Linking ≠ endorsement.
⇧ 5 Qualities to Look For in Long Term Buy & Hold Properties
… there are certain things you can look for when trying to buy a great home for the long run. There are different factors to consider when you’re searching for a home you plan on holding for a decade or more as opposed to a house you’re looking to flip within a few months.
If you’re a long term buy and hold investor, here are a few general pointers you may want to consider as you’re searching for properties.
⇧ A Savvy Home Inspector Is an Investor’s Best Ally: Here’s Why
The gist of this one is to do your research and to not skimp. The two-list idea is interesting, don’t you think?
⇧ China consumers tighten belts, a red flag for the global economy | Reuters
… belt-tightening jars with the Chinese government’s hopes that consumers will pick up the slack as exports fall and it tries to rebalance the economy away from a long-running reliance on trade and government spending.
Domestic consumption contributed 60 percent of China’s economic growth in the first half of 2015, up from 51.2 percent in the whole of 2014, suggesting Beijing’s desired rebalancing is on track. But forward looking indicators and companies’ experiences in China are more worrying.
That’s exactly in line with what I had said China should look forward to. It’s a natural reaction of consumers who’ve become a little less trusting concerning the leadership’s ability to continue indefinitely pulling rabbits out of the hat.
⇧ America’s Collapsing Trade Initiatives
… a grand bargain with Pacific nations aimed at building a U.S.-led trading bloc to contain the influence of China, and an Atlantic agreement to cement economic relations with the European Union.
Both are on the verge of collapse from their own contradictory goals and incoherent logic.
It is a bit premature to write the obituaries for these deals. Never underestimate the power of corporate elites.
⇧ Deflation supercyle is over as world runs out of workers – Telegraph
This is an interesting thesis, but I’m under the impression that it’s grossly understating the number of people left in the world to exploit via slave wages. I also disagree concerning the rate at which technology will replace labor (though I admit to typically thinking technology will come in before it actually has; sooner than later, however, the curve will catch up).
The powerful social forces that have flooded the global economy with abundant labour for the past four decades years are reversing suddenly, spelling the end of the deflationary super-cycle and the era of zero interest rates.
“We are at a sharp inflexion point,” says Charles Goodhart, a professor at the London School of Economics and a former top official at the Bank of England.
⇧ California Blazes Destroy 2,000-plus Homes, Curb Insurer Appetites
A pair of massive California wildfires that have destroyed more than 2,000 structures are now considered among the most damaging fires in state history, and they could change the way insurers view risk or conduct underwriting in rural areas in the drought-plagued state.
Let’s hope El Nino saves the day in CA (without too many mudslides …).
Top morals of the story: 1) don’t build in the forest and 2) clear away the brush.
⇧ Global Warming Continues as Carbon Pollution Rises
We’re still headed in the wrong direction.
Last year, all the world’s nations combined pumped nearly 38.2 billion tons of carbon dioxide into the air from the burning of fossil fuels such as coal and oil, according to new international calculations on global emissions…. That’s about a billion tons more than the previous year.
⇧ Millionaire developer arraigned in Brookline arson case – The Boston Globe
Alan Kaplan had complained that “he was sitting on about a million dollars” before persuading a local handyman to set fire to a failed development under construction in July 2013 so that he could collect the insurance payment, Assistant Norfolk District Attorney Carolyn L. Hely said in court at Kaplan’s arraignment on the arson charges Tuesday.
⇧ NASA satellite images show deep burn scars from Valley fire in Northern California – LA Times
Flames from California’s third-most destructive wildfire on record not only consumed hundreds of homes but also left deep burn scars that can be seen from space.
New NASA infrared satellite images of the 76,067-acre fire show large swaths of burned woodlands in Lake, Napa and Sonoma counties, charred by intense, fast-moving flames. The town of Middletown is surrounded by acres of scorched land, the images show.
⇧ US new-home sales surge 5.7 percent in August to 7-year high | The Kansas City Star
Buoyed by steady job gains and low mortgage rates, Americans purchased new homes in August at the fastest pace in more than seven years.
Strong gains in new-home sales and construction could accelerate the economy by generating construction jobs, demand for more building materials and more spending on landscaping and other services.
… low mortgage rates are keeping home purchases affordable for many would-be buyers. The rate for a 30-year fixed mortgage averaged just 3.9 percent nationwide last week, according to mortgage buyer Freddie Mac, far below historical norms.
⇧ New Jersey’s Hudson City Bank to pay some $33 million in redlining case | Reuters
Hudson City Bancorp will pay nearly $33 million to settle civil charges alleging the New Jersey-based bank wrongfully discriminated against prospective black and Hispanic home buyers, in a case that marks the largest ever redlining settlement in history, the U.S. government said on Thursday.
The bank said it disagrees with the statistical analysis the government did of the loans at issue in the case, but wanted to avoid litigation.
⇧ Biggest Real Estate Projects NYC | 685 First Avenue
Even in the dog days of summer, the city’s developers are hard at work planning new projects, and they’re focusing on the outer boroughs. All of August’s 10 largest permit applications topped 100,000 square feet, but only the month’s biggest new project — Sheldon Solow’s 42-story mixed-use tower at 685 1st Street in Midtown East — is planned for Manhattan.
⇧ CMHC conducting research on foreign ownership of Canadian real estate, document shows – The Globe and Mail
Data indicating how much of Canada’s real estate is being snatched up by foreign buyers is scant, but the country’s national housing agency is working to change that.
⇧ Monetary Policy and Employment | Federal Reserve Bank of Minneapolis
Ellen R. McGrattan:
In this paper, I have reviewed current monetary research, focusing in particular on theoretical predictions for the impact of monetary policy on employment. The main findings suggest that recent accommodative Fed policy had only a small impact on the level of employment relative to the population and there is little the Fed can do to restore the employment-to-population ratio to its pre-2008 level. Proponents of further accommodation are thus faced with the challenge of developing better theories that capture the missing links between monetary policy and employment, evidently factors that drive labor-leisure decisions, rather than links that impact banks and credit markets.
The superrich have been keeping more of the profits for themselves because cheap labor has been plentiful around the world.
⇧ CBRE Ireland | Economic & Property Market Overview Q3 2015 – YouTube
The video is almost 9 minutes long. There’s plenty of detail.
An overview of the current state of the Irish economy from the Head of Research at CBRE Ireland, Marie Hunt, focussing on how the Irish economy has recovered over the last number of years as well as a summary of activity and trends in the Irish commercial and residential property markets as at Q3 2015.
⇧ Fed’s fumble | FT Markets – YouTube
Unusually good analysis coming out of FT:
After months of waiting for the Federal Reserve to raise interest rates, China stocks and hard landing worries have put a spanner in the works. Christine Johnson of Old Mutual Global Investors tells David Oakley why the Fed was right to hold, but poor on saying why.
Christine Johnson is a realist.
⇧ Prime mortgage borrowers caused the housing bust – OC Housing News
I completely agree with the idea that the problem was systemic and that the same reckless-lending mentality that gave out subprime loans like free candy was also spread to middle-and upper-class borrowers as well.
I never blamed the borrowers, per se (as a whole) but rather the lenders.
That’s not to say that there weren’t reckless borrowers who, against their better judgment, allowed themselves to be swept up in the mania.
Most people believe the housing bubble and bust was caused by subprime lending.
It was not.
⇧ The Negative Side of Rapid Transit
Makes a huge difference:
Whether you are considering buying, building, or leasing commercial space, keep in mind the tremendous impact of rapid transit accessibility.
⇧ Buy & Hold 101: Asset Protection and Privacy – How We Do It
Don’t hide so you can do immoral (slum-landlord) stuff but do think about people who target deeper pockets with frivolous law suits, etc.
Privacy through Land Trusts
You can purchase a property in the name of a trust. So you’d create this trust paperwork, which is nothing more than a set of documents, and instead of purchasing the property in the name of an LLC, purchase it in the name of a trust.
⇧ The Real Estate Investor’s Guide to NOT Getting Sued
Avoiding lawsuits isn’t as easy as we’d like it to be. Real estate arguably has the highest liability risk, so doing things right is key to protecting yourself and your investment.
3 Common Legal Pitfalls for Real Estate Investors…And How to Avoid Them
⇧ How to Increase Your Chances of Getting Funding for Real Estate Projects – Invest Four More
We’re making an evaluation on your ability to close the deal based on how organized you are and how you present information. By giving us access to simple information such as a purchase contract, statement of work and comps used to generate ARV, you’re signaling to us that we have a higher likelihood of actually closing the deal. We’re going to make you our priority versus someone who can’t provide this information.
⇧ Economist’s View: JebSpeak!
Not to be outdone by anyone ripping the supply-side Austerians to shreds, here’s Mark Thoma:
Jeb’s I will do what my brother did, except this time it will work for those who are not in the top of the income distribution, is not exactly inspiring. Unless, of course, you are used to eating with silver spoons.
⇧ mainly macro: The path from deficit concern to deficit deceit
What a strange world we are now in. The government goes for rapid deficit reduction as a smokescreen for reducing the size of the state. No less than a former cabinet secretary [a conservative] accuses the Chancellor [a conservative] of this deceit. Yet when a Labour leadership contender adopts an anti-austerity policy he [Jeremy Corbyn] is told it is extreme and committing electoral suicide.
Strange? It’s not strange, Simon. It’s par for the course.
You’re just new to conspiratorial thinking, meaning being able to identify conspiracies that are right out in plain sight for the world to see.
Of course the conservatives only want to shrink the state to take more for themselves while pretending it will be best for everyone. That’s how the churlish (as Webster first wrote: “Selfish; narrow-minded; avaricious”) have always been.
“The instruments also of the churl are evil: he deviseth wicked devices to destroy the poor with lying words, even when the needy speaketh right.” That’s Isaiah (https://en.wikipedia.org/wiki/Isaiah).
Whether you’re religious or not, it should strike you as a powerful statement of truth and also prophetic (because the understanding is becoming more and more mainstream — common knowledge — and Isaiah also said the ruse will end).
⇧ Dewey, Cheatem & Howe – The New York Times
Speaking of Isaiah, Paul Krugman goes after the churls too.
There are, it turns out, people in the corporate world who will do whatever it takes, including fraud that kills people, in order to make a buck. And we need effective regulation to police that kind of bad behavior, not least so that ethical businesspeople aren’t at a disadvantage when competing with less scrupulous types. But we knew that, right?
Well, we used to know it, thanks to the muckrakers and reformers of the Progressive Era. But Ronald Reagan insisted that government is always the problem, never the solution, and this has become dogma on the right.
⇧ Sweden’s Top Economist Puts China’s GDP Growth At 3%, But Others Are Even Less Optimistic – Forbes
Matthew Crabbe, author of the book “Myth-busting China’s number”, points out that the country has a century-long history of secrecy and number-fudging and that the top-line GDP figure is “increasingly meaningless” for China.
“If you really want to know what is going on in China’s markets, there is no better research method than walking down the street and watching what really goes on”, he said.
⇧ Australia Pays the Price for Depending on China – Bloomberg Business
Until recently the sad decline of heavy industry had little impact on the country’s highflying economy. Australia’s factories were closing, but its mines were booming. Chinese demand for Australian iron ore and other resources kept the economy humming. The country hadn’t suffered through a recession since the early 1990s.
The boom is over as the Chinese economy slows, and the woes of the manufacturing sector are complicating ….
Not everyone agrees the situation is so bad. “There’s a bit of an obsession with iron ore prices in Australia,” says Mike Smith, chief executive officer of Melbourne-based ANZ Bank. Since services account for 8 out of 10 jobs and 80 percent of GDP, resources are “not the be all and end all,” he says. “The underlying economy is actually performing OK.” Tourism is thriving, and construction is booming thanks to low interest rates. Turnbull doesn’t have much time to convince voters Smith is right: He has to call new elections by late 2016.
⇧ Bangladesh Works Hard to Meet U.S. Factory Safety Conditions
The preferential trade status does not cover Bangladesh’s influential garment industry, which helps the country earn $25 billion annually and mainly exports to the United States and Europe.
You see, higher standards demanded by the US are good for workers everywhere. That’s why I was always opposed to trade deals that had low- or no-standards.
⇧ Expert: Kansas Fracking Restrictions Coincide with Less Intense Quakes
The reduction in the magnitude of earthquakes mirrored the adoption of the Kansas Corporation Commission’s injection restraints in March, interim director of the Kansas Geological Survey Rex Buchanan said during a forum at the Kansas Energy Conference in Topeka.
It’s cause and effect.
⇧ If we don’t understand both sides of China’s balance sheet, we understand neither | Michael Pettis’ CHINA FINANCIAL MARKETS
Based on the same data and absorbing much of his analysis and interpretation of that data (I have been reading Lardy for many years) I expect growth to slow sharply. The current consensus for China’s long-term growth, I think, is around 6-7%. Lardy has said “China could grow at roughly 8% a year for another 5 or 10 years.” I believe, however, that without a massive and fairly unlikely transfer of wealth from the state sector to the household sector, the average Chinese GDP growth rate under Xi Jinping cannot exceed 3-4%.
… a failure to understand the economy as a dynamic system in which a) imbalances could persist and grow for many years before eventually rebalancing, b) the more rigid the institutional structure of the economy, the deeper imbalances were likely to get, c) the longer they persisted, the more disruptive the rebalancing was likely to be, and the less significant the “trigger” that set it off, and d) there are many ways rebalancing can occur, and the way it actually occurs depends on institutional constraints and rigidities. … an economy can have a very unbalanced debt structure, with debt growing at an unsustainable rate, so that there will be a significant reduction in future growth, but a crisis is only one of the ways, and not the only way and certainly not imminent, that this reduction in future growth can happen. …
… The wealthy might take their money out of the country, for example, and creditors might shorten maturities and raise interest rates, business owners might disinvest, the middle class might dis-intermediate savings, workers might organize, local policymakers may engage in protectionist activity, borrowers might invest in riskier projects, banks might reduce the scope of their lending to the most protected sectors, etc. The point is that it is a mistake to assume that the only or main cost of excess indebtedness is a financial crisis.
Defining “crisis” is the place to start. There are crises, and then there are crises.
⇧ Innovation, research and the UK’s productivity crisis
Richard Jones on the UK’s problem:
In short, our productivity problem is indeed a problem of slowing innovation.
… a lack of properly targeted, sufficient R&D funding. He’s quite right.
⇧ A very old problem: productivity in Britain – Full Fact
Sam Ashworth-Hayes:blockquote>There is no ‘silver bullet’ here, and no quick fix. Just reading the list above makes it clear that closing the productivity gap involves correcting a number of different problems even when talking in the most general terms. If we were to look closer at these issues we would find even more problems underlying them.
Take, for example, low investment. Is excessive ‘short-termism’ in financial markets the main problem? How do we go about fixing this? Or take the skill shortage. How do we actually improve the quality of schools and apprenticeships?
None of these are new problems. Each of them had already been apparent for some time over a decade ago. This suggests that while it’s easy to talk about fixing them, actually doing so is a formidable challenge.
First, who’s standing in the way? Second, why? Spread the answers while pushing for greater democracy. The problems will clear if you get enough people to understand.
⇧ Surprising data on who owns U.S. firms and how much they pay in taxes | Brookings Institution
The average federal income tax rate paid by individuals who report pass-through business income was 19% in 2011. In part, that’s because so much of that income is considered capital gains or dividends, which are taxed at preferential rates. That rate is much lower than the average rate on traditional corporations, which the authors estimate at 31.6% in 2011. And that is why so many businesses—some of them very big—have organized themselves as pass-through entities instead of traditional corporations.
Even with access to tax returns, the Treasury economists couldn’t trace all partnership income to the ultimate owner or originating partnership because businesses have created such complicated mazes (often designed specifically to reduce their U.S. taxes). “Our inability to unambiguously trace 30% of partnership income … underscores the concern that the current U.S. tax code encourages firms to organize opaquely in partnership form in order to minimize tax burdens,” the economists conclude.
Liability is an important issue. People gamble greater liability exposure against lower taxes.
Considering all the LLP’s out there and that so many politicians are lawyers, one wonders how quickly the tax playing-field will be leveled.
Insurance companies and brokers have their work cut out taking on, and offering, so much professional, and other, liability-risk transference.
⇧ SolarCity Launches Solar Service for Affordable Housing | Greentech Media
SolarCity launched a new solar service this week to provide solar to affordable housing developers so residents can pay less for their electricity.
Multifamily affordable housing may be just one avenue to bring clean-energy solutions to low-income communities. In New York, Con Edison is partnering with local startup BlocPower to bring efficiency and solar projects to houses of worship and nonprofits in underserved communities as part of its demand-side management program to reduce electric load in order to avoid building a $1 billion substation.
⇧ UK interest rate rises – waiting for lift-off | Business | The Guardian
Securing the right blend of policy over the medium term is what we should be focused on. That requires more visibility of how policy makers think monetary and fiscal policy interact.
We now know a little bit more about this than we used to. But in an era defined by big economic uncertainties, which only serve to reinforce the need for policy transparency, wouldn’t it be better if all this was brought out into the open?
In a word, yes.
⇧ Economy in U.S. Picked Up on Consumer Spending, Construction – Bloomberg Business
Last quarter’s growth reading was at odds with data on earnings. Gross domestic income, which reflects all the money earned by consumers, businesses and government agencies climbed at a 0.7 percent annualized rate. It climbed 0.4 percent in the first quarter, marking the weakest back-to-back gains since mid-2012.
Although GDP and GDI should theoretically match, they can diverge in the short run because they are derived from different sources.
Fed Chair Yellen said Thursday that she is ready to raise interest rates this year and intends to let the labor market run hot for a time to heal the lingering scars of the worst recession since the Great Depression.
It’s wage rates, hours worked, and the participation rate that should still concern us.
At least Yellen is hedging toward “hot.” When it doesn’t happen, she’ll be able to hold her fire.
⇧ New Home Prices Per Square Foot Show Affluent-Centered Market, Not Bubble 2.0 – NASDAQ.com
Prices rose by 16.1% per square foot in the 5 years leading up to the peak of the housing bubble. By contrast, in the last 5 years, they have only risen 3%. Prices per square foot now are 12% lower than they were at the peak of the bubble.
In summary, the latest study by the Joint Housing Center tells us that new houses are currently being built primarily for the affluent. And in real terms, those prices are not anywhere close to their bubble peak. In other words, this is further evidence that there is no “housing bubble 2.0.”
⇧ IMF Survey : Blanchard: Looking Forward, Looking Back
Some propositions that would have been considered anathema in the past are being proposed by “serious” economists: For example, monetary financing of the fiscal deficit.
“Monetary financing of the fiscal deficit” is an expression I hate.
It appears to have been deliberately designed to be cryptic: to mask the object of keeping the bankers hands involved so that the plug can be pulled without the commoners realizing what’s really hitting them (again).
The honest approach is to remove the bankers from the loop such that the government issues the currency directly to the economy without having created any corresponding governmental debt.
As for the supposed need for “independent” bankers to control the money because the politicians would otherwise overspend, there are other alternatives to out-of-control representatives. One alternative is called direct-local democracy. The people would democratically see to it that the money supply matched real productivity because doing so would give them the smoothest, fastest-growing, most-sustainable economy the world has ever seen.
The underestimation of the drag on output from fiscal consolidation was not a “mistake” in the way people think of mistakes, e.g., mixing up two cells in an excel sheet. It was based on a substantial amount of prior evidence, but evidence which turned out to be misleading in an environment where interest rates are close to zero and monetary policy cannot offset the negative effects of budget cuts. We got a lot of flak for admitting the underestimation, and I suspect we shall continue to get more flak in the future. But, at the same time, I believe that we, the Fund, substantially increased our credibility, and used better assumptions later on. It was painful, but it was useful.
Yes, that’s the standard explanation that I see across a wide range of the ideologically presented spectrum. I don’t believe the zero lower bound is even the central issue though, not even close. There are some things the central bankers knew. They knew that top execs had been keeping, and continued to want to keep, the lion’s share of profits for themselves and to not spread the wealth to the lower classes. They also knew that QE had zero strings attached and that the banks could simply use the liquidity to speculate rather than to do solid loan underwriting. After all, what companies were in a position to borrow from the banks on the scale of QE anyway? So, the Fed bailed out the insolvent banking sector, the banks bought the stuff they wanted to, the workers stayed un- or underemployed, wages remained depressed, and on and on.
Now the bankers are complaining about low interest rates because there aren’t higher profits in that for them.
Paul Krugman has noticed that last aspect but doesn’t seem to see that the ZLB is not nearly the reason that Blanchard has made it out to be (at least I haven’t seen Paul write otherwise, but I haven’t seen all his writings either). There’s hope.
⇧ What Scientists Are Seeing Over Greenland 4k – YouTube
Why are scientists out flying over Greenland, drilling into its ice, and monitoring it from space? The answer is that they see it as a bellwether of future Earth.
⇧ Labour Press — Labour announces new Economic Advisory Committee
This will be interesting!
Mariana Mazzucato, Professor, University of Sussex
Joseph Stiglitz, Professor, Columbia University, recipient of the 2001 Nobel Memorial Prize in economics
Thomas Piketty, Professor, Paris School of Economics
Anastasia Nesvetailova, Professor, City University London
Danny [David] Blanchflower, Bruce V, Rauner Professor of Economics Dartmouth and Stirling, Ex-member of the MPC
Ann Pettiffor, Director of Policy Research in Macroeconomics (PRIME), and an Honorary Research Fellow at the Political Economy Research Centre of City University
Simon Wren-Lewis, Professor of Economic Policy, Blavatnik School of Government, University of Oxford.
All but one has appeared on this blog before, some quite often.
Ann Pettifor said
I am honoured to be asked to serve on Labour’s Advisory Committee, with such distinguished colleagues. The Committee’s members are experts in a very diverse and complementary range of economic policy (both fiscal and monetary), and I am confident we can collectively help to develop ideas and policies that will serve the interests of all sections of British society.
But this calls for a change in the dominant economic paradigm which has unduly focused on the finance sector to the detriment of society as a whole, and of those active in both the private and public sectors of the real economy.
Britain urgently needs a coherent economic policy that will equip society, and especially our young people, for the future, and in particular one that will help us tackle climate change. Economic policies that will harness the combined, mutually reinforcing strengths of both public and private sectors to invest in Britain’s future, and challenge the economically and socially harmful obsession with austerity.
I hope to play my part in overturning the Chancellor’s deficit fetishism, and his employment of it (as Lord Turnbull argued recently) as a smokescreen for an attack on the state. (https://www.primeeconomics.org/articles /d7kw80mizrz0lshrk9gsttwuicjzvu)
⇧ Osage Council concerned with condition of properties
OSAGE | Recognizing several properties, especially rental properties, in Osage are “looking pretty poor,” the City Council voted to establish a committee to take a closer look at the situation.
⇧ Troubled Real Estate Spinoffs – IRS Pressure
Activists have been pushing spinoffs as selling real estate to a REIT or others would involve a capital gains tax, whereas if the real estate spin off is coupled with a qualifying business asset, they are tax free. The qualifying business asset cannot include collecting rent and this has led to creative solutions by companies.
⇧ What the city of Paris looks like without cars
Paris, this is your city without cars.
On September 27, the city of Paris decided to close most of its major streets in the center of the city in honor of “Une Journée Sans Voiture,” or “A Day Without Cars,” in order to combat pollution.
⇧ Allianz — credit bubbles have to burst | View from the Top – YouTube
In this week’s View from the Top Alistair Gray, the FT’s insurance correspondent, talks to Allianz’s chief executive Oliver Bäte about ultra-low interest rates, asset bubbles, M&A activity and Pimco after the departure of Bill Gross.
You hear here why there’s a soft market in P&C insurance and why it isn’t just the bankers who want higher interest rates.
⇧ Same Name, New Businesses: Evolution in the Bank Holding Company Liberty Street Economics
Nicola Cetorelli and Samuel Stern:
What are the boundaries of a modern banking firm? Are BHCs simply containers of diverse financial entities that include commercial banks? Do traditional commercial banking activities (such as maturity transformation, liquidity services, and credit extension) extend to a wider range of financial firms owned by the same BHC? Most importantly, how should we rethink our working definition of a bank (now a BHC?), and what are the implications of shifting organizational scope?
… despite their name, BHCs have owned more than just commercial banks throughout the entire period. Early on, nonbank financial subsidiaries and nonfinancial subsidiaries accounted for about half of all subsidiaries. However, their presence has exploded over the past twenty-five years, while the number of commercial bank subsidiaries has stagnated. …
These trends suggest that a significant transformation is under way in the financial industry. We have still just scratched the surface of this new database, yet we believe that further refinement will help answer fundamental questions about the structural transformation of this crucial sector of the economy: What is driving changes in the organizational structure of BHCs? Are there environmental factors—regulatory changes, industry innovation, the macroeconomic cycle—behind the observed transformations? Who are the “innovators” and the “followers” in this evolution and do these groups interact? And what does changing financial organizational structure mean for future performance, growth, or risk? How does the structure of the parent holding company affect the conduct of its subsidiaries?
⇧ British Labour Party is mad to sign up to the ‘Charter of Budget Responsibility’ | Bill Mitchell — billy blog
Billy Mitchell is one of the top MMT (Modern Money Theory) thinkers and writers.
… if also embraced OMF [Overt Monetary Financing] and funded the capital deficit in that way (that is, directly using its currency issuing capacity rather than spending and then borrowing back past spending in the form of debt issuance as McDonnell is proposing), then the capital balance could be whatever the government chose without violating the Charter. [You may have to read the entire article and some of the links in it to understand that bit, but it would be worth it.]
An overarching responsibility of the national government is to ensure there is no spending gap so that all resources are being used productively (which also would require them to be used sustainably).
That should be the first aim of British Labour rather than claiming that the “main message is … to reassure voters that Labour is committed to tackling the deficit”
It becomes obvious (and uncontestable) that if the private spending sources decline from a given position of full employment, the only way that the spending gap can be filled is via a fiscal intervention — direct government spending and/or a tax cut (to increase private disposable income and stimulate subsequent private spending).
That is a core insight of functional finance which underpins MMT.
… the level of national income (GDP) that is achieved by the current sectoral balance may still be associated with mass unemployment because total spending and the income generated in response is too low — insufficient to generate output levels that will fully utilise the productive resources available.
… fiscal rules such as those in the ‘Charter of Budget Responsibility’ are designed to frustrate efficient public administration, bias a nation to under-full employment equilibrium states, and are totally unnecessary for a currency-issuing government.
The British Labour Party is mad to sign up to the Charter. It is just another neo-liberal obstruction.
⇧ 33 Million Americans Still Don’t Have Health Insurance | FiveThirtyEight
Nearly 9 million people gained insurance last year, a win for “Obamacare” as the president’s signature health care law expanded Medicaid and opened health insurance exchanges. And yet, 33 million Americans, 10.4 percent of the U.S. population, still went without health insurance for the entirety of 2014. Millions more were uninsured for at least part of the year.1 New data released this month shows they were disproportionately poor, black and Hispanic; 4.5 million of them were children.
It all seems overly complicated (on purpose?).
⇧ Another Bubble Is Back – Commerical Real Estate Index Up 95% From Post-Crash Levels – The Daily Reckoning
… Fitch concludes that “it’s unlikely that the next twelve months will bring the same level of misery that followed the September 2008 peak.”
Comforting words. Whatever happens over the next 12 months in commercial real estate, it is “unlikely” going to be an implosion.
But it is important to remember that economic cycles are, by definition, cyclical. The current upturn commercial real estate has been enjoying since 2009 will eventually come to pass and the CMBS market can ill afford to forget the tough lessons learned in previous cycles.
“… it is “unlikely” going to be an implosion.” I agree.
⇧ Immigration’s Impact on Past and Future U.S. Population Change | Pew Research Center
What are, and will be, your tenants?
Amazing changes in store if Pew’s assumptions are close to accurate:
According to new Pew Research Center projections, immigrants will make up a record 18% of the U.S. population in 2065, compared with 14% today and 5% in 1965. Immigrants and their children will represent 36% of the U.S. population in 2065, which equals or surpasses the peak levels last seen around the turn of the 20th century. That share will represent a doubling since 1965 (18%) and a notable rise from today’s 26%.
⇧ Coppola Comment: The Great Yield Divergence
… in my view we should be looking at things like labour market dynamics, longevity and pension expectations.
And we need to look at them as a matter of urgency. Such divergence between nominal and real rates suggests that there is a continual drain of resources from workers to rentiers, from young to old and from poor to rich. This shows itself as rising indebtedness among the young and poor, and increasing fragility of the global financial system. It cannot possibly be sustainable.
⇧ Are reserves still “special”? | Bank Underground
Reserves have become less special in their traditional sense. But their role has expanded in other ways. Formal liquidity regulation has increased the structural demand for reserves. Reserves are at the very top of the spectrum in liquidity terms, as reserves are a highly reliable store of value — they are the only way in which interbank payments can ultimately be settled, and their value is not subject to market risk. Reserves are accordingly included in the highest tier of liquid assets required by regulators under the new internationally agreed Liquidity Coverage Ratio, and currently account for 35% of high quality liquid assets held by international banks.
This role for reserves as a liquid asset, rather than purely as a means of settlement suggests that demand for reserves is likely to be both higher and more volatile in future and presents a challenge for central banks in managing reserves. Demand for reserves as a liquid asset is likely to fluctuate over time, since banks face an optimisation problem over the trade-off between the liquidity value of reserves and the higher yield offered by other liquid assets. The current low yield environment encourages banks’ voluntary demand for reserves, as low returns reduce the incentive to hold less liquid assets. This could change in future — for example, if term premia rise once QE policies are unwound. But new liquidity standards suggest that overall, demand for reserves will remain higher on average than pre-crisis.
Matthew Osborne works in the Bank’s Sterling Markets Division and Mathew Sim works in the Bank’s Monetary Assessment and Strategy Division.
Something particularly noticeable to me in the article is that Osborne and Sim mention that reserve-ratio requirements matter, as does interest paid on reserves. It is all too commonplace for economics writers to write as if the Fed’s reserve ratio doesn’t even exist or that such reserves don’t even impact money/credit creation . Fortunately, that’s apparently finally changing at the Bank of England and in MMT circles (something I’ve been advocating for years).
⇧ Why the Fed Buried Monetarism by Anatole Kaletsky – Project Syndicate
To judge by Yellen’s recent speeches, the Fed may no longer believe in any version of the “natural” unemployment rate. Friedman’s assumptions of ever-accelerating inflation and irrationally “rational” expectations that lead to single-minded targeting of price stability remain embedded in official economic models…. But the Fed, along with almost all other central banks, appears to have lost faith in that story.
Instead, central bankers now seem to be implicitly (and perhaps even unconsciously) returning to pre-monetarist views: tradeoffs between inflation and unemployment are real and can last for many years. Monetary policy should gradually recalibrate the balance between these two economic indicators as the business cycle proceeds. When inflation is low, the top priority should be to reduce unemployment to the lowest possible level; and there is no compelling reason for monetary policy to restrain job creation or GDP growth until excessive inflation becomes an imminent danger.
The bad news is that the vast majority of market analysts, still clinging to the old monetarist framework, will accuse the Fed of “falling behind the curve” by letting US unemployment decline too far and failing to anticipate the threat of rising inflation. The Fed should simply ignore such atavistic protests, as it rightly did last week.
Sad to say, I think Anatole Kaletsky is way ahead of his time (by a couple of years). The Fed is still talking as if the superrich aren’t hoarding profits rather than spreading them to labor.
⇧ Labour can cut deficit without austerity, John McDonnell pledges | Politics | The Guardian
On a people’s quantitative easing, an issue raised by Corbyn in his election campaign, McDonnell said little but promised: “We’ll use active monetary policy to stimulate demand where necessary.”
Let’s hope that he said little because his advisory committee hasn’t had time to meet and to formulate a formal plan and to give McDonnell and Corbyn a talking-points outline they can understand and defend while teaching the general public about the huge possibilities with debt-free money issued in the right amounts and the right times and for the right purposes, avoiding inflation while growing the economy for all.
It’s the single most important thing in the movement.
If they under do it or screw it up, they’ll do a great deal of harm. If they consider the politics of it rather than the economics of it, they’ll under do it and screw it up.
⇧ Trump Plan Is Tax Cut for the Rich, Even Hedge Fund Managers – The New York Times
This is too bad. I don’t include it to be “political” but only because it relates directly to the economy (the same reason I’ve included so much from Yanis Varoufakis and Jeremy Corbyn and others).
Donald Trump’s tax plan [https://www.donaldjtrump.com/positions/ tax-reform], released Monday, does not live up to the populist language he has offered on taxes all summer.
… Mr. Trump offered another way his tax plan would pay for itself: economic growth, perhaps as fast as 6 percent a year, again a higher-energy estimate than the 4 percent Mr. Bush has proposed. But there is no evidence [https://www.nytimes.com/2015/06/18/upsh ot/economists-advise-us-not-to-hold-our- breath-on-jeb-bushs-growth-target.html] to support the idea that such rapid growth can be produced through tax cuts.
One wonders whether Donald Trump let his control slip to a committee more interested in appealing to deficit hawks hell bent on privatization at any cost to the general public. We shall see how he responds (if he does). If he doesn’t even respond, that will speak volumes.
⇧ Stiglitz and Piketty to advise Labour | FT Comment – YouTube
Why no mention of the single most important plank in the Corbyn platform: People’s Quantitative Easing (PQE)? It doesn’t require higher taxes or spending cuts and certainly doesn’t have to be “dangerously” inflationary.
Chris Giles and Martin Sandbu discuss the appointment of leading critics of austerity, Thomas Piketty and Joseph Stiglitz, as economic advisers to UK Labour leader Jeremy Corbyn and shadow chancellor John McDonnell.
⇧ Behind the Numbers: PCE Inflation Update, August 2015 – Dallas Fed
The Fed uses PCE (Personal Consumption Expenditures), not CPI.
The headline, or all-items, PCE price index was unchanged in August, after rising at a 1 percent annualized rate in July. Sharp declines in the prices of gasoline and fuel oil contributed significantly to August’s low headline reading. Energy goods and services as a whole were down 2.3 percent at a monthly rate after rising a slight 0.1 percent in July. Food prices increased at a slower pace in August, compared with July, while prices for core services rose at a slightly faster pace. Prices for core goods fell, though by a bit less than in either June or July.
⇧ The Soaring Price of Political Access – The New York Times
The plutocrats have purchased the “right” to keep out the riff-raff: everyone else. Do you have $1.34 million to throw at the Republicans or $1.6 to throw at the Democrats so they’ll do your bidding even if it means shortchanging the other taxpayers (typically the middle and lower classes)?
… top-tier Republican donors will pay $1.34 million per couple for the privilege of being treated as party insiders, while the Democratic Party will charge about $1.6 million, according to The Washington Post. Four years ago the most an individual could give to a national party was $30,800.
American “democracy” is a money sport.
⇧ It’s carnage out there for emerging markets
It’s been another week of bloodshed in emerging markets, with the Brazilian real, South African rand and Turkish lira all pummelled to record lows as China growth concerns and uncertainty about U.S. rate hikes continue to bite.
Remarks by U.S. Federal Reserve Chair Janet Yellen late Thursday suggesting the central bank could still raise rates this year sparked fresh selling on Friday, with the Malaysian ringgit and Indonesian rupiah falling to their lowest levels since the Asian financial crisis in 1998.
⇧ Why some scientists are worried about a surprisingly cold ‘blob’ in the North Atlantic Ocean – The Washington Post
… last week we learned from the National Oceanic and Atmospheric Administration that the first eight months of 2015 were the hottest such stretch yet recorded for the globe’s surface land and oceans, based on temperature records going back to 1880. It’s just the latest evidence that we are, indeed, on course for a record-breaking warm year in 2015.
Yet, if you look closely, there’s one part of the planet that is bucking the trend. In the North Atlantic Ocean south of Greenland and Iceland, the ocean surface has seen very cold temperatures for the past eight months:
… while there may not yet be any scientific consensus on the matter, at least some scientists suspect that the cooling seen in these maps is no fluke but, rather, part of a process that has been long feared by climate researchers — the slowing of Atlantic Ocean circulation.
In the Nature Climate Change paper, the researchers suggested that this source of freshwater is the melting of Greenland, which is now losing more than a hundred billion tons of ice each year.
… The accelerated melting of the Greenland ice sheet will continue to contribute to this decline by diluting the ocean waters.
This won’t lead to anything remotely like The Day After Tomorrow (which was indeed based — quite loosely — on precisely this climate scenario). But if the trend continues, there could be many consequences, including rising seas for the U.S. East Coast and, possibly, a difference in temperature overall in the North Atlantic and Europe.
⇧ Gaia Vince: humans have caused untold damage to the planet | Books | The Guardian
We live in epoch-making times. Literally. The changes humans have made in recent decades have been on such a scale that they have altered our world beyond anything it has experienced in its 4.5bn-year history. Our planet is crossing a geological boundary and we humans are the change-makers.
⇧ Forget ‘Corbynomics’: Labour’s leadership can win over the party and the voters by smart politics | Business Comment | News | The Independent
What about the fear that Labour is going back to a pro-nationalisation, pro-union past that clearly failed in electoral terms? A great deal here depends on how politically smart the new Labour leadership and Labour MPs are. The leadership know that the majority of MPs, and probably a majority of the public, are well to the right of themselves. They cannot hope to win in 2020 leading a divided party. While a radical agenda might work for a Labour Party membership that is highly political, well-informed, and fed up with Labour appeasement, winning over a much less political electorate who read a hostile press is something else.
The smart strategy is to take the long view, and focus on policies that move the party’s platform to the left in ways that the majority of the parliamentary party are comfortable with.
Well, I agree and disagree. The really smart strategy is to focus on making the program as understandable as possible and to keep the message the focus. Educate those people Simon says are reading a hostile press. Force the debate such that, that hostile press has no choice but to cover the program, which will continually allow the Corbyn team to refute (with data) the distortions and half-truths of the conservatives. Make it so the people won’t have a choice but to know the program and what it’s based upon.
⇧ Tornado Damages 10 Homes in South Carolina Neighborhood
A tornado quickly blew through a neighborhood on the South Carolina coast early Friday and blew out windows, knocked down trees and heavily damaged ten homes.
The tornado touched down around 1 a.m. with maximum winds of 130 mph. It was on the ground for nearly 7 miles ….
⇧ Corbyn must slay the zombie ideas that blight our economy | Aditya Chakrabortty | Comment is free | The Guardian
At the height of a catastrophe instigated by financiers, the experts brought on to the country’s premier broadcast forum to discuss what should be done about it were financiers. Perhaps unsurprisingly, the overwhelming majority of them thought it was a good idea that British taxpayers were pumping billions into their industry. Nationalisation of the banks, reform of the shadow banking sector, clamping down on tax havens, shrinking Britain’s outsize finance industry — all of these perfectly valid policy options barely got a mention.
⇧ As Banks Retreat, Private Equity Rushes to Buy Troubled Home Mortgages – The New York Times
The acquisition of distressed mortgages by Lone Star is the engine in a well-oiled securitization machine that assumes that foreclosure and resale of the homes are inevitable components of the process. In these securitizations, many of the soured loans are bundled into bonds that yield up to 4 percent. They are then sold to hedge funds and mutual funds.
The short-term securities generate income for investors from the proceeds derived from foreclosing on the mortgages and then selling the homes on the open market. Last year, Lone Star sold 17 such securitizations, with a combined unpaid loan balance of $10 billion, and the firm is on pace to complete a similar number of deals this year, according to Intex Solutions, a securitization deal tracking service.
⇧ Real estate crisis emerging in North Dakota’s man camps – Fuel Fix
“I’m now hearing words like, ‘This isn’t sustainable.”‘
⇧ 4 ideas for fixing Wayne County’s auction of tax-foreclosed properties
The first round of Wayne County’s annual auction of tax-foreclosed properties, the largest of its kind in the world, wrapped up last week. According to data from Loveland Technologies, of the 24,950 foreclosed properties for sale in the city of Detroit, only 1,648 sold.
⇧ Texas home prices rise as Houston flattens – Prime Property
Texas home sales saw a 7 percent increase year over year in August and the median price rose 7.4 percent, according to August data analyzed by the Texas A&M Real Estate Center. Meanwhile, Houston’s sales have remained flat thanks to slipping oil prices.
⇧ It’s time for Labour to escape “Stockholm syndrome” — Prime Economics
Ann Pettifor gives a history lesson:
Fortunately while some Labour MPs might be suffering from Stockholm Syndrome, their supporters in the country are not. They are fully alive as to who the real ‘captors’ of our economy are, and determined that their capture should be resisted.
This, I believe, goes some way to explaining the election of Jeremy Corbyn as leader.
⇧ Home Values in Black, Hispanic Neighborhoods Bouncing Back More Slowly | Zillow Blog
… she [Dorothy Brown, a professor at Emory University School of Law] thinks it would help if the government stopped giving tax subsidies for homeownership.
“The minute you say you want Congress to subsidize homeownership, you’re leaving a majority of blacks and Hispanics behind,” she said. “Then you look at the group that’s most likely to benefit, and it’s the highest-income homeowners.”
⇧ The collapse of Saudi Arabia is inevitable | Middle East Eye
About a quarter of the Saudi population lives in poverty. Unemployment is at about 12 percent, and affects mostly young people — 30 percent of whom are unemployed.
⇧ Lagarde Says Fed Hike, Slower China to Test Global Economy – Bloomberg Business
While emerging markets are generally better prepared for higher U.S. rates than in the past, rising borrowing costs and a stronger dollar “could reveal currency mismatches, leading to corporate defaults — and a vicious cycle between corporates, banks and sovereigns,” Lagarde said.
⇧ U.S. jobs sector gains, Midwest manufacturing stumbles | Reuters
“If we are able to hold on this type of jobs growth, the odds are pretty good we’d be back to full employment in the summer of 2016,” Moody’s Analytics chief economist Mark Zandi told reporters ….
Participation rate, participation rate, participation rate. That’s just one aspect, but it does bear repeating.
⇧ How I Bought, Rehabbed, Rented & Refinanced 14 Properties
… BRRRR strategy—namely Buy, Rehab, Rent, Refinance, and Repeat.
⇧ Juncture interview: Adair Turner | IPPR
One needs to be clear that Adair Turner is speaking exclusively of stimulus and not continual governmental financing solely via debt-free money. In other words, he’s just doing some extremely minor tweaks that would ensure the continuation of the class structure where the gaps between upper and lower are huge and for no justifiable reason.
As for the monetary authority, as in the Monetary Policy Committee (MPC), it could, and should, be replaced by a computer system that constrains money supply solely on account of price inflation/deflation.
… the absolute crux of the issue.
There is no doubt at all that there exist circumstances in which overt money finance [OMF] is, in technical terms, the best strategy: most likely to be effective and least likely to generate financial system risk. And there are no technical reasons whatsoever why, done in an appropriate amount, fiat money creation would lead to hyperinflation. Its impact all depends on the amount.
That’s an incredibly important point, because it gets obfuscated. Indeed, one of the key things that I try to do in the book is to be clear on the technical feasibility. And I have heard from nobody a coherent, logical reason why the moderate and beneficial use of OMF is technically impossible or technically undesirable; all apparent arguments that it is dissolve on close inspection.
Now, let me define clearly what I mean here by ‘technical’ considerations. I mean the factors which would be considered by a wise, benevolent monetary policy committee [MPC] which would always seek to make the right decisions about the appropriate amount of stimulus, and which would always be able to do so free of political pressures. In that imaginary scenario it is absolutely clear that OMF would, in many circumstances, be the best strategy.
So the problem is not technical feasibility — it’s the political economy risks which arise once we recognise that OMF can be a technically feasible and d esirable policy tool. But these political economy risks are immensely important, because if we have something which seems, in the short term, like a free lunch, how on earth do we put in place political constraints on governments overusing it?
And indeed if opponents of OMF base their case on this political argument, rather than on confused and phoney technical arguments — and there are a lot of confused technical arguments around — then I entirely respect, understand and at times almost agree with them.
So the crucial question is simply this: can we design a set of political economy constraints — embedded in rules and institutional responsibilities — that leaves us confident we will only use this tool in adequately moderate quantities?
One reason to think we could is that we have managed to take away from chancellors of the exchequer the right to set the interest rate. That was a big example of the political class enacting a self-denying ordinance. After all, 30 or 40 years ago the interest rate was routinely reduced just before the governing party’s annual conference to make the party faithful a bit happier. So, starting in 1992 and reinforced in 1997, with complete political consensus, we said, ‘No, the chancellor shouldn’t set the interest rate. That should be done by an independent expert body — the MPC.’
So if we believe we can enact that self-denying ordinance, why should we not be able to locate the authority to approve the use of fiat money, in pursuit of an adequate level of nominal demand growth, in the same body, the MPC?
Now, if the cost of excluding that option were very slight you might still say, ‘Don’t take the risk.’ But given that the cost of not using OMF could in some circumstances be great, I think we should seek to design appropriate rules and responsibilities to allow its appropriate and disciplined use when it is needed.
To go back to your point about how the technocrats didn’t cover themselves in glory: the one thing that they did do quite well w as achieve both a low level of inflation and a moderate and relatively stable growth of nominal GDP. The fatal mistake was to assume that that was sufficient rather than merely necessary, and therefore not to pay attention to the fact that there was a massive increase in private leverage, an increase which did not generate over-rapid growth of nominal GDP but did build up the huge risks which crystallised in 2008.
⇧ Northern California Town Fights Back After Being Nearly Burned Off Map
Fire victim Jacki Malvini, 48, and her husband erected a modest manufactured home on a ridge with a spectacular view of mountain woodlands. She is determined to rebuild.
The Malvinis’ house wasn’t insured for fire.
⇧ Sweden is shifting to a 6-hour work day – ScienceAlert