Linking ≠ endorsement.
⇧ Paris fire: Man arrested after eight die in apartment blaze – BBC News
French police have arrested a man suspected of starting a fire that killed eight people, including two children, in northern Paris.
The apartment block blaze in the 18th district of the French capital broke out in the early hours of Wednesday, and took more than 100 firefighters to contain it.
China’s slowdown, volatile financial markets and tumbling raw-materials prices have raised the risks to economic growth around the world, the International Monetary Fund reported Wednesday.
In June, IMF Managing Director Christine Lagarde advised the Fed to delay a rate hike until 2016. She argued that the risk of raising rates prematurely — and damaging the U.S. and global economies — outweighed the risk of waiting too long and allowing inflation to creep up.
⇧ Chinese flee stocks to buy foreign real estate
The rush into world markets has taken place despite an annual limit of $50,000 on the amount of money an individual can move out of China.
Those restrictions mean that investing abroad takes more planning — for example, moving money out over a long period of time, or securing approvals to send large sums abroad — but it’s clear that investor interest isn’t going away.
Well, two things:
First, the Chinese leadership would be remiss were it not to clamp down on money fleeing China.
Second, after money does leave but the Chinese economy continues to weaken and loans in China must be repaid by those still living there, just how much of the money that left will be brought back in to cover those debts?
On the second one, many of the losses so far have been in the stock market, where only 15% of the Chinese people were invested. Also, the savings rate in China has been high because other than real estate, there hasn’t been much alternative for sinking one’s money into investments. Therefore, many citizens aren’t in debt so won’t have to move money back in to cover loan payments or to pay off debts.
The leadership could, however, try to force people to repatriate money if the leadership can even trace it.
⇧ 10 Cities Where Foreclosures Still Haunt The Housing Market – TheStreet
… the housing market is still on solid ground, with the eight-year low in cash sales combined with the eight-year high in overall sales volume in the first half of the year evidence that housing is successfully transitioning from an investor-driven recovery to one that is drawing in traditional buyers as a good foundation for sustainable growth going forward,” says Daren Blomquist, vice president at RealtyTrac. “That’s not to say there are no cracks in the foundation of this recovery, the top three of which are housing affordability — or lack thereof in some high-flying markets — along with overdependence on capricious cash buyers — both foreign and domestic — in some markets, and the persistent overhang of underwater homeowners who continue to represent heightened default risk given any future economic shockwaves.”
⇧ Student Housing Sector Leaders Discuss the Trends of the Past Five Years and Look Ahead. | Student Housing content from National Real Estate Investor
The federal government is considering providing free community college education. While this prospect may seem like a solution to a variety of challenges, supporters may underestimate the cost restrictions and regulations that may come along with federal support.
More people going to community colleges will mean more of them ending up at four-year schools and in graduate schools too.
There’s also a movement that wants community colleges to become four-year schools. I’m all for it.
I’m also all for college and grad school being about as expensive for a student as going to high school is now. That means housing and food, etc., being thrown into the deal. That wouldn’t hurt student-housing investors for the most part. What’s going to really change student housing is online, fully accredited diplomas.
Of course, current student housing can always be transitioned into housing for the general public.
⇧ Inflation Is Tepid, but Shelter Costs Are Above Trend
Inflation has been relatively low for an extended period. However, not all price growth has been depressed. Shelter costs, such as rent, have been growing at a rate above trend for quite some time.
The figure below shows the St. Louis Fed’s inflation heat map, updated through July. Each colored box represents the relative level of inflation for a given consumer price index (CPI) component for a particular month.1 The deeper the color, the further from the component’s mean in terms of standard deviations.
Most boxes for July are a shade of blue, indicating that the component indexes are under trend. However, the two largest shelter components measured in the map—owners’ equivalent rent of primary residence (OER) and rent of primary residence—have been above trend for the past several months.
⇧ China’s economy: no collapse, but it’s serious, and so are the politics | George Magnus
We’ve gone from most economists and pundits suggesting a soft landing to not a collapse. That’s progress for seeing reality as it really is.
Given what has happened to investment and construction this year, one could imagine that the unemployment rate has climbed since the end of 2014. This is way more important than GDP from a policy and political perspective, and the more policy is eased, the greater the concern will be about labour market conditions.
What has really set the cat amongst the pigeons this summer is the juxtaposition of a weakening economy, and the cack-handed manner in which the authorities managed the mini-devaluation of the yuan and the frantic attempt and failure to prop up the stock market. …
… To all intents and purposes, meaningful reforms of SOEs, and local government finance functions and structures, and a retreat of the State from the commanding heights to make way for the private sector and markets, had already run aground. So, the latest developments are not promising, and may imply that those most enthusiastic about reforms are now on the back foot.
This is what markets and commentators may finally have realised.
George is still somewhat underestimating China’s political problems, but it’s good to see him give over so much of his thinking and writing to the issue.
What’s at stake: This week’s data renewed concerns about developments in global trade as it showed for the last 6 months the biggest contraction in global trade since the end of the financial crisis. While cyclical factors may be at play, trade specialists have also advanced a host of structural explanations to explain the decline in the trade elasticity, ranging from a shift in the composition of trade to limits in the fragmentation of world production.
Arnold Kling writes that as incomes rise in China and India, the “Samuelson effect” starts to kick in. That is, the comparative advantage of cross-border trade is reduced. More production is done in China when American wages are 10 times Chinese wages than when they are only 4 times Chinese wages (using made-up numbers here). Also, as the cost of robots comes down, they displace workers in all countries, and this also reduces the comparative advantage of cross-border trade.
⇧ The end of China’s growth model – The Boston Globe
One reason why the Chinese can build things quickly is because the government can forcibly relocate a large number of residents at a fraction of the cost that would have been required in a democracy. Foreign executives are among the most enthusiastic about this authoritarian efficiency because it allows them to open and operate their businesses at low costs. The hard economic logic provides a different perspective. Keep in mind that a cost to one person is an income to another person. The Chinese way of building infrastructures reduces the costs to the businesses but also the income to Chinese households.
To get out of this bind requires more economic and political reforms and less stimulus measures. The most dangerous aspect of China’s growth model is its addiction to debt and to the idea that gimmicks, such as inflating asset bubbles, are real policy solutions. The most meaningful reforms call for a less intrusive and a more accountable state and a government that earns its legitimacy not by impressive GDP statistics but by the public services it provides.
⇧ Coppola Comment: The real purpose of central banks
Suppose that we did what Bill wants, and abolished the central bank. Government would become its own central bank: it would spend directly into the economy by crediting private sector bank accounts, and would drain excess money through a programme of differentiated taxes. I’ve noted before that taxes and interest rates are essentially the same thing but with different distributional effects. Both control the amount of money in circulation. But interest rate changes indirectly influence private sector saving and borrowing, whereas tax changes directly affect private sector spending. We might expect, therefore, that tax changes would be both more powerful and more immediate in their effects than interest rate rises – though strangely, the mainstream economic community seems to think the reverse is the case.
In theory, therefore, this could work.
Interest unfairly and undemocratically rewards some (people pre-positioned via a rigged system favoring themselves) over others. With a guaranteed income and one bank account at the one and only bank (the government’s treasury), we wouldn’t need taxes. The bank would simply reduce the money supply by reducing all accounts proportionally. If the economy were 100% democratically controlled on a simultaneously decentralized and centralized basis, funds would flow to productive projects and the fear of politicians would be removed from the equation.
⇧ Risk of financial crisis higher than previously estimated | EurekAlert! Science News
“Previous studies of systemic risk had just examined one layer of this system, the interbank loans,” says Poledna. The new study expands this to include three other layers of connectivity: derivatives, securities, and foreign exchange. By including the other layers, Poledna and colleagues found that the actual risk was 90% higher than the risk just from interbank loans.
Poledna points out that the new method may still underestimate systemic risk, as it leaves out two additional potential sources of risk – overlapping investment portfolios, and funding liquidity.
⇧ Low-Income Workers See Biggest Drop in Paychecks – The New York Times
Despite steady gains in hiring, a falling unemployment rate and other signs of an improving economy, take-home pay for many American workers has effectively fallen since the economic recovery began in 2009 ….
The declines were greatest for the lowest-paid workers in sectors where hiring has been strong — home health care, food preparation and retailing — even though wages were already below average to begin with in those service industries.
… even as labor productivity has improved steadily since 2000, the benefits from improved efficiency have nearly all gone to companies, shareholders and top executives, rather than rank-and-file employees.
That’s what I’ve been writing here for years now.
⇧ Steady decline, seasonal minimum approaching | Arctic Sea Ice News and Analysis
August saw a remarkably steady decline in Arctic sea ice extent, at a rate slightly faster than the long-term average. Forecasts show that this year’s minimum sea ice extent, which typically occurs in mid to late September, is likely to be the third or fourth lowest in the satellite record. All four of the lowest extents have occurred since 2007. [emphasis added]
⇧ US Council of Economic Advisers gets dynamics of long-term interest rate wrong — Prime Economics
After only four years in in office, Roosevelt had reduced the nominal corporate borrowing rate by around half (chart A). In the meantime he had reflated the economy, so the average real rate over 1934 to 1937 was 2.2 per cent. (Then followed the imposition of a deflationary policy leading to the recession of 1938, but these actions were quickly and decisively reversed.) Over the comparable four-year period today (starting two years after the peak nominal rate of 7.4 per cent in 2008), real rates over 2010-2013 were 3.7 per cent. While nominal corporate rates match that achieved by 1936, the deflationary (or rather at present disinflationary) tendency has not been arrested. The CEA publish their analysis at a time when real rates are rising rapidly, and virtually at a five-year high (a point normally ignored in the deflation debate).
What are credit-card rates on average right now? Such rates were illegal at one point. Look at the payday-loan rates people have paid too.
⇧ Zillow Visits Miami, Where Affordability and Transportation Are Top of Mind | Zillow Blog
… changed his mind about homeownership being an important goal for everyone. If he were HUD secretary today, he said, “I’d be more concerned about rental affordability than making people homeowners.”
⇧ Quantitative Easing for People: The UK Labour Frontrunner’s Controversial Proposal | WEB OF DEBT BLOG
The Bogus Hyperinflation Threat
Dire warnings of Zimbabwe-style hyperinflation have been leveled against quantitative easing (QE) ever since the Federal Reserve embarked on it in 2008. When the European Central Bank announced in January 2015 that it, too, would be engaging in QE — along with the US, the UK and Japan — alarmed commentators warned of currency wars, competitive beggar-thy-neighbor devaluations and hyperinflation. But QE has been going on since the late 1990s, and it hasn’t happened yet.
The issue is simple. Money created that just sits there, doesn’t heat up anything. Money channeled to things that move it along, heats things up. Create too much money that moves quickly, you’ll get inflation. Create the right amount to match supply and demand, you’ll get as much equilibrium as possible but not necessarily growth. Channel the right amount of newly issued funds into new projects that will hum along with all the other projects, you’ll get growth without inflation or deflation. This can all be decided and operated under a super democracy and with the transactions data being collected and utilized in real time by automated systems in the single-bank/treasury.
I’ve been trying to explain this to laypeople and economists for close to a decade. It’s starting to catch on.
My contributions are the single-bank idea and especially original with me, the real-time, all-transactions concept.
There are others who want the single bank, but they seem to put insufficient emphasis upon a fully informed, nearly direct democracy making the local economic choices that are aggregated on a national and even global basis.
We can’t go at it the way they went at creating the EU. We need to do it all together to the greatest extent possible if we’re to avoid artificial crises and avoid needless delays in completely eliminating poverty worldwide and in much less than a generation.
⇧ Put to the Test: Are the 2%, 50% & 70% Rules REALLY Useful?
The best tool to evaluate what an apartment’s expenses will be is an operating history from the seller. Failing that, trying to patch a pro forma together from every piece of information and experience you have is second best.
You can’t simply trust the seller’s data either, even if the seller isn’t trying to pull a fast one. Sellers can make honest mistakes too.
⇧ AEP: Lucky Britain to win 21st century jackpot from carbon capture – Telegraph
The Canadian utility SaskPower has already retro-fitted a filtering system onto a 110 megawatt (MW) coal-fired plant at Boundary Dam, extracting 90pc of the CO2 at a tolerable cost. It used Cansolv technology from Shell.
“We didn’t intend to build the first one in the world, but everybody else quit,” said Mike Monea, the head of the project.
“We have learned so much from the design flaws that we could cut 30pc off the cost of the next plant, but it is already as competitive as gas in Asia,” he said. The capture process uses up 18pc of the power – a cost known as the “parasitic load” – but it is less than the 21pc expected.
Visitors from across the world have been flocking to the plant, especially the Chinese, but also officials from Britain’s Department of Energy and Climate Change (DECC).
90% leaves 10%. If the 90% looks attractive, they’ll build 10 times the number of power plants resulting in a net gain in CO2 emissions.
Okay, let’s say that the technology continues cutting that 10% down, down, down and that all the existing plants could be retrofitted. We’d still have the mining and other environmental issues. CO2 is far from the only consideration.
In the US, coal mining has meant mountaintop removals where the leftovers are dumped in the valleys, blocking streams or severely polluting them. That’s just the tip of the mountain of problems too.
⇧ Okanogan Complex and Chelan Complex Fire Update 9/2/15, 9 a.m. – Okanogan Valley Gazette-Tribune
Current Size:147,979 acres
Containment: 45 percent
Estimated Cost to Date: $16.4million
Residences Burned: 123
Current Size: 93,694 acres
Containment: 55 percent
Estimated Cost to Date: $12.9 million
Residences Burned: 21
⇧ Cooler weather aids firefighting efforts in Pacific Northwest, but danger still lurks | OregonLive.com
“While the small amount of rain was a welcome relief, we are far from putting this fire season to bed.”
See also: https://www.propertycasualty360.com/2015/09/02/massive-wildfires-stretch-resources-across-multipl
⇧ NLRB’s joint-employer decision opens worker benefits to potential changes | Business Insurance
This is pretty detailed coverage on the as of yet murky NLRB ruling.
⇧ mainly macro: Spain, and how the Eurozone has to get real about countercyclical policy
Just how many years and recessions does it take before what is obvious textbook macroeconomics can become politically acceptable?
The answer is that it will take as long as it takes for the common people/voters to be fully educated in the possibilities. The elitists already know full well how the economy works, and they want it to remain rigged in their favor and the people ignorant about it all.
So, when a fully informed democracy overcomes money is the answer.
How do you get the word out to everyone? How do you breakthrough the censoring efforts of the elitists who literally control the mainstream media? How do you keep those elitists from shutting down the open Internet / net neutrality?
⇧ Hyper-Gentrification Comes to Miami | Zillow Blog
I don’t know about you, but I’m favorably impressed by Zillow’s coverage of such sensitive issues. They are apparently trying to remain objective and to “tell it like it is” regardless of others (who will remain nameless here) who hype the real-estate industry.
“To quote an Overtown resident, ‘that’s a dying wage,'” Adams said. “Most of the employees are going to be women, many of them single mothers and many of them minorities. Those individuals won’t be able to live nearby if they aren’t able to make a living wage.”
That’s one reason (among so many) why affordable housing everywhere is so important right now.
⇧ The Guardian view on China’s meltdown: the end of a flawed globalisation | Editorial | Comment is free | The Guardian
… this is not some mythical clash between communist and capitalist values: the authoritarian Middle Kingdom will remain capitalism’s iPhone factory.
… Eight years ago, a wise man described China’s economy as “unstable, unbalanced, uncoordinated and unsustainable”. That expert was Wen Jiabao, then the country’s prime minister.
“… is not some mythical clash between communist and capitalist values”? Sure it is. The Chinese leadership is ripped in half. More importantly, it’s a real clash between authoritarianism and democracy.
Look, Wen Jiabao was completely correct, and the current Chinese leadership (heading up the one-party, anti-democracy dictatorship) can’t hold is together. Apple would be ridiculous to continue doing business with them now that the low-hanging “capitalist” fruit has all been picked.
China becomes democratic or fails. It’s that simple.
The debts of the government in the USA are $46.1 trillion and the USA’s actual GDP is $14.77 trillion, which makes the US government debt to GDP ratio 312%. The reason why the US government borrowed too much money is because of too much military/war/secret police spending. The endless wars need to end. The secret police state USA needs to end too. We want peace. We want our freedom back too.
A financial and economic collapse in the USA is imminent if steps are not taken immediately to pay down the gigantic governmental debt in the USA. Steps to accomplish this were outlined: healthcare reforms, one Social Security pension for all with enhanced benefits and higher taxes on the rich. Then there’s the weakest link. The hundreds of trillions of dollars worth of derivatives, written by the wall street people, will be terminal to the USA when even a small fraction of those derivatives go bad, intentionally or unintentionally.
Well, the Fed rate can go below zero. Plus, it’s not at zero now and never has been. I’m quibbling though with that intro.
Here’s where I won’t quibble. When comparing national governmental debts to GDP’s, it is necessary to compare apples to apples as much as possible. Is (are for the ancient Romans) the data being compared straight across to Japan and Brazil, etc., here? I know it’s not.
Also, just look at Japan’s debt ratio for the last several decades. Where’s their hyperinflation? They don’t have it. In fact, they’re having a huge problem with disinflation still.
So, does all of that mean that this article is useless or whatever? No. What’s missing, however, is a genuine understanding of Modern Money Theory. The article is simply contaminated with Austrian School ideology. Otherwise, it’s quite good.
Anyway, see above for my explanation of price inflation. We don’t have to be afraid of anything except for allowing the system to remain rigged for the plutocrats. The sooner we un-rig it, the better.
⇧ House sales plunge in Calgary as energy sector job losses mount – The Globe and Mail
Alberta’s oil-dependent economy is now expected to contract by 0.6 per cent this year and its deficit could top $6.5-billion (Canadian) as the downturn intensifies, the province’s NDP government said this week.
However, the deteriorating outlook has yet to fully register across the city’s residential real estate market.
… man has been charged with trying to defraud his insurance company by falsely reporting a burglary.
The greatest threats to the economies of the 15 Southeast Asian cities analysed are from wind storm ($68.29 billion), followed by market crash ($60.8 billion), human pandemic ($30.74 billion), earthquake ($30.06 billion), and flood ($22.48 billion).
It just goes to show how important it is to stop allowing the rigged economic system worldwide, which causes market crashes and makes it that much more difficult to cope with other disasters.
⇧ UPDATE 1-Dutch court: gas producer NAM must compensate homeowners in quake zone | Reuters
A Dutch court ruled on Wednesday that gas producer NAM must compensate homeowners for falls in the value of their properties due to earthquakes linked to gas production at the Groningen field in the north of the Netherlands.
It’s a cost of carbon burning as a source of energy.
⇧ Wildfires around Lake Baikal are ‘close to catastrophic’, say WWF
While we’ve had a rough go with wildfires in Washington and Oregon and California, Russia’s been hit hard as well.
According to the World Wide Fund for Nature, some 450,000 hectares are ablaze across Russia with the worst-hit areas in Irkutsk region and the Republic of Buryatia – around Lake Baikal – and the Amur region and the Sakha Republic, also known as Yakutia.
For more photos, see: https://siberiantimes.com/ecology/casestudy/news/n0378-the-destruction-wrought-by-wildfires-around-lake-baikal-leaves-physical-and-emotional-scars/
⇧ Housing Market Squeezing Families Into Homelessness – CBS Denver
“It makes me sick to my stomach that a family like Lisa’s who has been approved for housing is still living on the streets,” Hernandez said.
There is no justifiable reason we can’t employ and house everyone. It is not because we can’t pay for it without causing hyperinflation.
⇧ GRESB 2015 Survey Points to Continued Improvement by Global Real Estate Sector | REIT.com
Results from the 2015 survey indicated that, in the last year, the global commercial real estate industry achieved a 3.0 percent reduction in greenhouse gas emissions, a 2.9 percent reduction in energy consumption and a 1.7 percent reduction in water use. On-site renewable energy generation rose to 445 gigawatt hours (GWh), a 50 percent increase from the 2014 survey.
⇧ High end housing market cooling off – The Boston Globe
The competition is a noticeable shift, real estate brokers said, from the go-go days of the past few years, when it felt as if landlords held all the cards and rents could only go up.
⇧ RealtyTrac: Nearly 40m homes at high risk of natural disater | HousingWire
“In most cases learning about natural disaster risk will not stop a home sale, but it will help buyers make a better-informed decision about where to buy and also be prepared in terms of appropriate insurance coverage and family contingency plans depending on the type of natural disaster risks most affecting the home they end up purchasing,” Blomquist added.
⇧ Construction emerging as strongest sector of the economy – MarketWatch
“The overall impression from the past few months is that the construction sector overall is the strongest part of the economy, with spending up at a remarkable 26% annualized rate in the three months to July,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Manufacturing spending is up 73.1% over the past year….
Economists are still not convinced that manufacturing gain is sustainable.
⇧ Economist’s View: The Divergence Between Productivity and Pay
If the hourly pay of typical American workers had kept pace with productivity growth since the 1970s, then there would have been no rise in income inequality during that period. Instead, productivity growth that did not accrue to typical workers’ pay concentrated at the very top of the pay scale (in inflated CEO pay, for example) and boosted incomes accruing to owners of capital.
Policies to spur widespread wage growth, therefore, must not only encourage productivity growth (via full employment, education, innovation, and public investment) but also restore the link between growing productivity and the typical worker’s pay.
⇧ mainly macro: Letter wars, and how policy is made
I think most people imagine politicians outside government as having at their disposal a huge network of assistants, each of which is plugged into a huge network of advice coming from individuals and think tanks. There is certainly a huge amount of advice out there, but you need some knowledge to filter good from bad, research based ideas from ideological ones etc. And that is the problem: there is no army of experienced assistants doing that job. Politicians instead often have to rely on a few (generally political) contacts and perhaps one or two inexperienced assistants.
Well, politicians need to read and to speak directly with a wide array of people from different backgrounds and with different ideological perspectives to hear them all arguing over policies and practices, etc.
More importantly, we need greater direct democracy so that all of us can debate on an even playing field not controlled by how much money any of us has.
⇧ The Oil-Sands Glut Is About to Get a Lot Bigger – Bloomberg Business
All told, about 800,000 barrels a day of oil sands projects have been delayed or canceled, according to Wood Mackenzie Ltd., a research consultant.
After the last prolonged price downturn in 1986, no new major oil sands plants were started well into the next decade. The projects caught in midstream today may again be the last ones built for the foreseeable future….
⇧ Agency Seeks Chinese Fugitives – Bloomberg Business
Efforts such as these may ramp up quite a bit for Chinese capital-control reasons.
“The trend is for those who embezzled a big sum of money or held the highest positions to flee to the U.S.,” Fu says. “If one country becomes the destination of many fugitives that we can’t bring back, more will go there.”
⇧ Varoufakis: I don’t think Tsipras believes in bailout
“Alexis Tsipras was wrong to back down, he should have gone with Yanis Varoufakis’ plan to introduce a parallel currency instead of folding at the last minute and agreeing to these desperately onerous conditions, which are only going to repeat the mistakes of the past,” Legrain told CNBC on Friday.
That’s exactly the position I too have been maintaining.
⇧ New policies result in fewer properties going to auction in Warren County
The county Real Property Tax Services office and treasurer’s office have been working to make sure that property owners are made aware of payment plans and given the chance to use them.
That has resulted in the list of properties that could be auctioned off dropping from 195 in early July to 35 as of this week.
⇧ This Was to Be the Year of Bigger Wage Gains. It’s Not. – The New York Times
… a wide range of economic measures points to the same sluggish pay rises in 2015 that American workers witnessed in 2011 and every year since. The giant question hanging over the United States economy — for workers hoping to see a raise, employers trying to decide whether to give them one, and the Federal Reserve as it decides when and how much to raise interest rates — is whether that is poised to change soon.
“If we continue to get good job reports where we’re adding over a couple hundred thousand jobs a month, eventually we’ll see the pace of wage growth accelerate,” Mr. Bernstein said. “I think that connection remains a viable one. It just hasn’t happened yet because there’s a lot more slack in the job market than the topline numbers suggest.”
… map of all the under construction and planned fixed guideway transit projects in the United States.
Values typically rise near new mass transit.
⇧ The Latest on Rent Growth | Commercial Property Executive
Scott Baltic reporting:
“Multi-family rent growth in the U.S. remains exceptionally strong, but the stock market volatility is a warning sign that above-trend increases are not likely to continue,” Paul Fiorilla, associate director of research at Yardi, told Commercial Property Executive. “Even though the drop in equity prices was caused by outside factors — such as slower growth and currency devaluation in China, and worries that U.S. stocks were overvalued after a long bull run — recent history has shown that exogenous events can impact commercial real estate.
⇧ Are emerging markets in crisis? | FT Markets – YouTube
The word crisis is starting to be used to define the slowdown in emerging markets, but how serious is weakness in the developing world? The FT’s Jonathan Wheatley and James Kynge say the most distress is among emerging market commodity exporters.
⇧ Employment Situation Summary
Total nonfarm payroll employment increased by 173,000 in August….
August figures are notorious for being significantly revised.
Anyway, 173 thousand isn’t very good.
I still think there’s a great deal of slack. Many people would come out of forced, early retirement were the call for workers to actually reach their ears.
If there are so many unfilled jobs out there, than the government should do mandatory public service announcements through all sorts of media channels to get the word out.
⇧ Other People’s Dollars, and Their Place in Global Economics – The New York Times
Good points from history, by Paul Krugman:
In Europe, you often hear the claim that opting out of the euro, choosing either to retain or to restore one’s national currency, would be disastrous. A dozen years ago, when Swedish voters rejected the euro, they did so despite overwhelming insistence by the elite that doing so would be a terrible mistake. But the elite were wrong, and that should have been made obvious by the example of Canada, which has done fine, and retained a lot of monetary autonomy, despite its close ties to the superpower next door.
Second, we learn that what right-wingers call currency “debasement” — a decline in a currency’s value in terms of other currencies — can be a very good thing. Canada was able to combine spending cuts with strong growth in the 1990s because exports were raised by the depreciation of the loonie. Australia rode through the Asian financial crisis of 1997-98 with little damage thanks largely to a falling Aussie. In both cases times would have been much tougher if the countries had been using U.S. dollars, or worse yet been on the gold standard.
Third, we learn that people pay far too much attention to the role national currencies play in the international monetary system.
When reading this article, keep in mind Paul Krugman’s article above. This one adds a great deal of detail.
Devaluation is now the preferred tool to reinvigorate slowing economy.
I wonder how long it will take the world to realize that the current international monetary system is fatally flawed.
Currency values are internationally relative. If they all go up or down by the same, they all stand still in terms of advantage/disadvantage. That part is well known. The part that isn’t well known is that it means the system is fundamentally wrongly designed.
The only “advantage” to it is exploiting the ignorance of others, but it that really an advantage. I think it’s a drag on global growth, general prosperity, and the quality of life of every single person on the planet.
⇧ Deflation and money | VOX, CEPR’s Policy Portal
Hiroshi Yoshikawa, Hideaki Aoyama, Yoshi Fujiwara, and Hiroshi Iyetomi:
Systemic co-movements of micro prices are conditioned strongly by the state of the macroeconomy. Then, which aspects of the macroeconomy are crucial for the price changes? Figure 3 shows the relevant result for the first (most important) comovement mode, showing that only “Overtime” and “Exchange rate (yen/US$)” have a significant correlation with prices, followed by “Wage Index,” “Unemployment rate,” and “Crude oil price,” but never with “Monetary base” or “Money Stock”.
Painted in that picture is velocity. Let’s not forget that tightening the money supply during the Great Depression proved disastrous and that tight money (austerity) during the Lesser Depression also proved contractionary. It is the movement of money in the real economy via productive transactions that matters.
⇧ Paul Krugman: Australia can weather a Chinese economic downturn | Business | The Guardian
Here’s Krugman making clear how to take advantage of the current monetary system I called flawed.
if [for example] you’ve give[n] up your own currency then you’re in trouble, and if you’re very vulnerable financially — if you’re very heavily indebted in foreign currency then you’re vulnerable. But last I looked Australia has neither of those characteristics.”
However, if there were one global currency and fiscal transfers globally too, then there’d be none of these issues (provided everything were truly democratic/fair).
⇧ EconoMonitor : EconoMonitor – Helicopter Money, Central Bank Independence and the Unlearned Lesson From the Crisis
This is a very long and jargon-ladened article. However, it does make the case for debt-free currency (money put into circulation without issuing any bonds).
Coordination is optimal when policymakers recognize that combining monetary and fiscal policies yields the greatest ‘bang for the buck’ by effecting the largest demand shock achievable within the shortest time span possible at the least social cost practicable, based on given output gap and inflation target. Optimal policy coordination under exceptional circumstances (like, for instance, secular stagnation) would take the form of money financing of fiscal deficits, also known as ‘helicopter drops’ of money (henceforth, HM), whereby monetary and fiscal policies are jointly used to support aggregate spending consistently with full utilization of economic resources and low and stable inflation. An example of HM would be a broad-based tax cut or public spending program accommodated by a central bank program of open-market purchases to alleviate any tendency for interest rates to increase and dampen the impact of the tax cut on spending (Bernanke, 2002).
As Cecchetti and Schoenholtz (2015) remark, the real or perceived threat arising from episodes in which there are significant central bank capital losses is political, not economic, since the expectation of recapitalization from the fiscal authorities might cause the central bank to operate with less independence (and, hence, less credibility) for it to be able to obtain, or to avoid the need for, recapitalization. Ultimately, the risk is one of “policy insolvency” or “policy bankruptcy” for cases where the only way for the central bank to assure long-run profitability — absent transfers from the government — is to increase base money at a rate inconsistent with the policy objective. Wren-Lewis (2015c) dismisses this argument as very weak, as it implicitly assumes that central bank independence is about protecting the pub lic from a government that actively pursues high inflation. In fact, as he argues, a government that wanted high inflation would not let an independent central bank stand in its way anyway.
The article is good to point out that nothing should be off the table concerning monetary reform. Well, I’ll add that, that must include banking reform as well.
I’ll also repeat my call for doing away with the private central bank in the US (the Fed) by absorbing it into the US Treasury Department, which should be the one and only bank, a totally public bank run as a national utility for all the people’s equal benefit.
⇧ The Art of Capital Flight by Kenneth Rogoff – Project Syndicate
… there are many ways of moving money in and out of China, including the time-honored method of “under and over invoicing.”
For example, to get money out of China, a Chinese seller might report a dollar value far below what she was actually paid by a cooperating Western importer, with the difference being deposited into an overseas bank account. It is extremely difficult to estimate capital flight, both because the data are insufficient and because it is tough to distinguish capital flight from normal diversification. As the late MIT economist Rüdiger Dornbusch liked to quip, identifying capital flight is akin to the old adage about blind men touching an elephant: It is difficult to describe, but you will recognize it when you see it.
Many estimates put capital flight from China at about $300 billion annually in recent years, with a marked increase in 2015 as the economy continues to weaken. The ever-vigilant Chinese authorities are cracking down on money laundering; but, given the huge incentives on the other side, this is like playing whack-a-mole.
⇧ 1997 vs. 2015: Animation Compares El Niños Side-by-Side | Climate Central
Right now, it is unclear how this warm patch will interact with the typical El Niño impacts (which aren’t guaranteed to materialize). That warmth could mean that any storms that hit drop more rain instead of much-needed snow that could help replenish depleted reservoirs.
⇧ How We Know What We Know Intentional Ignorance – How We Know What We Know
This astrophysicist pulls no punches.
Cable news will tell you there is scientific controversy about this, but they misrepresent the facts. When 97 percent of the research in a field agrees, that’s about as close to consensus as you are ever going to get, especially when there is a huge payday for disagreeing. Drexel University researchers found that between 2003 and 2010, $558 million from untraceable sources was funneled to climate change deniers.
Like organ grinders’ monkeys, deniers do what they do. But as for serious people, according to the U.S. Navy’s Military Advisory Board — hardly a liberal cabal — “Climate change impacts are already accelerating instability … and are serving as catalysts for conflict.” Speaking for a bipartisan group of prestigious political, business, and academic leaders, former U.S. Treasury Secretary Robert Rubin summed it up well, calling climate change “the existential threat of our age.”
While the details are subtle, the basics of global warming are incontrovertible and easily understood. It is disingenuous and irresponsible to pretend otherwise. Politicizing climate change is like politicizing gravity. If you step off of a building, you fall and hurt yourself, regardless of your politics. Crippling NASA’s ability to observe Earth will not stop global warming; it will only leave us blind.
This is a risk-management issue. If you want insurance companies to stop issuing policies covering climate- and weather-related/caused losses, then defund our governmental and other scientists’ ability to openly collect, analyze, and disseminate the critical data.
Do we want to increase or decrease the risks of weather disasters?
⇧ State Supreme Court: Charter schools are unconstitutional | The Seattle Times
How might this impact your tenants’ choices about moving to or from your rental units due to school choices?
Chief Justice Barbara Madsen wrote that charter schools aren’t “common schools” because they’re governed by appointed rather than elected boards.
Therefore, “money that is dedicated to common schools is unconstitutionally diverted to charter schools,” Madsen wrote.
Justice Mary E. Fairhurst agreed with the majority that charter schools aren’t common schools, but argued in a partial dissenting opinion that the state “can constitutionally support charter schools through the general fund.”
What I’m wondering is just which other things the government pays for are not governed by elected boards? How many governmental contracts will be impacted?
⇧ Sweden plans mandatory mortgage repayment to cool housing market | Reuters
Not a good idea:
Currently, around 70 percent of Swedish home owners have interest-only mortgages, meaning they do not pay off any of the principal of the loan they have borrowed.
⇧ Why real estate needs Tesla-style buildings, used ‘Uber-style’ | GreenBiz
In 2015, 707 property companies and funds were rated by GRESB, representing $2.3 trillion in commercial real estate and some 61,000 assets. The 2015 GRESB data shows that the global real estate sector is increasingly integrating environmental, social and governance considerations into corporate policies and business strategy, and, critically, backing this up with on-the-ground implementation and improvements in performance.
“GRESB is an industry-driven organization committed to assessing the sustainability performance of real estate portfolios (public, private and direct) around the globe. On behalf of more than 50 institutional investors, GRESB has assessed almost 1,000 property companies and funds globally.” See: https://www.gresb.com/
Home prices are [still] soaring in Seattle.
⇧ If You Ever Wondered Whose Side The Federal Reserve Is On… – Tim Duy’s Fed Watch
Wow! Tim Duy sounds just like me here.
… the Fed’s top priority is making sure the cards remain stacked against wage and salary earners.
What’s nice is that he supplies the graph to back it up. Thank you, Tim!
You see, it really is ultimately ideological. The Fed is of, by, and for the commercial-banking industry. It is definitely not of, by, and for the working people of America or a democratic economy.
Here’s the deal (and I’ve been thinking more and more and more about this lately, which is saying a great deal since I’m generally nearly always preoccupied with it), the Fed wants to raise rates so the commercial-banking-sector owners and top execs can earn more from that higher interest.
Raising rates right now has pretty much zero to do with the Phillips Curve or fears that the Fed won’t have room or time to move if inflation picks up.
The Fed knows full well that it can clamp down on the money supply and lending on very short notice and quite dramatically. It has a toolbox full of tools, some of which have yet to be rolled out during a boom or bust.
What the Fed and the banking industry of the mega banks don’t want to see is power getting into the hands of the working class because allowing that would mean less of the growing pie would be going to the top 0.001% but would rather be spread across the entire economy, as it should be (and extremely easily could be).
⇧ An Economy for the 99%: Josh Lerner and Connie Razza – YouTube
“Participatory budgeting” is another way of saying what I’ve frequently called direct or more direct democracy (which is the more traditional political-science terminology).
You’ll notice that this “Participatory Budgeting” is dealing with only a tiny, tiny part of the government’s budget and that the money still comes from the same source in the same way as it has for decades.
My plan is to handle the whole budget this way, not just a small part of it. Also, the source of the money would definitely not be via borrowing but rather come from direct fiscal spending of dollars created debt-free.
In addition, not only would the local spending be handled this way but the national budget would be as well.
As you also may know if you are a consistent reader of this blog, I’ve called for banking to be a public utility and for there to be one and only one bank: The US Treasury.
“Monetary-and-Banking-Reform Platform for The United States”: Here
Can budgets and even the federal reserve be brought under public control? One radical tool for grassroots democracy that is taking hold is Participatory Budgeting. Josh Lerner is co-founder and executive director of the Participatory Budgeting Project and is the author of two books, both released last year: Making Democracy Fun: How Game Design Can Empower Citizens and Transform Politics, and Everyone Counts: Could Participatory Budgeting Change Democracy? Also on the show: what is the Federal Reserve, and what role could it have? Connie Razza works with the Center for Popular Democracy and their “Fed Up” campaign, working to make the federal reserve work for the 99%.
⇧ The poisoned chalice | openDemocracy
There is no “rescue” going on here. There is no “rescue,” there is no “bailout,” there is no “reform” going on. I really need to insist on this, because these words creep into our discourse. They are placed there by the creditors in order for unwary people to use them, but there is nothing of the kind taking place. What is going on is a seizure of the assets owned by the Greek state, by Greek businesses and by Greek households. There is no sense that this has anything to do with the recovery of the Greek economy or with the welfare of the Greek people. On the contrary, the policy is utterly indifferent to those considerations.
I think one has to understand that the governing institutions here are not benign dictators acting in the general interest of the European population. First of all, they are acting at the direction of certain particular governments. Secondly, they are acting in the interest of their own institutional powers and, thirdly, in some cases to serve the political objectives of the people who are leading them.
At some point some country is going to make the decision that it really is impossible to achieve an effective transformation inside the euro and will take the jump and leave. At that point the course of history will change. That country might not be Greece, which is beaten down at this point, but it could be Ireland for example.
The Greek strategy was to kick the decision level up to Chancellor Merkel in the hopes that she would think of larger politics, that the US would play a role, and that she would say to Minister Schäuble “you’ve got to cut some slack.” In the end she did not do that and adopted the policy of pushing the Greek government to accept the Memorandum as it was.
… I think that it is clear that the eurozone is not being run on principles that are viable economically for the countries in the periphery: so something has to change. It is pretty clear that the direc tion of change is not going to go in the preferred direction, which is the one laid out by Yanis, Stuart Holland and myself that involves the strengthening of the economies of the peripheral countries within a unified framework.
An economic policy that consists in the asset-grabbing of the public sector and the private sectors of the debtor countries is not one which is going to be taken up very happily by the populations of those countries.
⇧ On CNBC discussing Greece and Europe — full transcript, 4th September 2015 | Yanis Varoufakis
Excellent statements by Yanis:
I want a viable agreement. Greece has been in the headlines, and you have been talking about us for 5 or 6 years now, because of extending and pretending. We’ve been having these kinds of MOUs that were not worth the paper they were written on. It doesn’t even need an economist to take a look at them, a 10 year old with some basic arithmetic skills would know that if you have an unsustainable debt, which we had in 2010, and you try to solve it by pretending it’s a problem of illiquidity, and piling up on it the largest loan in history on conditions of stringent austerity that would shrink the incomes from which the old and new loans will be repaid, a 10 year old knows that that cannot end well. It didn’t end well in 2011, 2012 but they’re continuing to do this.
Am I an economist? Guilty as charged. Am I a politician? I believe I am, my electors thought so and they elected me. As a citizen of Europe, I’m asking from my colleagues, all of the other politicians and economists, for a very simple common project: To end the extending and pretending.
The major incongruity is this: you have Germany and Wolfgang Schäuble insisting on a programme for Greece as a condition for Greece to remain the Eurozone. The Greeks want to be in the Eurozone, but they don’t want this programme. Schäuble understands that if this programme is implemented Greece will fail. But, at the very same time, it’s important to him — at least that’s what he thinks — that Greece remains under the iron fist of that programme in his dealings with Paris. So we have a chess board, and Greece is just a little pawn, to be sacrificed in a game that is not getting Europe far along the path towards consolidation.
Did we let them down? I think we did. We energized them to vote ‘No’ courageously in that referendum. 62% was just an astonishing result. And then, on that same night, we turned that ‘No’, into a ‘Yes’. We effectively bowed again to another extend & pretend. That was the night I resigned.
CNBC: I can’t help draw parallels as to what’s happening now with the transfer across Europe; with the breakdown of Schengen, the crisis management of the EU, the Eurozone and broader Europe as well. And compare that to other crisis. Be that the Greek debt crisis; whether it be broader crisis across Southern Europe as well. And when is comes to the crisis situation, the architecture still isn’t in place after six, seven years of crisis to deal with this as well. And actually, the Euro, the Eurozone at the moment, the movement of people. We’re still very much a half-way house where when push comes to shove, we still go back to our sovereign rules rather than some form of commonality.
You’re quite right; in the end we created a common currency which divided us. And the deeper those divisions grew, the greater the failure to be united when it came to other matters. For instance, the refugee crisis. For instance, ways of dealing with the dearth of investment throughout Europe. Instead of getting closer together we were torn apart. In the United States, in the 19th Century, there was one financial crisis after another. Even at the beginning of the 20th century — and especially after 1929. Every time, the United States faced a major financial crisis it managed to consolidate. To get closer together. To create institutions that were common and which created shock absorbers for the system. In Europe, the idea was that we must bind ourselves together by means of the same currency in order to create this process. But, the first time a crisis tested us, following the financial that began in Wall Street, the City of London, and so on — we failed. Instead of consolidating, we are dividing and multiplying. And failing at other realms. So Europe’s monetary failure is spreading to other realms.
⇧ Canada and Australia feel the squeeze in wake of Chinese economic slowdown | Business | The Guardian
Whether it’s coal or cocoa, iron ore or gold, when demand for natural resources is strong — as it has been through the long years of the Chinese economic miracle — workers, investment and political attention pour into extracting and exporting the precious stuff.
But commodities prices can be subject to violent changes – the oil price has more than halved since last summer, for example – and it is in the downswings when the resilience of resource-rich economies is seriously tested.
… there are fears that China may be set to experience a deeper and more damaging slowdown than Beijing has publicly acknowledged, which could have a profound impact on a whole string of countries that have built their growth model on China’s rise.
Even if a formal recession can be avoided in Australia, the human cost of the ending of what many market experts called the “commodities super-cycle”, and the boom-times it brought with it, will be severe.
⇧ I called this place ‘America’s worst place to live.’ Then I went there. – The Washington Post
Well, just goes to show that you shouldn’t automatically trust government indexes.
⇧ Thomas Palley – Blog Archive – Stop Fearing Full Employment
… calls for higher interest rates from Wall Street Hawks on grounds that higher core inflation is just around the corner. That is the same call we heard when the unemployment rate was much higher, and it is the same call we heard in the past two business cycles.
Philippe Legrain argues why deeper European integration right now isn’t feasible. Well, he’s right but perhaps for the wrong reason, depending.
Germany blew it. If that’s his position, then I agree. It sounds like he’s making that argument, but it’s tough to tell.
Had Germany risen to the crisis situation with open arms to its fellow EU/eurozone member states and their peoples, Germany would be the hero nation right now. The zone would be prospering as never before. Germany would be on top while being the servant nation.
What could be better other than full integration where Germany is less a unit than, say, the State of New York in the US is? Not much.
Instead, Germany was self-centered and as a direct result, shortsighted. Now the zone is in serious trouble, as Philippe has pointed out.
⇧ Machines take place of migrants as berry harvest booms | Concord Monitor
… Briana Mejia, a raker who has been coming to work the fields for seven years, said the trend toward machines and away from workers is clear.
“When someone builds a bigger, better machine that can do the gullies, what’s going to happen then?” Mejia said. “It’s all about making money.”
No human job is immune to automation. Therefore, we must plan our economy now for the quickly approaching day when there will be no necessary work for compensation to pay for the necessities of life. We must move now so that the benefits of automation will be fairly and equitably shared by the whole of humanity.
“Legionella bacteria likes to live in warm water so as water stands in pipes and as temperatures increase there is a more likelihood for that bacteria to grow.” Drummond explained, “Maintenance of all of your water systems and your heating and air conditioning, shower head.”
Multiple outbreaks of Legionnaires’ disease has rapidly spread out all through the country in in the last few weeks, together with one at San Quentin State Jail in California and one other within the South Bronx in New York Metropolis.
⇧ Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay: Why It Matters and Why It’s Real | Economic Policy Institute
Hugely important report by Josh Bivens and Lawrence Mishel:
Wage stagnation experienced by the vast majority of American workers has emerged as a central issue in economic policy debates, with candidates and leaders of both parties noting its importance. This is a welcome development because it means that economic inequality has become a focus of attention and that policymakers are seeing the connection between wage stagnation and inequality. Put simply, wage stagnation is how the rise in inequality has damaged the vast majority of American workers.
The Economic Policy Institute’s earlier paper, Raising America’s Pay: Why It’s Our Central Economic Policy Challenge, presented a thorough analysis of income and wage trends, documented rising wage inequality, and provided strong evidence that wage stagnation is largely the result of policy choices that boosted the bargaining power of those with the most wealth and power (Bivens et al. 2014). As we argued, better policy choices, made with low- and moderate-wage earners in mind, can lead to more widespread wage growth and strengthen and expand the middle class.
This paper updates and explains the implications of the central component of the wage stagnation story: the growing gap between overall productivity growth and the pay of the vast majority of workers since the 1970s. A careful analysis of this gap between pay and productivity provides several important insights for the ongoing debate about how to address wage stagnation and rising inequality. First, wages did not stagnate for the vast majority because growth in productivity (or income and wealth creation) collapsed. Yes, the policy shifts that led to rising inequality were also associated with a slowdown in productivity growth, but even with this slowdown, productivity still managed to rise substantially in recent decade s. But essentially none of this productivity growth flowed into the paychecks of typical American workers. Second, pay failed to track productivity primarily due to two key dynamics representing rising inequality: the rising inequality of compensation (more wage and salary income accumulating at the very top of the pay scale) and the shift in the share of overall national income going to owners of capital and away from the pay of employees. Third, although boosting productivity growth is an important long-run goal, this will not lead to broad-based wage gains unless we pursue policies that reconnect productivity growth and the pay of the vast majority.
This growing gap between pay for typical workers and economy-wide productivity is not just a niche problem in the labor market. In fact, labor market problems are never niche problems for the vast majority of American households. Labor earnings constitute the predominant source of income for the middle-income families in the U.S. economy and those in the bottom fifth. Profound failures in the labor market hence have huge impacts for nearly all households, except those reliant on capital income (in the top 1 and 0.1 percent).
The entirety of the gap between productivity and hourly pay growth is income accruing somewhere in the economy besides the paychecks of typical workers. Mostly, this “somewhere” has been in the pockets of extraordinarily highly paid managers and owners of capital. While the rise in transfer income (government programs such as unemployment insurance and Social Security and Medicare) has blunted some of the sting of the growing gap between pay and productivity, even this transfer income has grown much more slowly in the post-1979 period relative to before. Further, transfer incomes are a much smaller share of typical household incomes than are labor earnings, so it would have taken a huge increase in these transfers to fully compensate for the near stagnation of hourly pay. This has not happened.
It is also a fact that this delinking of typical workers’ pay and economy-wide productivity is intricately connected to the extraordinary rise in income inequality and income concentration that has focused so much attention in recent years.
Finally, it also seems worth noting that this decoupling coincided with the passage of many policies that explicitly aimed to erode the bargaining power of low- and moderate-wage workers in the labor market. It seems to us that this is a fruitful place to look for explanations for the gap and for policies that will shrink the gap. …
As this report has shown, pay of the vast majority of Americans has been stuck for decades, even though productivity and earnings at the top are escalating.
This is a solvable problem. It can be traced to policies that have allowed labor standards, business practices, and ideas of fairness to increasingly favor employers at the expense of working people.
⇧ How Much Income Should I Allocate to Taxes as an Entrepreneur?
My clients who are real estate agents and business owners (flippers, wholesalers, etc.) often ask me how much of their profits they should be allocating toward taxes. They are sometimes surprised when I tell them that they should be earmarking upwards of 35% of their profits for taxes. My response is generally met with a mix of shock, sadness, and anger—and rightfully so.
Well, I’m not anti-taxes (though I disagree with the public policy of estimated taxes), but the advice in the article is pretty sound in my non-tax-accountant view.
⇧ President Nixon: The Man Who Sold the World Fiat Money | CFA Institute Enterprising Investor
I’ll let someone else answer this article. Here’s a comment from below the article:
You wrote, “All else being equal, inflation would be greater. Likewise, as government debt rises, inflation is less than it otherwise would be. So, you can think of government debt as a reservoir of potential future inflation.”
And how do you explain our current non-inflationary status and high total debt? What about Japan? Nation’s issuing their own sovereign currencies can pay any obligation denominated in their own currency at any time. Debt isn’t the problem. Reaching full employment is the problem. Doing so reduces the accumulation of debt.
What happens in your gold standard world when the supply of gold is constrained?
I’m sure potomacoracle could have written a great deal on this, as could I.
We, as a people, are quickly moving to where the majority will finally know what’s going on with the economics of the nations and the world.
We most certainly don’t need to, and shouldn’t, move backwards to the gold standard.
We need to move to a debt-free currency unconstrained by anything but our creativity to grow in a healthy manner. We can do that without troubling price inflation or deflation.
We simply need to tie ourselves to the properly gathered data and the right equations to keep us in balance while undergoing unlimited, rapid growth.
⇧ China’s Complexity Problem by Stephen S. Roach – Project Syndicate
The interplay among these multiple objectives may prove especially daunting. For example, the confluence of deleveraging and the bursting of the equity bubble could create a self-reinforcing downward spiral in the old manufacturing economy that shakes consumer confidence and offsets the emerging dynamism of the new services economy. Similarly, military adventures in the South China Sea could damage China’s links to the rest of the world long before it is able to count on domestic demand for economic growth.
Ironically, China’s juggling act may prove even more difficult for the authorities to pull off in a market-based, consumer-oriented system. Caught in the transition from China’s tightly controlled, state-directed model, the government seems to be waffling — for example, by stressing a decisive shift to markets, only to intervene aggressively when equity prices plummet. Likewise, it is embracing more of a market-based foreign-exchange regime while guiding the renminbi lower.
Add to that a stop-start commitment to reform of state-owned enterprises and China could inadvertently find itself mired in something comparable to what Minxin Pei has long called a “trapped transition,” in which the economic-reform strategy is stymied by the lack of political will in a one-party state.
It appears to me that Stephen Roach has hedged his bet there.
He still doesn’t seem to understand the necessity for democracy even while he hints at it by mentioning the “one-party state” problem.
⇧ China’s economic blunders are here to stay – Fortune
… as long as the Chinese Communist Party values loyalty over competence, sound economic policy will be the exception, not the rule.
The CCP cannot get out of that without getting out of their Marxist-Leninist one-party dictatorship. It takes a true democratically decided meritocracy to get out of it. The CCP is not a democracy. China is not a democracy.
I’m not urging laissez-faire capitalism. I can’t be. Laissez-faire capitalism is also undemocratic, even more so, as amazing as that may sound.
⇧ The Foundations of Greece’s Failed Economy by Edmund S. Phelps – Project Syndicate
Edmund S. Phelps (mis-framing the debate):
Too many politicians and economists blame austerity — urged by Greece’s creditors — for the collapse of the Greek economy.
I read pretty widely, and I haven’t seen any economists of note making that claim.
The economists on the left that I’ve read have readily admitted to the problems of corruption. What they say about austerity is that it has been counter-productively harsh and has led to, and will continue to lead to, a worsening of the situation.
Specifically addressing the article though, I’d like to point out that Greece doesn’t face an either/or (either 100% socialism or 100% laissez-faire) here.
Greece could, if allowed, if aided to do so, get rid of its historical corruption problems while strengthening its welfare state via sustainable economic growth, even while paying toward a reduction in the principal balance of its international debts.
What Greece needs to do that are principal reductions of a certain size (subject to additional future adjustments/reductions depending upon trend outcomes) and in a timely manner.
⇧ Welcome to Quantitative Tightening as $12 Trillion Reserves Fall – Bloomberg Business
… Deutsche Bank says less reserve accumulation should mean higher bond yields and a rising dollar against rivals including the euro and yen.
Read those higher bond yields as higher mortgage rates (a headwind for real estate) and especially if the Fed tightens too much too soon.
⇧ Judge’s Ruling Offers Peek Into Private Equity’s Secret World – The New York Times
Speaking of corruption (alleged):
The case is expected to go to trial early next year. In the meantime, the Hellas deal is attracting attention in other jurisdictions. Tax authorities in Greece and Luxembourg are looking into whether appropriate taxes were paid on the money generated in the certificate redemption, including bonuses paid to senior managers who approved the deal, said Andrew Hosking, the lead liquidator for Hellas II in London.
“We expect that increased scrutiny of private equity firm practices by the taxing authorities will see the wheels come off on these types of transactions that might previously have passed under the radar,” Mr. Hosking said.
It is only by sheer dint of persistence that the creditors of Hellas II are still fighting. But the passage of so much time may not be all bad. Regulators and investors have grown increasingly concerned about private equity practices recently. That means heightened interest in the Hellas II story is likely to continue.
⇧ Martin Wolf on payrolls and the Fed | FT Markets – YouTube
John Authers, the FT’s chief investment columnist, analyses [analyzes] the latest US jobs data with chief economics commentator Martin Wolf. What effect will the numbers have on when the Fed raises rates? Should it raise rates at all?
⇧ The 2015 Global House Price Crash Accelerates – TruePublica
We know there’s a great deal of global economic volatility and that there are business cycles.
Some people are seeing nothing but doom and gloom while others think that much of what is happening is healthy and nothing to be alarmed about.
Personally, I come down between those two extremes.
This linked article is very pessimistic.
Housing markets are prone to the bandwagon effect, they continue rising when the fundamentals vanish, a year, maybe two years before. Stock market and commodity price volatility and declines are currently chronicled ad-nausea by the press without seeing the dramatic upswing of international property price falls. What is alarming is the pace of price declines. Even countries where prices are not falling, many are witnessing a rapid deceleration in price growth.
⇧ Greek centre-right neck and neck with Syriza as snap election nears | World news | The Guardian
At least 10% of Syriza’s support appears to have been lost to the anti-euro Popular Unity created by a group of 25 rebel MPs days after the Greek parliament endorsed the latest financial rescue package.
Panagiotis Lafazanis, the erstwhile energy minister who leads Popular Unity, has accused Tsipras of accepting conditions that will turn Greece into a “debt colony” and Greeks “into slaves”. Syriza’s youth wing — which also broke ranks last week to denounce the party’s “strategic defeat” at the hands of creditors — has signalled that it will support the breakaway group.
If the Troika doesn’t reduce the principal portion of Greece’s debt enough 1) to keep Greece from defaulting and 2) to allow Greece to grow, who will lead the nation and in which direction?
⇧ China Freezes Outbound Investment Quotas as Outflows Hurt Yuan – Bloomberg Business
China is trying to open its capital account enough for the yuan to win reserve status from the International Monetary Fund, while trying to curb an exodus of funds from an economy expanding at the slowest pace since 1990. Chinese investors are seeking to diversify in overseas assets after the Shanghai Composite Index of shares tumbled 40 percent from this year’s peak on June 12. The yuan has slumped 3.5 percent in Shanghai and 5.2 percent in Hong Kong in the past 12 months.
By keeping borrowing costs low to counter the slowdown, seeking to prevent further currency depreciation with intervention and opening up the capital account, policy makers are challenging Nobel-winning economist Robert Mundell’s “impossible trinity” principle. That theory stipulates a country can’t maintain independent monetary policy, a fixed exchange rate and free capital borders all at the same time.
China’s capital and financial account deficit was a record $78.9 billion in the first quarter of this year. Vice Public Security Minister Meng Qingfeng said regulators will start a campaign to crack down on underground banks and illegal cross-border money transfers, according to an Aug. 24 statement on the ministry’s website.
⇧ Forex reserves unwind could reverse bond supercycle | Reuters
“The process of reserve reversal has only just started,” said Chris Iggo, Chief Investment Officer, Fixed Income at Axa Investment Managers.
“We could be on the verge of a scenario that sees a reversal in the trend of declining global goods prices, a partial reversal in U.S. monetary policy and a reversal of the balance sheet expansion that allowed emerging market central banks to grow their foreign exchange reserves,” he added. “The upshot? Significantly higher US Treasury yields.”
DEFLATION OR RESERVE BUST?
For some, it may seem counter-intuitive that a China slowdown or financial shock lifts bond borrowing rates at all.
It makes sense, but it sounds like a US recession if the Fed raises rates in the face of it. It also sounds like a recipe for more QE (Fed bond buying), which is exactly the opposite of all the hawkish talk of late.
We live in interesting times.
The number of variables, including those that represent human behavior, are mind-boggling.
⇧ Fed Up with the Fed by Joseph E. Stiglitz – Project Syndicate
There is strong evidence that economies perform better with a tight labor market and, as the International Monetary Fund has shown, lower inequality (and the former typically leads to the latter).
⇧ This recovery is the slowest for at least a century — so why do rates have to rise? – Comment – Voices – The Independent
… better measure to look at is output per capita (output divided by the total population). Since the beginning of 2013 this has only been growing at an annual rate of around 2 per cent, which is very slightly below typical UK growth rates.
Yet in a recovery, output per capita should be growing at well above average rates. In these terms the current upturn is extremely disappointing. It is the slowest recovery from a recession for at least a century.
⇧ Bazooka-Mario isn’t The Terminator and the inflation in the Eurozone is going down again | Secular Investor
Just one year after Mario Draghi reassured the market he would do ‘whatever it takes’ to ensure the inflation rate in the Eurozone will increase again, he seems to have been pushed back into a corner. The European Central Bank once again had to reduce its economic growth expectations as well as the expectations for the average inflation rate in the Eurozone.
⇧ Say goodbye to capitalism: welcome to the Republic of Wellbeing | Guardian Sustainable Business | The Guardian
Current statistics, such as the gross domestic product and stock market indices, reinforce short-termism and separate “the economy” from the rest of society. To remedy this, the Republic of Wellbeing would have to introduce measures of genuine progress which deduct the costs of negatives such as traffic jams and air pollution from economic growth, as has been done in the US states of Maryland and Vermont. It should also adopt indicators of social wellbeing, as Paraguay did two years ago.
As decisions in the public and private sector are often based on cost-benefit analyses, the Republic of Wellbeing would need to adopt accounting parameters (for example, discount rates) that are either neutral or give more weight to impacts and costs in the future than in the present. Total-cost accounting, including full environmental and social costs, is essential to identify businesses that are adding to the economy vis-a-vis those accumulating income at the expense of society, as is the case with most fossil fuel industries.
While global governance in the 20th century was led by nations and companies championing the classical model of industrialisation with high social and environmental costs, the 21st century system needs to be driven by those able to marry economic dynamism with a high quality of life and the promotion of human and ecosystem wellbeing.
That’s all consistent with what I’ve been writing here on this blog.
⇧ Understanding Property Classification: For Investors – Multifamily Blogs
Look for a property that has a solid foundation with minimal wear and tear. Ask about the roof and it’s age. Are there minor structural changes that can be made to improve unit flow and usage? Will adding a fitness center or clubhouse work at the property? Once it’s decided which projects will be completed, it’s necessary to do it with the best quality materials and construction.
⇧ Mind the interest rate gap | FT World – YouTube
This is why I call for the national monetization of retirement accounts: in other words, the payment of Social Security retirement benefits not via Social Security taxes but via helicopter money deposited directly into each retiree’s account at the US Treasury as the sole bank. It would be the precursor of the guaranteed minimum income that would extend finally to everyone.
Rising interest rates, though they may hurt stock markets, would ease the pensions dilemma for millions of people and many companies, says John Authers.
⇧ South Florida renters stuck in aftermath of real estate crisis | Miami Herald
Tenants often don’t know about the foreclosure or sale of the property where they live; high turnover among tenants and sometimes-unscrupulous landlords make it hard to ensure they receive the notice to which they are legally entitled.
A recent change to Florida’s landlord-tenant laws is designed to help. It guarantees that Celin and his wife will have at least 30 days after the condo is sold to move out.
The law went into effect on June 3 of this year. It was meant to replace a federal law, the Protecting Tenants at Foreclosure Act. That law, passed at the height of the foreclosure crisis in 2009, gave renters the right to stay in their homes until their lease expired — or at the very least, 90 days. It was only meant to be temporary, though, and expired on December 31, 2014.
Garry and Audrey Lane were indicted on arson and insurance fraud charges in Fulton County Court Friday morning. Investigators say they burned down Dad’s Music back in April. What was left of the building was torn down recently, but not before investigators got a search warrant for the rubble.
⇧ Oil falls more than 3 percent on oversupply, China equity losses | Reuters
“For commodities, the key demand-side figure to care about is not China’s GDP growing at 7 percent instead of 9 or 10 percent, it is the manufacturing price index, which has been falling for more than 40 months in a row,” JBC Energy said.
Capital spending by listed US independent oil and gas companies exceeded their cash from operations by about $32bn in the six months to June, approaching the deficit of $37.7bn reported for the whole of 2014….
… US exploration and production companies sold $10.8bn of shares in the first quarter of the year, but that dropped to $3.7bn in the second quarter and under $1bn in July and August….
In the Eagle Ford shale of south Texas, the volume of oil produced from new wells for every rig running has risen by 42 per cent in the past year….
However, the number of rigs drilling for oil in the US has fallen 59 per cent from its peak last October, and that now appears to be having an effect on the country’s oil output.
⇧ Thomas Piketty to advise Spain’s anti-austerity party Podemos | World news | The Guardian
The French economist Thomas Piketty, famous for his controversial book on wealth and inequality, is to advise Spain’s anti-austerity party Podemos.
⇧ Public Debt and the Long-Run Neutral Real Interest Rate | Federal Reserve Bank of Minneapolis
If the federal government were to issue more public debt, the neutral real interest rate would rise, and the FOMC would be in a position to raise the fed funds rate target more rapidly. Thus, a public debt increase would help retired older savers (the initial old in the overlapping generations context). But—of course—this step is not without costs. Younger workers (and those who are yet to be born) have to pay the taxes to fund this extra debt issuance. Balancing these gains versus losses is clearly a job for the fiscal authority, not for monetary policymakers like me.
⇧ Why the Fed must stand still on rates | Lawrence H. Summers
Perhaps the best article Larry Summers has ever written:
In a highly uncertain world, the Fed cannot be both data dependent and predictable with respect to its future actions. Much better that it stick with data dependence than that it put its credibility at risk by seeking to mitigate a current rash action by trying to reassure with respect to future steps.
… The problem is that the case for hitting the brakes in an economy with sub-target inflation, employment and output is not there; regardless of whether the brakes are to going to be pressed hard or softly, singly or multiple times.
From the Vietnam War to the Euro crisis, from the Iraq war to the lessons of the Depression we surely should learn that policymakers who elevate credibility over responding to clear realities make grave errors. The best way the Fed can maintain and enhance its credibility is to support a fully employed American economy achieving its inflation target with stable financial conditions.
⇧ Calculated Risk: Update: Prime Working-Age Population Growing Again
The good news is the prime working age group has started to grow again, and is now growing at 0.5% per year – and this should boost economic activity.
So long as we can give them at least living wages, and that’s before automation fully kicks in.
⇧ Why the Fed Must Banish the 1970’s Inflation Devil Before Raising Rates | The Fiscal Times
The answer from the Fed is that there are long lags between the time policy is implemented and its impact on the economy, so the Fed needs to preemptively change policy well before evidence of rising inflation is present in the data.
However, two factors work against this argument. The first comes from new research by Ekaterina Peneva and Jeremy Rudd of the Federal Reserve, “The Passthrough of Labor Costs to Price Inflation.” This work finds that there is “little evidence that changes in labor costs have had a material effect on price inflation in recent years.” They also review other research on this topic, and note, “The general conclusion that emerges from this literature is that there appears to be a break in the relation between labor costs and broad price measures, with changes in labor costs having little or no predictive power for price inflation after the early 1980s.”
…it’s hard to believe that the lags have not shortened over time with advances in digital technology. Price changes no longer need to be calculated by hand, inventory management has improved by leaps and bounds, labor market insecurity has risen, and so on, and so on. The precise value of the policy lag is not known, it is very difficult to determine econometrically (especially when the structure varies due to technological change), but if the lags have shortened — and it’s hard to believe they haven’t — then the Fed can be more patient now than in the past.
⇧ Los Angeles Housing Construction: Going Up! | Multifamily content from National Real Estate Investor
Lots of high-rises are going up, but the cost of land is a major issue.
Los Angeles is joining the ranks of other major U.S. cities with vertical residential development like New York, Chicago and San Francisco. From downtown Los Angeles (DTLA) to Santa Monica and everything in between, new multifamily and mixed-use projects are going up—literally.
⇧ Liar Loans Redux: They’re Back and Sneaking Into AAA Rated Bonds – Bloomberg Business
Matt Scully and Jody Shenn:
Years after the great American housing bust, mortgages akin to the so-called liar loans — which were made without verifying people’s finances — are creeping back into the market. And, like last time, they’re spreading risks far and wide via Wall Street.
Today’s versions bear only passing resemblance to the ones that proliferated in the mid-2000s, and they’re by no means as widespread. Still, they reflect how the business is starting to join in the frenzy that’s been creating booms in everything from subprime car loans to junk-rated company bonds.