Linking ≠ endorsement.
⇧ China is in a serious bind but this is not yet a ‘Lehman’ moment – Telegraph
It has been a frightening summer. In the end you have to make a judgment call on whether this tangle of cross-currents in the world economy really is the start of another wrenching global crisis, or just a tremor. This time I refuse to join the pessimists.
This is interesting trying to get a handle on where Ambrose stands.
I’m closing in on it.
He thinks short term, almost or perhaps just like a market timer. 90 days is an eternity. Also, he’s more focused on huge swings from tons of growth to global crash.
I say the ideology of the CCP will sink China, but I don’t say exactly when things will look so ugly that even the biggest naysayers will swing over to my view of it. Also, China doesn’t have to revert to the Stone Age to prove my point. Dropping to 3% or less growth before the nation has joined the club of nations like Japan, North Korea, and Taiwan in terms of a middle class, will be more than adequate vindication.
I’m writing this very early on Thursday, August 27, 2015 and won’t be posting it until Wednesday, September 2, 2015. It will be interesting to get there to look back at the intervening week.
⇧ Reflation threat to bonds as money supply catches fire in Europe – Telegraph
Ambrose Evans-Pritchard’s Burkean-cum-“neoclassical economist” is on overdrive in this one.
Neil Mellor, from BNY Mellon, said the ECB risks a policy mistake by keeping the taps on too long to meet its inflation target. “There is a risk that this will end in asset price inflation, and we should have learned from 2008 how much damage asset booms can do,” he said.
Authorities on both sides of the Atlantic have to pick between two powerful and opposing threats: the risk of a deflationary slump if the China buckles and the emerging market crisis turns systemic; against the risk that central banks could fall behind the curve and leave too much stimulus in their own economies.
They seem more inclined to take out an insurance policy against a possible crash in China. But this could come back to haunt them if “animal spirits” revive in earnest in America and Europe.
That would be a great “problem” to have.
Look, you over stimulate, you just press on the brake harder and faster.
Anyway, over stimulating isn’t likely in the cards. It was like pulling teeth to get them to even apply the dribble they did.
However, QE in the manner done on both sides of the Atlantic was a bad choice when compare to the option of fiscal stimulus directed at the main-street economy rather than the financial sector (“asset-price inflation” meaning mostly a stock bubble on Wall Street: https://en.wikipedia.org/wiki/Asset_pric e_inflation).
When will they ever learn? Well, they already know and even knew before the crash. They’ve made the choices they have due to their ideology of keeping the haves up and the masses down.
Don’t let them fool you, it’s a socioeconomic class thing (read: struggle) and always has been.
⇧ 4 Rehabbing Materials Always Worth Spending a Little More On
This is an atypical article. Many articles seem to simply repeat what many, many others write. This one appears to be very much directly from the author’s hands-on experience.
There are a few things I think a lot of us go cheaper on that I will NOT being doing anymore.
4 Rehabbing Materials Worth Spending a Little More On
⇧ China risks an economic discontinuity
There are at least three reasons why China’s growth might suffer a discontinuity: the current pattern is unsustainable; the debt overhang is large; and dealing with these challenges creates the risks of a sharp collapse in demand.
The core argument for a discontinuity is that it is hard to move smoothly from an unsustainable path. The risk is that the economy slows much faster than almost anybody now expects. … The best approach would be to continue with reforms, while trying to put more spending power into the hands of consumers and investing more in public consumption and environmental improvements. …
… the challenge is not only, or even mainly, technical. A big question is whether a market-driven economy is compatible with the growing concentration of political power. The next stage for China’s economy is a conundrum. Its resolution will shape the world.
⇧ United States Drought Monitor > Home
[paragraphs intentionally inverted]
The U.S. Drought Monitor is produced through a partnership between the National Drought Mitigation Center at the University of Nebraska-Lincoln, the United States Department of Agriculture, and the National Oceanic and Atmospheric Administration.
The data cutoff for Drought Monitor maps is each Tuesday at 8 a.m. EDT. The maps, which are based on analysis of the data, are released each Thursday at 8:30 a.m. Eastern Time.
⇧ Plagued by Drought, California Prepares For El Niño Storms
While drought-plagued California is eager for rain, the forecast of a potentially Godzilla-like El Niño event has communities clearing out debris basins, urging residents to stock up on emergency supplies and even talking about how a deluge could affect the 50th Super Bowl.
Roofers, on the other hand, are reveling….
⇧ Louisiana’s Bayou Chene to Get Permanent Flood Control Structure
Funds from the settlement over BP’s Gulf of Mexico oil spill in 2010 will be used to construct a permanent flood control structure in Bayou Chene.
The Courier reports the structure will protect St. Mary and several other parishes, including Terrebonne, Lafourche and Assumption.
⇧ Insurers Paid $12.9M in Claims Stemming From Baltimore Riot
The Maryland Insurance Administration says insurance companies have paid $12.9 million in claims stemming from civil unrest in Baltimore linked to the death in April of Freddie Gray.
…the payments include $11.6 million for commercial property damage. Rioters damaged or looted hundreds of businesses, and set several on fire….
In the case of a basic Dwelling Property policy, this would fall under extended coverage for windstorm, hail, explosion (except of steam boilers), riot, civil commotion, aircraft, vehicles, and smoke.
⇧ The Day – Providence man in arson-for-profit plot gets 6 ½ years
A Providence man has been sentenced to 6 ½ years in prison after he was convicted of orchestrating a scheme to set fire to a multi-family building he owned in an effort to collect more than $725,000 in insurance.
⇧ The dragon sneezes, Europe catches a cold | Bruegel
Guntram B. Wolff and Thomas Walsh:
…if we look at Germany, we can see that the DAX has fallen by around 12% (second highest in the sample), and also has the highest exports to China as a share of GDP at 2.66%.
Overall, we would warn European policy makers not to take the Chinese crisis lightly. The health of the Chinese economy is of essence to the global economy and there are reasons to believe that this could turn out to be a more fundamental cooling of China than previously thought.
…thought by some.
⇧ Varoufakis in conversation with leading academics as Syriza splinters and election beckons in Greece
Yanis Varoufakis is asked a series of very interesting questions by Anton Muscatelli, Cristina Flesher Fominaya, Kamal Munir, Mariana Mazzucato, Mark Taylor, Panicos O. Demetriades, Roy Bailey, Simon Wren-Lewis, and Tim Bale.
Here are a few highlights:
… as Nicholas Kaldor wrote in The New Statesman in 1971, any attempt to construct a monetary union before a political union ends up with a terrible monetary system that makes political union much, much harder. Austerity and a hideous democratic deficit are mere symptoms.
The uninitiated may be startled to hear that the macroeconomic models taught at the best universities feature no accumulated debt, no involuntary unemployment and, indeed, no money (with relative prices reflecting a form of barter). Save perhaps for a few random shocks that demand and supply are assumed to quickly iron out, the snazziest models taught to the brightest of students assume that savings automatically turn into productive investment, leaving no room for crises.
It makes it hard when these graduates come face-to-face with reality. They are at a loss, for example, when they see German savings that permanently outweigh German investment while Greek investment outweighs savings during the “good times” (before 2008) but collapses to zero during the crisis.
Moving to the micro level, the observation that, in the case of Greece, real wages fell by 40% but employment dropped precipitously, while exports remained flat, illustrates in Technicolor how useless a microeconomics approach bereft of macro foundations truly is.
So should we cut our losses and get out [of the euro and/or EU]? To answer properly we need to grasp the difference between saying that Greece, and other countries, should not have entered the eurozone, and saying now that we should now exit. Put te chnically, we have a case of hysteresis: once a nation has taken the path into the eurozone, that path disappeared after the euro’s creation and any attempt to reverse along that, now non-existent, path could lead to a great fall off a tall cliff.
“… any attempt to reverse along that, now non-existent, path could lead to a great fall off a tall cliff.”
I don’t understand Yanis’ fear. Rather than looking at it as reversing, look at it as progressing, leading the way into something the whole of Europe should adopt not as separte nation-states but truly together by constructing a European-wide political union based upon anti-neoliberal economics with Greece as the prime example.
Nations have left currency unions in modern times: https://www.voxeu.org/article/surprise-f arewells-exits-currency-unions
⇧ A Financial Early-Warning System by Nouriel Roubini – Project Syndicate
Using 200 quantitative variables and factors to score 174 countries on a quarterly basis, we have identified a number of countries where investors are missing risks — and opportunities.
China is a perfect example. The country’s home developers, local governments, and state-owned enterprises are severely over-indebted. China has the balance-sheet strength to bail them out, but the authorities would then face a choice: embrace reform or rely once again on leverage to stimulate the economy. Even if China continues on the latter course, it will fail to achieve its growth targets and will look more fragile over time.
… Ireland and Spain may deserve to be upgraded, following fiscal consolidation and reforms.
Nouriel Roubini sure sounds the neoliberal. He interacts with Modern Money Theory people a great deal. Does he think they’re all wrong?
When is fiscal consolidation contractionary? Isn’t that a legitimate question? What should Greece do, Nouriel?
⇧ Density Bonus Comes to San Francisco | Farella Braun + Martel LLP – JDSupra
Charles J. “CJ” Higley and Steven Vettel:
In the face of runaway housing costs, San Francisco is proposing to implement the state “density bonus” law. First adopted by the California legislature thirty-six years ago, the state law (California Government Code Section 65915, et seq.) encourages the production of affordable housing by offering an increase in the number of units otherwise allowed under applicable zoning controls in exchange for offering below market rate units.
The City’s proposed program provides two separate “density bonus” options: (1) the state law approach, and (2) a new local density bonus program with greater incentives.
The details of the new density bonus programs are still being worked out. The Planning Department anticipates releasing a draft ordinance in September, and hopes to adopt legislation by the end of the calendar year. We will be following development of the new program and will continue to provide updates as they are available.
⇧ Five Words Developers Dread: High Volatility Commercial Real Estate | Finance & Investment content from National Real Estate Investor
One-to-four-family residential properties are exempt from the requirement. According to our OCC contact, this applies whether the loan is for construction of a single home, or hundreds of homes. Though losses resulting from single-family development loans played a significant role in some of the bank failures that occurred during the recession, in a recent meeting, one regulator indicated that the exemption was based on “greater economic considerations,” rather than a perception of lower risk. Whether the exemption applies only to individual construction of these residential properties, or extends to developments including hundreds of homes, appears to remain open for guidance.
⇧ News Release: Gross Domestic Product
National Income and Product Accounts, Gross Domestic Product: Second Quarter 2015 (Second Estimate), Corporate Profits: Second Quarter 2015 (Preliminary Estimate):
Real gross domestic product — the value of the goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes — increased at an annual rate of 3.7 percent in the second quarter of 2015, according to the “second” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.6 percent.
The GDP estimate released today is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, the increase in real GDP was 2.3 percent. With the second estimate for the second quarter, nonresidential fixed investment and private inventory investment increased. With the advance estimate, both of these components were estimated to have slightly decreased (see “Revisions” on page 2).
The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE), exports, state and local government spending, nonresidential fixed investment, residential fixed investment, and private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.
The acceleration in real GDP in the second quarter reflected an upturn in exports, an acceleration in PCE, a deceleration in imports, an upturn in state and local government spending, and an acceleration in nonresidential fixed investment that were partly offset by decelerations in private inventory investment, in federal government spending, and in residential fixed investment.
Real gross domestic income (GDI) — the value of the costs incurred and the incomes earned in the production of goods and services in the nation’s economy — increased 0.6 percent in the second quarter, compared with an incr ease of 0.4 percent (revised) in the first. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 2.1 percent in the second quarter, compared with an increase of 0.5 percent in the first quarter.
We’d need at least a year of that before I’d even begin to consider slowing the economy (absent the radical reforms I’ve suggested): “Monetary-and-Banking-Reform Platform for The United States”: https://propertypak.com/introduction-hom e/articles/monetary-and-banking-reform-p latform-for-the-united-states/
⇧ How Do I Finance More Than Four Properties? [#AskBP 095] – YouTube
Many investors find themselves stuck after four properties, due to financing rules at many banks. In this episode of the #AskBP Podcast, Brandon shares five alternative financing methods you can use to finance multiple rental properties.
Freddie, portfolio, commercial department, seller, and partner.
Can you think of others? How about family, crowd funding, or venture capital (can be under partnership), just for starters?
⇧ China’s policy failings challenge the Fed | Gavyn Davies
China pessimists … claimed that the “inevitable” Chinese hard landing was at hand.
They have claimed this on many occasions in the past, and have always been proved wrong. But, this time, fuel was added to the fire in the form of the maladroit handling of the equity market bubble and the currency devaluation by the Chinese authorities. Suddenly, whatever reputation economic policy makers in China still retained for skill and competence lay in tatters.
I think it’s the difference in view concerning what’s holding China up. “Inevitable” is the operative term too.
I haven’t said it’s “inevitable” without qualifying the statement (by tying it to democracy v. authoritarianism) and also by thinking correctly that “hard landing” is relative terminology.
A hard landing compared to what? Compared to China optimists who were claiming not long ago that Chinese growth would remain in the double digits for decades yet? Yes, compared to that.
A drop of 6-7% within a couple of years is quite a fall. Are they done falling, and have they landed on unbruised feet? I don’t see it. It’s not over, ’til it’s over; and the fat lady hasn’t sung.
I also know that this is an ideological argument we’re having.
⇧ China Relaxes Rules To Let Foreigners Purchase More Real Estate, In Attempt To Boost Slowing Economy
Rules that required foreigners to live in the country for a year before they could invest in property are to be abolished, the country’s commerce ministry said late Thursday. Limits on the number of properties foreign indviduals and businesses can purchase will also be relaxed, according to state media. Since 2010, foreign buyers have only been allowed to own one property for their personal use.
The new rules would also make foreign businesses exempt from paying their company’s full registered capital to the Chinese authorities before taking out loans to buy real estate.
⇧ Ask George & Chuck: Beware of real estate scams that involve foreign buyers, attorneys – Houston Chronicle
Q: I am a real estate broker and have a buyer representation agreement with a foreign national. I have confirmed that he has money in the bank in his home country in the millions of dollars. He wants to hire an attorney here to handle all of his new American acquisitions, but he never seems to be able to find one. How can I get this off dead center?
A: There is a common con going on involving buyers and attorneys, particularly foreign buyers. …
⇧ 6 Simple Tips to Help Keep Your Tenants Happy (& Paying)
It can be critical to have appropriate landlord insurance in the event of damage to property or a break-in.
⇧ The ‘dollar bloc’ was never an optimal currency area and now it is falling apart | The Market Monetarist
… in the same way that it is a problem the Germany and Greece are in a monetary union together it is a problem that China and the US are in a quasi-currency union. Therefore, the Chinese should of course give up the dollar peg and let the renminbi float freely and my guess is that will be the outcome in the end. The only question is whether the Chinese authorities will blow up something on the way or not.
Finally, it is now also very clear that this is a global negative demand shock and this is having negative ramifications for US demand growth — this is clearly visible in today’s stock market crash, massively lower inflation expectations and the collapse of commodity prices. The Fed should ease rather than tighten monetary policy and the same goes for the ECB by the way. If the ECB and Fed fail to realize this then the risk of a 2008 style event increases dramatically.
⇧ Macro and Other Market Musings: How to Create a Chinese Economic Crisis in Three Easy Steps
… there is a limit to burning through these assets since China still needs some foreign reserves buffer. Ambrose-Evans Pritchard reports some observers are already wondering if China is getting close to its buffer limit. If so, China will be forced to devalue. This is what investors are now expecting and therefore are eager to get out. This puts further pressure on China’s stock of foreign reserves.
Note that devaluing the yuan will be costly too. Many Chinese firms, previously expecting the dollar peg to hold, have taken out lots of dollar denominated debt. So either China burns through its reserves or it increases the private sector’s real debt burdens. There are no easy choices here.
⇧ 1998 in 2015 – The New York Times
What happened in 1997-1998 was that Asian depreciations turned into balance-sheet disasters, because domestic firms were highly leveraged and had lots of dollar debt. This debt soared as a share of GDP, not because of massive new borrowing, but because the denominator crashed as currencies plunged: ….
⇧ Citigroup braces for world recession, calls for Corbynomics QE in China – Telegraph
Prof Chen said a Western-style financial collapse in China is “highly unlikely” since the banks are largely government-owned and losses will be absorbed by the state.
There is a loose parallel with Japan, where the economy slid into a deflationary quagmire and lost its economic dynamism but never suffered a full-blown financial crash. In Japan’s case the denouement was averted by keeping “zombie banks” on life-support.
China’s chief lever at this point is fiscal policy. Interest rate cuts and monetary stimulus risk setting off further capital flight, tightening liquidity.
However, the Chinese leadership isn’t showing the signs that it knows what to do or that it is willing to do what it knows would work.
The problem with China is private usury. China isn’t democratic enough to get rid of it while growing the economy under decentralization. The Chinese leadership is looking at the world as capitalism (laissez-faire) v. 5-year plans by the centralized Communist Party. It won’t work.
⇧ China has exposed the fatal flaws in our liberal economic order – Comment – Voices – The Independent
The country is no longer able to help keep the Western capitalist patients alive, partly because it is now also a victim. [Correct!]
The global economy is suffering a deficiency of demand and the threat of deflation, thanks largely to austerity, debt and wage repression. This signals a debt-deflationary period, and the probability of another systemic banking failure.
This year the Fed proposes to introduce higher interest rates. Many economists and analysts (although not this author) believe that rates could rise as soon as 17 September, when the Fed’s Open Market Committee next meets. Markets are now panicking at the prospect of what further damage a rate rise will do to the fragile recovery. And China is no longer willing or able to help central bankers keep the Western capitalist patients alive, partly because it, too, is now a victim of that same model.
So, I beg to differ with the equanimity of economists analysing this week’s stock market volatility. Because of the failure to deal with the causes of financial crises, the global economy will not quickly recover — and may even collapse again.
China does seem to be willing to try more than the neoliberals would ever dare though.
If the Chinese leadership would only wake up to the fact that they don’t have to choose between Austrian Economics or central planning. They could choose a mixed economy with a strong democracy.
If they are truly bent on socialism (which they say is their ultimate aim), they could opt for total democratic socialism (which has never been tried in the history of the world). If that experiment were to fail, they could back up to the social-democratic model that has served many nations relatively well (certainly better than Austrian School has served anywhere).
⇧ Labour’s panicky establishment referencing the wrong period in history — Prime Economics
Here’s Ann Pettifor again, lest anyone falsely imagine she lacks necessary historical understanding.
… it is wrong to argue whether any one candidate in today’s leadership election resembles the Michael Foot of the 1980s. Instead the debate should be whether any of the candidates have the wit or guts or intellectual and political acuity of the leaders (including Clement Attlee) that rebuilt the party after the debacle of 1931.
Above all, in choosing its new leader, Labour should learn the very important lessons of its own, and very relevant history: the period in the 1930s when Labour politicians challenged the architects of financial globalisation with an alternative policy agenda. An agenda which was wildly popular with the British people, and led to Labour’s resounding success as a government between 1945 and 1951 — and to 25 years of the golden age of economics.
Over the last few days, as I’ve been reading and hearing so many speak about Benn and Foot when discussing Corbyn, I kept thinking about Clement Attlee. Thank you, Ann Pettifor, for nailing the subject so well.
The real challenge is educating the people about Modern Money Theory and the utter wrongness of the Austrian School’s Austrianism rather than caving into “centrism.”
Simply don’t allow the Tories to frame the debate. Keep pressing them about MMT data/evidence until the people/voters get it. They will get it if you don’t give up and if you don’t allow the subject to be changed.
⇧ Citi: China Grew At Only 5% In H1 And Is Sliding Into A Recession – Asia Stocks to Watch – Barrons.com
Some Econ 101: the growth numbers that economists talk about are real economic growth, that is, nominal growth minus inflation.
Citi believes China’s real growth rate is much lower than reported because the official inflation number is too low….
And things are looking even worse the rest of the year, in part because thanks to the booming stock market, the financial services sector contributed a lot to the GDP growth. We can’t expect that any more….
⇧ Smart Home Spotlight: Security – Coldwell Banker Blue Matter
According to a newly released survey of more than 500 independent sales associates affiliated with Coldwell Banker, 65 percent said that their buyers are interested in smart home amenities that relate to security more than any other category….
The thing I think is most important is that the security system not be hackable, but what’s hack proof? We’re told by the best security software and hardware people that nothing is hack proof. What’s a security minded person to do?
We should all be extra careful about wireless security and other devices and even wired devices that are connected via the Internet. What security measures does any remote central-monitoring facility employ? Are your data and connections with them as safe and secure as one may reasonably expect of a highly professional security organization?
What types of security software are used, including encryption types and strengths? What happens in a power outage?
What things concern you?
⇧ Parallel currency would have led to Grexit, says Jeffrey Sachs | Comment | ekathimerini.com
… wasn’t the Varoufakis approach a mistake? Wasn’t he wrong to use rhetoric about Greece being insolvent and unable to ever repay its debts? Didn’t that create unnecessary tensions with the creditors?
“It is hard for me to judge the effectiveness of this or that approach,” he replies. “All I can tell you is that, since 2011, when I had offered my services to George Papandreou, every effort we made hit a wall. And until now, it hasn’t mattered whether the Greek government was nice or aggressive.”
That confirms what I wrote.
⇧ A dangerously misleading idea threatens to derail the American economy – Vox
… there’s actually no reason to think low interest rates are a problem for the US economy. Low interest rates reduce the federal deficit, encourage entrepreneurship, and boost economic growth. As long as inflation stays low … we should relax ….
There is an interesting academic question of how much more the US economy can grow before an inflation problem emerges. My view is that it could probably grow quite a bit, but any honest person has to admit there’s a lot of uncertainty here. The clearer issue is that there’s little risk in trying to find out and considerable benefit to keeping rates as low as possible for as long as possible.
What the Fed needs to do is redefine its conception of normalizing policy. Normal monetary policy is pretty simple — higher interest rates when needed to fight inflation, but not otherwise.
⇧ Some New Home Construction Markets Like It Hot – Trulia TrendsTrulia Trends
Selma Hepp, Chief Economist
Throughout much of the recovery, builders have focused more of their efforts on multi-family homes than constructing single-family homes. So to better understand how hot multi-family construction actually is, we looked at where the share of multi-family buildings has been booming. Turns out, it’s very hot everywhere. Since last year, the share of multi-family buildings has increased in most of the metros that topped last year’s hottest homebuilding markets list.
We then took it a step further and compared the estimated 2015 multi-family permit activity to each metro’s historical norm. In some of the top 10 markets, multi-family construction was higher than the historical norm by several fold. For example, New York’s activity is more than four times higher, while both Boston and Newark are almost three times higher. Even in Dallas and San Francisco where the multi-unit increase was lowest among the top 10, it is still more than double the historical norm. …
Another interesting development over the last year is the positive relationship between construction activity and home prices. Where new construction is booming relative to historical norm is where home prices are on an upward trajectory. …
… The correlation between permit activity relative to historical norms and the employment growth since the cyclical bottom is +0.29, which is again a modest, but statistically significant positive relationship.
⇧ Hawkish Rumblings – Tim Duy’s Fed Watch
I think Tim Duy is seeing right through them; and I think that if they go with a rate hike prematurely, they’ll harm the recovery, such as it is.
Core-PCE inflation decelerated to a meager 0.87 percent annualized rate in July. The uptick in near-term inflation had provided strong support for a September rate hike as it was consistent with the view that last year’s disinflation was temporary. That no longer looks to be the case, pulling apart the argument that the Fed can be confident that inflation will trend back to target. If anything, all the monthly data looks like noise as inflation slowly drifts further and further away from target.
The Fed very much wants to ignore the inflation data and follow the labor markets. And even as inflation drifts further away from their target, they keep doubling down on their bets. It’s what the Phillips curve is telling them they should do.
Bottom Line: The Fed doesn’t want to take September off the table. Many officials had what they believed was a solid case for hiking rates at the next meeting, and they don’t want market turmoil to undermine that case. And that case is not complicated. It’s the Phillip curve combined with an estimate of full employment (an estimate of full employment that remains sticky despite the persistent downtrend in inflation). If they move in September, that’s the story they will run with. They don’t have another paradigm.
Where’s the wage pressure? I want to see the wage pressure before they do anything. I want them to stop pretending to be paranoid that inflation could get out of hand. Paul Volcker proved there is zero to fear in that regard.
I think the Fed is being ideological, way too interested in protecting those who make their careers out of usury, way too close to the commercial-banking industry at the top end.
⇧ China and the Challenge of Economic Reform – YouTube
Please note that Marshall Auerback (the interviewer) rightly tried to turn the discussion to the problem of the one-party dictatorship by the Communist Party, but Andrew Sheng spoke right past it. Why?
I’ve dealt with this before concerning Andrew Sheng. See: “Facing Down Secular Stagnation in China by Andrew Sheng and Xiao Geng – Project Syndicate”: https://propertypak.com/2015/08/27/news- real-estate-risk-economics-aug-27-2015/# 0827155
Professor Andrew Sheng, a Distinguished Fellow of Fung Global Institute and an INET Senior Fellow, believes China can make it, even as he acknowledges the difficulties the current leadership faces.
Correction: “… acknowledges [some of] the difficulties ….”
The Chinese people must face all the issues. The dictatorship of the Party is a huge issue concerning the economic future of China and the world.
⇧ Deal With the Devil: How the Global Elite Re-colonized China – YouTube
Here’s a very non-mainstream-media-source view about the current China situation.
The emphasis in this video is ultimately geopolitical, which I don’t wish to downplay. However, I believe, as my consistent readers know, that it is China’s internal-political problem that is the main one.
My belief is that the Chinese people are being treated extremely unfairly and that all the talk about anti-corruption in China is a distraction from the more central issue of democratic liberty.
The Democracy Movement in China and the Tiananmen Square protests and military attack on the masses there has never been resolved. Until it is, China will not be free or healthy, including economically.
Video description on YouTube:
The “Chinese dragon” of the last two decades may be faltering but it is still hailed by many as an economic miracle. Far from a great advance for Chinese workers, however, it is the direct result of a consolidation of power in the hands of a small clique of powerful families, families that have actively collaborated with Western financial oligarchs.
If you click the headline of this link, you won’t be taken to the YouTube video page but rather to James Corbett’s blog post, which has the full transcript of the video along with all the links to his sources.
⇧ NASA | Sea Level Rising: Interview with Tom Wagner – YouTube
Earth’s rising seas are some of most visible signs of our warming planet. Over the last 20 years, NASA satellites, airborne missions and field campaigns show a steady rise in global sea levels as the world’s polar ice sheets melt. As the Earth continues to warm, new research suggests sea levels could rise by as much as several feet in the next 100 years. Sea level rise is one of the biggest environmental challenges of the 21st Century, and NASA research is helping us understand how much our oceans will rise, and how fast that will happen. Hear from NASA scientists about the latest research on rising sea levels and melting polar ice. See surprising new views of ice loss in Greenland and Antarctica, and talk about the consequences of our rising oceans.
⇧ Poll lead for Greece’s Syriza narrows as election nears | Daily Mail Online
… based on a sample of 1,008 participants countrywide between Aug. 25-27, showed that 75.4 percent of Greeks believe the country must stay in the euro, though nearly 73 percent also had a negative view of the new rescue package negotiated by Tsipras.
Staying in the euro at what cost versus what risk by leaving?
⇧ Brace for Quantitative Tightening, As China Leads Forex Reserves Purge – NDTVProfit.com
In isolation, a reserves drop the equivalent to 1 percent of U.S. GDP (around $178 billion) would lead to a rise of 15-35 basis points in the 10-year U.S. Treasury yield, Citi said, citing a range of academic studies.
Plunging commodity prices and fears over growth prospects, particularly in China, have sparked a rush for the emerging market exits. Figures from CrossBorder Capital, a research and money management firm in London, suggests capital flight from emerging markets in the past year is almost $1 trillion, of which more than $750 billion has come out of China.
This has forced many emerging market central banks to dip into their reserves to manage the fall in their currencies and stop it from turning into an even more savage rout.
⇧ Quincy real estate mogul Dan Flynn charged with fraud – News – The Patriot Ledger, Quincy, MA – Quincy, MA
In the FBI’s criminal complaint, special agent Kevin M. McCusker says Flynn persuaded numerous individual investors to give him “$10,000 to $500,000” each to buy property that in some cases Flynn already owned.
Flynn allegedly collected the money through his DJF Real Estate Investment Opportunity Fund, the 86 Greenleaf Property condominium investment, and the Fenway Auction Group.
He also created numerous other companies to shield his alleged scheme, the complaint says.
McCusker said that by 2012, Flynn was using his investors’ millions to repay earlier investors and fraud victims, and using part of the money for personal expenses, including $100,000 to finish the basement of his Milton home.
⇧ City could foreclose on thousands of properties with “in rem” filings
The move targets homes, multifamily buildings, co-ops and condos — as well as Housing Development Fund companies — that have ignored financial obligations for years….
⇧ Report: Real estate downturn should not be a repeat of the ’80s – Prime Property
… Fannie Mae predicts a five-year drag on future house price growth for Texas and nine other oil-producing states, assuming prices remain low.
⇧ Artificial Unintelligence – The New York Times
… here’s William Cohan in the Times, declaring that the Fed should “show some spine” and raise rates even though there is no sign of accelerating inflation. His reasoning:
The case for raising rates is straightforward: Like any commodity, the price of borrowing money — interest rates — should be determined by supply and demand, not by manipulation by a market behemoth. Essentially, the clever Q.E. program caused a widespread mispricing of risk, deluding investors into underestimating the risk of various financial assets they were buying.
… even a supposed hands-off policy has to involve choosing the level of the monetary base somehow, which means that it’s a monetary policy choice.
That’s so fundamental.
As for the Fed’s targets, they shouldn’t have any numerical targets anymore. They should focus solely upon their dual mandate and do what is needed to get the lowest unemployment rate at the lowest inflation rate. The world is changing much too quickly for the Fed to say 2% or 5%.
In addition, the Fed’s mandate should be expanded to include the greatest number of people working at or above a living wage defined as sufficient to support a family of four at a decent level: living standard/quality of life.
It could easily be done. The only thing in the way is the neoclassical-economic ideology of the vast majority of the upper-financial class.
⇧ 2 Lessons Investors Can Learn From the Stock Market Plunge
If you are a long term investor, there are absolutely zero reasons why you should check the stock market on a daily basis and listen to talking heads pull predictions out of their posterior. Furthermore, what the stock market does intra-day should have no bearing on your decision making whatsoever.
However, the equity markets do impact the overall economy. One is well advised to be aware of the larger picture and how that boils down in local real-estate markets too.
⇧ Will Wall Street turmoil affect Southern California housing market? – LA Times
Here’s a perfectly timed follow-up to the link immediately above.
… if the Wall Street gyrations continue for a prolonged period, say for weeks, economists believe that the uncertainty could cause a shift in housing market sentiment.
And there’s another threat: Much of the blame for the stock market turmoil has been on the weakening economy in China, where investors flush with cash have become the largest source of overseas buyers for Southern California residential real estate.
Exactly! It’s what I’ve been writing for many months now. It’s not about daily swings but the trend and what to consider. Consider those who were buying investment properties via considerable leverage right up to the day of the housing crash just because they hadn’t bothered to read economics and follow events. They lost their shirts and more.
⇧ Senior Housing Oversupply Creates Near-Term Headwinds – Senior Housing News
… some areas of oversupply are beginning to serve as cause for concern, and recent occupancy data from the National Investment Center for Seniors Housing and Care (NIC) echoes some of those concerns.
⇧ The Chinese economy is slowing down and there can be no denying it | Business | The Guardian
… all the signals are still pointing towards a normalisation of global growth, wages, inflation and interest rates.
I’m tired of the term “normalization.” The new normal is no normal. How long will it take for the Fed to catch up?
⇧ Why I Support Corbyn For UK Labour Leader – Forbes
Here’s why I wrote that the new normal is no normal (contextually speaking).
Unfortunately, just as casual observation of the sky supports a world view that we now know is wildly at odds with reality, casual thought about the economy supports beliefs about government policy that are also wildly at odds with the needs of the monetary, non-equilibrium, dynamic economy in which we actually live. And because it lives in a fictional world where money is unimportant, where equilibrium rules, and which is effectively static, mainstream economics does nothing to disabuse the public of its errant notions.
What does disabuse some of the public of such notions is experience. Here, Ptolemaic astronomers were lucky: they never were asked to advise on space flights. But mainstream economists have advised on economic policy, and for the last 40 years, they have argued that the government should run a balanced budget over time. Extreme versions of the mainstream have argued that government surpluses are even better for economic stability and growth.
Critical observers like Corbyn have seen that this advice doesn’t work: the economy has grown more slowly and been less stable because of these policies. So he expresses skepticism about them, which is justified by experience. But the general public and politicians, who have fallen for the extreme version of the mainstream, think this makes him “economically illiterate”.
Credit where credit is due: My clear understanding concerning private versus public debt and the lack of fiscal spending concerning worsening a recession or depression comes directly from Steve Keen.
⇧ OECD Member Nation Growth Slows, May Signal Stalling Global Economy | Economy Watch
The Organization for Economic Cooperation and Development (OECD) issued a report on member nation economic performance in the second quarter of 2015. Unfortunately, the numbers were not promising: it reveals that the combined economic growth of the OECD’s member nations fell to 0.4 percent in the second quarter of 2015.
Economists are watching the Chinese situation closely due to the size of the nation’s economy and its potential impact on global markets. As the second largest economy in the world, a recession or crash could have implications nearly as dire as what occurred after the housing bubble burst in the United States in 2008, leading to both a domestic and global recession.
⇧ Business Owners Failing to Plan for Unexpected Events: Study
Of those with a buy-sell agreement in place, just over half say it is funded with life insurance, but only 5 percent say it is funded with disability buy-out insurance. The rest were either funded with cash flow from the business or not funded at all.
⇧ Homes, Vehicles Flooded in Sioux Falls
… 2.75 inches measured in one gauge in less than half an hour ….
At least three houses caught fire when struck by lightning ….
⇧ US group urges China to open insurance, securities markets
An American business group urged China on Friday to allow more access to its insurance and other service industries, saying foreign skills could help develop its volatile stock markets and cope with disasters like the recent chemical explosion in Tianjin.
Ross said China’s insurance industry, with a history of just 35 years, lacks the experience of foreign insurers at spotting potential risks and encouraging policyholders to reduce them.
⇧ Varoufakis on Schäuble — extract from Stephan Lamby’s SWR-ADR documentary | Yanis Varoufakis
Extract from Stephan Lamby’s SWR-ADR documentary Schäuble: Power & Powerlessness in which I discuss our government’s January-June 2015 negotiating experience and aspects of my discussions with Dr Wolfgang Schäuble.
Concerning the “terrorism” issue, they knew it would terrorize the Greek people. If you do something that will terrorize people and you know it will and you do it so that the terrorism will get the people to do what you want or to punish them, you are, in fact, a terrorist, in this case, an economic terrorist.
“We should energize this plan.” That’s what Yanis says that he said, perhaps paraphrasing himself, when the Greek banks were wrongfully shutdown by the ECB (European Central Bank).
That shutdown was actually illegal I’m told. Yanis didn’t say that in the video. He was diplomatic regarding Mario Draghi’s (https://en.wikipedia.org/wiki/Mario_Dra ghi) action.
I’m glad Yanis said that it should be energized. It should have been. He was right. It would have made a huge difference in the strength of Greece’s position going forward during the negotiations. Not only that, but the Greek people would have found out that they didn’t really need the euro but could have a Greek currency even moderately pegged to the euro if wanted.
⇧ Trouble South Of The Border | Peak Prosperity
If we learned anything from the US financial crisis, economic hardship in Greece and other Southern European countries, and the rout in the Chinese stock market, it’s that capital flight, particularly leveraged capital flight, can crucify an economy, especially high debt burdens accentuate the process.
Mexico, though somewhat protected from financial upheaval during the first leg of the 2008 financial crisis, may be the next victim of capital’s mercurial tendencies for that very reason. Mexico’s relative stability and liberalized financial markets have invited more foreign capital through these channels, which means more can leave to return to headquarter countries, or seek opportunities elsewhere, in emergencies.
This level of global inter-connected financial risk is hazardous in Mexico, where it’s peppered by high bank concentration risk. No one wants another major financial crisis. Yet, that’s where we are headed absent major reconstructions of the banking framework and the central bank policies that exude extreme power over global economies and markets, in the US, Mexico, and throughout the world.
Mexico’s problems could again ripple through Latin America where eroding confidence, volatility, and US dollar strength are already hurting economies and markets.
⇧ FRB: Speech with Slideshow–Fischer, U.S. Inflation Developments–August 29, 2015
This sure sounds like they’re going to raise the rate even as early as September.
They’ll raise it whenever in a very small bite to start.
Vice Chairman Stanley Fischer
At the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming
August 29, 2015
U.S. Inflation Developments
… it is plausible to think that the rise in the dollar over the past year would restrain growth of real GDP through 2016 and perhaps into 2017 as well. The rise in the dollar since last summer, of about 17 percent in nominal terms, with its associated declines in non-oil import prices, could plausibly be holding down core inflation quite noticeably this year.
With inflation low, we can probably remove accommodation at a gradual pace. Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening. Should we judge at some point in time that the economy is threatening to overheat, we will have to move appropriately rapidly to deal with that threat. The same is true should the economy unexpectedly weaken.
They want to be ahead of the lag time between raising the rate and the economy reflecting it via slowing growth. They want to be fine tuning via tiny, frequent raises.
Are they misjudging labor slack, thinking there’s less of it than there really is? Are they misjudging owners’ and executives’ willingness to share the wealth with labor, thinking low wages won’t remain sticky? The only really push in wages has been due to political activism by labor. Labor’s been getting plenty of push back on it, but millennials are more progressive due to spending their formative years in the Lesser Depression. Also, there’s still plenty of untapped labor in the world while transportation fuel is now cheaper.
As I wrote earlier, I believe economic ideology drives the Fed more than they let on, much more. They are of the banking class. Labor is not. Labor is exploited by the banking class.
⇧ BHP trims its forecast for China’s steel production by 15 per cent | Business News | Business and Finance News | | The Courier-Mail
Analysts at Platypus Asset Management and CMC Markets Asia say BHP and rival iron ore producers will probably need to make further cuts to forecasts on Chinese steel output.
“Potentially the growth outlook for China is worse than people are thinking,” said Don Williams, chief investment officer at Platypus.
This is the main reason I don’t buy into the story that commodity prices are down solely because supply went up. It seems clear that demand has been going down. That’s why supplies/inventories are generally up and prices dropped and are dropping.
What’s your take on it?
⇧ For OPEC, this year’s painful oil slump will bring gains in 2016 : Business
The lesser of evils:
… for all the flaws of OPEC’s plan, the alternative approach of reducing production may have turned out worse. By cutting back, Saudi Arabia would have ceded market share and lost revenue in the long-run while the resulting price support would have spurred U.S. shale output, inflating the surplus, according to Societe Generale.
“This has always been a long game measured in years, not months,” Mike Wittner, head of oil-market research at Societe Generale in New York, said ….
⇧ Data pirate stole $360K in real-estate records: lawsuit | New York Post
Reis Services LLC, which runs a database of commercial properties in more than 7,000 neighborhoods across the country, wants a court to unmask the information thief who has been accessing its proprietary reports for free, according to a Manhattan federal lawsuit.
The dirty downloader is in Austin, Texas, and has accessed Reis’ database 178 times in a year, grabbing 798 reports worth $361,337, the company says.
⇧ On Second Thought, China Slowdown Will Hit Global-Growth Outlook – Bloomberg Business
China’s deepening struggles are starting to make a bigger dent in the global economic outlook.
Moody’s Investors Service on Friday cut its 2016 growth forecast in Group of 20 economies to 2.8 percent, down 0.3 percentage point from the company’s call less than two weeks ago. China is projected to grow 6.3 percent in 2016, down from 6.5 percent previously, the credit-rating company said in a report. …
“We continue to believe that the greatest risks to our growth forecasts remain to the downside,” Schofield wrote. Actual growth is “probably even lower” because of “likely mis-measurement in China’s official data,” he wrote.
⇧ Asia Unbound – What’s Missing in the China Story?
Elizabeth C. Economy:
… A lack of transparency in China compounds the challenge of understanding what is going on. …
… Kudos to Gwynn Guilford at Quartz [“The shadowy trading behind China’s stock market boom”: https://qz.com/308153/the-shadowy-tradin g-behind-chinas-stock-market-boom/%5D, however, who pretty much called it all back in 2014, seeking out commentators who underscored the dangers in the stock market’s reliance on leverage, shadow finance, and government public relations.
Dramatic events will always prompt breathless speculation and commentary, but real understanding should begin by paying attention to real experts. In the case of the Chinese economy, reading studies by China economists and analysts—for example Nick Lardy, Barry Naughton, Patrick Chovanec, Dan Rosen, Fraser Howie, George Magnus, Michael Pettis, and Victor Shih—would be a good place to start. They represent a wide range of views and, if brought together for a discussion, would be hard-pressed to arrive at a consensus; but anyone taking the time to read or listen to a constellation of them will inevitably become smarter about the Chinese economy.
⇧ IMF’s Lagarde says restructuring should suffice for Greek debt | Reuters
“The debate on cancelling the debt has never been open I don’t think it is necessary to open it if things go well…
⇧ Dear Landlord: Where’s Our Building Canopy? – The New York Times
More than two years ago, our landlord removed the canopy in front of our apartment building because he wanted to make it less comfortable in rain or strong sunlight for building staff, who were picketing over a labor disagreement. The issues have been more or less settled, but the canopy has not been replaced. Our building, which has a mix of rent-stabilized and market-rate tenants, is in a reasonably upscale neighborhood, and all the other comparable buildings have canopies in good condition. It is frequently inconvenient, especially on rainy days, not to have the canopy. Is our landlord under any legal obligation to restore it?
⇧ The Rolling Global Crisis Will Come Home | Bruegel
By pumping money into the financial system, the Chinese generated an extraordinary demand for global goods. The global economy sprung back to life in 2010. Emerging market commodity producers gained, as did German and other European exporters. In its April 2010 World Economic Outlook, the IMF declared that the crisis was over. Global growth was projected to return to pre-crisis rates.
… As the economist Dani Rodrik has long argued, sustaining high growth rates requires a constant evolution of high quality institutions. As a market economy becomes more sophisticated, accountability in transactions and business practices becomes critical, achieving which is a non-trivial task. Pritchett and Summers added that dismantling the existing institutions would be disruptive. In other words, undoing the plethora of informal arrangements—many of them steeped in corruption—would set growth back before a sustainable new growth dynamic could be generated.
… Little noted in the Pritchett-Summers paper was a prediction that Indian growth rates will also fall to between 3 and 5 percent, for exactly the same reasons as in China. …
In the meantime, the government has chosen instead to extend the hand of the state, creating uncertainty in the tax regime and threatening India’s elite educational institutions. Instead of decisively privatizing the public sector banks, it has chosen to retain ownership and control over this long-standing source of patronage at unending cost to the budget. And to increase the ruling party’s hold over state legislatures, the central government has indulged in promises of fiscal giveaways.
It is not necessary to privatize to eliminate patronage.
Public banks, per se, are not bad for an economy. In fact, if done correctly, they can be a boon above anything that any private bank can achieve for an economy as a whole.
⇧ Can the global gloom sink the U.S. economy?
… countries are much more exposed to China’s downturn than the United States. How these countries fare can affect U.S. trade with them and ultimately the American economy.
Amid the volatility, New York Fed President William Dudley said Wednesday that a September rate hike seemed “less compelling,” than it did only a few weeks prior. In short, the stock market turmoil does impact the Fed’s decision on a rate hike.
But that sentiment wasn’t echoed by Fed Vice Chair Stanley Fischer. He told CNBC Friday that it’s too soon to make judgments one way or the other about September.
The Fed’s tea leaves may be easier to read on Friday after the jobs report.
⇧ How Western Capitalism laid China low (From Herald Scotland)
Ann Pettifor again, well, because Ann:
… When the governors of the People’s Bank of China announced a cut in interest rates — stock markets continued to fall. When a Fed governor uttered two words off the cuff — markets rallied. So when looking for a cause we need to look west, not east.
Most agree that the panic was sparked by a slowdown in China. The question then becomes: why is China slowing down? Some put it down to China’s credit binge, and the rise in debt hobbling local governments and property developers. Demographic change is another. Others believe that China’s extraordinary investment levels will now dive lower.
I don’t buy these analyses as causal. Instead I see them as consequential, and would point the finger at the following: first an overhang of global debt, largely in Anglo-American economies ($57trillion has been added since 2009). Second, the deficiency in global demand for goods and services caused by austerity, low levels of investment and wage repression. Third, the glut of unsold Chinese goods (e.g. cars and rubber tyres) caused by falling demand for these goods, and resulting in falls in prices (disinflation or deflation).
… the US, the UK and Japan, the public authorities’ unwillingness to accept alternative diagnoses of the nature and cause of the global financial crisis led to a firm denial that any shift in the paradigm was necessary. Like the bloodletters of old, they persisted in their own flawed practices. Schooled in the existing order, mainstream economists, central bankers and officials knew no other way except that of ‘free market’ control over reckless, speculative and debt-addicted financial markets.
… instead of generating the income or tax revenues needed to repay private and public debts, the authorities in both the US and Europe reverted to variations on ‘austerity’ and wage repression — which contracted incomes.
… If the weakened ‘patient’ that is the US economy is injected with higher rates, then the vast overhang of private debt becomes less payable, demand will fall further; investment will likely stall and consumers may well keep their purses firmly shut. Falling prices, accentuated by China’s recent devaluation, will hurt US profits. Producers, distributors and retailers are likely to lay off more workers.
Talk about nailing it!
⇧ CrossTalk: Recession 2015? – YouTube
Mitch Feierstein, Stephen Keen, and Mark Weisbrot are very interesting in this segment.
I like all three here for different reasons.
Concerning Mitch v. Mark on inflation, I do come down on Mark’s side on that.
Are we experiencing the Great Recession of 2015 or merely a painful paradigm shift in how the global economy is run? Many in the West quickly blame China for mismanagement of its economy and currency. This may or may not be true, but this is only a small fraction of a much bigger story. Has anything been learned since the financial crisis of 2008?
⇧ Drivers for the Week Ahead | Across the Curve – Blog Archive – FX
Marc Chandler, Brown Brothers Harriman:
Fed officials would clearly prefer a bit higher inflation. However, the consensus, especially among the leadership, is that 1) most of the elements dampening prices are transitory and 2) the key to core inflation is the continued absorption of slack in the economy, especially the labor market. It also seems clear that the Fed’s leadership does not want to wait for the core PCE deflator to rise to 2% before beginning to normalize monetary policy.
At the risk of oversimplifying, the domestic US situation makes a rate hike very likely, but the Chinese international developments and the apparent panic in the financial markets are of concern. The situation is fluid, and a decision will be made when it has to (September 16-17).
⇧ Homebuilders call new labor law ruling crippling
Homebuilders are balking at a new labor law ruling that puts them on the hook for issues involving millions of subcontractors. Roofers, plumbers, electricians, framers are just some of the 25 categories of subcontractors used to build a home. The National Labor Relations Board (NLRB) could, in some cases, now deem them “joint employees” of the homebuilders.
“Are we concerned that this ruling might have some impact? I think we are alert to the ruling. We are aware that the Labor Department feels its mandate is broad, but we think that our business is highly differentiated from what’s being discussed in the current case or even extensions,” said Stuart Miller, CEO of Miami-based Lennar.
Among larger builders, a subcontractor could work for Lennar one day and Pulte the next, so it is still unclear how the new ruling would apply.
When I saw the ruling mentioned in the news the first time, I immediately thought about subcontractors and independent contractors throughout the economy. Obviously, the National Labor Relations Board is going to have to clarify quickly and may even have done that by the time this post is published.
If they deem every-subcontractor employee also an employee of the general contractor(s), it simply won’t work from a practical standpoint. Frankly, I don’t think the courts would go along with it since there is so much subcontractor law on the books.
I really don’t understand why employee-leasing firms are having the rug pulled out from under them. I’m assuming, perhaps incorrectly, that leased employees can still collectively bargain with the leasing company.
The NLRB probably thinks the employees’ position is too weak or so weak that it renders their rights to unionize null and void or nearly so, enough to have issued the new rule anyway.
This one will definitely be interesting to watch play out.
⇧ Will Treasury yields soar if China sells? | FT Alphaville
China, you may have noticed, has switched rather abruptly from being a massive buyer of foreign currencies to a major seller. Some people — including some relatively influential policymakers — are worried that this switch from suck to blow, as it were, could cause Treasury yields to spike. That fear may be animating some of those who think the Fed should adjust its schedule of rate hikes, or even engage in additional large-scale asset purchases.
… if US interest rates will be affected by foreign reserve managers liquidating their holdings in some way separate from the currency impact, we should expect rates to rise at the short end and stay flat at the long end. Yet the worrywarts focus on the prospect of a steepening curve driven by rising rates further out. Go figure.
The transmission mechanism between bond prices/yields and mortgage-interest rates is often very quick and, therefore, often very psychologically driven rather than “necessitated” by Fed actions or inactions regarding the change in bond yields.
Anyway, the argument I’ve heard for why China selling US Treasurys won’t be that big a deal is because others will be simultaneously buying Treasurys as a safe-haven bet. That’s what makes sense to me.
⇧ Warm Arctic Brews Severe Winters From U.S. to Asia, Study Says – Bloomberg Business
Here’s a climate twist: If your winter has been brutally cold in Tokyo or Toledo in recent years, you can thank global warming in the Arctic, a new study suggests.
⇧ Insurance Commissioner Advises Homeowners to Follow Insurers’ Requests to Reduce Property Hazards, Avoid Loss of Coverage
A good reminder:
The homeowner bears the responsibility to take reasonable action to lower the risk the insurer has on a property. A homeowner’s failure to take such reasonable action can lead to an insurer cancelling or non-renewing a policy on that property.
That applies to landlords too, of course.
⇧ California High Court Overrules Itself, Holds Policy Consent-To-Assignment Clauses Unenforceable Post-Loss
The Court concluded that after personal injury or property damage resulting in loss occurs within the time limits of the policy, an insurer is precluded from refusing to honor an insured’s assignment of the right to invoke defense or indemnification coverage regarding that loss.
⇧ Developers Move Into Single-Family Rental Homes Sector | Single-Family Housing content from National Real Estate Investor
The number of single-family homes intentionally built to be rental housing is still a tiny fraction of the home building overall, but it is growing quickly from effectively zero to become a new sector of the market for new development. “Last year, approximately 25,000 detached homes were built for rent. We believe that number will increase significantly over the next several years,” according to “A New Opportunity to Build Detached Homes for Rent,” a report from John Burns Real Estate Consulting, based in Irvine, Calif.
I think this is a shrewd move.
⇧ Great Recession Job Losses Severe, Enduring
Farber suggests that the earnings decline measure from the DWS is appropriate for understanding how job loss affects the earnings that a full-time-employed former job-loser is able to command.
The author notes that the measures on which he focuses may understate the true economic cost of job loss, since they do not consider the value of time spent unemployed or the value of lost health insurance and pension benefits.
Farber concludes that the costs of job losses in the Great Recession were unusually severe and remain substantial years later. Most importantly, workers laid off in the Great Recession and its aftermath have been much less successful at finding new jobs, particularly full-time jobs, than those laid off in earlier periods.
⇧ The Chinese fiscal stimulus memory hole
While the final outcome remains uncertain, Austrian-like perspectives on China are looking pretty good these days.
I’m Keynesian over Austrian, but I’ve always been highly critical of China’s Deng Xiaoping’s approach. I hold it as a huge error right up there with Maoism, Bolshevism, and other totalitarian deviations.
⇧ Foreign Help Wanted: Easing Japan’s Labor Shortages | iMFdirect – The IMF Blog
Take a walk in Tokyo, and you will see the sign … “Staff Wanted”, outside many restaurants and convenience stores. These businesses often find it impossible to recruit the workers they need. According to recent statistics, for each job seeker in Japan applying to work as a waiter, there are more than three available positions. Home helpers and long-term caregivers are equally in demand. If you want to work as a security guard, you can choose from around five openings, and for some positions in the construction business the job-to-applicant ratio is over six.
⇧ Morning Agenda: Challenges on All Sides for the Fed – The New York Times
The debate has been affected by the fact that inflation in recent years has not behaved as economists predicted. The basic paradigm, known as the Phillips Curve, is that inflation falls as unemployment rises, and rises when it falls. But inflation did not fall as much as expected during the Great Recession and has remained surprisingly weak during the recovery.
Central bankers, however, maintain that the basic understanding of inflation remains more functional than alternatives, if imperfect. Mr. Fischer said that his confidence in an eventual rebound in inflation remained “pretty high.”
⇧ Benoît Cœuré: Drawing lessons from the crisis for the future of the euro area
Speech by Mr Benoît Cœuré, Member of the Executive Board of the European Central Bank, at “Ambassadors Week”, Paris, 27 August 2015.
“Integration by crisis” has proved effective, but it no longer inspires the support of the citizens (if it ever did). So, the euro must be associated with a positive “narrative” and equipped with the necessary instruments, making sure that they are subject to democratic oversight.
⇧ Fiscal Inflation Targeting and the Cost of Large Government Debt Accumulation | PHILOSOPHICAL ECONOMICS
The solution for Japan, and for any economy that is underutilizing its resources, is to implement an inflation targeting policy that is fiscal rather than monetary—what we might call “Fiscal Inflation Targeting.” In Fiscal Inflation Targeting, the legislature sets an inflation target—e.g., 2% annualized—and gives the central bank the power to change the rates on a broad-based tax—for example, the lower brackets of the income tax—as needed to bring inflation to that target. To address scenarios in which inflation chronically undershoots the target, the central bank is given the power to cut tax rates through zero, to negative values, initiating the equivalent of transfer payments from the government to the private sector. Crucially, any tax cuts or transfer payments that the central bank implements under the policy are left as deficits, and the ensuing debt is allowed to grow indefinitely, with the central bank only worrying about it to the extent that it impedes the ability to maintain inflation on target (via a mechanism that will be carefully explained later). Note that other macroeconomic targets, such as nominal GDP (nGDP), can just as easily be used in lieu of inflation.
Unfortunately for the plan and argument outlined in the linked article, both inflation and governmental borrowing are completely unnecessary to achieve real economic growth higher than the highest growth in world history.
“Monetary-and-Banking-Reform Platform for The United States”: https://propertypak.com/introduction-hom e/articles/monetary-and-banking-reform-p latform-for-the-united-states/
⇧ Challenged on Left and Right, the Fed Faces a Decision on Rates – The New York Times
Pretty good overview by Binyamin Appelbaum:
Conservatives see the Fed as enabling the growth of the federal debt, while liberals see the Fed as contributing to the rise of inequality.
Mr. Blinder said the central bank had little power to reverse either trend. “They overstate the importance and power of the Federal Reserve,” he said. All it can do, he added, is “address these problems around the edges.”
⇧ Slowing growth exposes Chinese banks’ debt debris | Considered View | Breakingviews
… before the latest results came out, the consensus among analysts was that pre-tax profit at the big four lenders would keep growing for the next few years. Barring a sudden economic revival, that now looks optimistic.
⇧ Greece revives privatizations with one difference: More time | Business | ekathimerini.com
TAIPED never came close to meeting its target in part because so many properties lacked clear title and the country has no centralized land register. When officials visited one plot of seaside land destined for sale, they discovered thousands of illegal buildings on the site.
⇧ Why is China finding it hard to fight the markets? | Bruegel
… two main reasons why we should worry about China’s debt. First of all, even domestic debt has to be paid if you want to avoid huge distributional effects. In particular, local government debt will need to be cleaned up at some point, which will worsen banks’ asset quality unless the current loan for debt swap program is extended massively, which then pass the burden on the central government. Second, and more importantly, excessively high debt is known to slow growth. The underlying reason is that every unit of new credit has a harder time in finding a productive project to invest in as those which were more productive have already been funded.
When you run out of ideas for growth to fund, it’s past time to fully democratize the economy.
⇧ U.S. tight oil production decline | Econbrowser
… there has been a phenomenal increase in productivity per rig. For example, the EIA estimates that operating a rig for a month in the Bakken would have led to a gross production increase of 388 barrels/day two years ago but can add 692 barrels today.
… Iraq oil production is up half a million barrels a day from a year ago, and Iran hopes to raise oil production by up to a million barrels a day once sanctions are lifted. …
Another part of the adjustment process is also underway, coming from the big cuts in capital expenditures for exploration and production for more conventional oil fields. This will also affect supply, but with significantly longer lead times than is the case of production of tight oil.
Gains in efficiency, lower costs of inputs, and, in the case of production outside the United States, appreciation of the dollar have all helped lower the marginal cost of producing oil. Even so, the current price is well below the marginal cost, meaning one of two things has to happen. Either the price must rise or output from the higher-cost producers must fall further.
⇧ Economic Research | Measuring Monetary Policy’s Effect on House Prices
John C. Williams, President, CEO, Federal Reserve Bank of San Francisco:
… I draw two main conclusions from a large volume of research on the effects of monetary policy on house prices. Both are robust across countries, samples, methodologies, and other factors. First, monetary policy actions have sizable and significant effects on house prices in advanced economies. That is, an increase in interest rates tends to lower real (inflation-adjusted) house prices. Second, this reduction in house prices comes at significant costs in terms of reductions in real gross domestic product and inflation. A typical estimate is that a 1% loss in GDP is associated with a 4% reduction in house prices. This implies a very costly tradeoff of using monetary policy to affect house prices when macroeconomic and financial stability goals are in conflict.
⇧ Economist’s View: The U.S. Economy Has Become Less Interest Rate Sensitive
… findings suggest that the decline in the interest sensitivity of the economy is not due to changes in the conduct of monetary policy, but rather to structural changes in industries and financial markets.
No offense intended, but that’s beyond simply intuitive to obvious. Unfortunately, the findings bear stating.
⇧ Death crosses and oil spikes | Authers’ Note – YouTube
John Authers discusses a dramatic month for global markets that ended with the dreaded “death cross” for the S&P 500, and a 30 per cent spike in the oil price.
⇧ Message in a topple | Short View – YouTube
The volatility issue:
Wild swings in the price of oil signify little, but volatility itself can be dangerous. James Mackintosh, investment editor, examines whether the markets are warning of a dangerous global slowdown ahead ….
⇧ Size comparison of the universe 2015 – YouTube
From the quantum size to the cosmic scale, the size comparison of the entire universe will show you how large things really are!
⇧ Bond Pros Cut Yield Forecasts as Rosengren Sees Modest Rate Gain – Bloomberg Business
The outlook for inflation is falling as U.S. wages stagnate, driven by a decline in stocks and commodities. Treasuries have gained 1.1 percent this year as a result, based on the Bloomberg World Bond Indexes.
⇧ A more accurate measure of economic output – CBS News
… the best approach to characterizing how well the economy is performing at a moment in time, and how well it’s likely to do in the future, is to use a measure such as GDPplus in combination with other windows into the state of the economy such as the unemployment rate, industrial production, consumption, investment and so on.
⇧ A Tale of Two Theories by Jean Pisani-Ferry – Project Syndicate
The Secular Stagnation Hypothesis accounts well for the mistakes made in the eurozone in the aftermath of the global recession, when sovereigns attempted to deleverage while companies and households were unwilling to spend, and the ECB was keeping monetary policy relatively tight. The BIS’s explanation reads like a summary of the woes of China, where growth has slowed from 10% to 7% or less, but the authorities still push investment amounting to almost half of GDP and promote all sorts of low-return projects.
So which theory fits the facts better globally? So far, it is odd to claim that advanced countries have stimulated demand excessively. Persistently low employment and near-zero aggregate inflation do not suggest that they have erred on the side of profligacy. True, financial recklessness remains a risk, but this is why regulatory instruments have been added to the policy toolbox. So the BIS’s call for across-the-board monetary normalization is premature (though this does not mean that reforms should wait).
That’s exactly why I wrote what I did above regarding the linked article entitled, “The Chinese fiscal stimulus memory hole.”
One ought not judge Keynesianism an error by virtue of China’s economic, financial, and political mismanagement.
⇧ National Liberation Fronts: United Against the Euro – The Globalist
Daniel Stelter and Stephan Richter:
Instead of validating their core belief, which was that the euro would unify Europe, the common currency, certainly in a prolonged period of a stagnating, if not declining economy, actually leads to more conflicts and dissent between countries.
Worse, instead of supporting democracy, the euro has become the most powerful tool in the arsenal of those who want to end democracy (or use it only for their own, rather cynical purposes).
⇧ Which is Best for Income: Real Estate or Stocks? – Mark Skousen – Townhall Finance Conservative Columnists and Financial Commentary – Page full
Over the years, I’ve met quite a few friends and relatives who need regular income but are afraid of the stock market, especially when it plunges from time to time (like it did on Monday, Aug. 24). They prefer to invest in income-producing real estate.
⇧ Democratizing the Eurozone by Yanis Varoufakis – Project Syndicate
Chinese officials may not be answerable to a democratically elected parliament or congress; but government officials do have a unitary body — the seven-member standing committee of the Politburo — to which they must account for their failures. The eurozone, on the other hand, is governed by the officially unofficial Eurogroup, which comprises the member states’ finance ministers plus representatives of the ECB and, when discussing “economic programs in which it is involved,” the International Monetary Fund.
Only very recently, as a result of the Greek government’s intense negotiations with its creditors, did Europe’s citizens realize that the world’s largest economy, the eurozone, is run by a body that lacks written rules of procedure, debates crucial matters “confidentially” (and without minutes being taken), and is not obliged to answer to any elected body, not even the European Parliament.
It is incumbent upon those of us who wish to improve Europe’s efficiency, and lessen its gross injustices, to work toward re-politicizing the eurozone as a first step toward democratizing it. After all, doesn’t Europe deserve a government that is at least more accountable than that of communist China?
⇧ Saving Key Provisions of Pro-Work Tax Credits Would Help Wide Range of Low-Wage Workers | Center on Budget and Policy Priorities
Landlords take note: If the EITC is slashed, many tenants will find current rentals suddenly unaffordable forcing many to move out.
Policymakers can help millions of Americans working for relatively low wages by saving key provisions of the EITC and CTC scheduled to expire at the end of 2017 and by boosting the tiny EITC for childless adults and non-custodial parents.
⇧ Nonresidential construction spending continues to grow through mid-summer | Management content from Contractor Magazine
“For now, the outlook for nonresidential construction spending remains upbeat, as the positives significantly outweigh the negatives,” said Basu. “Trends in aggregate spending tend to lag the broader economy by roughly a year and the second quarter gross domestic product growth estimate of 3.7 percent is consistent with the notion that the broader economic recovery remains an ongoing one.”
Let’s hope so.
⇧ Beijing’s incompetence is now China’s biggest problem – MarketWatch
Daiwa Research warns, “The debate for China is no longer between realizing a soft landing or a hard one. It is now between a hard landing and a financial crisis.”
⇧ Multipliers: What We Should Have Known – The New York Times
… this was yet another victory for Keynesian analysis, the success story nobody will believe.
You see, we’re not talking China’s one-party dictatorship here, where they can’t make up their minds whether their capitalists or Marxists, though they say they’re Marxists and don’t seem to realize that there are other options besides capitalism and Marxism.
Try full democracy. Be the first in the world.
⇧ The Triumph of Backward-Looking Economics – The New York Times
… how does the decade of the 1980s end up being perceived as a defeat for Keynesians? To see it that way you have to systematically misrepresent both what happened to the economy and what people like Tobin were saying at the time.
⇧ SocGen: Half-Hearted Capital Controls Are Coming to China – Bloomberg Business
… to bring the currency into a controlled dive while the Federal Reserve gets ready to raise its key policy rate will require the Chinese pilots to expend a significant amount of fuel in the form of foreign exchange reserves.
Yao sets a ceiling for reserves sold by the People’s Bank of China at $1 trillion.
To reduce the extent to which the People’s Bank of China needs to offset outflows with foreign exchange intervention, the economist sees a high probability that capital controls will soon be instituted.
I’m amazed that they didn’t institute them before they allowed the currency to float even a bit.
⇧ People’s QE goes mainstream – Positive Money (BSD)
This is very similar to my plan but not as scientific/technological.
Labour leadership candidate Jeremy Corbyn has sparked a major debate about monetary and economic policy by calling for what he calls a ‘People’s QE’.
For those in the US, it’s called helicopter money; but in this case, it’s targeted via legislation rather than just evenly distributed to consumers.
I remember when I could count the number of people talking about this on the Internet on one hand. Wow, have we come a long way!
⇧ Saudi Arabia: Fire at oil giant’s compound kills at least 10
A fire at a residential compound for foreign workers of Saudi Arabia’s state-owned oil giant on Sunday has killed at least 10 people and injured more than 250.