1-- Trump's smoke and mirrors economic surge
The tax cut is putting more than $150 billion into people’s pockets this year. While it is true that the bulk of this money is going to the rich, who will spend a smaller share of their tax cut than a middle income household, the extent to which they will increase their spending is not zero...
Consumption increased at a 4.0 percent annual rate in the quarter, making it the largest contributor to the quarter’s growth. This is largely a bounce back from weak growth of 0.5 percent in the first quarter. The two quarter average is 2.3 percent, which is respectable, but hardly exceptional. It is certainly plausible that consumption will continue to grow at roughly this pace....
the biggest factor in the jump in investment was an increase in investment in mining structures (primarily oil and gas drilling) of 97.1 percent. While this increase may be partly attributable to Trump’s drill everywhere policy, the more likely cause is the increase in world oil prices from around $40 a barrel three years ago to close to $70 today.
There were similar increases in spending on drilling under Obama. For example, it rose at 84.5 percent and 65.9 percent annual rates in the first and second quarters of 2010 as energy prices jumped back from recession lows. Whether or not Trump gets credit depends on whether we think he is responsible for the rise of world oil prices.
Much has been made of a surge in exports that seems to be the result of an effort by foreigners to stock up in anticipation of retaliatory tariffs. This is very plausible. Net exports added 1.06 percentage points to growth. This surge will not recur in future quarters. That means net exports will likely be a drag on growth....
this effect will be largely offset by inventories. A reduction in inventories subtracted a percentage point from growth in the second quarter. This component will almost certainly add to growth in the next two quarters.
One item that deserves attention is the 1.1 percent drop in residential investment, the second consecutive quarterly decline. This is a modest drag on growth, but more importantly it indicates that housing construction may be leveling off. This means that we may not see the increase in housing supply needed to put a check on rental inflation.
The Fed’s interest rate hikes are the immediate culprit here, as the anticipation of higher short-term rates have caused the 30-year mortgage rate to increase by roughly a percentage point from levels of two years ago. The tax cuts do play a role also, since the Fed is (rightly or wrongly) responding to what it sees as the risk that the tax cuts may over-stimulate the economy, causing inflation....
On net, we can say that the economy is likely getting some near-term boost from the tax cut, which could lead to a growth rate of close to 3.0 percent in 2018...
It is important to point out that for almost everyone but economist types, growth does not mean anything. People care about whether they have a job and whether their pay is rising. On the last point, the news has not been good, as real wages have been flat over the last year.
However, it is important to note that without the increase in energy prices they would have risen 0.5-0.7 percent. That is not a great story given how much ground has to be made up for workers to get their share of growth, but at least it is movement in the right direction. And, as the energy price hikes of last summer move out of the 12-month window, we will be looking at real wage gains of 0.5 to 0.7 percent, what workers were seeing before Donald Trump became president.
And now there is the assault on the First Amendment, with legislation currently in Congress making it a crime either to criticize Israel or support a boycott of it in support of Palestinian rights. When those bills become law, which they will, we are finished as a country where fundamental rights are respected.
And what has Russia done in comparison to all this? Hardly anything even if all the claims about its alleged interference are true. So when will Mueller and all the Republican and Democratic baying dogs say a single word about Israel’s interference in our elections and political processes? If past behavior is anything to go by, it will never happen.
This story is playing out nationwide as a few things are hitting at the same time. Inventory is slowly rising, mortgage rates are having an impact, and people are seeing price gains slowing so why rush?...
The housing market has been running on fumes and has been in the tailwind of an incredible stock market recovery. People would like to buy but simply do not have the budget to do so. You are also seeing foreign money soften up a bit as the current administration has been tough on China. Is this good or bad is yet to be seen but in places like San Francisco, Arcadia, and Irvine you have an entire cottage industry catering to Chinese money to buy real estate.
The market is slowing down. The question yet to be seen is whether this will be a minor correction or an actual bust. We’ve clearly been in a boom. What comes next?...
They were fed up with Seattle’s home bidding wars. They were only in their late 20s but had already lost two battles and were ready to renew with their landlord. Then, in May, their agent called.Suddenly, Redfin’s Shoshana Godwin told the couple, sellers were getting jumpy, even here in the hottest of markets. Homes that should have vanished in days were sitting on the market for weeks.
There was a three-bedroom fixer-upper just north of the city going for $550,000, down from more than $600,000. They made the leap in early June and had closed by the end of the month, for list price.
The U.S. housing market — particularly in cutthroat areas like Seattle, Silicon Valley and Austin, Texas — appears to be headed for the broadest slowdown in years. Buyers are getting squeezed by rising mortgage rates and by prices climbing about twice as fast as incomes, and there’s only so far they can stretch.”
- Friday's gross-domestic-product report showed that residential investment, which includes construction and brokers' fees, fell for a third quarter out of four.
- It was another confirmation that the US housing market is in a slowdown.
- Sales of luxury and affordable housing have been declining for months.
- The US housing market is slowing down.
Friday's report on US economic growth spurred a presidential victory lap after it showed that gross domestic product rose at a 4.1% annual rate, the fastest in nearly four years.
But it had an ugly detail about the housing market that added to evidence of a slump: Residential investment, which includes construction and brokers' fees, shrank in the second quarter for a third quarter out of four.
Add this to the worst housing affordability in nearly a decade and rising mortgage rates, and you have a recipe for a slowdown.
Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said in a recent note: "It's very hard to escape the conclusion that the market has peaked for this cycle, given the rise in mortgage rates since last fall and the gradual tightening of lending standards."
Buyer fatigueBuyer fatigue is building, even though a strong jobs market and the maturing of millennials mean there's plenty of demand for houses.
Evidence of this fatigue came last week in several sales reports.
Existing-home sales, which make up about 90% of the market, fell for a third straight month in June to an annual pace of 5.38 million units, according to the National Association of Realtors. And new residential construction, or housing starts, softened in June to an annual rate of 1.17 million units, according to the Census Bureau. In March, starts were at an annual rate of 1.33 million.
At the cheaper end, the market has "crossed an affordability threshold" after many years of increasing prices, low inventory, slow wage growth, and, now, rising mortgage rates, Miller said.
The U.S. housing market -- particularly in cutthroat areas like Seattle, Silicon Valley and Austin, Texas -- appears to be headed for the broadest slowdown in years. Buyers are getting squeezed by rising mortgage rates and by prices climbing about twice as fast as incomes, and there’s only so far they can stretch.
“This could be the very beginning of a turning point,” said Robert Shiller, a Nobel Prize-winning economist who is famed for warning of the dot-com and housing bubbles, in an interview. He stressed that he isn’t ready to make that call yet.
“Home prices are plateauing,” said Ed Stansfield, chief property economist at Capital Economics Ltd. in London. “People are saying: Let’s just bide our time, there’s no great rush. If we wait six or nine months we’re not going to lose out on getting a foot on the ladder.” That means “we’re now looking at a period in which prices move more or less sideways, or increase no more quickly than growth in incomes, over the next few years.”
“Affordability is becoming a major headache for homebuyers,” said Lawrence Yun, the association’s chief economist. “You are seeing home sales rising in Alabama, where things are affordable. But in places like California, people aren’t buying.””
When the financial crisis reached its peak in the fall of 2008, he deliberately misled Congress to help rush through the passage of the TARP. To highlight the immediate threat to the economy, Bernanke said the commercial paper market was shutting down. This would have meant that even healthy companies would be unable to borrow the money needed to meet their payroll and other regular expenses. Bernanke waited until the weekend after the TARP was passed to announce plans to establish a special Fed lending facility to support the commercial paper market. This move called attention to the fact that Bernanke had the authority to support the commercial paper market without any action from Congress.
This is not the first time that Bernanke has done Wall Street's bidding. When Goldman, Citigroup and the rest were on the edge of bankruptcy, Bernanke deliberately misled Congress to help pass the Troubled Asset Relief Program (Tarp). He told them that the commercial paper market was shutting down, raising the prospect that most of corporate America would be unable to get the short-term credit needed to meet its payroll and pay other bills.
Bernanke neglected to mention that he could singlehandedly keep the commercial paper market operating by setting up a special Fed lending facility for this purpose. He announced the establishment of a lending facility to buy commercial paper the weekend after Congress approved Tarp.
8--Bernanke's extortion racket
Ben Bernanke contributed to this view when he answered a question at a press conference:
"I see the financial markets as already quite fragile. The credit markets aren't working. Corporations aren't able to finance themselves through commercial paper."
The weekend after Congress passed the TARP, Bernanke announced that the Fed would begin to directly buy the commercial paper of non-financial corporations.
The Conspiracy Theory:
Bernanke was working with Paulson and the Bush administration to promote a climate of panic. This climate was necessary in order to push Congress to hastily pass the TARP without serious restrictions on executive compensation, dividends, or measures that would ensure a fair return for the public's investment.
AdvertisementBernanke did not start buying commercial paper until after the TARP was approved by Congress because he did not want to take the pressure off, thereby leading Congress to believe that it had time to develop a better rescue package.
New Evidence for the Conspiracy Theory.
At a speech at the Press Club this week, Bernanke was asked why he waited until after the TARP was approved before he began buying up commercial paper of non-financial corporations. He responded:
"Well, look at the calendar. The financial crisis intensified in mid-September and got worse to the point where there was a huge global financial crisis in early October. During that interim, Congress passed the Emergency Economic Stabilization Act, which includes the TARP. And that TARP, the money there was very useful in helping to stabilize the banking system in early October. There was this critical moment. I think it was about the 14th of October, following a G7 meeting here in Washington, where not The United States but countries around the world took very strong actions in terms of capital, in terms of guarantees and other actions to try to stabilize the world banking
It was during this period that the commercial paper market and the money markets, money market mutual funds showed the worst stress. It was in those 18 weeks that that stress appeared and those markets began to dysfunction. And we can't set these programs up immediately. It takes a bit of time to get them structured legally and to arrange for the market terms and to work with market participants and so on. But we got it going actually quite quickly. It's been now more than three months since the commercial paper facility has been functioning. And it seems to have had notable impact on both commercial paper rates and on the terms of finance available."
This statement, that the commercial paper market first seized up in October would seem to contradict Mr. Bernanke's statement of September 24th: "Corporations aren't able to finance themselves through commercial paper."
The question here: why aren't any reporters asking questions about this?
8--PUBLIC ENEMY #1: BERNANKE BLACKMAILS CONGRESS
Dean Baker, writing in "Bernanke's Bad Money" for Counterpunch, concludes that Lehman Brothers was offered up as a sacrificial lamb by Bernanke and Hank Paulson as a way of terrifying Congress into giving money (remember Paulson demanded a trillion dollars, with no strings attached, and immunity from later prosecution) to bail out Wall Street bankers, all apparently but...you guessed it, Lehman Brothers. ...
Mike Whitney, in his article "Politics/Credit Crisis Politics" writes: "Lehman Bros. didn't die of natural causes; it was drawn-and-quartered by high-ranking officials at the US Treasury and the Federal Reserve. Most of the rubbish presently appearing in the media, ignores this glaring fact. Lehman was a planned demolition... concocted by ex-Goldman Sachs CEO Henry Paulson, who wanted to create a financial 9-11 to scare Congress into complying with his demands for $700 billion in emergency funding (TARP) for underwater US banking behemoths. The whole incident wreaks of conflict of interest, corruption, and blackmail."
According to Whitney, the point of the whole exercise was to blackmail Congress into giving Paulson TARP money to save, foremost, AIG, which, as we know, owed a significant amount of money to Goldman Sachs as well as many other banking concerns. A collapse of AIG would have left Goldman Sachs (and many other teetering global financial institutions) holding a very ugly and insubstantial bag of dirty laundry.
Whitney continues: "Lehman had potential buyers, including Barclays, who probably would have made the purchase if Bernanke and Paulson had merely provided guarantees for some of their trading positions. Instead, Treasury and the Fed balked, thrusting the knife deeper into Lehman's ribs. They claimed they didn't have legal authority for such guarantees. Its a lie. The Fed has provided $12.8 trillion in loans and other commitments to keep the financial system operating without congressional approval or any explicit authorization under the terms of its charter. The Fed never considered the limits of its "legal authority" when it bailed-out AIG or organized the acquisition of Bear Stearns by JP Morgan pushing $30 billion in future liabilities onto the public's balance sheet. The Fed's excuses don't square with the facts."
Dean Baker recounts what transpired last September 15:
Last September, when he (Bernanke) was telling Congress that the economy would collapse if it did not approve the $700 billion TARP bailout, he warned that the commercial paper market was shutting down.
This was hugely important because most major companies rely on selling commercial paper to meet their payrolls and pay other routine bills. If they could not sell commercial paper, then millions of people would soon be laid off and the economy would literally collapse.
What Mr. Bernanke apparently forgot to tell Congress back then is that the Fed has the authority to directly buy commercial paper from financial and non-financial companies. In other words, the Fed has the power to prevent the sort of economic collapse that Bernanke warned would happen if Congress did not quickly approve the TARP. In fact, Bernanke announced that the Fed would create a special lending facility to buy commercial paper the weekend after Congress voted to approve the TARP....
The reason Bernanke did not underwrite the commercial paper market was, if he had, he wouldn't have been able to blackmail congress. He needed the rising anxiety from the crisis to achieve his goals.
Mike Whitney writes: "The fact is, Paulson and Bernanke deliberately created the crisis in order to jam their widely-reviled TARP policy down the public's throat. The New York Times thinks the public should be grateful for that because, otherwise, the crooked insurance giant, AIG, would not have been bailed out and Goldman Sachs and other Wall Street heavies would not have been paid off. This tells us everything we need to know about the Gray Lady's true loyalties."
When Lehman filed for bankruptcy, panic spread throughout the markets
Whitney explains it this way: "The reason panic spread through the markets after Lehman filed for bankruptcy, was because the Reserve Primary Fund, which had lent Lehman $785 million (and received short-term notes called commercial paper) couldn't keep up with the rapid pace of withdrawals from worried clients. The sudden erosion of trust triggered a run on the money markets.
The Bloomberg article 'Sleep-At-Night-Money Lost in Lehman Lesson Missing $63 Billion', written by Bob Ivry, Mark Pittman and Christine Harper, gives a blow-by-blow account of the Lehman tragedy:...
It was commercial paper and the $3.6 trillion money market industry that traded the notes that came close to sinking the global economy -- not a breakdown in credit-default swaps or bank-to-bank lending... Commercial paper was the crystallizing force that froze credit markets, choking off the ability of companies and banks to borrow money and pay bills...
And now the smoking gun. Bernanke had the authority and the means to deal with this crisis in the commercial paper markets. But he did not act. Why did he not act immediately to stem the crisis? Because Bernanke and Hank Paulson, together, realized they could use this second crisis as an intensified threat to the global economy and point fingers of responsibility at Congress for not approving quickly enough the TARP fund bailout that Wall Street bankers desperately needed.
Whitney explains: "Bernanke could have fixed the problem in an instant. All he needed to do was provide explicit government guarantees on money markets and commercial paper. That would have ended the bank-run pronto. But he chose not to. He chose to wait until Congress capitulated so he could net $700 billion for his banking buddies."...
Mike Whitney presents the following chronology of the fall of Lehman and the rise of Ben Bernanke as the 'savior of the civilized world':
On Sept 15, 2008, Lehman Bros filed for bankruptcy sending the Dow plummeting 504 points.
On Sept 17, the Dow falls 449 points in reaction to AIG bailout.
On Sept 29, the Dow tumbles 777 points after House votes "No" on TARP.
On Oct 3, the House passes Financial Rescue Plan (TARP) The Dow falls 818 points.
On Oct 7, the Fed creates the Commercial Paper Funding Facility to backstop the commercial paper market. Two weeks later, Bernanke announces the Money Market Investor Funding Facility to make loans of longer maturities.Bernanke was working with Paulson and the Bush administration to promote a climate of panic. This climate was necessary in order to push Congress to hastily pass the TARP without serious restrictions on executive compensation, dividends, or measures that would ensure a fair return for the public's investment. Bernanke did not start buying commercial paper until after the TARP was approved by Congress because he did not want to take the pressure off, thereby leading Congress to believe that it had time to develop a better rescue package....
10--Trust in media??