Linking ≠ endorsement.
⇧ Causes and consequences of China’s contagious case of deflation – FT.com
The 50 per cent fall in oil prices this year is self-evidently good news for all but oil-producing states, regions and companies. It also reminds us that the world economy is deflation-prone — both because of deficient demand in Europe, Japan and several big emerging markets and because China’s deflation, rooted in excess capacity, is structural and of growing significance.
A persistent and as yet unfinished slowdown in the country’s economic growth has been accompanied by the emergence of substantial overcapacity, a significant rise in non-financial corporate debt and a big drop in inflation. Between 2011 and November 2014, Chinese producer prices fell by 10 per cent — the annual change has been negative for 33 months — and the annual rate of consumer price inflation has fallen from 6 per cent to 1.4 per cent over the same period.
…monetary balm is no substitute for capacity closure and debt restructuring.
The US Federal Reserve and other western central banks have failed to anticipate this deflation environment, persistently undershoot their inflation targets and appear powerless to reverse the trend. At some point, we will probably wonder if it is time for the anti-deflation baton to pass to governments.
Oh, we’ve been there for many years: ever since the 2007-8 crash.
A report published by a unit of the Chinese Academy of Social Sciences’ said realty prices will fall 5 percent in 2015.
Report says oversupply in first-and second-tier cities will suppress sales
Home prices are set to decline further next year and cities that still restrict multiple-home purchasing are expected to scrap the policy, a report by an institute under the Chinese Academy of Social Sciences said on Friday.
⇧ McLaren vs Mansion – What’s Worth More? – YouTube
Usually nothing beats real estate when it comes to investing, but with the McLaren F1 it’s a different situation.
We know the house comes with a garage, so….
⇧ Recognising the true economic effects of land-use planning – YouTube
Professor Paul Cheshire reveals how his research has transformed our understanding of land-use planning by revealing its substantial economic impacts.
For more information about LSE Research Impact please see: https://www.lse.ac.uk/researchImpact
⇧ Fiscal Policy at the Zero Lower Bound, Again – NYTimes.com
As we said here (https://propertypak.com/2014/12/20/news-real-estate-risk-economics-dec-20-2014/#12201455): Paul Krugman:
… I pushed for a fiscal response in 2009….
⇧ Bill Mitchell: Demystifying Modern Monetary Theory – YouTube
We are MMTers but take it even further. We’ll not go into that right now, but suggest you watch and work to absorb how money really works.
In a challenge to conventional views on modern monetary and fiscal policy, Professor Bill Mitchell of Newcastle University in Australia has emerged as one of the foremost exponents of Modern Monetary Theory (MMT), a heterodox challenge to the prevailing paradigms which dominate how mainstream economics is taught and economic policy implemented. In his works, and the interview below, Mitchell presents a coherent analysis of how money is created, how it functions in global exchange rate regimes, and how the mystification of the nature of money has constrained governments, and prevented states from acting in the public interest.
It might now be easier for you to watch and understand this from our previous post: https://propertypak.com/2014/12/27/news-real-estate-risk-economics-dec-27-2014/#12271427
⇧ Fix and flip after repairs – YouTube
Bought for $75,000, and listed for $264,900. Close to $70,000 in repairs.
⇧ Europe’s Shadow Budget by Hans-Werner Sinn – Project Syndicate
In recent years, banks have been berated for using shadow budgets, in the form of special-purpose vehicles and conduits, to take on excessive risk. It is worrisome, to say the least, that the EU is now resorting to similar tricks.
It’s beyond worrisome. It’s downright immoral. The plan is to further enrich the rich at the negative expense of the general taxpayers. It’s a transfer of wealth from the bottom up.
⇧ Ukraine’s parliament approves 2015 budget | Reuters
Before the budget vote in the early hours of the morning, deputies approved a series of austerity laws….
This month, Kiev said it needed the IMF to expand its bailout program due to the worsened economic outlook, but the Fund and Ukraine’s other Western backers have made it clear any further financial assistance will hinge on Kiev’s ability to implement the long-promised reforms.
“…austerity laws, including an amendment to impose additional duties on imports, that Prime Minister Arseny Yatseniuk warned could prove unpopular with Ukraine’s foreign trade partners.” Foreign-trade partners? How about Ukrainian citizens who are made to needlessly suffer under ill-advised neoliberal economic policies and practices?
⇧ Secular stagnation: Facts, causes, and cures — a new Vox eBook | VOX, CEPR’s Policy Portal
Coen Teulings and Richard Baldwin:
As Richard Koo argues: “During [balance sheet recessions], monetary policy is largely ineffective because those with balance sheets underwater will not increase borrowing at any interest rate … The government also cannot tell the private sector not to repair its balance sheets … This means the only thing the government can do to offset the deflationary forces coming from private sector deleveraging is to do the opposite of the private sector, i.e., borrow and spend …” Monetary policy alone can only solve the problem at the cost of bubbles and financial instability.
This conclusion leads almost automatically to a specific piece of policy advice for the Eurozone:
Revise the European Fiscal Stability Treaty.
The current version obliges countries to reduce their public debt below 60% of GDP in 20 years. In some countries, this would require a massive tightening in times of excess saving. The target for the structural deficit of 1% of GDP implies a public debt between 25% and 33% of GDP, assuming the nominal growth of GDP to be 3% to 4%. This low level would aggravate excess saving and lead to a shortage of safe assets.
“If the US experiences secular stagnation, the condition will be self-inflicted,” Eichengreen writes, making a point that applies equally to Europe. Secular stagnation would reflect a failure to address US infrastructure, education, and training needs. It would reflect a failure to repair the damage caused by the Great Recession in Europe’s financial sector. And above all, it would reflect a failure to support aggregate demand. “These are concrete policy problems with concrete policy solutions,” says Eichengreen, “It is important not to accept secular stagnation, but instead to take steps to avoid it.”
Koo is not very optimistic that the most troubled part of the world economy, Europe, will succeed in a policy change: “On the political front, the unfortunate fact is that d emocracies are ill-equipped to handle such recessions. For a democracy to function properly, people must act based on a strong sense of personal responsibility and self-reliance. But this principle runs counter to the use of fiscal stimulus, which involves depending on ‘big government’ and waiting for a recovery.” Whether one likes Koo’s argument or not, it helps to explain why Europe is having difficulty dropping policies that are widely disapproved among economists. However, the EU has shown a remarkable capacity to re-emerge from deep crises. Hence, we might follow the OECD and favour hope over experience.
However, as we’ve stated repeatedly on this blog, it is not necessary for governments to borrow in order to spend. They simply need to create more currency without also issuing government bonds.
⇧ Moscow on the Brazos – NYTimes.com
…we surely aren’t looking at a Russia-style crisis. We could, however, be looking at a situation in which Texas is sliding into recession even as the rest of the country is doing fairly well. That is, after all, what happened after the 1985 oil price collapse….
Ah, but in 1985, US oil production was going down. Before this price collapse, US oil and gas production had been ramping up and accounting for a large percentage of national-economic gains of late.
Will lower prices more than make up for the fracking slump that will come?
There are so many variables that can swing wildly that we aren’t prepared to say.
⇧ U.S. Fed buys $6 billion of mortgage bonds, sells none | Reuters
This is still QE:
The Federal Reserve bought $6.046 billion of agency mortgage-backed securities in the week from Dec. 18 to Dec. 24, compared with $5.752 billion purchased the previous week….
⇧ The odds of Greece leaving the euro have never been higher – The Washington Post
Merkel is playing with fire and will likely continue getting things very, very backwards.
We only hope that after the dust settles, the German people will have awakened to the utter folly that is the Austrian School of Economics hyper-fear of nonthreatening hyper-inflation during a deflationary depression.
…more than ever before, Germany feels like it can let Greece leave, and Greece feels like it can leave. Neither of them want that, but neither of them don’t want it so much that they’ll do anything to avoid it. That’s why there’s never been a greater chance of Greece dumping the common currency as there is right now. It’s a gamble that Germany shouldn’t want to take, not when there are so many anti-austerity parties popping up all over Europe. Markets, after all, have a way of only taking things in stride until they actually have to take a step—and then melting down. Just because there’s no contagion today doesn’t mean there won’t be tomorrow.
But whether it happens in Greece or Spain or Italy, this is the endgame for Europe. The euro crisis is a financial crisis that morphed into an economic crisis, before ending as a political one.
Wow, talk about a serious accusation:
Thomason says he’s interviewed 350 people who say DNR refused to fight the fire on DNR land and then watched nearby homes explode in flames.
We’ll be interested to see what evidence there is, if any, to substantiate the allegation.
⇧ MEMA releases initial damage numbers
JACKSON — State officials say the initial numbers from the Dec. 23 storms show 241 total homes and 77 businesses suffered some damage in three Mississippi counties.
Four died. 50 were injured.
⇧ Maine sees sharp rise in costly meth lab busts – Central Maine
Responding to the operations can be costly and dangerous, with a high risk of fire and explosion, and is taking a toll on drug agents’ resources, said MDEA Commander Peter Arno, who oversees northern Maine. Officials say dismantling a lab can cost the agency more than $10,000 and doesn’t include the cost borne by local police and fire departments that also respond to the scene.
There go property values too, not to mention the costs of cleaning houses and apartments used as meth labs.
⇧ Updated: Malaysian Floods Force 160,000 to Evacuate, Leave 8 Dead – Bloomberg
Malaysia evacuated more than 200,000 people and increased relief efforts as the worst floods in decades left at least 10 people dead. Parts of Thailand and Sri Lanka have also been inundated.