Wed 2010-05-19 11:56 EDT

billy blog >> Blog Archive >> When you've got friends like this ... Part 3

...how limiting the so-called progressive policy input has become. One could characterise it as submissive and defeatist. But the main thing I find problematic is that its compliance is based on faulty understandings of the way the monetary system operates and the opportunities that a sovereign government has to advance well-being. Progressives today seem to be falling for the myth that the financial markets are now the de facto governments of our nations and what they want they should get. It becomes a self-reinforcing perspective and will only deepen the malaise facing the world...When the neo-liberals cry about the burdens of the public deficits that the future generations will have to bear they are talking nonsense. The actual burden we are leaving for our children and their children is the dead-weight losses of real income and the opportunities that that income would have provided them...

Billy Blog; blogs Archive; friends; Part 3.

Tue 2010-05-18 14:16 EDT

billy blog >> Blog Archive >> The enemies from within

...Unemployment is the major source of poverty whether it be in a advanced or developing country. It is alienating, soul destroying, extends its costs well beyond the individual and the income losses alone dwarf the costs arising from so-called microeconomic inefficiencies. The daily loss of GDP involved in not having all available workers doing something productive is mammoth. It is a no-brainer that it is the large economic problem that should be solved in any country...If the private sector cannot produce enough then there is only one sector left ladies and gentleman who can do the trick!...Given the private sector doesn't want to spend at present -- and you cannot blame them for that given the appalling state of their balance sheets and the very unsteady housing market -- there is a danger that demand will drop further unless the government adds to its stimulus packages...the US is an economy that desperately needs more aggregate demand. The only constraint on employment is the lack of spending and there is no financial constraint that exists in a fiat monetary system that prevents the government from eliminating that demand deficiency...

Billy Blog; blogs Archive; enemies.

Fri 2010-03-12 08:45 EST

AlterNet: The Richest 1% Have Captured America's Wealth -- What's It Going to Take to Get It Back?

David DeGraw, Amped Status

...while US workers are now working more hours and have become dramatically more productive and profitable, our pay is actually declining and all the dramatic increases in wealth are going straight into the pockets of the Economic Elite...the average US citizen is forced to give up approximately 30% of our income in taxes. This tax system is now strategically designed to flow straight into the hands of the Economic Elite. A huge percentage of our tax dollars ultimately end up in their pockets. The past decade proves that -- whether it's the Republicans or the Democrats running the government -- our tax money is not going into our community, it is going into the pockets of the billionaires who have bought off both parties...most every serious economist knows that due to so much theft and debt created in the tax system, the only way to fix things, other than stopping the theft and seizing the trillions that have been stolen, will be for the government to cut important social funding and drastically raise our taxes...Trillions more in our spending on food and fuel has been stolen due to fraudulent stock transactions and overcharging...we have the most expensive health care system in the world and we are forced to pay twice as much as other countries, and the overall care we get in return ranks 37th in the world...The American worker is screwed over every step of the way, and it all starts with the explosion in the cost of a college education. This is one of the Economic Elite's most devastating weapons...The American dream has turned into a nightmare. The economic system is a sophisticated prison cell; the indentured servant is now an indebted wage slave; whips and chains have evolved into debts...

AlterNet; Captured America's Wealth; Go; richest 1; s; take.

New Deal 2.0 Tue 2010-03-09 17:23 EST

Wall Street's War Against Consumers and Labor Heats Up

Michael Hudson

...Throughout the world, scaling back the 20th century's legacy of progressive taxation and untaxing real estate and finance has led to a public debt crisis. Property income hitherto paid to governments is now paid to the banks. And although Wall Street has extracted $13 trillion in bailouts just since October 2008, the thought of raising taxes on wealth to pay just $1 trillion over an entire decade for Social Security or health insurance is deemed a crisis that would lead Wall Street to shut down the economy. It is telling governments to shift to a regressive tax system to make up the fiscal shortfall by raising taxes on labor and cutting back public spending on the economy at large. This is what is plunging economies from California to Greece and the Baltics into fiscal and financial crisis. Wall Street's solution - to balance the budget by cutting back the government's social contract and deregulating finance all the more - will shrink the economy and make the budget deficits even more severe. Financial speculators no doubt will clean up on the turmoil.

0; consumer; labor heats; new dealing 2; Wall Street's War.

China Financial Markets Thu 2010-03-04 08:47 EST

Stuck in neutral -- what Japan's rebalancing can teach us

Michael Pettis

...A few days ago I read a good article (``Stuck on Neutral'') about Japan [from] the Economist...about Japan's post-1989 rebalancing, ...discusses why, in spite of every attempt, Japan has not been able supposedly to rebalance the economy and achieve any real growth during the two lost decades after 1990. Private consumption never took off to drive economic growth...After many years of excess investment driving growth, Japan's rebalancing process, which occurred after corporate, bank and government debt levels prevented the investment party from continuing, locked the country into many years of slow growth because it had to grind through years of debt-fueled overinvestment...it doesn't matter what individual policies we take to boost consumption if these polices don't in the aggregate represent a real transfer of income to the household sector, as they did not in Japan...Japan's experience suggests one of the risks China faces...Chinese household consumption will undoubtedly rise as a share of Chinese GDP over the next decade or two, but the process nonetheless can be disappointing for growth. It depends on lots of other moving parts, most importantly perhaps the change in investment and the speed with which income is transferred to households. And the change in investment might depend on debt capacity constraints and the extent of earlier overinvestment.

China Financial Markets; Japan's rebalancing; neutral; stuck; teach.

Wed 2010-02-24 08:49 EST

What the PBoC cannot do with its reserves

Michael Pettis

...Revaluing the RMB, in other words, is important and significant because it represents a shift of wealth largely from the PBoC, exporters, and Chinese residents who have stashed away a lot of wealth in a foreign bank, in favor of the rest of the country. Since much of this shift of wealth benefits households at the expense of the state and manufacturers, one of the automatic consequence of a revaluation will be an increase in household wealth and, with it, household consumption. This is why revaluation is part of the rebalancing strategy -- it shifts income to households and so increases household consumption. So a revaluation has important balance sheet impacts on entities within China, and to a much lesser extent, on some entities outside China. But since it merely represents a distribution of wealth within China should we care about the PBoC losses or can we ignore them? Unfortunately we cannot ignore them and might have to worry about the PBoC losses because, once again, of balance sheet impacts. The PBoC runs a mismatched balance sheet, and as a consequence every 10% revaluation in the RMB will cause the PBoC's net indebtedness to rise by about 7-8% of GDP. This ultimately becomes an increase in total government debt, and of course the more dollars the PBoC accumulates, the greater this loss. (Some readers will note that if government debt levels are already too high, an increase in government debt will sharply increase future government claims on household income, thus reducing the future rebalancing impact of a revaluation, and they are right, which indicates how complex and difficult rebalancing might be). In that sense it is not whether or not China as a whole loses or gains from a revaluation that can be measured by looking at the reserves, and I would argue that it gains, but how the losses are distributed and what further balance sheet impacts that might have.

PBoC cannot; reserves.

zero hedge Tue 2010-02-16 16:33 EST

The LBO Refi Wave Approaches: $800 Billion In Junk Debt Maturing By 2014, Adds To Multi Trillion Fixed Income Refi Cliff

After a mere $100 billion in projected debt maturities in the 2010-2011 period, the LBO wave of 2005-2007, largely financed with 5-7 year tenor bonds and loans, will set the refi scene on fire in the 2012-2014 period, when $700 billion of debt is set to mature. Should Fed Fund rates, and the yield curve begin to shift higher, the incremental cost of debt capital will destroy tens if not hundreds of billions of equity value over the next 5 years...

2014; 800; adds; Junk Debt Maturing; LBO Refi Wave Approaches; Multi Trillion Fixed Income Refi Cliff; Zero Hedge.

Fri 2010-02-05 11:29 EST

Michael Hudson: Myths of Recovery

...Obama's most dangerous belief is in the myth that the economy needs the financial sector to lead its recovery by providing credit. Every economy needs a means of payment, which is why Wall Street has been able to threaten to wreck the economy if the government does not give in to its demands. But the monetary function should not be confused with predatory lending and casino gambling, not to mention Wall Street's use of bailout funds on lobbying efforts to spread its gospel...The pro-financial mass media reiterate that deficits are inflationary and bankrupt economies. The reality is that Keynesian-style deficits raise wage levels relative to the price of property (the cost of obtaining housing, and of buying stocks and bonds to yield a retirement income). The aim of running a ``Wall Street deficit'' is just the reverse: It is to re-inflate property prices relative to wages. A generation of financial ``ideological engineering'' has told people to welcome asset-price inflation (the Bubble Economy). People became accustomed to imagine that they were getting richer when the price of their homes rose. The problem is that real estate is worth what banks will lend -- and mortgage loans are a form of debt, which needs to be repaid.

Michael Hudson; myth; recovery.

zero hedge Sun 2010-01-31 23:09 EST

Scandal: Albert Edwards Alleges Central Banks Were Complicit In Robbing The Middle Classes

Did the US and UK central banks collude with the politicians to `steal' their nations' income growth from the middle classes and hand it to the very rich?... the US and UK central banks were actively complicit in an aggressive re-distributive policy benefiting the very rich. Indeed, it has been amazing how little political backlash there has been against the stagnation of ordinary people?s earnings in the US and UK. Did central banks, in creating housing bubbles, help distract middle class attention from this re-distributive policy by allowing them to keep consuming via equity extraction? The emergence of extreme inequality might never otherwise have been tolerated by the electorate...

Albert Edwards Alleges Central Banks; complicit; middle class; Rob; scandal; Zero Hedge.

Mon 2009-12-21 19:18 EST

America's Head Servant? The PRC's Dilemma in the Global Crisis

Ho-fung Hung

...Despite all the talk of China's capacity to destroy the dollar's reserve-currency status and construct a new global financial order, the prc and its neighbours have few choices in the short term other than to sustain American economic dominance by extending more credit...the historical and social origins of the deepening dependence of China and East Asia on the consumer markets of the global North as the source of their growth, and on us financial vehicles as the store of value for their savings. I then assess the longer-term possibilities for ending this dependence, arguing that, to create a more autonomous economic order in Asia, China would have to transform an export-oriented growth model--which has mostly benefited, and been perpetuated by, vested interests in the coastal export sectors--into one driven by domestic consumption, through a large-scale redistribution of income to the rural-agricultural sector. This will not be possible, however, without breaking the coastal urban elite's grip on power.

America's Head Servant; Global Crisis; PRC's Dilemma.

zero hedge Tue 2009-10-27 11:50 EDT

Freddie Mac Annualized Defaults Hit Record High At 7.3%, Even As Lending Increases Once Again

With the US government now having taken over the functions of such pristine subprime lenders as New Century, with the provision that it not only is not checking borrowers' credit scores, income potential, or other "facts" that the mortgage lenders at least pretended to care about, but also giving away massive incentives to promote housing bubble V2, it was only a matter of time before the taxpayer's balance sheet would start looking like an Angelo Mozilo wet dream. Today, Freddie Mac released its September Monthly Volume Summary and, as expected, it is beginning to look just like the subprime debacle is among us, only this time all of America is on the hook thanks to a brilliant Fed and the even more brilliant geniuses in D.C.

3; 7; Freddie Mac Annualized Defaults Hit Record High; lending increasingly; Zero Hedge.

zero hedge Fri 2009-10-23 09:05 EDT

Fitch Expects CMBS Loss Severity To Rise Markedly Next Year

As anyone who has spent even a day looking at securitization tranching or CDS trading will tell you, there are two critical components to any investment that involves risky fixed income: cumulative loss probability and loss severity...artificial delays in bringing the CRE market to fair value in terms of delinquencies and REOs going to foreclosures will simply result in much lower eventual recoveries...the temporary reprieves granted to many leveraged securities will come back to bite investors when defaults eventually pick up again, however with the result being loss rates which will be much higher than default expectations.

Fitch Expects CMBS Loss Severity; Rise Markedly; years; Zero Hedge.

The Big Picture Wed 2009-10-14 11:36 EDT

Andy Xie: Here We Go Again

Former Morgan Stanley Analyst Andy Xie explains why China is a potential bubble: [Consider] the US Savings and Loans crisis of the late 1980s and early 1990s. The US Federal Reserve kept monetary policy loose to help the banking system. The dollar went into a prolonged bear market. During the descent, Asian economies that pegged their currencies to the dollar could increase money supply and lending without worrying about devaluation, but the money couldn't leave home due to the dollar's poor outlook, so it went into asset markets. When the dollar began to rebound in 1996, Asian economies came under tightening pressure that burst their asset bubbles. The collapsing asset prices triggered capital outflows that reinforced asset deflation. Asset deflation destroyed their banking systems. In short, the US banking crisis created the environment for a credit boom in Asia. When US banks recovered, Asian banks collapsed. Is China heading down the same path? There are many anecdotes to support the comparison. Property prices in Southeast Asia became higher than those in the US, but ``experts'' and government officials had stories to explain it, even though their per capita income was one-tenth that of the US. Their banks also commanded huge market capitalizations, as financial markets extended their growth ad infinitum. The same thing is happening in China today. When something seems too good to be true, it is. World trade -- the engine of global growth -- has collapsed. Employment is still contracting throughout the world. There are no realistic scenarios for the global economy to regain high and sustainable growth. China is an export-driven economy. Bank lending can support the economy for a short time, however, stocks are as expensive as during the heydays of the last bubble. Like all previous bubbles, this one, too, will burst.

Andy Xie; Big Picture; Go.

naked capitalism Mon 2009-10-12 10:22 EDT

FHA: Next Bailout?

...The FHA has ALWAYS been in the low down payment business! It has long offered loans requiring only 3% down, long before ``subprime'' was part of the lexicon. Historically, FHA loans did not show default rates materially worse than prime loans. That experience has been replicated by not for profit lenders in low income neighborhoods...the big difference from how the FHA once did business versus its subprime competitors was.....the FHA screened loans on an individual basis. The process was time consuming and somewhat intrusive. Private lenders were faster, easier, and (lo and behold) less stringent.

Bailout; FHA; naked capitalism.

Sun 2009-09-20 14:12 EDT

America's Exhausted Paradigm: Macroeconomic Causes of the Financial Crisis and Great Recession | The New America Foundation

Thomas Palley

This report traces the roots of the current financial crisis to a faulty U.S. macroeconomic paradigm. One flaw in this paradigm was the neo-liberal growth model adopted after 1980 that relied on debt and asset price inflation to drive demand. A second flaw was the model of U.S. engagement with the global economy that created a triple economic hemorrhage of spending on imports, manufacturing job losses, and off-shoring of investment. Deregulation and financial excess are important parts of the story, but they are not the ultimate cause of the crisis. Instead, they facilitated the housing bubble and are actually part of the neo-liberal model, their function being to fuel demand growth based on debt and asset price inflation. The old post-World War II growth model based on rising middle-class incomes has been dismantled, while the new neo-liberal growth model has imploded. The United States needs a new economic paradigm and a new growth model, but as yet this challenge has received little attention from policymakers or economists.

America's Exhausted Paradigm; Financial Crisis; Great Recession; Macroeconomic Causes; New America Foundation.

Sun 2009-09-20 12:17 EDT

Michael Hudson - financial economist and historian

Publications by financial economist and historian Michael Hudson, on finance and accounting, real estate and history of ancient Near East (reform, taxation, monetary, investment, instability, poverty, development, globalisation, real estate, statistics, property, land, value, reform, taxation, rent, Henry George, international, finance, IMF, World Bank, critique, euro, policy, Sumer, economic, history, Babylonia, usury, interest, rates, ancient, U.S., imperialism, privatization, urbanization, national, income, accounts, wealth, distribution, money, credit, monetarism, criticism, creditary, financial)

Financial economist; historians; Michael Hudson.