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↑ Stop Worrying About Inflation—the Recovery Is Still as Slow as Ever – Matthew O’Brien – The Atlantic
… it looks like there’s plenty of slack left in the economy. If we really were operating near full capacity, like the new inflation hawks argue, then we wouldn’t expect the labor force to grow—we’d expect wages to go up instead. That hasn’t happened. Average hourly earnings actually ticked down a cent in March, and have only increased 2.1 percent the last 12 months.
Slack is right.
As of the first quarter of 2014, Broward homes were worth 6 percent more than their fundamental values, according to real estate website Trulia.com.
The fundamental value is the price level at which homes would sell in an area based on historical norms, incomes and rents.
The trend line is always changing, though over time, it takes ever-larger ups and downs to make relative impacts. The markets are cooling because lending is more conservative, which will keep the overall economy out of trouble but definitely slow the recovery. The big issue is a low-wage recovery.
↑ Wall Street Engineers Awaken CDOs in Real Estate Deals – Bloomberg
Wall Street’s financial engineers are getting creative again.
Commercial real-estate investor H/2 Capital Partners bundled a hodge podge of its holdings — from bonds tied to skyscrapers and malls to junk-rated bank loans — into about $400 million of securities. The deal, similar to the pre-crisis transactions known as collateralized debt obligations, included one portion that Moody’s Investors Service gave its highest rating of Aaa.
The investment firm is seizing on a revival of the types of transactions that fueled the property boom in 2006 and 2007, showing the lengths to which investors are going to bolster skimpy yields across credit markets.
We don’t call it creative. We call it reckless. What’s the point in commingling junk with relatively solid assets unless they want to recreate the Wild West mentality that pervaded Wall Street before the crash?
Why would they want to do that? They make fees whether junk crashes or not.
Buy at your own risk because another major bailout will not happen anytime soon. The common people are too savvy to allow the Fed and Treasury to recreate the bailout that occurred last time.
The Fed knows this. That’s why it created stress testing and has forced systemically important institutions to have living wills in a sense. Janet Yellen and the others don’t want to be lynched. They don’t want people carrying pitchforks and torches storming the Fed calling for heads to roll.
The SEC and others need to be vigilant.
↑ No pain, no gain for China’s reformers – Headlines, features, photo and videos from ecns.cn
All signs suggest that China is opting for a thorough cure – meaning it will struggle through a long incremental process of reform without entirely sacrificing growth.
It’s a highly risky process. Reform must be effective. Growth must be real. And most importantly, reform can’t be allowed to stifle growth – and preserving growth can’t be allowed to interfere with reform, resulting in the same old waste, pollution and corruption. Can China do it?
Yes, there will be defaults by funds tied to unfinished property projects. There will be bankruptcies of companies burdened with excess capacity. There will be banks with ugly balance sheets – and runs on small financial institutions.
Some cities, and some industries, will have to endure almost as much distress as they would under shock therapy.
But the worst outcomes will be limited to the regional level. And the authorities won’t let them trigger a chain reaction.
No nation has ever pulled off anything close to this, especially not one that is in as bad shape as China (wild speculation/debt). We definitely aren’t going to hold our breath.
It would be a miracle for the Chinese people to remain calm enough to pull this off. That line (run) at the bank shows that.
The Chinese government would have to declare a bank holiday (period) and be able to reopen with all banks sufficiently capitalized (or nationalized to reorganize/sell off) and not allow money to flee the country. Do they have what it takes to do that?
We think their economy is too helter skelter for it. They’d have to have an ingenious reform plan perfectly organized and ready and be equally as good at educating the people over night about it and convincing them. Are those people sufficiently capitalistically sophisticated and knowledgeable already to comprehend such a plan in time?
↑ Investment In Chinese Real Estate No Longer Looks ‘Safe As Houses’ – Seeking Alpha
The key issue is the high level of property prices. Bloomberg reports it would now take 145 years for the average Fenghua resident to afford the cheapest home on the development. Average disposable incomes in the city were Rmb 39,414 last year ($6341). Yet, the cheapest Xingrun home cost Rmb 5.7m for a 285 square metre apartment (3077 sq ft). Rmb 25m was needed to buy the top-of-the-range 500 sq m homes.
↑ Unconventional Monetary Policies Spell Success in Any Language, Fed Paper Says – Real Time Economics – WSJ
Central banks in the U.S., Japan, the U.K. and Europe all have resorted to unconventional policies in recent years to combat the global financial crisis and recession. The details have differed across international borders, but in all four cases, they’ve proven successful in terms of easing overall monetary conditions, according to new research from the Federal Reserve.
↑ Calculated Risk: WSJ Employment Graph ignores Demographics, Needs Correction
There is an ongoing discussion about how much of the decline has been due to demographics, and how [much] due to the effects of the great recession. I think more than half is demographics (other research suggests about half, some suggests less).
Well, regardless, many have been sort of forced into it who would rather be working due to the negative impacts of the recession. We’ve seen participation pick up, which as expressed in a post above, indicates slack. We should note that Janet Yellen discussed slack quite a bit in her last major address. We hope she’ll keep her eye on the ball.
… Fed policy is no longer greasing the economy, as it did during the crisis, and it cannot solve these challenges. In other words, hiring won’t accelerate without the benefit of fiscal policy help in the form of training/education, research and development tax credits, or direct capital expenditure or hiring incentives.
We largely agree with that statement.
This is an informative and even educational piece.
… low inflation rates can undermine the sustainability of public and private debt, make relative price adjustment in the euro area more difficult, and eventually risk creating negative economic dynamics. We review some of the recent evidence and focus in particular on the heterogeneity of inflation developments in the euro area, the expectations of inflation measures and a measure recently used by Mario Draghi, namely the number of items in the HICP basket that are in deflation. We draw a parallel to Japan, where this measure was a useful indicator of deflation.
↑ Worthwhile Canadian Initiative: Temporary vs permanent money multipliers
Other critiques of the money multiplier totally miss the point. Like “loans create deposits!” or “base is endogenous!” or “banks don’t lend reserves!” or “other things affect the money supply too!”. This critique matters because the textbook exposition is designed to show (among other things) how the central bank’s control over its own balance sheet (which is all it really controls) allows it to control the money supply, in the same sense that I control my car. (Yes, the position of the steering wheel is endogenous, given the bends in the road I have chosen to take.) The current state of the balance sheet matters less than the expected future balance sheet, and the expectations about the conditions under which the central bank will change that balance sheet.
We agree, but it’s contextual.
↑ Sign of Spring on Pay: Real Wage Growth – NYTimes com
In the second half of the 1990s, when unemployment fell as low as 4 percent, competition for workers helped drive up real wages and salaries for the worker at the middle of the income ladder roughly 1.5 percent a year, the fastest sustained pace in decades. With the labor market so tight, wages for workers at the bottom of the income scale rose even faster, about 2 percent a year above the rate of inflation.
But with the jobless rate now at 6.7 percent, the labor market is still not nearly as favorable to ordinary workers as it was at the end of the last century.
The idea that wages are about to accelerate is far from unanimous among economists. Among those who believe the evidence is still lacking is Janet L. Yellen, the newly installed chairwoman of the Federal Reserve ….
It’s a pretty good overview of the wage situation.
↑ The Path to Full Employment: Making Jobs a National Priority – YouTube
Had Larry Summers been selected as Fed Chair, he would have taken a great deal of heat were he to have given this talk. We are all better off having him outside the Fed able to speak freely on his evolving understanding concerning the need and desire for, and efficacy of, proper fiscal spending, something we’ve been advocating since 2008-9.
We called for trillions in spending on not just training, which Larry discusses concerning France, but on providing the jobs to employ the trained and the new money in the form of debt-free United States Notes to pay them and to pay for the infrastructure they’d create.
Welcome to the club, Larry.
Five years into an economic recovery, unemployment remains high while income inequality continues to grow. In response, CBPP and our Senior Fellow Jared Bernstein kicked off our year-long project on making full employment a national priority with a keynote address from former Treasury Secretary Larry Summers and then a panel among Bernstein and other leading economists.
Go to 9:15 for the start of Larry’s talk.
↑ Russia’s future as a commodities powerhouse – YouTube
Jack Farchy, Moscow and central Asia correspondent, reports from the FT’s Global Commodities Summit about whether Russia’s place as a commodities powerhouse will be threatened by its actions in Ukraine.
↑ Rent Growth Levels Re-Accelerate in the Bay Area – Apartment Market Dynamics – YouTube
One theme seen in 1st quarter 2014 was the re-acceleration of rent growth levels in some of the nation’s hottest development markets, including California’s Bay Area. What does the improved momentum tell us about the market’s fate going forward as even more new supply is set to complete?
March just topped off the third month in a row of declining home sales in Chicago. Compare that to last year at this time when home sales were spiking by double digit percentage growth rates during the entire first quarter. I’m seeing a 4.4% decline in year over year sales for this March but when the Illinois Association of Realtors announces the official numbers in about 2 weeks their methodology will put the decline at around 6.9%. Of course, my number is more accurate.
↑ US Tax Court ruling could save real estate trusts millions | Inman News
In an opinion that could end up saving trusts many millions in taxes, the court ruled that a trust can qualify as a real estate professional. (Frank Aragona Trust v. Comm’r, 142 T.C. 9.)
The case involved a trust that owned real estate rentals and also owned and developed real estate. During 2005 and 2006, the rentals generated substantial losses, which the trust deducted on its federal income tax return as ordinary nonpassive losses, claiming that it qualified as a real estate professional. The Internal Revenue Service disallowed the losses, holding that a trust cannot qualify as a real estate professional.
The Tax Court overruled the IRS ….
↑ Rocky Mountain High or Reefer Madness? Legal Pot in Colorado Comes with Risks – ProPublica
Landlords, managers, and tenants need to know.
Dude had only smoked pot twice in his life, about 25 years ago, but he got curious and tried some pot gummy bears from a shop called the LoDo Wellness Center. Other than being infused with THC they looked and tasted like ordinary candy. Dude and his buddy paid $20 for a pack of 10.
Dude ate a bear before dinner but felt nothing. So he popped another during the meal. Nada. Ripoff, he assumed. So he ate a few more — five total, he said — but still felt nothing. He fell asleep in his hotel room at 11 p.m.
Two hours later, Dude awoke feeling like he was on a roller coaster. His entire body tingled, and he was light headed. He tried to stand, but his left leg was so numb he couldn’t walk to the bathroom. His pounding heart strained his rib cage as waves of euphoria and anxiety washed over him.
He was terrified.
Was this the high? An overdose? A heart attack? A stroke?
Totally debilitated, Dude thought about calling an ambulance but feared ending up in the E.R. or a police station. So he stayed put, guzzled water, pulled a blanket over his head and clutched a pillow. The symptoms lasted two hours, but it took a full day to feel normal again.
Dude’s experience and the open pot use I saw made me wonder about public health aspect of legalization.