Linking ≠ endorsement. Enjoy and share:
Are consumers starting to accept the “new normal”? – CBS News
“The U.S. economy has definitely carried some momentum into 2014, but it’s still a slow-growth economy with high unemployment and stagnant household income,” Bankrate.com financial analyst Greg McBride said in a statement. “Consider that the economy has hit a rough patch each year of the recovery, usually in the first half of the year, and has underperformed the Fed’s estimates year-in and year-out. I expect similar results in 2014.”
Testosterone Pit – Home – The Magic “Wealth Effect” On Our Hapless Renters
An analysis of wage and housing data by the National Low Income Housing Coalition found that for someone earning the federal minimum wage of $7.25 per hour, an “affordable rent” of 30% of income would max out at $377 per month. But the average “zero-bedroom” apartment now goes for $680 per month. For a household to be able to afford that “zero-bedroom” apartment, it would need an annual income of $27,200. And it would need $39,080 a year to upgrade to their dream two-bedroom palace.
The toxic mix of declining real incomes of renters and rising rents has had an impact: In 2011, about 11.3 million households were spending over half of their income on rent, according to the Harvard Joint Center, a 28% jump from 2007. And given what has happened over the last two years to real wages and rents, the ratio must have gotten even worse.
Some smart, deep-pocketed investor is going to start concentrating on developing quality but affordable studio apartments by the millions across the country. Really?
What’s up with the job market? – Bankrate, Inc.
Why the caution? Joerres [“ManpowerGroup Chairman and CEO Jeff Joerres”] says many firms are operating more efficiently than they were in the past. “Companies are not going to take the risk of anticipatory hiring because there’s too many things that could six months from now or even two months from now get in the way of that and really hurt their profitability.”
U.S. Falling Behind Europe and China on Tax and Trade Globalization
… the USA levied the highest gross tax charge on repatriated profits of any country examined by UHY.
Well, if the US were to reduce that, how would it benefit the US? More companies would offshore, but would the US make up the taxes by the increase in volume?
We need to be sure to do better than globalization for globalization’s sake.
Exclusive: FBI suspects front running of Fannie, Freddie in swaps market | Reuters
Wall Street traders may be manipulating a key derivatives market and front running Fannie Mae and Freddie Mac, hurting the US-owned mortgage giants in the process, according to an FBI intelligence bulletin reviewed by Reuters.
Front running occurs when someone with advance knowledge of another market participant’s plan to make a sizable transaction puts an order in first, often profiting from a market move that can occur once the big trade has gone through.
Fannie Mae and Freddie Mac, which are government-sponsored enterprises (GSEs), often submit large swap orders to hedge their huge holdings of home mortgages against swings in the bond market. The size of the orders provide an incentive for front running ahead of the trades.
[Recommended] Why Singapore’s Economy Is Heading For An Iceland-Style Meltdown – Forbes
Singapore: Too much hot money, a very high debt ratio, a high level of adjustable-rate mortgages, over-building speculative projects …: Jesse Colombo:
Singapore’s bubble will most likely pop when the bubbles in China and emerging markets pop and as global and local interest rates continue to rise, which are what inflated the country’s credit and asset bubble in the first place. It is important to be aware that Singapore’s bubble economy may continue inflating for several more years if the U.S. Fed Funds Rate and SIBOR continue to be held at such low levels. …
As I’ve been saying even before this summer’s EM panic, I expect the ultimate popping of the emerging markets bubble to cause another crisis that is similar (though not identical in every technical sense) to the 1997 Asian Financial Crisis, and there is a strong chance that it will be even worse this time due to the fact that more countries are involved (Latin America, China, and Africa), and because the global economy is in a much weaker state now than it was during the booming late-1990s.
It’s a very long, detailed article that makes a fairly strong case. So much hinges on China.
More consumers planning to buy as mortgage concerns ease | Inman News
The share of consumers who plan to buy a home rose to 6.9 percent in December, up from 5 percent in November, according to a monthly economic outlook released today [Jan. 13, 2014] by Fannie Mae’s Economic & Strategic Research Group.
The recent decline in mortgage rates will aid home sales.
Most Important Things to Invest in: Multifamily Property Improvements – Multifamily Blogs
Are you under the impression your property will never be able to effectively compete with the high priced property across the street due to an inability to afford big ticket upgrades? If so, it might be time for a little insight into what tenants really want. While it may not earn you a Class A categorization, these small, but noticeable efforts will help you attract and keep the right kind of tenants.
There are plenty of ideas out there on the Internet.
S&P 500 Down On Taper Talk, Valuation, Investor Sentiment, And Equity Allocation Measures
If the positive outlook I’ve outlined plays out, I would support similar tapering steps over the course of this year. Of course, the Committee will assess how things are going, economically speaking, at each meeting, and decide on the next step.
Apparently, there are many “experts” who have their ears plugged the way they did regarding Bernanke’s May, 2013 taper statement. They are saying that the Fed will taper every month until the Fed is buying zero bonds. That though is not what the Fed has said, as is clear in the remarks of Atlanta Fed President Dennis Lockhart.
Japan No Longer an Export Powerhouse – Real Time Economics – WSJ
A major factor is that Japanese companies have moved production offshore, to cheaper centers in China and elsewhere.
Those goods show up in the export statistics from, say, China, not Japan. Japan’s ambitious monetary easing, meant to weaken the yen and lure companies back onshore, so far has failed to entice firms back.
“Only a small number of companies brought back factories to Japan as the yen weakened,” said Junko Nishioka, an economist with RBS Securities in Tokyo.
It’s early yet.
Color of Money: New mortgage rules tough but fair – The Washington Post
Critics say the stronger mortgage requirements could make it harder for people to qualify.
Yes — that’s the point. …
So many people got loans without lenders verifying their incomes. Some loans were interest-only. Borrowers got loans with super-low adjustable rates that, when reset, consumed an unsustainable amount of their incomes. Some people even were approved for loans with negative amortization in which their payments didn’t even cover the interest.
Such loans shouldn’t be made, says Richard Cordray, director of the Consumer Financial Protection Bureau.
… Cordray [Richard Cordray, Director, Consumer Financial Protection Bureau] referred to a Goldman Sachs report finding that of the loans made from 2005 to 2008 that defaulted, nearly 50 percent would not have been made under the ability-to-repay standards.
If the higher standards had been in place, it is more than highly likely that the housing crash would never have occurred.
Dallas/Fort Worth Leads U.S. in Both Supply and Demand for 2013 [Video] | Property Management Insider
The return of the apartment construction boom in Dallas/Fort Worth has corresponded to a sustained boom in demand for apartments — allowing occupancy rates to hold at a 14-year high and triggering another round of very solid rent growth.
China to Have Unified Real Estate Registration – NASDAQ.com
SHANGHAI–China plans to establish a national system for tracking real estate ownership and sales transactions, a key step in its effort to tame a property sector that threatens to price many Chinese out of the housing market.
A nationwide real estate registration system could pave the way for levying a broad property tax in China for the first time. It could also help Beijing crack down on government officials and others who buy and own multiple properties despite restrictions on ownership.
Too little, too late?
Misclassified homes may be paying higher taxes in error – CBS 5 – KPHO
A Gilbert man says he has paid hundreds of dollars more in property taxes over the past decade due to a title company error, but he could have easily spotted the problem early and not been harmed.
U.S. War on Poverty Failed While Global Poverty Declined 80%: Economic Liberalization Begets Prosperity and Equality | The Beacon
“Economic Liberalization Begets … Equality”? It doesn’t to our minds. A laissez-faire system always produces the greatest inequality. The economic safety net was developed to keep people from falling into abject poverty within a more laissez-faire economy. We have a mixed economy in the US for a good reason. Laissez-faire creates a nightmare of inequality, abuse, gross exploitation, worker injuries and disease (without workers compensation, a Progressive Era public policy), and unmitigated environmental catastrophes. Thoughts?
The Oncoming Obama-Yellen Inflationary Cycle | MyGovCost | Government Cost Calculator
Is Janet Yellen in the same situation as was Arthur Burns?
Abrams recalled Arthur Burns, Richard Nixon’s choice to head the Federal Reserve in 1970. The economy was mired in stagflation, leaving Burns the option to control the money supply tightly “or rev up the printing presses and risk inflation.” To alleviate unemployment and enhance his chances of reelection, Nixon wanted Burns to print more money and Burns gave the president what he wanted. “That shortsighted, politically motivated policy,” Abrams noted, “not only defied the alleged independence of the Fed, it launched the economy on an inflationary course that could be reversed only at enormous cost to the nation in the long run.” So with midterm elections looming and unemployment still running high, should the nation expect more of the same?
However, there was an oil embargo.
The Western nations’ central banks decided to sharply cut interest rates to encourage growth, deciding that inflation was a secondary concern. Although this was the orthodox macroeconomic prescription at the time, the resulting stagflation surprised economists and central bankers, and the policy is now considered by some to have deepened and lengthened the adverse effects of the embargo. Recent research shows that the modern economy, represented by the period after 1985, is very resilient to energy price increases compared with the earlier era. https://en.wikipedia.org/wiki/Arab_Oil_E mbargo#Macroeconomic_effects
Yellen’s situation is nothing like that. We aren’t in stagflation, try as the Fed has to increase consumer-price inflation. The Libertarians projected hyperinflation to have happened years ago now. We aren’t even close. We still face the prospect of deflation, and certainly disinflation, if we stop all efforts to increase employment. The US has fallen far short of what it could have done and should have done to end the Great Recession and high unemployment.
PD&R Quarterly Market Update January 9, 2014 – YouTube
Published on Jan 14, 2014
The briefing provides a quarterly update on the U.S. Housing Market Conditions and a policy discussion on the Aging in Place. The information on the nation’s housing markets and the discussion of efforts to enable seniors to age in their homes, often expressed as aging in place, is of interest to HUD staff and to the general public. Moderator and panelists for discussion have been confirmed and are listed above. Henry Cisneros, Former Secretary of HUD, will open the Aging in Place discussion.
MBA lowers estimate for 2014 mortgage originations | 2014-01-14 | HousingWire
Expect the mortgage lending spigot to ooze fewer loans in 2014, an industry trade group said Tuesday.
Rising interest rates and heightened regulations may take a bigger bite out of originations than initially forecasted, according to a new report from the Mortgage Bankers Association.
Will more difficult qualifying rules cause lenders to keep interest rates low to attract more to borrow from within a smaller potential pool of borrowers or will the rules force lenders to raise rates in an attempt to maintain profit margins in the face of a shrinking pie?
The MBA report was apparently written before rates went down and applications up, but how long will those aspects last?
Congress Schooled on the QM Rule | Mortgage News | Daily National and State Headlines
Rep. Carolyn Maloney (D-NY) aggressively went after the witnesses, asking point-blank: “Do you think the economic crisis warranted reform or not?”
The witnesses unanimously answered yes. Next, Maloney brought out the big guns. “Would this rule have prevented the crisis?”
A few of the witnesses dodged the question, stating “We can’t play revisionist history,” or something along those lines. Frank Spencer, CEO of Habitat For Humanity stated “No.” Michael D. Calhoun of the Center For Responsible Lending replied, “Yes. 70 percent of the loans that were made wouldn’t have been made.”
Plus, what’s wrong with not owning? What’s wrong with being a renter provided there are enough decent units to rent at affordable rates? For the typical family for instance, owning really often means borrowing. The securitized-bond holders make a profit off you or your landlord does. What’s the practical overriding difference? You payoff the loan, and you still owe property taxes. Equity has advantages, but ownership saddles a person too.
BBC News – What makes a global property hot spot?
Despite the tepid economic recovery, property prices are rising at a pace last seen before the financial crash in key cities in post-crisis countries, such as London and New York. London prices have led the best year for property in Britain since 2006, now at 27% above their peak by one gauge. Elsewhere, Singapore and Hong Kong rank among the most expensive markets in the world (alongside London, Geneva and Monaco) and their governments are trying to rein in home prices.
Those looking to buy homes know all too well – property prices have skyrocketed in recent years. In London, home prices have more than doubled (+107%) since 2005, according to UK estate agent Savills.
In other global property hot spots it’s even more – home prices have surged 232% in Singapore, and Hong Kong has the most expensive property market in the world.
What’s driving up property prices in these cities?
Hot-money bubbles for one.
Booming South Florida Condo Market – WORLD PROPERTY CHANNEL Global News Center
There are at least 184 new condo towers with more than 25,100 units that are proposed, planned, under construction or recently completed in the South Florida region.
In the previous condo boom, which began in 2003, developers delivered almost 49,000 units the tricounty region. The market remained stagnant after the real estate crash of 2007.
As Refinancing Wanes, Banks Are Wary of New Loans – NYTimes.com
… some mortgage experts are skeptical that the current policy makers can engineer a sensible middle path when they try to expand the availability of credit.
The danger of overshooting, and repeating the subprime excesses, is high, they say. One big temptation will be to lend to borrowers who only make small down payments, they argue.
“If we go back to a world where we do low- or no-down-payment lending for subprime-quality borrowers, we will back in a mess,” Mark A. Calabria, a director at the Cato Institute, said. “There is a way to do this right, and the question is whether we’ll do it right.”
Statistically, low down-payments weren’t the issue but subprime and fraud were, emphasis on fraud.
A New Age for the Single-Family Rental Market?
The demand for single-family rental housing in Los Angeles has quadrupled since 2004; however, whether this continues into 2014 remains to be seen. Over the last two months leading up to October 2013, rental prices were headed higher, which, if sustained into 2014 could dampen future demand. However, implementation of new regulations for mortgages may potentially make it more difficult to qualify for a mortgage. Less access to credit alongside reduced affordability due to rising house prices means the rental market may continue to be an attractive or necessary option for many households in the near future.
Dollar Index At A Crossroads | Alpha Now | Thomson Reuters
Talk that the Federal Reserve will continue tapering its bond-buying program suggests economic growth, and economic growth generally suggests increased borrowing costs. With the U.S. economy having yet to show signs of solid recovery, the Dollar Index (DXc1) is trading right in the middle of its long-term chart. However, the yield of the 10-year note suggests that the Dollar Index will gain in the medium term.
The yield on the 10-year treasury is in green. The low point was before Ben Bernanke mentioned tapering in May of 2013. If you read the article and wonder about Fibonacci retracements, this might help a bit.
Off the Charts Blog | Center on Budget and Policy Priorities | Where Things Stand for the Unemployed
With last month’s expiration of emergency federal jobless benefits, only regular state unemployment insurance (UI) benefits are available to qualifying workers who lose their jobs through no fault of their own. As a result, the maximum number of weeks of benefits fell to 26 in most states (seven states provide fewer weeks and two provide more).
This map and table show the number of weeks available in each state, along with the state’s three-month average unemployment rate. Click here for state-by-state figures on the nearly 5 million workers who have already lost emergency unemployment benefits or will run out of regular benefits through the end of 2014 and not receive emergency benefits if policymakers don’t restart the program.
We think that this will crimp the recovery due to a reduction in consumer spending. We don’t think there will be enough job openings to make up the difference. We’d like to be wrong.
Barry Eichengreen notes that a decade after external imbalances emerged as a supposed threat to the global economy, the problem has disappeared. – Project Syndicate
… the flows that mattered were not the net flows of capital from the rest of the world that financed America’s current-account deficit. Rather, they were the gross flows of finance from the US to Europe that allowed European banks to leverage their balance sheets, and the large, matching flows of money from European banks into toxic US subprime-linked securities. Both critics and defenders of global imbalances almost entirely overlooked these gross flows in both directions across the North Atlantic.
… America’s trade position will be strengthened by the shale-gas revolution, which promises energy self-sufficiency, and by increases in productivity that auger further re-shoring of manufacturing production.
Emerging markets, for their part, have learned that export surpluses are no guarantee of rapid growth. Nor do large international reserves guarantee financial stability. There are better ways to enhance stability, from strengthening prudential supervision to taxing and controlling destabilizing capital flows and letting the exchange rate adjust.
Mortgage News: Payments from Fannie, Freddie help government to record
The federal government ended up with a record December budget surplus last month, thanks in large part to payments from Fannie Mae and Freddie Mac.
The government’s revenue exceeded its spending in December by $53.2bn, according to a Bloomberg report. In December 2012, the government ended the month with a $1.19bn deficit.
That’s largely due to payments to the Treasury from Fannie Mae and Freddie Mac, according to Bloomberg.
In our view, the reason most people have to end this is not sound economics or finance but their own anti-government ideology based mostly on greed.
Carrington’s Whalen: Fed, White House Not Creating Jobs
… the Fed is keeping short-term interest rates near record lows. That policy is “actually encouraging deflation in the U.S. economy by robbing savers of badly needed income,” he [Chris Whalen, managing director of residential real estate firm Carrington Holding Co.] writes.
“The neo-Keynesian, demand-side mindset of Chairman [Janet] Yellen and the rest of the FOMC [Federal Open Market Committee] does not allow them to see or accept that low rates are actually hurting employment, credit, and capital formation.”
Supply creates demand. Where did I read this?
From the time of Say and Ricardo the classical economists have taught that supply creates its own demand; meaning by this in some significant, but not clearly defined, sense that the whole of the costs of production must necessarily be spent in the aggregate, directly or indirectly, on purchasing the product. In J. S. Mill’s Principles of Political Economy the doctrine is expressly set forth: “What constitutes the means of payment for commodities is simply commodities. Each person’s means of paying for the productions of other people consist of those which he himself possesses. All sellers are inevitably, and by the meaning of the word, buyers. Could we suddenly double the productive powers of the country, we should double the supply of commodities in every market; but we should, by the same stroke, double the purchasing power. Everybody would bring a double demand as well as supply; everybody would be able to buy twice as much, because every one would have twice as much to offer in exchange”. [Principles of Political Economy, Book III, Chap. xiv. § 2.]
Yes, this is chapter two of Keynes’ General Theory (bold is mine), where he famously challenges the (neo)classical view that price changes can generate de mand capable of absorbing any level of supply.
So Hollande seems to embrace the view of his compatriot Jean-Baptiste Say that to boost growth and well-being one needs only to care about creating optimal condition for production and supply, and that demand will follow.
The theoretical discussion between neoclassical and Keynesian economists fed most of the debate in macroeconomics since the General Theory was published, in 1936. And I do not intend to open that Pandora box here. [Source: Jean-Baptiste Hollande]
“… low rates are actually hurting employment, credit, and capital formation.” We’d liked to see Chris Whalen support that statement with hard data. Maybe he could.
We, however, think that the low rates supported by the Fed via the Fed’s QE3 buying of mortgage bonds kept the US from sinking into a deep depression. It hasn’t been enough, as we’ve said many times before. We’ve needed fiscal spending on Main Street infrastructure that we haven’t received while the private sector has been going through a very long deleveraging process that is far from over. Someone has to spend to keep things flowing. If the private sector can’t, the government should. The only problem has been that it hasn’t done nearly enough. That’s what’s been needlessly dragging things out.
Which countries will have the next financial crisis?
We won’t reproduce any of Tyler Cowen’s article here, as it is short without any intro or summary. It has plenty of links to follow. We’d read a few of them and even posted on some and will yet post on others (at least the subject matters).
Scandinavian Debt Crisis Waiting to Happen Puzzles Krugman – Bloomberg
This is part of what Chris Whalen of Carrington was discussing: Carrington’s Whalen: Fed, White House Not Creating Jobs.
In Denmark, consumers owe their creditors 321 percent of disposable incomes, a world record that the Paris-based OECD said in November demands a policy response. In Sweden, debt by that measure is close to 180 percent, a level the government and central bank say can’t be allowed to rise. Norway’s central bank has struggled to find a policy mix that addresses its 200 percent private debt burden.
Krugman [economist Paul Krugman] said. “But now in the global low-interest environment, they’ve seen house prices rising, even as they were falling in the U.S., and have high levels of household debt.”
Though the central banks of Norway and Sweden, which both have independent monetary regimes, have said debt burdens in isolation warrant higher rates, Krugman argues that tightening at this point in the economic cycle would do more harm than good.
“I would not raise interest rates. The question is what other avenues are there: financial regulation? This is a really bad time to do it.” Krugman said. “It’s a dilemma and I don’t have the answer.”
The horse is out of the barn. The barn door should not have been left open. Time and effort will have to be spent on getting the borrowers to delever; however, that will slow the economies. Traditional monetarism is not the easy answer here. The real problem/issue is the debt-based economic system: finance capitalism vs. industrial capitalism.
Confounded Interest | Fannie Mae Sells $750 Million of Risk-Sharing Securities (M1, $375m, Baa2/BBB, 1MLibor+160)
Fannie Mae takes another step away from government dependency with their 2nd offering of notes.
Jan. 14 (Bloomberg) — By Jody Shenn — Fannie Mae, the largest source of money for U.S. mortgages, sold $750 million of securities in its second offering of notes tied to the risk of homeowner defaults.
So, FHFA and Fannie Mae continue on the road to privatization and getting off the government dole.
They are returning a profit to the US government now. They are not on the dole. They are aiding in creating fiscal surpluses. See: Mortgage News: Payments from Fannie, Freddie help government to record.
Why shouldn’t the general revenue of the federal government benefit, thereby benefiting all tax payers regardless of income, rather than benefiting a relatively small handful of private investors?
NYC Commercial-Property Sales Seen Passing 2007 Peak – Bloomberg
New York City commercial-property sales probably will reach a high this year as rising prices in Manhattan and growing interest in the outer boroughs pushes deals past 2007 levels, Massey Knakal Realty Services said.
Transactions may reach $63 billion, up from the $37.6 billion recorded in 2013, as more sellers are drawn into the market, helping to alleviate a shortage of available properties, Robert Knakal, chairman of the New York-based brokerage, said today at a press briefing on the firm’s year-end investment sales report.
Is there a lag between changes in office usage (down) and the outlook of the current generation of real estate moguls in New York City?
With China Awash in Money, Leaders Start to Weigh Raising the Floodgates – NYTimes.com
The People’s Bank of China has been creating money to a considerable extent by issuing more renminbi to bankroll its purchase of hundreds of billions of dollars a year in currency markets to minimize the appreciation of the renminbi against the dollar and keep Chinese exports inexpensive in foreign markets; the central bank disclosed on Wednesday that the country’s foreign reserves, mostly dollars, soared $508.4 billion last year, a record increase.
The question now is whether the central bank can further slow the growth of credit and the money supply without causing a slump in housing prices or a sharp slowdown in the credit-dependent corporate sector. Even the very modest slowdown in money supply growth so far has already contributed to two sharp, but short-lived, increases in interbank interest rates in June and December, which roiled markets in China and around the world.
China’s central bank “is in a very difficult situation; it needs to tighten, but the whole system is not used to tightening, they are used to money printing,” said Shen Jianguang, a China monetary economist in the Hong Kong office of Mizuho Securities, a Japanese investment bank.
Op-Ed: Capitalizing on Today’s Strength in Multi-family | AZRE Magazine
Rue J. Bax:
… rehab via new paint, floors, cabinets, roofs, etc. The hail storm that hit Phoenix in October 2010 also had a substantial benefit to many multifamily properties as insurance companies’ dollars paid to replace roofs, covered parking, air conditioners and windows.
There is improvement needed in the management, amenities, exteriors, interiors, clubhouse and landscaping in just about every marketed Class-B and -C property which will translate to higher occupancy and higher net effective rents. The buyers that see this opportunity and take advantage of it, will see the returns in years to come.
Loans Originated Last Year Show Record Performance
Loans originated last year are the best-performing mortgage loans on record, according to the November Mortgage Monitor released Tuesday [Jan. 14, 2014] by Black Knight Financial Services (formerly Lender Processing Services).
“[H]eightened credit standards have resulted in this year being the best-performing vintage on record,” said Herb Blecher, SVP of Black Knight Financial Services’ data and analytics division.
However, stringent lending requirements may be biting into originations, which are now at their lowest levels since 2010, according to Black Knight.
Robert J. Shiller asks why innovative ideas to prevent another financial crisis have gained no political or media traction. – Project Syndicate
Robert J. Shiller:
In my own paper for the session, I returned to the idea of the government encouraging privately-issued mortgages with preplanned workouts, thereby insuring them against the calamity of ending up underwater after home prices fall. Like housing partnerships, this would be a fundamental reform, for it would address the core problem that underlay the financial crisis. But there is no impetus for such a reform from existing interest groups or the news media.
One of our discussants, Joseph Tracy of the Federal Reserve Bank of New York (and co-author of Housing Partnerships), put the problem succinctly: “Firefighting is more glamorous than fire prevention.” Just as most people are more interested in stories about fires than they are in the chemistry of fire retardants, they are more interested in stories about financial crashes than they are in the measures needed to prevent them. That is not a recipe for a happy ending.
We think it is more due to people who want to be left “free” to be fast and loose and that good regulations would prevent them from bilking millions.
Larry Summers on why the economy is broken — and how to fix it
Economist Larry Summers:
… in my view, best way of responding to stagnation concerns. Consider my favorite example: debt-financed infrastructure spending. Notice several things: First, when your growth rate exceeds your interest rate — which is surely going to be true for a long time for short-term debt — then you can issue debt, roll over the debt to cover interest and still have a declining debt-to-GDP ratio. Further, debt-financed infrastructure increases GDP by increasing productivity, which makes us wealthier and stimulates demand in an economy that is demand-constrained. Finally, if we fix Kennedy airport today, we don’t need to fix it tomorrow. If the concern is the obligation placed on future generations, then our accounting leads us seriously astray if it teaches us to fret over the Treasury debt that will be left behind but not the deferred maintenance liability that will be left behind.
To put the point a different way. If government is going to issue more short-term debt, what it should do with the proceeds? Is it best to buy back long-term bonds where the government is borrowing on behalf of the public at record low interest rates? This is what quantitative easing does. Or is it better to invest the proceeds in real assets that will increase the economy’s capacity and diminish the need for future government investments.
Opposition Dissent Tempers Greek Attempts at Optimism – NYTimes.com
The European Union, Mr. Tsipras said in an interview at his party’s headquarters in Athens, “has become a Germanic Union” and put Greece and other struggling nations “on a very bad road” by demanding grinding austerity in return for bailout funds.
“What has happened in Greece in the last few years is a stain on European civilization,” said Mr. Tsipras, who looks set to become Greece’s next prime minister, or at least its kingmaker in Parliament, if his party’s popularity holds.
Mr. Tsipras … has backed away from past rhetoric about abandoning the euro and said he does not want Greece to drop out of the 18-country zone that uses the currency. But he does want a fundamental reworking of the terms of Greece’s bailout funds, worth 240 billion euros, or about $328 billion.
“Our intention is to change the framework, not smash the euro,” he said, suggesting that Europe should hold a conference on debt akin to that held in London in 1953 that agreed to write off a big chunk of the debts incurred by Germany before and after World War II.
Fracking and house prices: Buyer beware | The Economist
environmental threats to particular properties—from flooding, pollution, and other disasters—are often not considered by potential buyers, because they are not immediately obvious. But new research suggests these less-visible factors are now starting to affect property values as well.
A new NBER paper* argues that the impact of fracking on water quality has affected the value of otherwise similar properties in parts of America. Although the paper’s authors show that shale-gas development has an overall positive impact on house prices, this is not equally shared between all houses in a local area.
Instead, it depends instead on where they source their water. Looking at house prices in parts of Pennsylvania and New York between 1995 and 2012, the paper finds that house prices near shale-gas developments fall when they rely on ground-water sources for their water supplies, because of fears that the fracking process may pollute local aquifers.
REAL ESTATE: Earthquake coverage rumblings follow 4.4-magnitude temblor | Business | PE.com
Glenn Pomeroy, chief executive of the California Earthquake Authority, says the Northridge quake was one of the costliest natural disasters in U.S. history: Half of the residential loss — $10 billion of $20 billion — was covered in 1994 by earthquake insurance.
Forty percent of all homes in the Los Angeles market carried earthquake insurance then. Today, that number is 16 percent.