoric” that “endangers the safety and Constitutionally guaranteed freedoms of American Muslims.”

The signatories include former Bush administration officials like Michael Chertoff, Eric Edelman, Peter Feaver, Frances Townsend, Philip Zelikow and Robert Zoellick, as well as academic and media advocates of the war with Iraq like Max Boot, Eliot Cohen, Niall Ferguson and Robert Kagan

14--China and Brazil: Two expressions of the deepening capitalist breakdown

15--Richard Koo--Newsletter


 The underlying assumption of traditional economics—that there will always be a pool of willing borrowers as long as interest rates are lowered far enough—is therefore completely unrealistic in today’s developed economies, which suffer from balance sheet recessions and lower investment returns than the emerging economies.

Unconventional monetary policy creates problems when it is wound down
These preconceptions underlie the current policies of inflation targeting, quantitative easing, and negative interest rates. Because central banks have pushed ahead with these policies even though there is no reason why they should work at a time of no borrowers, excess reserves created by the central bank now amount to $2.3trn in the US, or 15 times the level of statutory reserves, and to ¥222trn in Japan, or fully 26 times statutory reserves.
I have used the term “QE trap” to describe the problems that must be confronted when such policies are unwound. They can trigger severe market turmoil that cannot be avoided no matter how extensive the authorities’ dialogue with market participants.
Recently, for example, the markets took a tumble when the Fed moved to normalize monetary policy. The US central bank responded by delaying the normalization process, which stabilized the markets, but eventually fears of falling behind the curve on inflation will force it to resume the process. That will lead to renewed market turmoil in a cycle that has the potential to repeat itself endlessly.


 Despite zero and even negative interest rates, the private sector is saving a net 6.7% of GDP in Japan, 6.4% in the US, and 4.9% in the eurozone. Under ordinary circumstances low interest rates would persuade businesses and households to borrow and spend, but today we are witnessing the opposite phenomenon. Moreover, this state of affairs has persisted since the bubble burst in 1990 in Japan and since the housing bubbles burst in 2008 in the US and Europe.

When someone saves but no one steps up to borrow and spend that money, a nation’s economy can fall into a deflationary spiral because the unborrowed savings drop out of the economy’s income stream.

The supposed role of interest rates is to make sure that all saved funds in the economy are borrowed and spent. When there are too many borrowers relative to savings, interest rates rise, and when there are too few, they fall. In either case, it is hoped that all of the money that is being saved is borrowed and spent again, assuring that there is no leakage to the economy’s income stream.

Traditional economics never envisioned a shortage of borrowers
After Japan’s bubble burst in 1990 and the US and European bubbles collapsed in 2008, even zero interest rates were not enough to entice private-sector borrowers, and as a result all of these economies continue to be characterized by large deflationary gaps.
Because traditional economics did not foresee this state of affairs, most economists are automatically assuming that central banks could encourage businesses and households to borrow—thereby eliminating the deflationary gap and spurring an economic recovery—by lowering real interest rates with tools such as inflation targets, quantitative easing, and negative interest rates. Indeed, nearly all macroeconomic theories and models assume that borrowers can always be found if only real interest rates are lowered far enough. ...

Government must serve as borrower of last resort when there are no borrowers The only way to stop the deflationary spiral that occurs in Phases 2 and 4, when businesses and households refuse to borrow despite zero interest rates, is for the sole remaining borrower—the government—to act as “borrower of last resort.”
If it does so, GDP and private incomes can be sustained, and the resulting income can be used by businesses and households to repair their balance sheets by paying down debt or increasing savings. ...

Monetary policy that assumes existence of borrowers will not work
This is the only acceptable policy response to a balance sheet recession, yet it cannot be found in any economics textbook. Consequently, none of today’s policymakers learned as students at university that there is such a thing as a recession caused by a lack of borrowers or that such recessions must be addressed with fiscal stimulus.
That is why their proposed solutions always revolve around monetary policy, which assumes the existence of willing private-sector borrowers. Examples include inflation targets, quantitative easing, and negative interest rates. But there is no way any of these policies can stimulate the economy at a time of no borrowers.
Many of these same policymakers continue to believe that fiscal stimulus is inherently wasteful and bad. This view, too, is based on the premise that there are always willing borrowers in the private sector.
Ultra-low rates could actually harm economy when there are not enough borrowers
If there were any borrowers remaining in the private sector, they would almost certainly have borrowed money to invest before rates had reached the current point. I therefore find it difficult to envision further reductions in interest rates—which are already at all-time lows—eliciting a sudden surge of loan demand.

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