Linking ≠ endorsement.
↑ Hong Kong in Turmoil: Views from the Ground | Enterprising Investor
The protests, now known worldwide by the hashtags #OccupyCentral and #UmbrellaRevolution, have been described in the Financial Times as “China’s biggest political challenge since Tiananmen in 1989.” …
Although a Chinese territory, Hong Kong is administered separately from the mainland under “one country, two systems.” However, Beijing is wary of Hong Kong’s ability to choose a leader who will be loyal to China, and many Hong Kong people have grown resentful of Beijing’s monopoly in determining who rules them.
Currently, the chief executive is chosen by a committee of 1,200 largely pro-Beijing representatives from various industry and social groups. The protesters want direct elections through one man, one vote. But China’s highest lawmaking body ruled out an open nomination system to select of the chief executive in 2017. Candidates must be endorsed by more than half of the members of the nominating committee, which protesters say is designed to guarantee that only Beijing-friendly candidates are able to stand for election.
↑ The Way Ahead in Hong Kong by Chris Patten – Project Syndicate
As early as 1993, China’s chief negotiator on Hong Kong, Lu Ping, told the newspaper People’s Daily, “The [method of universal suffrage] should be reported to [China’s Parliament] for the record, whereas the central government’s agreement is not necessary. How Hong Kong develops its democracy in the future is completely within the sphere of the autonomy of Hong Kong. The central government will not interfere.” The following year, China’s foreign ministry confirmed this.
The British Parliament summarized what had been said and promised in a report on Hong Kong in 2000. “The Chinese government has therefore formally accepted that it is for the Hong Kong government to determine the extent and nature of democracy in Hong Kong.”
↑ U.S. Job Polarization Persists | St. Louis Fed On the Economy
The health of the U.S. labor market depends not only on the number of jobs created, but also the types of jobs created. One concern about the labor market is the issue of job polarization, or the idea that demand for high-skill and low-skill workers has increased while demand for middle-skill workers has decreased. Research has shown that job polarization existed for the past 30 years and was reinforced, rather than reversed, during the Great Recession.
And, of course, Janet Yellen is fully aware of this.
↑ Investors still like rentals: Where are they buying?
“The buying is not over,” said Hawkes. “The math may not work in markets such as Arizona and California, but it’s no different than any other asset class where some heat up faster than others and then you move on.”
American Residential may not be buying in Phoenix anymore, but it is spending about $100 million per quarter (roughly 800 homes) in markets like Charlotte, North Carolina, and Nashville, Tennessee.
…Some of the “safest” markets for rental investors, where unemployment and vacancies are below average, were in Springfield, Ohio, Miami and Tulsa, Oklahoma.
↑ Inflation hawks keep insisting they’re right. Reality disagrees. – The Washington Post
On Nov. 15, 2010, a who’s who of conservative economists, investors and Niall Ferguson warned that the Federal Reserve’s second round of bond-buying, or QE2, “risk[ed] currency debasement and inflation.” Since then, the dollar is up 6 percent against a broad index of currencies, and personal consumption expenditure inflation, the Fed’s preferred measure, has soared from 1.2 to … 1.5 percent.
Just like Weimar Germany.
Now, everybody makes mistakes. The question, though, is what you learn from them. For these inflation hawks, the answer, apparently, is nothing.
↑ Fed Didn’t Want to Make AIG Bailout Loan, Lawyer Says – Bloomberg
Greenberg, who built AIG into the world’s biggest insurer before leaving in 2005, claims the government should have provided at least $25 billion in compensation. He argues that banks including Morgan Stanley (MS) and Citigroup Inc. (C) got bailout loans at rates of less than 4 percent without surrendering shares while AIG was charged 14 percent.
He has a point.
↑ A Strong Jobs Report, Charted – NYTimes.com
Here, for example, are the proportion of Americans who are in the labor force (that is, either have a job or want one) and the proportion of Americans who have a job. We want to see both numbers rising, particularly given the sharp contraction in the labor force during an earlier phase of the recovery. Instead, the trend is flat.
Ironically, if that starts to change — if people do begin returning to the labor force in meaningful numbers, it would put upward pressure on the unemployment rate as it takes those people some time to find jobs. But it would signal increasing confidence and help restore some of America’s economic potential.
Another acid test of the job market is whether a rising number of jobs is leading to increased wages. Here too, the results in September were a bit disappointing.
Don’t be surprised if the September numbers are widely revised in either direction.
↑ The Third Way’s Second Chance by Andrés Velasco – Project Syndicate
Truth be told, Clintonomics was a continuation of Reaganomics in many deregulating ways and which led directly to, and caused, the Great Recession/Lesser Depression.
Remember Tony Blair and Bill Clinton’s Third Way? It is back. The faces and names have changed, but the idea that governments can — and should — combine social-democratic values and modern liberal economics has returned to center stage.
We disagree with Andrés Velasco.
What is “modern liberal economics”? Laissez-faire by any other name is still laissez-faire and a grave error regardless of how much social-democratic language is used in an attempt to whitewash it.
Clinton signed more devastating deregulation into law than did Ronald Reagan.
Clintonomics left the legacy of the dot-com bubble and bust too.
↑ Sober Look: How close are the US labor markets to normalization?
Good point from Walter Kurtz:
The non-demographic component of the post-08 declines in participation rate is of particular importance. How much is due to aging US population vs. the discouraged workers exiting the labor force?
Source: Credit Suisse
There are hints that the non-demographic decline in participation has been halted, albeit at a relatively low level. The fact that the non-demographic participation level has fallen doesn’t say much about what it will take to return to “normal”. That’s because the pre-recession housing bubble had generated unsustainable demand for labor (particularly unskilled labor). That demand isn’t coming back any time soon as we look to establish the “new normal” in participation rate.
↑ Unemployment Hurts Happiness More Than Modest Inflation, New Paper Says – Real Time Economics – WSJ
Pedro Nicolaci da Costa:
Unemployment is much more damaging to society than moderate levels of inflation, making central bankers’ disproportionate focus on the level of consumer price growth misguided, a former Bank of England rate-setter now at Dartmouth College writes in a new paper.
Along with three co-authors, David Blanchflower, known for his view that policy makers should make aggressive efforts to bring down unemployment, tries an unusual statistical tack for macroeconomist — he tries to break down happiness surveys of European individuals to see just how deeply, and differently, they are affected by unemployment and inflation, respectively.
That’s solid. We have a great deal of respect for that approach.
↑ How the Jobless Rate Underestimates the Economy’s Problems – NYTimes.com
…there are over seven million involuntary part-time workers, almost 5 percent of the labor force, who want, but can’t find, full-time jobs. That’s still up two percentage points from its pre-recession trough. Importantly, the unemployment rate doesn’t capture this dimension of slack at all — as far as it’s concerned, you’re either working or not. Hours of work don’t come into it.
… Once you give up looking for work, you’re no longer counted in the unemployment rate, so if a bunch of people exit the labor force because of the very slack we’re trying to measure, it artificially lowers unemployment, making a weak labor market look better.
That’s certainly happened over the recession and throughout the recovery, but it’s been mixed in with a more benign source of labor force exits: the retirement of aging baby boomers. So economists have scurried about trying to figure out how much of the three-percentage-point decline in the labor force participation rate, from about 66 to 63 percent, to attribute to slack and how much to so-called structural (vs. cyclical) factors.
And the answer, according to the economist Jan Hatzius, is that about one percentage point, or about a third of the total, is because of slack. By itself (not accounting for the involuntary part-timers), that implies an unemployment rate more like 7 percent. That’s another 1.6 million people worth of slack, people who could get pulled back into the job market if the jobs were there.
…even once you control for unemployment, the relationship between wage trends and the declining labor force becomes stronger as the recovery proceeds. The implication is that those who are seemingly out of the picture could be brought back in. As Mr. Blanchflower and Mr. Posen put it, “A substantial portion of those American workers who became inactive should not be treated as gone forever but should be expected to spring back into the labor market if demand rises to create jobs.”
↑ Tax Tactics Threaten Public Funds – NYTimes.com
If corporations can continue to evade taxation — using strategies like sham transactions between phantom subsidiaries to shift profits to the lowest tax jurisdictions and costs to where taxes are highest — the burden of public finance will land almost entirely on the shoulders of ordinary workers, the only link in the economic chain that can’t move.
Today companies need move little more than a post office box to gain the benefits of a tax haven. If the rules were tightened so that a company could claim a profit only where it really made it, it might decide to move a lot of operations and jobs there.
If a US company “moves” on paper to avoid US corporate taxes, then the US government could simply apply a tariff on all of that company’s products and services to make up the difference and then some, as an incentive to return to the US on paper again.
↑ Caught in the social safety net | MIT News
…the single biggest flaw with means-testing, in Campbell’s view, is that the income limits and other restrictions can make it harder for people to break free of social insurance programs.
… “I hope part of this conversation is about the precariousness of the middle class, because it is striking how many people have low incomes, very little in savings, and live month to month.
↑ Where danger lurks | vox
In general, issues of liquidity — the potential mismatch between assets with long-term maturities and liabilities with shorter-term maturities — were not seen as central to macroeconomics. That such an asset—liability liquidity mismatch might be pervasive, affecting not only banks but other financial players and corporations as well, was not well understood. Important work on the role of liquidity was done in corporate finance, but its incorporation into macroeconomic analysis did not reach mainstream status.
When the US housing boom turned to bust, a complex and opaque structure of financial claims led to worries about which institution was holding which claims and which institutions were solvent. This in turn led to major liquidity runs, not so much on banks, but on many nonbank financial institutions, such as investment banks — many of which over the years operated like banks but without the regulation and protections banks received. Standard bank deposit insurance just did not cover the needs.
… (Harvard Professor Kenneth S Rogoff, former head of the IMF’s Research Department, has suggested solutions other than higher inflation, such as the replacement of cash with electronic money, which could pay negative nominal interest. That would remove the zero bound constraint.)
Lowering debt and raising interest rates are not the answers.
In addition, Olivier Blanchard did not, in our view, focus enough, if at all, on the macroprudential. It was deregulation that caused the problems.
↑ The effects of a money-financed fiscal stimulus | vox
…an alternative policy intervention aimed at reviving the economy — a temporary increase in government purchases, financed entirely through money creation. As the above quote by Turner suggests, such a policy is viewed in policymaking circles as ‘unspeakable’, nothing short of a ‘taboo’. But as academics, we should not feel bound by such conventions. It is our responsibility to explore the consequences of any policy that may help attain widely shared social goals (e.g. full employment and price stability), and to let our findings be known (though always with the necessary caveats).
As I show in my recent paper, when I deviate from an ideal classical world and use instead a more realistic model allowing for imperfect competition and nominal wage and price rigidities to evaluate the impact of a money-financed fiscal stimulus, the effects are very different.
Such an intervention is predicted to have very strong effects on economic activity with relatively mild inflationary consequences spread over several years.
That’s what we’ve been saying for years. We should spend our way out of this depression via bond-free United States Notes.
↑ Meta-post on Robots and Jobs | The Growth Economics Blog
By replacing human workers in some jobs, robots/machines drive up the supply of humans in all the remaining jobs, which lowers wages.
Correct. The solution will be forced upon humanity because those who make lower wages won’t be able to afford to by the products and services being created and performed by robots. There will be no profit to the capitalists for owning the robots. It will be necessary that humanity move from one form of society to another. The new society will simply provide everyone with what he or she needs without requiring any money.
There’s nothing wrong with that.
↑ How computers threaten the jobs of mid-skilled workers – YouTube
The digital revolution offers great advantages but it also threatens the jobs of low and mid-skilled workers. As computers become smarter, so too must humans.
↑ Wage Growth Continues to be Sluggish | Economic Policy Institute
…wage growth is far below the 3.5 percent rate consistent with the Federal Reserve Board’s inflation target of 2 percent. It’s clear that Fed policymakers should abandon notions of slowing the economy.
↑ mainly macro: Has Cameron blown the austerity cover?
What I had expected to happen was that the Conservatives would keep to the line that spending had to be reduced because debt and the deficit were too high. The need for austerity because you have borrowed too much was a simple message that everyone understood, even if it didn’t make much sense when applied to a government during a recession. There would be appropriate nudges and winks that, once elected, this tough fiscal line might be modified to make room for tax cuts, but the official line would be ‘debt implies austerity’.
Those who are better informed about the macroeconomics, whether on the right or left, have always understood that this was cover for a desire to shrink the size of the state. However this perspective hardly ever saw the light of day in the media.
Why shrink the state? The reason is simple, the owners of privatized institutions make a killing whether the general population benefits or not, usually not.
Cutting taxes will increase the deficit, which increase the conservatives will turn around and complain about even though they caused it.
It’s a vicious, greedy spiral downwards.
↑ A win for Fannie Mae, Freddie Mac — and taxpayers – The Washington Post
When are “vulture funds” not “vulture funds”?
The theory was that the value of their stock had been destroyed by a 2012 agreement between the Treasury Department and FHFA that commits all future Fannie-Freddie profits to the government — instead of to private shareholders like the hedge funds. Never mind that the funds mostly bought their shares for peanuts at post-bailout fire-sale prices, whereas the government — i.e., taxpayers — advanced the firms $187 billion before all was said and done.
Sounds more than a bit like the “vulture funds” that bought Argentine bonds at pennies on the dollar.
The difference, of course, is that one is foreign and the other domestic. Argentinians don’t vote in US elections.
↑ The new Washington consensus – time to fight rising inequality | Business | The Guardian
The theme of this week’s annual meetings of the International Monetary Fund and the World Bank is shared prosperity. In years gone by, the Washington consensus was all about opening up markets and cutting public spending. The new Washington consensus is the need to tackle inequality.
Everybody is getting in on the act. …
But talk is one thing, action another. How does Lagarde’s pledge to fight inequality square with the wage cuts and austerity the IMF has imposed on Greece and Portugal as part of its bailout packages? Is there not a disparity between the commitment of the World Bank president, Jim Kim, to raise the incomes of the bottom 40% of the world’s population with his organisation’s Doing Business report, an annual study that ranks countries by the progress they are making in cutting corporate taxes, keeping minimum wages at low levels and ensuring that paid holidays and sick pay are not excessive?
The article discusses Africa and Ebola at some length.
↑ Is There a Wage Growth Puzzle? – Tim Duy’s Fed Watch
I now have additional sympathy for firms that have complained in the past two years that they could not push wage growth through to higher prices. It does appear that real wage growth was faster than might be expected given the pace of economic activity and, by extension, the level of unemployment.
Oh – and real wage growth has reverted to the pre-Great Recession trend – pretty much exactly where you would expect it to be given the level of unemployment. Honestly, this one surprised me.
Which suggests that labor market healing has progressed much further than many progressives would like to admit. Many conservatives as well.
Unemployment is more painful than inflation. It remains better to err on the side of causing too much inflation than it does in keeping unemployment high.
Of course, we could have full employment with no inflation if we’d correctly change our currency and monetary authority, but that’s taboo because the bankers would reap the lion’s share of a limited pie. Everyone would reap the lion’s share of an unlimited pie. Sarcastically, it’s too softhearted.
↑  Hong Kong protests, Pettifor on unsustainable debt and Mosler on US problems – YouTube
[@ 14:50] Erin sits down with Warren Mosler, author and president of Valance Inc., to discuss the true impact of monetary policy on the real economy, particularly in the US, where the US has been aggressive in easing policy. Mosler sees an underlying weakness that belies this easing and believes the increase in inventories increasing GDP is a negative sign for growth in the coming quarters.
↑  Keen on the importance of banks and Daley on how Apple can succeed – YouTube
[@ 15:15] Erin is joined by Steve Keen, head of the School of Economics, History, and Politics at Kingston University, to hear what he’s teaching in his courses and what he believes are the most important macroeconomic concepts for the average person to know. His view: credit should play a central role but it doesn’t.
↑ Looking for an Off-the-Radar Market With Attractive Apartment Fundamentals? – YouTube
As investors and developers increasingly look to chase yield, more are eyeing tertiary apartment markets. In that group, one off-the-radar market that stands out is Grand Rapids, Michigan. Behind surprisingly strong job growth, attractive demographics and solid economic balance, Grand Rapids has posted consistently healthy apartment fundamentals.
↑ Qualifying for Preservation Financing – YouTube
Monty Childs, Freddie Mac Mulitfamily Targeted Affordable Housing Production Director, explains how preservation financing works to keep rents affordable for lower-income families, and how borrowers can use the loan proceeds to make property improvements.
↑ Deadly Typhoon Phanfone Lashes Japan
It’s weakened and hopefully won’t cause any problems at the Fukushima nuclear plant.
↑ The Fed and the Secular Stagnation hypothesis | Jérémie Cohen-Setton at Bruegel.org
This is, of course, correct. It’s why we’ve repeatedly called for an aggressive fiscal-spending program.
It’s really just a fancy way of saying that the Fed has no more room to lower interest rates to get people to lend and borrow.
In addition, the Fed can’t make people lend anyway. They can lower or even charge interest on excess reserves; but unless they attach strings to the movement of the funds, banks can simply invest in other than making loans. This is called “pushing on a string.”
People are also deleveraging still, though not to the degree they were immediately after the crash. The reasons for that haven’t been published much. Perhaps they haven’t been researched enough. Just how much can people afford to delever and to save? Just how trapped are many?
↑ Full Show: Too Big to Jail? | Moyers & Company | BillMoyers.com
The most important thing in all of this is how the American people have had seemingly little choice but to allow it to happen rather than be able to force the administration to take proper actions (or people would be forced from office without exception).
The people are powerless in the face of politicians being paid by huge campaign donors and in the face of major corporate media not insisting upon cleaning up the mess but rather echoing the bankers’ mantra of “Too Big to Fail.”
We agree with Bill Black completely that we won’t have a truly functioning democracy or reasonably stable economy until the criminals have been successfully prosecuted and held to account the way Prof. Black outlines.
Attorney General Eric Holder’s resignation last week reminds us of an infuriating fact: No banking executives have been criminally prosecuted for their role in causing the biggest financial disaster since the Great Depression.
“I blame Holder. I blame Timothy Geithner,” veteran bank regulator William K. Black tells Bill this week. “But they are fulfilling administration policies. The problem definitely comes from the top. And remember, Obama wouldn’t have been president but for the financial contribution of bankers.”
↑ China Responds To Alarming Local Debt Crisis
On Thursday, the Chinese central government announced on its website that the State Council, with the approval of the National People’s Congress, will establish quotas for borrowings by local governments.
Moreover, Beijing said it was banning fund raisings through special purpose vehicles and other “corporate channels” and announced it will not fund bail outs.
The central government statement said that local governments should not force banks to lend them funds. Instead, they should scale back projects, sell assets, or reduce spending.
We doubt China’s central government will stick to that. It will have to support the local governments or face chaos. They’ll have to wean governments while helping them to write off losses and still build infrastructure.
Does the Chinese leadership have what it takes?
↑ Camerons fiscal bribery
David Cameron’s speech at the Conservative Party conference has generated approving comments across the media. Far more impressive than Labour’s Ed Miliband, his strong performance is generally considered to have improved Conservative Party chances of victory at the 2015 General Election.
The heart of his speech was a double tax cut promise:
But there are a few problems with this. Firstly, the fiscal consolidation of 2010-12 is widely believed to have delayed the UK’s recovery. The UK is now growing, but the recovery is by no means established: inflation is below target, wage growth is even lower and households are still highly indebted. The UK faces headwinds from slowing global growth, the chronic Eurozone crisis and the prospect of Gulf War Three. It is distinctly possible that another sharp fiscal consolidation would squash this recovery too.
↑ Apple’s Irish Luck – NYTimes.com
In truth, most tax subsidies don’t make much sense — not for countries and certainly not for states. “There is a lot of work that shows that tax subsidies vastly overpay for the jobs they create,” said Edward Kleinbard, a law professor at the University of Southern California and the author of the recent book “We Are Better Than This: How Government Should Spend Our Money.”
It’s a good thing that the E.U. is trying to curb unjustified tax breaks. Maybe it’s time to do the same here.
↑ Why public investment really is a free lunch – FT.com
Charles W. Eliot:
…the IMF finds that a dollar of investment increases output by nearly $3.
What is crucial everywhere is the recognition that in a time of economic shortfall and inadequate public investment, there is for once a free lunch — a way for governments to strengthen both the economy and their own financial positions. The IMF, a bastion of “tough love” austerity, has come to this important realisation. Countries with the wisdom to follow its lead will benefit.
That’s what we’ve been saying for years and years now: proper fiscal spending is the way to go. However, we don’t have to borrow a dime to do it! Just issue bond-free United States Notes.
↑ The Labor Market Conditions Index: Use With Care – Tim Duy’s Fed Watch
This is uncharacteristic of Tim Duy. The mistake he’s made here is in not treating each component separately. Janet Yellen does. She sees weakness in certain components upon which she places a great deal of weight.
Bottom Line: Use the Fed’s new labor market index with caution. Extreme caution. They are not releasing the raw data. They don’t appear to have research explaining its policy relevance. Yellen’s halfhearted claim that it provides information above and beyond the unemployment rate is questionable with a simple look at the cumulative change of the index compared to that of unemployment. And her halfhearted claims are even more telling given that she was the impetus for the research. If it was policy relevant, you would think she would be a little more enthusiastic (think optimal control). Moreover, the faster pace of recovery of the index compared to previous recessions – as clearly indicated by the Fed – seems completely at odds with the story it is supposed to support. Simply put, the press and financial market participants should be pushing the Fed much harder to explain exactly why this measure is important.
We read the Fed’s explanation of the index and were completely satisfied. In fact, we were pleased to see that they had included the labor-market aspects we’d been emphasizing.
Janet Yellan has consistently also emphasized them. It’s one of the reasons we wanted to see her elevated to Chair rather than Larry Summers.
↑ Seattle-area home prices up again – seattlepi.com
After retreating a bit in August, Seattle-area home prices rose again last month, according to a new report.
The median price of a King County house that sold in September was $460,000, up 5.3 percent from August and 9.5 percent from a year ago, the Northwest Multiple Listing Service reported Monday. Seattle’s median price was $517,000, up 3.4 percent from August 12.15 percent from a year ago.
↑ Home prices headed for a triple dip
The West, which has some of the largest metropolitan markets in the nation, has seen a huge drop in distressed sales, as fewer properties go to foreclosure. At their peak in 2009, just over half of all sales in the West were of distressed properties; today that share is just over 12 percent, according to Clear Capital. Investors, consequently, are moving on to other markets in the South and Midwest, where there are still bargains to be had. The West is therefore seeing sharper drops in home price appreciation.
↑ The Coming Real Estate Glut – Bloomberg View
Over the past few years, developers have rectified the situation; a great deal of new housing is coming on the market. Which means the end of double-digit rent increases and housing appreciation in those cities. But we seem to have reached the end of “making up for lost time” and headed toward “glut.”
I’m not predicting some sort of collapse in either real estate market; people still seem interested in buying Washington homes, albeit at less of a premium, and I expect the same will prove true of New York. What it does mean is that we’re still experiencing the aftershocks of 2008, even in areas where the housing market is fully recovered.