Linking ≠ endorsement.
65) Green Building’s Impact Outpacing Conventional Construction | Builder Magazine | Green Building, Green Builders, Green Design, Green Products, Finance and Economics, US Green Building Council (USGBC)
⇧ Forrest Service Maps Shows Expansion of WUI in West as Wildfires Burn
A new U.S. Forest Service report shows the continued expansion of housing development near forests, an area referred to as the wildland-urban interface, with direct implications for the cost of wildfire fighting.
⇧ European Lowflation – The New York Times
…the IMF says, “lowflation” creates all the problems we associate with deflation….
⇧ QE’s Cost: Fed Exit May Hit Economy Faster Than in Past Cycles – Bloomberg Business
I posted this around on the 17th but am including it here because it was so clear. It’s the best explanation of the use of the Fed’s new “overnight reverse repurchase agreement facility” I’ve seen.
The facility promises to drain reserves from the banks by encouraging investors to withdraw the deposits created when they sold bonds to the Fed, and place the cash in money-market mutual funds.
Through overnight reverse repos, the Fed can borrow the cash from money funds at a specified rate and post securities as collateral, unwinding the trades the next day. In effect, the Fed will be borrowing back the money it created to buy the bonds while cutting out the middlemen in the banking system.
The problem: Banks aren’t sure exactly how much of their deposits they will cede to money-market funds once the Fed starts raising rates, or whose money or how fast. All of those things are important to understand for banks trying to stay in compliance with the liquidity coverage ratio, a major new pillar of global post-crisis banking regulation.
⇧ Macquarie: Emerging Markets Are Not Facing a 1997-Style Crisis—They’re Facing Something Worse – Bloomberg Business
If the 1997 Asian financial crisis was a heart attack for emerging markets, the current situation is akin to chronic cardiovascular disease, according to Macquarie analysts led by Viktor Shvets and Chetan Seth.
The crux of their argument is that despite the difficulties of 1997, its effects were mitigated by rising global leverage, liquidity, and trade shortly thereafter. This time around, those factors might not be there.
⇧ Jeremy Corbyn’s QE for the people is exactly what the world may soon need – Telegraph
The resourceful Burkean conservative, Ambrose Evans-Pritchard:
Some Keynesians dismiss helicopter money as a needless complication when governments can rely on old-fashioned fiscal policy, and borrow the money instead. But fiscal stimulus and monetary stimulus are not equivalent. “There are limits out there on how much debt the markets will accept,” said Lord Turner.
If the private sector will not rise to the challenge, it is up to the state to take on the responsibility, a duty advocated by none other than Adam Smith.
And his [Jeremy Corbyn’s] instincts on monetary policy are essentially correct. QE as we know it is dead. It is an urgent national imperative to craft a radically new form before the next crisis hits.
Blunt observation: “Some Keynesians dismiss helicopter money as a needless complication…”? It’s less complicated and cuts out the usurers.
That latter aspect is especially what they don’t like about it or don’t want to know or to even think about. The hands (plutocrats) that feed them wouldn’t like it.
You’ll notice how the parasitic nature of interest is never discussed. Consider why that’s the case. Also consider how to force the issue.
⇧ FOMC statement from Sept 16-17 meeting | Reuters
The Fed stood still on interest rates. Here’s the most important part.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C.Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams. Voting against the action was Jeffrey M. Lacker, who preferred to raise the target range for the federal funds rate by 25 basis points at this meeting.
Stanley Fischer voting to stand pat for now is the most important aspect. This should strongly means that any global and national downturn that can’t be suggested as merely transitory will postpone a rate hike until there’s a noticeable and sustained economic upswing.
They made the right decision.
⇧ Two Colorado Springs real estate companies partnering to build downtown apartments
Two of Colorado Springs’ biggest real estate companies are joining forces to develop a pair of multi-story apartment projects that could add 353 residences to downtown, where civic and business leaders long have clamored for more housing.
Nor’wood Development Group and Griffis/Blessing Inc. envision construction of a 183-unit building on the northeast corner of Cascade Avenue and Rio Grande Street and a 170-unit building on the southwest corner of Wahsatch and Colorado avenues.
⇧ Janet Yellen Sees a ‘Very Depressed’ Housing Market – Bloomberg Business
While Federal Reserve Chair Janet Yellen heaped praise on the U.S. labor market in her press conference on Thursday, the housing market got little love.
⇧ Real estate notebook: Minneapolis Downtown Council wants more people – StarTribune.com
With hundreds of new apartments becoming available in the next several months, the Minneapolis Downtown Council is ramping up its efforts to help fill those buildings and promote downtown living with an expanded website and a big promotional event this weekend.
Explore Downtown Living, from 10 a.m. to 5 p.m. this Saturday and Sunday, will feature 23 apartment buildings in the North Loop, Loring Park, Central Business District, Downtown East/Mill District and Northeast.
⇧ Stocks, Economy No Drag on China Home Prices as Policy Loosened – Bloomberg Business
Improving sales haven’t translated into a revival of real estate investments, which expanded 3.5 percent in the first eight months, the slowest pace since 2000. New housing construction starts declined 17 percent from last year, bucking a historical trend that shows construction usually picks up after home sales increase, said Du Jinsong, a Hong Kong-based analyst at Credit Suisse Group AG.
“Property investment has slid to single digits, even slower than during the financial crisis,” said Jeffrey Gao, a Hong Kong-based analyst at Nomura Holdings Inc. “It’s hard for investment to come back to the double-digit region. However, it signals that policy loosening, which is supporting sales, may continue.”
That’s because, for one thing, investors on that level are more sophisticated than the buy-and-hold-for-appreciation crowd. Those with the funds, will hold back to see whether the upswing is sustained.
⇧ Here’s How Much You Should Pay for a Rental Property | Money.com
This is a better article than the standard answers I typically see for novices.
Logistics provider DHL and IT leader Cisco recently released a trend report on the Internet of Things that estimates that there will be 50 billion devices connected to the Internet by 2020 as compared to 15 billion today. The report goes on to predict IoT will generate $8 trillion worldwide in increased revenues and lower costs in the next 10 years alone. How will supply-chain or logistics operations, as well as the rest of the commercial real estate industry, be affected by this digital explosion?
… insurance—are the buildings properly insured for these devices? Business continuity is also a concern—what happens if I become so reliant on my devices to run my buildings and something catastrophic happens? Do I have enough coverage?
⇧ Brooklyn Rentals NYC | Manhattan Rentals NYC
Brooklyn’s median rental price topped $3,000 in August — a new record, and don’t expect it to taper off any time soon. According to Douglas Elliman’s monthly rental report, the borough’s median rental price jumped 10.8 percent year over year to $3,112.
⇧ Canada’s ever growing housing bubble: As Alberta’s market tumbles, the rest of the country wonders who’s next | Financial Post
… mortgage broker Mawji urges caution for the rest of Canada, based on the Alberta experience. Remember, he says, “if the tough times hit, the first 20 per cent of value drop is the homeowners’ own equity in their property. If they are inclined to sell, they should probably sell now.”
⇧ Draghi’s QE Boosts Property Returns More Than Stocks, Bonds – Bloomberg Business
International investors are plunging into the market as the European Central Bank president’s attempts to jump start economic growth triggered a 19 percent slump in the value of the euro against the dollar and 11 percent against the British pound, making property look cheap. Rents are also set to climb as the economy recovers, because there’s been a shortage of new construction since the global financial crisis, according to asset manager M&G Real Estate.
Fannie Mae’s third quarter 2015 Mortgage Lender Sentiment Survey™ reveals that more lenders report easing of mortgage lending standards across all loan types. … the gap between lenders reporting easing as opposed to tightening over the prior three months jumped to 20 percentage points and 18 percentage points for GSE eligible and non-GSE eligible loans, respectively—reaching new survey highs of “net easing.” In addition, the share of lenders who expect their organizations to ease credit standards over the next three months ticked up this quarter for both GSE eligible and non-GSE eligible loans.
Let’s hope they don’t overly relax the standards and cause another boom that will bust.
⇧ NASA | Ask a Climate Scientist: Thinning Ice Sheets – YouTube
How can Greenland’s ice sheets still be more than 10,000 feet thick, if carbon dioxide is warming the planet?
This was the question posed to polar scientist Kelly Brunt as part of NASA’s Ask A Climate Scientist series. According to Dr. Brunt, the concept of thickness is very important to polar scientists. It is easy to see that the ice sheets and sea ice are changing horizontally (https://svs.gsfc.nasa.gov/cgi-bin/details.cgi?aid=4301), covering less and less of the polar regions. But the ice is also thinning, getting smaller vertically.
Greenland’s ice is very thick and only the outer layer is experiencing warming temperatures. But that layer is melting more often (https://svs.gsfc.nasa.gov/cgi-bin/details.cgi?aid=4325) and a little bit of melting over such a large area produces a lot of extra water contributing to sea level rise.
⇧ Keynote Speech to EAEPE 2015: Simple complex systems model of Great Moderation & Great Recession – YouTube
This will become much of the mainstream understanding.
This is my keynote speech to the 2015 conference of the European Association for Evolutionary Political Economy (EAEPE: https://eaepe.org/). In it I argue that a simple complex systems model captures most of the important economic dynamics of the last 30 years, even with the simplest possible economic relations and linear behavioural relations.
I’d like to see the model where the interest on all loans is zero.
⇧ Global warming ‘hiatus’ never happened, Stanford scientists say | EurekAlert! Science News
Rajaratnam worked with Stanford statistician Joseph Romano and Earth system science graduate student Michael Tsiang to take a fresh look at the hiatus claims. The team methodically examined not only the temperature data but also the statistical tools scientists were using to analyze the data. A look at the latter revealed that many of the statistical techniques climate scientists were employing were ones developed for other fields such as biology or medicine, and not ideal for studying geophysical processes. “The underlying assumptions of these analyses often weren’t justified,” Rajaratnam said.
A technique that Romano invented in 1992, called “subsampling,” is useful for discerning whether a variable – be it surface temperature or stock prices – has changed in the short term based on limited amount of data. “In order to study the hiatus, we took the basic idea of subsampling and then adapted it to cope with the small sample size of the alleged hiatus period,” Romano said. “When we compared the results from our technique with those calculated using classical methods, we found that the statistical confidence obtained using our framework is 100 times stronger than what was reported by the NOAA group.”
Obviously, we’ll have to wait to see if any problems with this method show up. So far, it looks good.
⇧ Economist’s View: ‘The Typical Male U.S. Worker Earned Less in 2014 Than in 1973’
There do not appear to be forces within capitalism that necessarily push us toward an equal distribution of income. Thus, there is no assurance that heeding calls for government to get out of the way would help to reduce inequality, and it could make it worse. To me, policies that increase the ability of workers to bargain for a fair share of what they produce holds the most promise for solving the inequality problem (in a way that avoids direct redistribution). How to actually accomplish this is a difficult problem, unions have less power in a world where the threat of moving production to another country is very real (or a region within the US where the laws are more favorable), but at the very least we ought to ensure that new legislation does not make the highly unequal wage bargaining problem any worse.
⇧ How China lost UK GDP in 22 working days | Bank Underground
In the 12 months from June 2014, the value of the Chinese stock market increased by more than the annual output of Japan, but over the next month fell by an amount equal to UK GDP.
⇧ Fed is riding the tail of a dangerous global tiger – Telegraph
Goldman Sachs says the strong dollar and the market rout in August already amount to 75 basis points of monetary tightening for the US economy itself.
The argument that zero rates are unhealthy and impure is to let Calvinist psychology intrude on the hard science of monetary management. The chorus of demands — and just from ‘internet-Austrians’ — that rates should be raised in order to build up reserve ammunition in case they need to be cut later, is a line of reasoning that borders on insanity.
If acted on, it would risk tipping us all into the very deflationary trap that we are supposed to be protecting ourselves against, the Irving Fisher moment when a sailing boat rolls beyond the point of natural recovery, and capsizes altogether. So hats off to Janet Yellen for refusing to listen to such dangerous counsel.
We do not really know whether capital flows from China are slipping out of control. There is a high likelihood that this scare is exaggerated — or based on technical misunderstandings — and that draconian curbs will slam the gate shut in any case.
The rest of the article is Ambrose being his typical optimist-on-China self. His views run diametrically opposed to Steve Keen’s. See Steve’s excellent video above for Steve’s views on, among other things, China’s gigantic, and still-growing, private-debt tsunami.
⇧ How an Investor Missed a $100K+ Tax Deduction (& How You Can Avoid This Costly Error!)
Team work is key. The Charitable Lead Trust example:
Amanda Han, CPA:
The good news is that we will now file amended tax returns for her to claim that $100k+ deduction for 2013. The bad news is that with any amended tax return comes a higher IRS audit risk.
Corbyn’s policies engage in a debate with a spectral Margaret Thatcher: re-open the coal mines that she closed; subordinate monetary to fiscal policy; unpick the privatisation programme that she started.
That’s it concerning Quantitative Easing for the People? Apparently, John Springford doesn’t know what PQE could do or he doesn’t want others to.
If done correctly, PQE would be no small change just tinkering along the margins. Nor would it be some throwback to a failed policy.
Look at what happened to the US economy as a direct result of New Deal spending right through to the end of WWII. The US went from a basket case to extremely strong, and that’s beside the fact that other nations were devastated.
It was both peacetime and then wartime Keynesianism that put the US back on a strong economic footing.
Now imagine removing bonds and usury from the picture.
There was no hyper-inflation. There was only a boom.
We could do the same thing right now and entirely via peace spending. The only things standing in the way are ignorance and the Austrian “economists,” but I repeat myself.
⇧ Wildfires: are we listening to signals from mother nature? | Swiss Re – Open Minds
… there are pre-event risk transfer instruments available from private insurers and reinsurers that can support the public sector in managing wildfire – and related budget – risk.
⇧ Negative interest rates could be necessary to protect UK economy, says Bank of England chief economist – Telegraph
Traditionally policymakers have resisted cutting rates below zero because when the returns on savings fall into negative territory, it encourages people to take their savings out of the bank and hoard them in cash.
This could slow, rather than boost, the economy. It would be possible to get around the problem of hoarding by abolishing cash….
One way to supply the Bank with more firepower would “be to revise upwards inflation targets”. The UK’s inflation target is currently 2pc, but this dates from an era when interest rates were closer to 6pc than 0.5pc. It might be necessary to double that target to 4pc, Mr Haldane argued.
Andy Haldane is the Bank of England’s Chief Economist.
⇧ Central banks fret stimulus efforts are falling short | Reuters
This is a good follow-up on the Andy Haldane article immediately preceding.
They call my ideas “radical.” It’s funny to me because those are my most conservative ideas (designed for if my actual radical ideas can’t gain enough traction quickly enough to suit me, which is yesterday). Ha! I just couldn’t resist.
Anyway, I’m favorably impressed with Andy Haldane (obviously).
⇧ China’s crash will bring the U.S. economy into recession – Fortune
Viewed through the lens of global profits…, it doesn’t matter if U.S. firms are economically dependent on exports to Asia. It matters much more where global profits will come from in an era of contracting investment.
Exactly right, and it’s why we need a new fiscal policy of direct governmental investment via newly issued debt-free dollars poured into directly democratically chosen projects for full employment at high wages and even if the jobs are public sector.
⇧ Aging suburbs tackle problem rental properties – StarTribune.com
“We’re getting a lot of calls from these smaller complexes, from tenants saying, ‘You guys have got to see this, how deplorable these conditions are,’?” he said. City documents show places with a hole in the garage, deteriorating walls and a broken sink.
⇧ It’s never too late to start a real estate empire – The Orange County Register
Armed with a home economics degree from Cornell University but no background or experience when it came to real estate rentals, she built nothing short of a real estate empire that she started at 52.
As told by her son, Gregarious Gary, Mabel died a few years ago at the ripe old age of 96. In 44 years, she had amassed 569 units, which included residential properties and office buildings, worth $100 million and generating $8 million per year in revenue.
Andy Haldane again:
It is not difficult to identify the headwinds to EME growth, few of which seem likely to abate quickly. They include a debt overhang from the credit and capital flow boom; a significant downturn in the commodity price cycle, which has intensified and generalised recently; political instabilities; and the prospect of an imminent tightening of dollar interest rates, in which much of EMEs’ overseas borrowing has been conducted.
In the past, this conflation of factors has often presaged a perfect EME storm (Corsetti et al (1999), Krugman (2009)). Its epicentre recently has been China. But these headwinds are shared by a significant number of other EMEs. It is unclear whether these forces will result in a fully-fledged financial crisis, as some EMEs have significant stock-piles of foreign currency reserves. But these headwinds do seem likely to sap future EME growth.
It is simply too soon to tell how potent contagion from EMEs to the world economy will be. As events following the first two legs of the trilogy made clear, however, traditional trade channels are likely to be only part of the contagion story. In an integrated world, financially and informationally, banking and uncertainty channels may be every bit as important. Indeed, during the first two legs of the trilogy, they were often the most potent channels.
With subdued world growth and prices, and a sharp appreciation of sterling whose effects in lowering imported prices have yet fully to pass-through, I am not as confident as I would like that one percentage point of additional nominal pick-up will be forthcoming over the next two years. In my view, the balance of risks to UK growth, and to UK inflation at the two-year horizon, is skewed squarely and significantly to the downside.
Against that backdrop, the case for raising UK interest rates in the current environment is, for me, some way from being made. One reason not to do so is th at, were the downside risks I have discussed to materialise, there could be a need to loosen rather than tighten the monetary reins as a next step to support UK growth and return inflation to target.
Good stuff. It’s a long speech but worth the read.
One thing I want to zero in on where I think Andy is struggling concerns Bitcoin and digital currency issued by the central bank. His struggle regarding this surprises me a bit because he is so apparently high-IQ.
Bitcoin is completely unnecessary to the discussion. He knows that the vast majority of money is digital already without Bitcoin. Banks lend money. They rarely lend hard currency (paper or coins). They create the money simply by entering it into the database. There is nothing preventing the central bank from doing the same regarding all money, which I advocate.
Andy suggests raising or lowering the purchasing power of the unit of account via applying interest. I have been advocating simply reducing proportionately the total units across-the-board: all accounts (where all the money would exist).
⇧ Investors Chase Value-Add Opportunities in the Office Sector
“It’s about what is the right risk for the adjusted return,” Postweiler says. “You compete with 10 other firms for a value-add property, and the return gets skinny, and you have to figure lease-up velocity, tenant demand, pricing and the ability to hit your pro-forma returns. The stabilized property might not have as much return, but it’s not as competitive, either. The real question is: what is the return for the risk you’re taking?”
“Today, the new generation of workers wants to live, work and play in the same several-block radius, making on-site amenities and nearby transit options key,” Ellis says. “These amenities could include a new fitness center, updated dining options and new small meeting spaces throughout the property. Upgrading technology is another important step to meeting customers’ business needs today. This includes Wi-Fi-throughout, state-of-the-art conference centers and more. Lastly, the design of the space is very important to remain competitive, and we continue to see a demand for open, bright, collaborative workplaces.”
Small and mid-sized cities leading the way to compact, walkable growth were honored by EPA’s 13th annual Smart Growth Achievement Awards.
“The smart growth strategies behind this year’s award winners will leave current and future generations with greener, healthier, more prosperous communities,” notes Gina McCarthy, EPA administrator.
A common theme of spurring private development by burnishing grossly underutilized assets—industrial sites, natural features, and historic buildings—runs through the three 2015 awards.
“Much has been made about the prospect of rising rates in the U.S., given they have such an influence over longer term bond rates all around the world. A look back in history tells us that direct real estate is not very sensitive to movements in either short term or long term interest rates, but is much more responsive to wider economic circumstances and performance.” This is especially true of inbound capital.
Well, one need only watch purchase- and refinance-money mortgages swing up and down over interest rates to know that raising interest rates right now would clamp down on the real-estate industry more than we need. In fact, right now, we need no clamping down at all, quite the opposite in my view.
⇧ Wolf Richter: Bankers Threaten Fed with Layoffs if it Doesn’t Raise Rates | naked capitalism
Banks can get all the money they need from the Fed at near-zero cost. They don’t need depositors, and there is no competition for depositors. So, in one of the biggest scams in history, depositors get next to nothing from banks around the country. And the banks’ cost of money is near zero.
But there is desperate competition for making loans in an environment when bankers and their customers, especially big corporate customers, wade up to their nostrils in Fed-engineered liquidity. This mad frenzy pushes down lending rates (along with bond yields). And the banks’ spreads and profit margins have been squeezed.
The Fed must resist the banking industry and do only what is right for the overall economy. Will they do that, or are they just making it look good before they prematurely increase rates the way they prematurely tapered?
⇧ Location Advice – California Businesses: Five BIGGEST Challenges to a Commercial Real Estate Deal
There’s no doubt that there are bad governmental regulations out there, but I’d like to hear specifics (pros and cons) and ideas for improvements. See: “The Scourge of Upward Redistribution | Publications | National Affairs” (below).
Allen C. Buchanan:
As I have commenced my 32nd year in the commercial real estate brokerage business, I have a great perspective on the challenges that confront owners and occupants of commercial real estate. I have categorized these challenges into the following five. In no particular order, here you go.
Governmental regulation. …
Love Canal (https://www2.epa.gov/aboutepa/love-canal-tragedy) was a direct result of lax regulations. The list is endless.
⇧ The Love Canal Tragedy | About EPA | US EPA
⇧ Richmond Fed President Jeffrey Lacker Comments on FOMC Dissent – Press Release, Sept. 19, 2015 – Federal Reserve Bank of Richmond
Jeffrey M. Lacker, President, Federal Reserve Bank of Richmond:
… I supported raising the target range for the federal funds rate by 25 basis points at this meeting.
I didn’t hear any compelling reasons to raise rates, especially in the face of the huge Chinese slowdown that will ripple throughout the global economy, including the US.
⇧ Coppola Comment: All QE is “”people’s QE” – just not the right people
You all know that I like Frances Coppola (just the way I like Simon Wren-Lewis and someone else who doesn’t make these pages often: L. Randall Wray), but here’s the deal. These people don’t speak the language of the street (and I don’t mean Wall Street). What do I mean by that?
Banker’s QE isn’t intended to suggest that the wider economy in no way benefited. It’s to say that without it, many banks would have crashed because they were otherwise insolvent. So the banks were bailed out via QE while the people actually paid the price.
Sure, the bankers didn’t get their way 100% and they’re now complaining about low interest rates, but so what? That doesn’t negate the benefits of the QE they did receive.
In addition, banks don’t lend reserves but do lend against them. The higher their reserves, the more they can lend before hitting their ratio or asset limit and regardless of whether they’re US or UK banks. They aren’t lending to industry because they make more fees in securitization and other schemes. That’s why so many people want banking to be treated as a public utility and to get the people’s banking out of the business of speculating for the bankers’ (house) accounts.
⇧ ‘Corbynomics’ sparks economics debate I FT Comment – YouTube
Chris Giles, FT economics editor, and Martin Sandbu, economics writer for FT newsletter Free Lunch, discuss ‘Corbynomics’, the economic policies of the UK’s new Labour leader from the hard left Jeremy Corbyn.
PQE is not full-time stimulus if the whole system is properly designed and executed.
Long-term infrastructure planning and execution can’t be at the whim of monetarists. That’s why they want them separated out. It makes perfect sense. It’s not confused at all. It’s very clear thinking.
⇧ Curriculum Reform & Rethinking Economics – YouTube
Well, I learned something with this one. MMT has come around to what I had been arguing with them about. It’s true that they had said that credit drove reserves and that, that was the end of the discussion.
… Marc Lavoie, a professor of economics at the University of Ottawa, wrote a new economic textbook as a coherent substitute to conventional textbooks. The book, “Post Keynesian Economics; New Foundations”, outlines alternative macro and microeconomic foundations ….
⇧ The Wonders of Pluto – YouTube
The property of …?
New Horizons Mission has sent back a gallery of stunning images. Who would have known that Pluto was so beautiful and so complex? Watch these images on the biggest screen possible and feel like you are right there on this cold remote beauty.
⇧ Winter 2015-16 Outlook: Colder South and East Coast, Warmer North – weather.com
A colder than average winter may be on the horizon for portions of the Southwest, Southern Plains, Southeast and East Coast, according to a December 2015-February 2016 temperature outlook released by The Weather Channel Professional Division on Friday.
Warmer-than-average temperatures are expected from the West Coast, the Northwest in particular, eastward into the Upper Midwest and interior sections of the Northeast.
The best chance for cold conditions in the East will come later in the winter.
⇧ Jim Chanos on What Lies Ahead for Greece | Institute for New Economic Thinking
LP: Does it matter who wins the election?
JC: I don’t think it does. That’s the thing. Look at what Syriza finally ended up agreeing to: a program that was probably more onerous than what New Democracy agreed to. So at the end of the day, they’re not a government. They’re not a sovereign country anymore. Greece is a puppet government. If a group of outsiders who are your creditors can actually change your domestic policy, you are not a sovereign nation no matter what you might claim. You’re not. You cannot decide laws on your own if someone can bring your economy to the brink of ruin in days. Greece is now a vassal state of the eurozone. That’s the reality of it no matter what anyone might say. As long as they’re adhering to this agreement where they have no ability to make policies on their own, they’re not a sovereign nation.
⇧ Rate Rage – The New York Times
Paul sees the light.
OK, I should have seen that one coming, but didn’t: the banking industry has responded to the Fed’s decision not to hike rates with a primal cry of rage. And that, I think, tells us what we need to know about the political economy of permahawkery.
The truth is, I’ve been getting this one wrong.
My readers will see in Paul’s article exactly what I have been writing for some time now. It is so good to see that things are being said clearly where so many people will read it: Paul Krugman’s New York Times column. Thank you, Paul!
⇧ Stumbling and Mumbling: People’s QE: no big deal
There are more radical fiscal/monetary alternatives. The Bank could simply write everyone a cheque. It could, as Andrew McNally has argued, print money to allow households to buy shares. Or a mix of QE and conventional bond finance could be used to finance the creation of a sovereign wealth fund whose dividends would eventually form part of a citizens’ basic income. Relative to these ideas, PQE – if introduced when monetary/fiscal stimulus is necessary – is a remarkably conservative idea.
** It seems to me that MMT is mostly a wholly reasonable idea, undermined by the dogmatism, obscurantism and longwindedness of its advocates.
Ha! I included that last paragraph because 1) it literally made me laugh and 2) well, I won’t say because I’ll get myself in trouble.
I like MMT too! It’s a good springboard for real systemic change that generally the MMTers as a whole don’t advocate (yet).
⇧ Newman man gets prison for real estate scam | The Modesto Bee
Prosecutors said Leyva solicited money from two victims under the false pretenses that he was selling them bulk foreclosed properties owned by Fannie Mae and Freddie Mac at a 30 percent discounted price.
⇧ Why Americans Still Think the Economy Is Terrible – The New York Times
… data on wages in 2015 so far does not suggest there is a meaningful acceleration on the way.
⇧ Survey confirms: People have no idea about how money is created – Positive Money (BSD)
- Only 13 percent know that private commercial banks provide the majority of the money in circulation.
- However, 78 percent of the Swiss population would like money to be produced and distributed solely by a public organisation working for the common good, such as the National Bank.
- Only 4 percent preferred the system we actually have today — that money is mostly created by private, for-profit companies such as commercial banks.
The “Vollgeld Initiative” is a People’s Initiative* to bring in a sovereign money system, where only the Swiss National Bank would be allowed to create the money supply.
People’s Initiative: Under the Swiss system of direct democracy, anyone can force a national referendum on a change to the constitution if they can collect 100,000 valid signatures within an 18 month period. The result is binding.
⇧ The Fed Should Raise Its Inflation Target – Bloomberg View
On the face of it, even allowing for lags in monetary policy, the prospect of three years of below-target inflation does not argue for an increase in interest rates by December of this year.
I believe the lag would be not even close to as long as Janet Yellen thinks. The transmission is constantly shortening due to the constantly increasing speed of technology. The Fed is thinking at least 10 years behind the times.
⇧ Japan should be trying out a next-generation monetary policy – Quartz
The key to next-generation monetary policy is to cut interest rates directly instead of trying to supercharge a zero interest rate by raising inflation. Of course, cutting interest rates below zero pushes them into negative territory. But Switzerland, Denmark, Sweden and the euro zone have already shown that can be done. There is a widespread myth that cutting interest rates much deeper than -0.75% would inevitably cause people and firms to do an end run around those negative interest rates by taking their money out of the banking system as paper currency. Not so!
It is easy to neuter cash taken out of the bank as a way to defeat negative interest rates simply by removing the guarantee that the Bank of Japan will take that cash back at face value. You can find the details of how such a cash-neutralizing policy works here, here and here. This is an idea I have taken on the road that has withstood close examination and grilling by central bankers and economists all over the world. A common reaction is surprise at how easy the practical details are relative to the many much more difficult things central banks already do.
My readers know that I called long ago for negative rates and for all-digital money.
I could never wrap my mind around why people thought negative rates a stupid idea that couldn’t work. My thought was that rates could go as low as necessary to get the same impact as fiscal stimulus (given all the QE). That hasn’t changed. It’s only been reinforced.
I’d rather go the “sovereign” money route though, for sure!
⇧ Where next? A reply to Andy Haldane – Philosophy of Money
Here’s a “nail-biter” from Eric Lonergan.
I don’t remember the last time I used cash because it was easier or anything else. It’s been years.
There are arguments for cash but only if, as a society, we don’t do what we should to remove those reasons/objections.
Who needs cash and why? Now fix that.
Don’t forget that cash is preferred by hardened criminals. Isn’t that more than countervailing?
⇧ Wildfires push Californians to high-risk insurance market | Reuters
… data shows that many homeowners who have been denied coverage by standard insurers are not flocking to the state plan, which is both more costly and far less comprehensive than traditional homeowners’ policies. Rather, they are increasingly signing up for specialty policies provided by companies best known for insuring unusual risks such as major construction projects, kidnapping or rare art collections. Such policies are still expensive, but offer more coverage than the state plan.
⇧ Greece: the election is over, the economic crisis is not | World news | The Guardian
… Greece will be back in the headlines for all the wrong reasons before too long. There will be talk of the need for a fourth bailout and of possible default if Greece doesn’t get one. The election is over; the economic crisis is not.
⇧ The Scourge of Upward Redistribution | Publications | National Affairs
Steven M. Teles, Associate Professor, Political Science, Johns Hopkins University:
The bad news on the politics of regressive rent-seeking is truly bad, mainly because democratic government is inherently vulnerable to capture by wealthy, concentrated interests. This vulnerability can never be entirely removed, but it can be reduced, in most cases by measures that, even in our partisan era, have the potential to attract interest across ideological lines. The place to start is with the severe organizational imbalance that ensures regressive rent-seekers get heard by government while the exploited do not.
Liberals and conservatives will continue to disagree about the sources and solutions for much of our inequality problem. We will fight over the role of unionization and minimum wages, the necessary scope of redistribution, and the funding and structure of public education. It is unlikely, however, that a political system polarized on precisely these issues will do much on any of these sources of inequality, at least until the voters give one of our political parties a definitive mandate to act.
Pruning rents to the wealthy provides a necessary libertarian prong to a larger agenda of reducing inequality, one with some chance of getting traction even in polarized times. Conservatives should embrace this agenda because it allows them to respond to the public’s anger about crony capitalism in a market-friendly way. Liberals should support it because it gives them an opportunity to make a real dent in inequality even though they do not control all the branches of government.
The challenge of our time is to find what Madison called a “Republican remedy for the diseases most incident to Republican government.” While the state is sometimes the friend of those working to produce a more egalitarian society, it is just as often the tool of those who would entrench inequality. Stopping that upward redistribution is the challenge of our times, one that can be met even while we are gridlocked on so much else.
This article flips my position on its head. The author, Steven M. Teles, blames a flaw in democracy. What I say is that he’s describing crony capitalism under a system that is not democratic enough. Part of cronyism is to de-democratize. The solution is more-direct democracy and not deregulation, per se. Greater democracy would see reformed regulation, not necessarily less regulation.
… extending the lateral portions of horizontal wells far beyond what has been done in the past, adding thousands of feet to their lengths.
Then, they essentially do what they have done before, only on a larger scale. They pump these extra-long laterals with huge volumes of water, sand, and chemicals, fracturing a massive natural gas well. The practice allows a driller to produce much more gas from a single well.
We are also given to understand that they will destabilize that much more of the Earth’s crust and pollute that much more groundwater with their chemicals.
⇧ Why is the UK’s housing benefit bill so high? – BBC News
So why have rents risen so much?
That’s the $6 million question. Of course it’s closely related to the big increases in house prices. That in turn has been driven in part by the lack of house building. In the 1950s and 1960s we were building 200,000 or even 300,000 new homes every year. We haven’t managed that for 30 years or more now, and only built 125,000 last year. Most of the difference is explained by the collapse in building by the state. Very few new council houses have been built.
It’s not just that though. We also have a tax system which encourages owner-occupiers to stay in their current properties even when they no longer need all the bedrooms. This exacerbates our tendency to see housing as an investment as well as a home. And it means that even if we do have enough bedrooms to go round they are effectively being hoarded by those lucky enough to be owner occupiers.
What should we do?
In the end the problem is with the whole of housing policy, not just with the housing benefit system. We urgently need to build more houses, public and private. But we also need a radical overhaul of the way we tax housing and approach housing policy more generally.
Paul Johnson is Director of the Institute of Fiscal Studies.
⇧ Trade and Investment Policy Watch | PIIE Chart: Services Trade Barriers in China and the US
This chart displays OECD indicators showing how restrictive the United States and China are to services trade. China has significantly higher restrictions (note a higher number indicates more restrictions) on many service imports, especially in important areas like banking, shipping, telecom, and insurance.
⇧ Milton, Money, and Interest Rates – The New York Times
… put yourself in the (very expensive) shoes of a bank CEO today, who is assured that the Fed’s hold on interest rates now will help avoid deflation and assure higher interest rates and hence higher bank profits in the long run. Even if you understand the macroeconomics and know the history (which you probably don’t), this is a story about a better bottom line four or five years down the pike, by which time you will have foregone a lot of bonuses and may well be retired.
As I see it, interest-rate hawkery on the part of bankers isn’t irrational, just evil.
Well, I say it’s evil; but, I think evil is irrational.
⇧ More On The Political Economy Of Permahawkery – The New York Times
Paul Krugman again, but oops!:
Incidentally, this also means that the common claim that QE is a giveaway to bankers is the opposite of the truth; to the extent that journalists with close ties to bankers spread this story, it’s Orwellian. Remember, the Fed isn’t lending money at low interest to banks — banks, with their $2.5 trillion (!) of excess reserves, are lending vast sums at low interest to the Fed.
Oh dear, that’s completely wrong.
Truth be told, it’s a “you scratch my back, I’ll scratch yours” deal between the Fed and the banks.
The Fed really did rescue the banks from insolvency. The Fed created the $2.5 trillion. The banks couldn’t do it.
The Fed acted as the “bad bank” by swamping the banking system (globally) with liquidity so much so that the banks’ bad debts were diluted into meaninglessness.
The banks sent hot money all over the place in search of profits and fees. They got plenty of them. Things aren’t happening quickly enough to suit them though. (Paul’s right about that!)
Otherwise, Paul’s radicalization is taking shape.
Too bad he thinks Jeremy Corbyn is “a flake.” I suspect Jeremy knows more about how sociopathic banking works than Paul has ever dreamed of.
Just to clarify, not all bankers are sociopaths, but …
⇧ Economic policy often seems to have little to do with economists. Why? – Comment – Voices – The Independent
Ask an academic about why sterling moved yesterday or the latest retail sales figures, and they will probably say they have no idea because they are too busy doing “proper research”. Most of the time, therefore, academics are of little help to economic journalists.
As a result, those journalists tend to establish contacts with City economists rather than academics. The problem is that City economists are not the best source for advice on major macroeconomic policy issues, like what to do with the deficit. This does require a knowledge of “proper research”, the academics’ area of expertise.
Of course; however, Simon left out advertising dollars (or pounds).
Mainstream journalists typically have editors who answer to publishers who pay close attention to who’s advertising and what those advertisers will want to see pushed in the publication. It doesn’t answer everything, but still accounts for a great portion of the pressure on the journalists concerning which sources to ask and cite.
Don’t forget that the whole thing comes down to democrats versus capitalists (in the Marxist sense; the owners of the means of production).
Jeremy Corbyn is first and foremost a democrat. David Cameron is first and foremost a man of the capitalist class and who is true to that class (no class traitor, no democrat).
While people were forced to sleep rough: https://www.telegraph.co.uk/news/politics/10122688/Charity-appeal-for-George-Osbornes-country-retreat.html
⇧ More Loans Available for Green Multifamily
In April, Fannie Mae closed the first loan under its Multifamily Green Building Certification Pricing Break program. It lent $10.2 million to the Station House, a 50-unit apartment community in Maplewood, N.J., that has earned a Leadership in Energy and Environmental Design (LEED) certification from the U.S. Green Building Council. Fannie Mae rewarded the property with interest rate that is lower than usual by 10 basis points for the permanent loan. That will save the owners of the property, Prudential Real Estate Investors, $101,000 over the life of the loan.
⇧ SEC settles with former Fannie Mae execs over subprime fraud | HousingWire
“Fannie Mae and Freddie Mac executives told the world that their subprime exposure was substantially smaller than it really was,” Robert Khuzami, the director of the SEC’s Enforcement Division said when the lawsuits were filed in 2011.
“These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and misled the market about the amount of risk on the company’s books,” Khuzami continued. “All individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country’s investors.”
In the end, it was full of sound and fury, signifying nothing.
⇧ Bled dry by high rents – CBS News
The rule of thumb for housing affordability is to keep rent payments to below one-third of income. Unfortunately, a growing number of U.S. households are going far beyond that measure.
What’s the solution? Helping Americans build higher incomes, increasing the types and variety of new housing constructed across the country, and preserving affordable units, McCue noted.
⇧ Green Building’s Impact Outpacing Conventional Construction | Builder Magazine | Green Building, Green Builders, Green Design, Green Products, Finance and Economics, U.S. Green Building Council (USGBC)
The green building sector is outpacing overall construction growth in the U.S. and will account for more than 2.3 million American jobs this year, according to a new U.S. Green Building Council study.
⇧ China investors rally over frozen savings I FT World – YouTube
Investors who had their savings frozen in Fanya Metals Exchange protested in Beijing on Monday. Similar schemes are widespread across China and, according to an FT investigation, are collapsing all over the country. The FT’s Lucy Hornby reports.
⇧ The Recession Is Over, But That Hasn’t Meant Prosperity for All | Zillow Blog
Highest Percentage of Homes Decreasing in Value
3. Washington, DC: 41.2 percent of homes in Washington, DC are decreasing in value. Currently, the ZHVI is $358,000, down 0.3 percent from a year ago.
4. New York: In New York, 38.6 percent of homes are decreasing in value. The ZHVI has gone up over the past year by 1.3 percent, and is now $384,100.
⇧ Time for the Nuclear Option: Raining Money on Main Street | WEB OF DEBT BLOG
If PQE does go beyond full productive capacity, the government does not need to rely on the central bank to pull the money back. It can do this with taxes. Just as loans increase the money supply and repaying them shrinks it again, so taxes and other payments to the government will shrink a money supply augmented with money issued by the government.
By the way, Bill Mitchell is one of the leading lights of MMT and perhaps it’s most radical, though he’s still a mixed-economy advocate.
⇧ Joris Luyendijk: ‘Bankers are the best paid victims. We should hug them, not be angry’ | London Life | Lifestyle | London Evening Standard
“The old mindset is intact: ‘If it’s legal, we’ll do it, and our well-paid lobbyists will ensure it’s legal’. …
On the 2008 crisis, Luyendijk argues it wasn’t a failure of capitalism: it showed finance wasn’t really capitalist at all. “I go to the heart of capitalism and I find…” he pauses for effect. “Socialism. Because in most niches, four or five banks control the market, divide it up among themselves and they can’t go bust.
Well, that’s a looser use of the term socialism than it is to call them capitalists.
Socialism is public ownership of the means of production. Capitalism, on the other hand and contrary to the typical “libertarian” definition, doesn’t necessarily mean “free markets” or laissez-faire. If it’s owned privately, that is not by the state or the people in general, it’s still capitalism.
So, what he found was overly deregulated mega-banks that were strategically designed to be “too big to fail.” It’s cute to call it socialism, but it’s somewhat misleading.
⇧ Rate Rage in 1932 – The New York Times
Both Rob Johnson and Peter Temin direct me to a paper by Gerald Epstein and Thomas Ferguson on the Fed’s strange, destructive turn away from expansionary policy in 1932. They look carefully at the archival evidence, and find that a key factor was the complaints of commercial banks that low interest rates on government securities were squeezing their profits.
How could it have been otherwise?
⇧ Chase Mortgage CEO red flags FHA loans
“FHA requirements are down to a 520 FICO (credit score) and you only have to put 3.5 percent down; that’s subprime lending, and we’re not in the subprime lending business,” said Kevin Watters, CEO of Chase Mortgage Banking.
520 is really low.
⇧ Insurers, Wyoming Man Will Pay $2.9M for 2012 Wildfire
One needs to be hyper-vigilant now.
Holding a person financially responsible for an accidental wildfire is especially unusual.
⇧ California’s Wildfires Didn’t Have to Be So Bad – Bloomberg View
If smaller wildfires had been allowed to burn 20 years ago, the forest wouldn’t have grown so dense, and today’s flames wouldn’t have had the fuel to reach the canopy, consume the treetops and send embers flying, spreading the blaze and resulting in three deaths and the loss of some 600 houses.
And we’ve known that for many decades.
⇧ California Wildfires Destruction Total Now Tops 1,000 Homes
The tally of homes destroyed topped 1,000 on Saturday after authorities assessing damage in the Sierra Nevada foothills counted another 250 houses destroyed by flames still threatening thousands of more structures.
⇧ Growing Out of Inequality by Zia Qureshi – Project Syndicate
Income inequality has been increasing in most major economies — and in many of them, it has been increasing significantly. This is a cause for growing concern, and rightly so: inequality not only can undermine an economy’s long-term growth prospects; it can restrain growth in the short term by depressing aggregate demand.
The typical approach to tackling inequality — redistributive tax-and-transfer fiscal policies — can be controversial and divisive, owing to perceived tradeoffs between economic growth and greater equality.
“…perceived tradeoffs…”? Are those real or only imagined trade offs? Which pro-equality programs have hampered growth?
⇧ How Will Negative Interest Rates Change the Rules of the Game?
… governments and banks around the world are attempting to marginalize cash (physical currency and deposits) by making it harder and/or less attractive to hold. In early 2015, JPMorgan Chase forbade some customers from storing cash in safe deposit boxes. Swiss banks refused to allow pension funds to withdraw large amounts of cash from their accounts. Danish legislators proposed a law allowing shops to refuse to accept cash payments. Australia imposed a 0.05% tax on some bank deposits. And France cut the legal limit on cash payments from 3,000 euros to 1,000 euros. Justifying this war on cash, University of Wuerzburg economist and German Council of Economic Experts member Peter Bofinger recently told Der Spiegel, “With today’s technical possibilities, coins and notes are in fact an anachronism ….”
⇧ Citigroup Strategist: Central Banks Will Try to Monetize Government Debt When the Next Crisis Hits – Bloomberg Business
“Our ‘innovation’ here is to suggest that central banks will invite fiscal spending by announcing that their balance sheets will stay expanded permanently, or almost equivalently, be reduced only under extreme circumstances, and that they anticipate additional permanent expansion if targets are missed,” said Englander.
Central banks that choose to go down such a road would foster more synchronicity between monetary and fiscal policy, something many economists argue was conspicuous by omission in some nations that struggled to recover from the Great Recession. …
“Politically it is difficult for central banks to outright endorse monetization of government debt, but faced with another slump and armed with ineffective policy tools, we expect that central banks will quickly give the wink and nod to fiscal measures — the Fed relatively quickly, the BoJ at the drop of a hat and the ECB with an eye to warding off the growth of anti-euro political movements,” he wrote.
Money printing to finance government spending doesn’t have the best reputation (think Zimbabwe) but in a world in which prolonged stagnation and a growing threat of deflation are the orders of the day, central bankers might just be willing to see if this radical approach bears fruit in the event that a negative shock rattles these still-fragile economies.
Why is this more likely? Well, if the central banks were to refuse to go along with it, they’d be running a much greater risk of losing their mandates altogether and having all their authority taken away to be handled completely in the fiscal/democratic realm (exactly where I want it).
The bankers would give in because, otherwise, they’d lose out completely.
Knowing this though, why wouldn’t the fiscal arguments prevail? They would but only if the common people were spoon fed the truth in continual dosages such that the countervailing false-propaganda of the banking industry wouldn’t overcome the arguments and defeat them for the sakes of the plutocrats.
Achim Truger, backing up his claims:
In the debate on the Greek crisis, no cliché was too tawdry to be used and no claim too stupid or false to be made by large sections of the media and politics. Time and again, we read or heard how the “lazy Greeks” or “bankrupt Greeks” really ought to start cutting spending now.
The fact that the Greek government has had to implement a brutal austerity policy over the years since 2010, with spending cuts and income increases exceeding 20% of GDP (depending on the type of measurement), was deliberately overlooked. It should be immediately clear that austerity is directly linked to the disastrous economic crisis in Greece just as it is directly linked to the crisis in the Euro area as a whole (see two recent IMK publications).
Achim Truger is Professor of Economics, particularly Macroeconomics and Economic Policy, at the Berlin School of Economics and Law and senior research fellow at the Macroeconomic Policy Institute (IMK) at Hans Böckler Foundation in Düsseldorf, Germany.
What’s at stake: Rather than being led by the Federal Reserve, global monetary tightening might be coming from the reserve depletion of emerging markets’ central banks. As emerging economies abruptly turn from massive buyers to massive sellers of foreign currencies, one needs to follow the money to see if this will translate in an effective decrease in developed markets’ liquidity.
The issue is the cost of credit and the profits that might be made by borrowing.
⇧ SocGen: The U.S. Dollar Has a Brand New Role in Global Markets – Bloomberg Business
Typically, in times of market stress, traders flock to the world’s reserve currency.h at didn’t happen during August’s carnage, at least for the currencies in the DXY index.
A mitigating factor in this instance is that the upheaval has been limited to financial markets, rather than the real economy. In the event that economic conditions were deteriorating notably around the globe (think widespread contractions, not just slower growth), the dollar could potentially reclaim its safe-haven status.
Contractions are in order if China keeps throwing weakening money at its problems even while trying to avoid democratization.
⇧ Uruguay Does Unthinkable, Rejects Global Corporatocracy | Wolf Street
You should read the article.
1. TiSA would “lock in” the privatization of services ….
2. TiSA would restrict signatory governments’ right to regulate stronger standards in the public’s interest. …
3. TiSA would limit the ability of governments to regulate the financial services industry, ….
4. TiSA would ban any restrictions on cross-border information flows and localization requirements for ICT service providers. …
5. Finally, TiSA, together with its sister treaties TPP and TTIP, would establish a new global enclosure system ….
Do you think that TiSA appears to have been designed by sociopathic crony-capitalists?
⇧ What Corbyn’s Critics Miss – Public Banking Institute
Matt Stannard has written an excellent article here.
I think the New Keynesians would be well served in reading and reflecting upon it. It’s my impression that they don’t get much, if any, exposure to such “radical” ideas as what was once considered rather conservative in many ways.
It’s a very unfortunate thing indeed that the laissez-faire capitalists (anarchists) have taken over so much of what is considered conservatism today and that the MMTers are about as “left-wing” or radical as the New Keynesians seem to ever hear about or from. It’s as if, if it’s not from the ivory tower, it doesn’t exist.
⇧ China has a message markets don’t understand
… the basis of the Communist regime is that no one has a right to know anything, analysts said.
The Chinese authorities are “very much concerned about protecting information,” Kennedy said. “What is critical for investors might be off limits.”
Only “might be”?
⇧ Community Development: Gentrification Doesn’t Always Lead to Displacement – YouTube
In this edition of Big Money Real Estate, my guest and I discuss new research on neighborhood changes, gentrification and displacement.