Friday, July 15, 2016

Today's links

1-- Wealthy Are Hoarding Cash Out of Fear of What the Election Will Bring


2--The Obama Windfall-Corporate profits up 62% under Obama. Stocks up 100%


under Obama, stock prices have been rising by 100 percent.

Based on one measure — total after-tax corporate profits — Bush II stands out. During his administration, profits soared, only to come crashing back with the collapse of the financial system. Profits were 36 percent higher at the end of his term, compared with 47 percent gains during the Clinton administration and 62 percent under Obama's watch. Profits rose roughly 25 percent under Reagan and Bush I; they were up 37 percent under Carter.

"Anybody who says we are not absolutely better off today than we were just seven years ago — they're not leveling with you," he said in February. "They're not telling the truth. By almost every economic measure, we are significantly better off."

3--"The Resentment Will Explode" - In Dramatic Twist, McKinsey Slams Globalization


This overwhelmingly positive income trend has ended. A new McKinsey Global Institute report, Poorer than their parents? Flat or falling incomes in advanced economies, finds that between 2005 and 2014, real incomes in those same advanced economies were flat or fell for 65 to 70 percent of households, or more than 540 million people (exhibit). And while government transfers and lower tax rates mitigated some of the impact, up to a quarter of all households still saw disposable income stall or fall in that decade.
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In a startling finding, the report said that 65 to 70% of households in 25 advanced economies were in income segments that had flat to falling incomes between 2005 and 2014, up from less than 2 percent between 1993 and 2005. More troubling is that for some of the biggest supposed winners from globalization such as the US, this number is as high as 81%, while in Italy it soars to just shy of 100%...

In fact, the summary adds, "If the low economic growth of the past decade continues, the proportion of households in income segments with flat or falling incomes could rise as high as 70 to 80 percent over the next decade. Even if economic growth accelerates, the issue will not go away: the proportion of households affected would decrease, to between about 10 and 20 percent....

These findings provide a new perspective on the growing debate in advanced economies about income inequality, which until now has largely focused on income and wealth gains going disproportionately to top earners. Our analysis details the sharp increase in the proportion of households in income groups that are simply not advancing—a phenomenon affecting people across the income distribution. And the hardest hit are young, less-educated workers, raising the spectre of a generation growing up poorer than their parents.

The economic and social impact is potentially corrosive. A survey we conducted as part of our research found that a significant number of those whose incomes have not been advancing are losing faith in aspects of the global economic system. Nearly one-third of those who are not advancing said they think their children will also advance more slowly in the future, and they expressed negative opinions about free trade and immigration.


4--The American Dream is Dead (archive)


Richard Curtain who explains the dramatic change he’s seen in consumer behavior due to the policies that were put in place following the Great Financial Crisis (GFC). The quote is from an analytic piece titled “Consumer Behavior Adapts to Fundamental Changes in Expectations” Economic Outlook Conference November 21, 2013:
“I have been reporting on the economic implications of the latest twists and turns in consumer expectations at this conference for nearly four decades. From the heights of expansions to the depths of recessions, consumers had never deserted their bedrock belief that the economy would produce ever increasing levels of affluence. The Great Recession, unlike any other downturn in the past half century, has not only tarnished the American Dream, but has prompted some fundamental changes in consumer expectations and behavior.” (“Consumer Behavior Adapts to Fundamental Changes in Expectations” Economic Outlook Conference November 21, 2013, University of Michigan)...

(The) “deeply rooted uncertainty about future economic conditions…has been sustained by the growing recognition that no federal policy has yet emerged that will restore long term economic prosperity anytime soon for the majority of consumers. Optimism about long term job and income prospects are essential for maintaining high levels of economic motivation. Too few consumers have regained that optimism.” 

5--Treasurys Are a Risk Asset Now-- Long-term U.S. Treasury bonds’ sharply higher prices raise concerns that they are due for a fall 


At issue is the notion that low bond yields are signaling a dire outlook on inflation and economic growth that may be increasingly at odds with reality. Labor Department data on Thursday showed businesses were paying higher prices for goods and services, with the producer-price index rising by 0.5% in June, its biggest climb in a year. Consumer-price data will be released on Friday....

To be sure, economists and analysts have for years been calling for bond yields to rise, suggesting the low levels were unsustainable as the economy improved. Yields have confounded nearly all experts by continuing to fall, in part reflecting hefty central-bank demand for government securities....

Others say the stock market’s climb looks equally fraught, particularly since S&P 500 companies’ earnings are likely to have fallen for the fifth consecutive quarter during the April-to-June period. But the fact that yields are still low could provide a boost to stocks, lowering the borrowing costs for companies, while also making dividends paid out to shareholders more attractive.

6--It’s time for investors to admit it: Abenomics has failed

The continued strength of the yen underlines the failure of Abenomics to reboot Japan’s economy



With the yen ever stronger, Abenomics and the desired impact of central bank policies are going into reverse. The irony is that these policies, which were meant not to change traditional Japan but to revive it, are likely to end up wounding it — perhaps irreparably.

Abenomics was never about real reform. Instead, it was merely meant to weaken the currency, undercutting competitors like Korea and China and allowing Japan Inc to more easily export its cars and other manufactured goods to the rest of the world. ...
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Since corporate profits for the last three years were only ever about currency translation gains, these are now going in reverse and dragging down industrial shares with them.
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Surveys suggesting companies plan to invest have failed to materialise: in April core machinery orders, the best proxy for capex, dropped 8.2 per cent from the previous year, while exports fell in May with the trade surplus down 32 per cent compared with the previous month.
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Meanwhile, negative rates are especially murderous for bank shares. “Why should a central bank policy that hurts bank shares be good for a credit-driven economy?” asks Christopher Wood, strategist for the CLSA unit of Citic Securities.
...The Bank of Japan’s purchases of JGBs far exceed net new issuance. Trading volumes have collapsed.....
Rather than reboot Abenomics, it is time to replace it. Investors should not bet on Japan any longer.

7-- The Rise of Economic Nationalism-- Global trade "not growing at all"


A report issued by the GTA on Wednesday said the term “slowdown” created the impression that, while it is losing momentum, world trade is still growing and one country’s exports do not come at the expense of others. These “rosy impressions” should be set aside because its analysis revealed that world export volume reached a plateau at the beginning of 2015. World trade was not only slowing down, but not growing at all....


There were falls in world trade following the collapse of the dot-com boom in the early 2000s and the Great Recession that followed the financial crisis of 2008. But the fact that the current stagnation has lasted for 15 months “highlights how unusual it is when compared to the global trade dynamics we have witnessed over the past quarter of a century.”
“With every additional month of data confirming a global trade plateau, the odds lengthen that the current global trade dynamics are a temporary pause, a soon-to-be reversed cyclical phenomenon, or a statistical freak.”...

The stagnation in global trade is being accompanied by a rise in protectionist measures. Tracking the total number of trade liberalising and protectionist measures since 2009, the report said the results were “striking,” with the number of discriminatory measures imposed in 2015 some 50 percent higher than in 2014. By this measure, the resort to protectionism last year was “far higher” than in 2009 “when world leaders openly fretted about threats to the global trading system.”...

Significantly, in the light of its repeated declarations eschewing protectionism and warnings about the descent into the kind of beggar-thy-neighbour policies that characterized the 1930s, the report pointed out that members of the G20 were responsible for 81 percent of protectionist measures in 2015, with the United States and Russia topping the list of countries most responsible.
The report warned that a “negative feedback loop” could develop where zero trade growth fuelled the resort to ever-more protectionist measures, leading to a further decline in trade. While the report did not draw out the implications of its warning, they are clear. It was such a feedback loop that developed in the 1930s, intensifying the Great Depression and ultimately leading to the outbreak of the Second World War in 1939.

8-- After Sanders, Green Party seeks to trap workers and youth within capitalist politics


Whatever Stein’s tactical differences with Sanders and her rhetorical criticisms of Hillary Clinton, she ends up in the same camp promoting the myth that popular pressure can shift the Democrats to the left....

There is nothing “revolutionary” about either the Sanders’ campaign or the Green Party. As the Socialist Equality Party warned from the beginning, Sanders has worked to tap into anticapitalist sentiment that has grown during the Obama years of bank bailouts and endless wars in order to contain and strangle it.
There is a division of labor between Sanders on the one side and the Greens, which are nominally independent from the Democrats, on the other. While the Vermont senator and Democratic operatives like Jackson, Dean and Kucinich before him perpetuated the myth that the Democrats could be pushed to the left from the inside, the Greens seek to pressure the Democrats from the outside. In either case, such a perspective is a political dead end for the working class.
While the Greens maintain an organizational independence from the Democratic Party, they are not an anticapitalist, let alone working-class or socialist, party. Far from seeking the overthrow of capitalism, the Greens advance the interests of a specific section of the middle class seeking “green business” opportunities and greater influence in corporate and government policy....

Under conditions of a deep crisis of political legitimacy of both capitalist parties—with Clinton and Trump among the most hated political figures in the US, polling less than 40 percent each for the upcoming presidential elections—the Green Party is seeking to position itself as the post-Sanders catch-all for oppositional sentiment.
The platform of the US Greens does not in any way challenge the economic and political domination of America’s corporate and financial oligarchy....


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