February 26, 2013

The Biggest Risk To The Stability Of The Economy

A report from AFP on China. “It was billed as China’s Dubai: a cluster of sail-shaped skyscrapers on a man-made island surrounded by tropical sea, the epitome of an unprecedented property boom that transformed skylines across the country. But prices on Phoenix Island, off the palm-tree lined streets of the resort city of Sanya, have plummeted in recent months, exposing the hidden fragilities of China’s growing but sometimes unbalanced economy. Now apartments on Phoenix Island which reached the dizzying heights of 150,000 yuan per square metre ($2,200 per square foot) in 2010 are on offer for just 70,000 yuan, said Sun Zhe, a local estate agent.”

“Phoenix Island is part of Hainan, a Belgium-sized province in the South China Sea that saw the biggest property price increases in China after a 2008 government stimulus flooded the economy with credit. Eager buyers camped out in tents on city streets as prices shot up by more than 50 percent in one year. ‘I just got a call from a businessman desperate to sell,’ Sun told AFP. ‘Whether it’s toys or clothes, the export market is bad… property owners need capital quickly, and want to sell their apartments right away.’”

The Economic Observer Online on China. “Yingkou is a third tier coastal city in Liaoning Province located between Shenyang and Dalian. The city’s goal is to become a large tourist city with a population of one million, but at the moment, it’s the new focus of China’s real estate bubble. A Yingkou real estate market research report obtained by the Economic Observer shows that in 2012, the potential future supply of properties from 42 major projects in the city reached 14 million square meters. If the properties are sold at the 2011 rate of 2 million square meters annually, it will take six to seven years to unload all of them. A developer said that the city has the most serious real estate bubble in Liaoning and that the six to seven year estimate is probably too conservative.”

“A worker at a real estate agency in Yingkou estimated that, even if the entire existing 500,000-person population in the downtown area all moved to the new developments, many homes in the area would still be unoccupied. Yingkou’s real estate bubble is not an isolated case. A report by E-house China ranking the real estate market risk in Chinese cities shows that the severity of Yingkou’s real estate bubble was ranked 26th among 287 cities.”

The South China Morning Post. “Just three months after Hong Kong rolled out a tough new round of property cooling measures, home prices have again climbed to record highs with demand unusually strong for new flats over the normally quiet Lunar New Year holiday break. Property prices per square foot now exceed HK$10,000 even in drab, unglamorous districts such as Taikoo Shing on Hong Kong Island, where thousands of 700 square-foot units sell for more than US$1 million apiece, more than a large cottage in Provence, France, a 2,700 square-foot bungalow in Hawaii, or a 1,300 square-foot flat on Manhattan’s Upper West Side.”

“With affordability reduced in a city with a monthly median household income of about HK$20,000 and one of the widest wealth gaps in Asia, anxiety has grown among its 7 million residents. That anxiety however, didn’t stop buyers flocking to newly built units at Sun Hung Kai Properties’ Residence 88 in a far-flung district close to the border with China, snapping up 150 of the 352 units over three days at an average price of some HK$8,000 per square foot. ‘Sun Hung Kai was testing the market,’ said property research analyst Wong Leung-sing with Centaline Property. ‘People still want to buy flats. The desire is strong. They don’t think the market will fall.’”

“‘We don’t even have enough money for food…but the government has hardly done anything to fix the market,’ said Michelle Wong, a single mother raising her baby daughter in a damp, 80 square-foot sub-divided flat with a ruptured sewage pipe that she rents for HK$3,000 per month.”

“After five previous rounds of efforts to curb prices since October 2009, including a 15 per cent property tax on foreign buyers, mortgage restrictions and quick resale taxes, the home-price juggernaut rolls on and the challenge remains enormous. ‘The overheating property market remains the biggest risk factor to the stability of the Hong Kong economy,’ said Norman Chan Tak-lam, head of the Hong Kong Monetary Authority, who also said household debt was now at 59 per cent, close to a record high of 60 per cent in 2002.”

This is Money on the UK. “Chinese, Malaysian and other Far Eastern investors are spreading their wings outside the traditional London hotspot and driving demand for new build investment properties across Britain, according to a new report. Buy-to-let specialist by Assetz says that seven years ago, there were near enough zero transactions to Chinese and Far Eastern investors, but they now account for nearly 10 per cent of its investor purchases.”

“It comes as the property market in Beijing, Shanghai and other leading Chinese cities has ‘overheated’ in recent years, according to the firm. It says a chronic oversupply of property there driving down rents with an average gross yield of just three per cent. The Chinese, for example, are allowed to move $50,000(US) ($100,000 for a couple) out of the country each year - enough to put down a deposit for a mortgage on a good quality property. The Bank of China is offering sterling mortgages to Chinese investors, usually at 60-70 per cent Loan-to-Value.”

“As a property investment firm, Assetz is obviously keen to publicise its claimed trend. But it backs its figures up by saying it handles around five per cent of all residential investment property purchases in the North and estimates there have been in the region of 2,000 buy-to-let properties sold to Far Eastern investors in the North last year.”

“Naomi Heaton, chief executive of LCP, says: ‘While yields have cooled slightly, they reflect both diminished returns across all asset classes and the low cost of borrowing, meaning that they are set to harden when interest rates rise. Whilst overseas investors may be tempted by high yields outside London, capital upside is far less likely and total returns will be considerably less, with much higher risk.’”

The Globe & Mail in Canada. “The ruse went sideways not long after the broadcasts aired. Two sisters, identified as eager home buyers, perused a downtown Vancouver condo development in news segments about a spike in sales over the Lunar New Year. If they liked the suite, the sisters said, their parents – visiting from China – would purchase it for them. What followed was a PR disaster. Observant web sleuths identified at least one of the sisters as an employee of MAC Marketing Solutions – the firm selling the condo. Confronted by media, MAC president Cameron McNeill admitted both women were employees and apologized for misleading the public.”

“It reignited a debate among real estate observers: Just how much truth is in the long-standing narrative that foreign money is driving the local market? In one case study, for example, Andrew Yan of Bing Thom Architects looked at the amount of energy consumption in a sample of downtown Vancouver condos. Working on the assumption that a condo is empty if it uses less electricity each month than it takes to power a refrigerator (75 kilowatt-hours), the urban planner and researcher concluded 5.5 per cent of the sample is empty at any given month.”

“However, even the slightest tweaks led to significantly different results: Raising the threshold to 100 kwh, for example, meant the percentage of potentially empty condos rose to 8.5 per cent; 150 kwh to 17 per cent.”

“Jeff Fitzpatrick, a realtor with Sotheby’s International Realty Canada, said influxes to certain pockets of a city can have a cascade effect. If offshore buyers scoop up the real estate in Point Grey, for example, a young professional in Vancouver who might have purchased there years ago might instead move to Main or Fraser streets. As a result, those markets are then priced up. ‘Now the janitor who was hoping to buy a house along Main Street is now buying in Burnaby,’ he said.”

“However, Mr. Fitzpatrick also notes the difference between investors and new residents: ‘The people that are buying this stuff are [often] residing there; they’re making an investment in the neighbourhood as well,’ he said. ‘They’re going to be buying milk, and buying gas and buying a car. They’re not just going to be renting these [properties] out. So does that technically qualify as a domestic purchase or a foreign purchase? It muddies the water a bit.’”

The Asia Times. “This from the Federal Reserve Bank of St Louis president James Bullard on February 21: ‘Let me just talk a minute about [Fed governor] Jeremy Stein’s speech…My main take away from the speech - he pushed back some against the ‘Bernanke doctrine.’ The Bernanke doctrine has been that we’re going to use monetary policy to deal with normal macro-economic concerns, and then we’ll use regulatory policy to try to contain financial excess. And Jeremy Stein’s speech said, in effect, ‘I’m not sure that you’re always going to be able to take care of the financial excess with the regulatory policy.’ And in a key line, he said, ‘Raising interest rates is a way to get into all the corners of the financial markets that you might not be able to see or you might not be able to attack with the regulatory approach,’ Bullard said.”

“Bullard continues: ‘I thought this was interesting and I would certainly listen to him. This is an argument that maybe you should think about using interest rates to fight financial excess a little more than we have in the last few years, where we’ve always said we’re going to use regulatory policies in that dimension. I thought it was a very interesting speech, but let me give a little broader context.’”

“‘The Fed has been talking about asset bubbles since the ‘irrational exuberance’ speech which was 1996. So it’s nothing new. We had a big bubble in the nineties. A big bubble in the two thousands. Those two bubbles ended very differently. The Fed’s been talking, talking, talking about this. So it’s certainly been a concern. It is a concern today. But it’s like nothing new. This has been going on for 20 years. Frankly, there aren’t good answers because we don’t have great models of financial instability,’ he said.”

“There is dissention as well as confusion at our central bank. There is broad disagreement as to impacts, benefits and costs associated with the Fed’s long-term zero rate policy, quantitative easing, the mix of asset purchases, the ongoing balance sheet expansion (and, supposedly, eventual ‘exit’), pre-committing on the future course of policy and communications more generally. While no one wants to admit as much, it’s all become one big and consequential mess.”

“By accommodating even bigger - and more systemic - bubbles, the Fed has perpetrated even bigger policy debacles. Please explain how ‘regulatory policy’ is to address the unprecedented issuance of government debt coupled with unconventional experimental reflationary monetary policy - the heart of today’s ‘global government finance bubble’? It hasn’t - and it won’t. And, clearly, I’m not alone in recognizing the obvious: the Fed has become a rather conspicuous enabler of Washington fiscal dysfunction. The Fed has become an enabler of global speculation, along with ever-mounting financial and economic imbalances.”

“Recall that Chinese officials were in the process of attempting to cool an overheated economy and a national housing Bubble before the ‘European’ crisis last year risked unwieldy downturns. Officials cautiously retreated from measured ‘tightening’ and, as bubbles tend to do in the face of timid policymaking, the Chinese economic, credit and housing market bubbles sprung right back.”

“One can see a central bank institution that’s flailing. They’ve opened the money-printing Pandora’s Box - without a doctrine, a strategy or even a consensus view for how to approach its latest experiment with ‘open-ended’ quantitative easing. In reversing last year’s potentially destabilizing global ‘risk off,’ the Fed and global central bankers incited a historic period of ‘risk on’ excess and attendant fragilities. Now they’re stuck.”

“A lot is riding on the current ‘risk on’. Six months ago, the consensus view was that monetary policy was largely out of ammunition. Today, irrational exuberance has central bankers enjoying unlimited firepower. Central banks will be there the moment markets require additional liquidity. And the more markets inflate, the more confident players are with notion that central bankers won’t dare rock the applecart. It’s increasingly clear that ‘risk on’ comes with heightened excesses and imbalances.”

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Comment by Ben Jones
2013-02-26 06:55:58

From the comments to This is Money:

‘Utter rubbish. This is Assetz trying to drum up business for its mainstream product which is the selling to investors of new build apts up North. Far East hates anything outside of London which it sees as a safe haven for its cash.’

Comment by Jess from upstate SC
2013-02-26 07:43:58

The month of Feb. just does not seem to want to let go….Weather-wise,that is .
Hopefully by April we can sing that old song ”Winter is gone , and we still here”. Yeah , we did hear a singing group sing that once.

Comment by Arizona Slim
2013-02-26 10:42:07

In my life, February is Latin for “short month that sucks.”

Comment by snake charmer
2013-02-26 15:41:53

Didn’t it snow in Tucson last week?

Comment by Arizona Slim
2013-02-26 15:59:32

Yup! Sure did. Blogged it too.

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Comment by Blue Skye
2013-02-26 07:57:55

“central bankers won’t dare rock the applecart..”

I think he means upset the boat.

“Confident players” should take note that the people at the Fed are vocalizing that they temeselves do not know what they are doing. Makes their future rather unpredictable.

Comment by scdave
2013-02-26 08:48:12

Fed are vocalizing that they temeselves do not know what they are doing


Oh they know what they are doing alright…All of them…What they don’t know, and fear, is the unintended consequences of their policy actions…I think the old saying applies…Nothing is free…Their will be some price-to-pay…What it will be, and who will pay it has not yet played out…

Comment by Dguy
2013-02-26 08:30:34

Excellent links! It’s hard to find information on what’s really going on in China. China is on the verge of an epic collapse in real estate, among other things. It will be interesting (and fun, from a lifelong renter’s standpoint), to read about the Chinese version of the “real estate always goes up” fairy tale (and after that, the Canadian and Australian version).

Comment by Steve J
2013-02-26 10:52:04

The Chinese are going to have to do something drastic to keep real estate from collapsing.

Comment by Cantankerous Intellectual Bomb Thrower©
2013-02-26 13:21:48

Print, baby, print…

Comment by PeakHubris
2013-02-26 20:17:14

These “collapses” are talked about, and talked about, and talked about, but they never happen. When do you suppose this “epic collapse” is going to happen?

Comment by AmazingRuss
2013-02-26 22:35:34


Comment by scdave
2013-02-26 08:50:10

and fun ??

A world wide financial collapse will not be fun for anyone including renters…

Comment by Dguy
2013-02-26 09:08:52

Sorry, but I do get a guilty pleasure from reading about house “investors” losing their shirts. Maybe it’s from all those years of putting up with the condescending attitudes during the bubble years when I told people I rent. And as for a world wide collapse, I’m not going to feel too sorry for China when their system collapses. They laughed at Americans for complaining about their jobs being taken, I’m just going to return the favor. As for Canada and Australia, I don’t wish them any harm, but they continue to believe in the “it’s different here” mythology. Read the articles - it’s not.

Comment by scdave
2013-02-26 09:27:58

Sorry, but I do get a guilty pleasure ??

Did not say you did…Its just not going to be fun (your words) for anyone (my words) if the whole enchilada melts down…

Comment by Dguy
2013-02-26 09:42:51

For those who saw it coming and prepared in advance, it won’t be so bad (my words).

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Comment by Steve J
2013-02-26 10:53:30


Comment by 2banana
2013-02-26 11:20:27

Dr. Prepper?

Comment by scdave
2013-02-26 12:01:03

Dr. Prepper ??

Yeah…He is Dr. Prepper with his bad a$$ AK to protect his food and money…Here is the problem…When they find out you have both, somebody “badder” is going to come get it…

Besides, in a mad-max environment, who gives a crap if you have some money or food…Who would want to live it…

it won’t be so bad (my words) ??

Yeah, whatever Rambo…

Comment by Dguy
2013-02-26 12:43:21

I am one bad mother. I lived within my means, saved my money, and didn’t get tied down by any unnecessary financial obligations. I paid for my car in cash and have a healthy savings account. Who said anything about mad max? The collapse I’m ready for is in stock and housing prices. If I lived in China, however, I would be buying a house in another country (which the rich are doing in record numbers).

Comment by 2banana
2013-02-26 12:45:48

In anything close to a mad max world.

Be prepared. Have lots of friends who are prepared.

Any cohesive team will be beat a rambo.

Comment by Blue Skye
2013-02-26 16:06:16

All my prepper friends have died.

The best preparation for having less is needing less.

Comment by Carl Morris
2013-02-26 16:12:10

All my prepper friends have died.

Sounds like a good name for a song.

Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-26 19:55:10

In the long run, all preppers are dead.

Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-26 08:52:14

“By accommodating even bigger - and more systemic - bubbles, the Fed has perpetrated even bigger policy debacles. Please explain how ‘regulatory policy’ is to address the unprecedented issuance of government debt coupled with unconventional experimental reflationary monetary policy - the heart of today’s ‘global government finance bubble’? It hasn’t - and it won’t. And, clearly, I’m not alone in recognizing the obvious: the Fed has become a rather conspicuous enabler of Washington fiscal dysfunction. The Fed has become an enabler of global speculation, along with ever-mounting financial and economic imbalances.”

That’s fantastic! Bravo to the regional Fed bank president who pointed out the transparency of emperor’s new clothes.

Comment by scdave
2013-02-26 09:29:24


Comment by 2banana
2013-02-26 11:18:51


Comment by 2banana
2013-02-26 11:17:41

Not going to end well…

Real estate is a pillar of the Chinese economy, accounting for almost 14 percent of GDP last year and supporting the massive construction sector, making policy makers anxious to avoid a major collapse of the property bubble.

In fact - it is going to end REALLY badly…

With anger over graft also mounting state media have carried several reports in recent weeks about corrupt officials’ property holdings, including a policeman who used a fake identity card to buy at least 192 dwellings.

Google “Tofu Construction” in China - really, really, really is not going to end well…

Comment by Sean
2013-02-26 11:54:35

Interesting piece on the fake buyers from the reality show. I’ve thought for years that most reality shows were fake, including the famous ones on HGTV. Last year there was an article describing how producers manipulate the show House Hunters and my suspicions became true.

I’d love to see a “where are they now” episode from House Hunters.

Comment by 2banana
2013-02-26 12:43:43

I’d love to see a “where are they now” episode from House Hunters.

Amen. Include “International House Hunters” on your list.

Watched a show where a British couple were buying a house in Tunisia about one year before the arab spring.

Same with the people who bought in Spain or Greece.

For bonus points - anyone buy in Syria?

Comment by snake charmer
2013-02-26 16:09:12

I watched one episode where a young couple from Washington, D.C., quit their jobs, moved to Colombia not knowing anyone, and apartment-hunted in Bogotá. They were surprised at how small even nice apartments were, but hey, most of the rest of the world does not have that much “stuff.” Clearly there was either naivete or extensive editing, because there was no discussion whatsoever of security concerns.

Curiously, both secured desireable jobs despite not speaking more than rudimentary Spanish. I’ve often wondered whether the show got them employed somehow.

Comment by Neuromance
2013-02-26 12:41:18

The core issue behind all of this is the ability of lenders to avoid repayment risk.

It’s. Just. That. Simple.

The ability to avoid repayment risk creates the core perverse incentive to minimize costs on investigating repayment ability and maximize the size and volume of loans.

In a purely private system, this would quickly work itself out. The system would explode, some people would be beggared, others enriched and everyone would be the wiser. Personal consequences for the fraudsters and defrauded would ensue.

But, with government stepping in and backstopping the debt with public money, the infection continues. Timid regulations aimed at everything but the core issue (lenders’ ability to avoid repayment risk) makes it look like politicians are doing something.

There are no personal negative consequences for the fraudsters. In fact, they are handsomely rewarded.

And in a system which is under regulatory capture, politicians have no incentive to penalize those who fund them.

So it’s a grand circle. Wall Street funds politicians. Politicians pay back Wall Street with massive subsidies from the public treasury, to the tune of 83 billion per year. Or whatever the number really is.

And there’s no incentive to change the system.

Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-26 20:07:53

“But, with government stepping in and backstopping the debt with public money, the infection continues.”

I never did get that part. Is it really legal for top governmental officials to step in and summarily insure one side of public contracts with Treasury funds?

On what grounds?

Virtually ALL of the Big Banks’ Profits Come from Taxpayer Bailouts and Subsidies

The Big Banks “Would Just About Break Even In the Absence of Corporate Welfare”
By Washington’s Blog
Global Research, February 23, 2013

The government has propped up the big banks for years through massive, never-ending bailouts and subsidies.

Bloomberg noted last year that 77% of JP Morgan’s net income comes from government subsidies.

Bloomberg reported yesterday:

What if we told you that, by our calculations, the largest U.S. banks aren’t really profitable at all? What if the billions of dollars they allegedly earn for their shareholders were almost entirely a gift from U.S. taxpayers?
Lately, economists have tried to pin down exactly how much the subsidy lowers big banks’ borrowing costs. In one relatively thorough effort, two researchers — Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz — put the number at about 0.8 percentage point. The discount applies to all their liabilities, including bonds and customer deposits.

Small as it might sound, 0.8 percentage point makes a big difference. Multiplied by the total liabilities of the 10 largest U.S. banks by assets, it amounts to a taxpayer subsidy of$83 billion a year. To put the figure in perspective, it’s tantamount to the government giving the banks about 3 cents of every tax dollar collected.

The top five banks — JPMorgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc. – – account for $64 billion of the total subsidy, an amount roughly equal to their typical annual profits (see tables for data on individual banks). In other words, the banks occupying the commanding heights of the U.S. financial industry — with almost $9 trillion in assets, more than half the size of the U.S. economy — would just about break even in the absence of corporate welfare. In large part, the profits they report are essentially transfers from taxpayers to their shareholders.

The money hasn’t just gone to the banks shareholders … It has also gone to line the pockets of bank management:

Bailout money is being used to subsidize companies run by horrible business men, allowing the bankers to receive fat bonuses, to redecorate their offices, and to buy gold toilets and prostitutes


All of the monetary and economic policy of the last 3 years has helped the wealthiest and penalized everyone else. See this, this and this.


Economist Steve Keen says:

“This is the biggest transfer of wealth in history”, as the giant banks have handed their toxic debts from fraudulent activities to the countries and their people.

Nobel economist Joseph Stiglitz said in 2009 that Geithner’s toxic asset plan “amounts to robbery of the American people”.

And economist Dean Baker said in 2009 that the true purpose of the bank rescue plans is “a massive redistribution of wealth to the bank shareholders and their top executives”.

We’ve noted for years that the big banks – including Citi, Wells, Bank of America and the rest – are actually insolvent.

Breaking up the big banks would stabilize the economy … and dramatically increase Main Street’s access to credit.

But the government has chosen the banks over the little guy … dooming both:

The big banks were all insolvent during the 1980s.

And they all became insolvent again in 2008. See this and this.

The bailouts were certainly rammed down our throats under false pretenses.

But here’s the more important point. Paulson and Bernanke falsely stated that the big banks receiving Tarp money were healthy, when they were not. They were insolvent.

Tim Geithner falsely stated that the banks passed some time of an objective stress test but they did not. They were insolvent.

Both the creditors and the debtors were mortally wounded by the 2008 financial crisis. The big banks wouldn’t have survived without trillions in handouts, guarantees, loans, idiot-proof profits courtesy of the government.

The little guy hasn’t been helped since 2008. He has been left to suffer with his life-threatening wounds. See this, this and this.

So the government chose sides. The creditors were wiped out, just like a lot of Main Street was wiped out. In one sense, the government chose who would live (the giant banks and other bailed out and favored companies) and who would die (the other 99%).

But in fact, the big banks were no longer creditors after the 2008 crash. Specifically, the big banks which held the mortgages and the loans were wiped out.

The government moved the arms and legs of the big banks to pretend they were still alive … and have been doing so ever since. But they were no longer going concerns after they went bust.

The government pumped blood back in these dead banks and turned them into zombies. They will never come back to life in a real sense … they are still zombies, 3 years later.

Many of the world’s leading economists and financial experts say that by choosing creditors over debtors, the government is dooming the economy. See this and this.

The big zombie banks can never come back to life, and – by trying to save them – the government is bleeding out the little guy.

By choosing the big banks over the little guy, the government is dooming both.

Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-26 22:42:17

“The core issue behind all of this is the ability of lenders to avoid repayment risk.”

Why is it in the Fed’s interest to destroy the governing fundamental principles of a sound banking system?

And do the academic eggheads running the Fed even realize the damage they have wrought?

Comment by Cantankerous Intellectual Bomb Thrower©
2013-02-26 13:46:29

Sadly, the regression is invalid, due to an endogenous explanatory variable, small sample size, and sensitivity to an extreme outlier.

Perhaps such bothersome technicalities don’t concern macroeconomists?

Paul Krugman - New York Times Blog
February 23, 2013, 10:32 am
Austerity Europe

Some readers have been asking me for the data source for Paul De Grauwe’s measure of austerity. I’m working on it. Meanwhile, however — and partly for my own reference — I discovered that I can do a similar exercise over a somewhat longer time horizon, which I’m posting in large part as a note to myself.

Now, measuring austerity is tricky. You can’t just use budget surpluses or deficits, because these are affected by the state of the economy. You can — and I often have — use “cyclically adjusted” budget balances, which are supposed to take account of this effect. This is better; however, these numbers depend on estimates of potential output, which themselves seem to be affected by business cycle developments.

So the best measure, arguably, would look directly at policy changes. And it turns out that the IMF Fiscal Monitor provides us with those estimates, as a share of potential GDP, for selected countries from 2009 to 2012 (Table 15). What I’ve done is to plot those estimates (horizontal axis) against changes in real GDP from 2008 to 2012 (vertical axis). Here it is:


The implied multiplier is 1.2; the R-squared is 0.84.

In normal life, a result like this would be considered overwhelming confirmation of the proposition that austerity has large negative impacts. Yes, you can concoct elaborate stories about how it could be wrong; but it’s really reaching. It seems safe to say that what we have here is a case in which rival theories made different predictions, the predictions of one theory proved completely wrong while those of the other were totally vindicated — but in which adherents of the failed theory, for political and ideological reasons, refuse to accept the facts.

Comment by Ben Jones
2013-02-26 16:02:02

‘adherents of the failed theory’

So says the guy who thinks a fake space alien invasion could save the economy.

Comment by Blue Skye
2013-02-26 16:09:36


Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-26 20:11:11

“The Biggest Risk To The Stability Of The Economy”

Ongoing, openly-tolerated fraud at the highest echelon of the U.S. financial system?

Weekend Edition February 22-24, 2013
The Untouchables
Masters of Fraud

The most telling line from PBS’s Frontline piece ‘The Untouchables,’ on the absence of criminal prosecutions for the large-scale bank lending fraud behind the financial crisis of 2008, came when the head of the Justice Department’s Criminal Enforcement division, Lanny Breuer, voiced his concern that bringing criminal charges might cause thousands of bankers to lose their jobs. This came after voluminous evidence was provided that senior bankers, including former Clinton Treasury Secretary Robert Rubin, were culpably aware the mortgage securitization businesses they were running were purchasing, packaging and re-selling trillions of dollars of mortgage loans that were never intended to be paid. It also came after it was known the economic calamity caused by corrupt bankers cost tens of millions of people around the globe their jobs, homes, life savings and all hope for a better future.

As with nearly all reporting on the economic debacle of 2008 – 20??, the story behind the piece was placed in the past tense as regrettable events that should have been attended to but weren’t. But a number of economic reports in recent weeks place the ongoing debacle in the economy squarely in the present. The first was an update on income distribution since the Great Recession began from U.C. Berkeley economist Emmauel Saez illustrating that the benefits of the economic ‘recovery’ have gone exclusively to the reigning plutocracy, the top ‘1%’ of income earners. The second report came from retailer Wal-Mart– the initial iteration of the ‘Grand Bargain’ struck in Washington to raise taxes on the top 0.3% of income earners, that more pointedly ended the payroll tax ‘holiday’ for the working poor, caused Wal-Mart sales to materially stall. The link between the two stories is the Federal government’s role in keeping Wal-Mart’s customers shopping via the payroll tax cut and transfer payments.

Comment by PeakHubris
2013-02-26 20:49:20

I think many bankers should hang. Yes, the death penalty. That would send a powerful message to not f**k around anymore with millions of peoples lives. Lloyd Blankfein, Dick Fuld, Angelo Mozillo, and Stanley O’Neal would be a good start.

Comment by Ben Jones
2013-02-26 22:25:38

‘I think many bankers should hang. Yes, the death penalty.’

It looks like the current white house will continue to make them treasury secretaries. Wall street reigns under Obama. Aren’t all you so called “liberals” glad you put wall street back in charge? Meet the new boss, same as the old boss.

Comment by PeakHubris
2013-02-26 22:51:50

The only good Obama has done is to bring home some troops. Otherwise, he is completely useless.

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Comment by Mugsy
2013-02-28 03:30:58

Those troops are being re-deployed elsewhere…

Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-26 20:23:53

Remember when the Fed’s “No Bubble Here Now — Just a Little Froth” message held sway?

Nowadays, it seems Ben Bernanke seems quite isolated in his insistence that the Fed’s policies have no role in creating bubbles.

We’ve come a long way in just a few short years, folks! Grab those hard assets today, or get inflated into poverty forever!!!

EDITORIAL: The Fed’s bubble fuel
The path to killer inflation is paved with easy money
Monday, February 25, 2013

The consequences of the Federal Reserve’s loose-money policy are starting to hit home. Even members of the Federal Open Market Committee are concerned, as revealed in the Wednesday release of the minutes of a meeting earlier this year. The document doesn’t name names but says that “several participants” expressed doubts about the wisdom of the Fed’s commitment to buy $85 billion in bonds month-after-month until the economy improves. That won’t be soon, so they’re worried that the money-pumping effort is setting the stage for dramatic inflation and another asset bubble, similar to the housing bubble that set off the collapse of the economy in 2007.

The Federal Reserve’s mission is to reduce unemployment and keep inflation down. It has a single tool to accomplish these goals: monetary policy. The tool isn’t up to the task, as recent history has shown. At the start of the Great Recession, the Fed embarked on a policy of expansion. The economy didn’t get better, so the Fed switched to what it called Operation Twist, to drive down interest rates by substituting longer-term securities for the short-term bonds it has traditionally held. That didn’t solve anything, either. For its third trick, the Fed opened the money spigot with another round of quantitative easing known as QE3. Under this scheme, the Fed continues to purchase $45 billion in Treasury bonds and $40 billion in mortgage-backed securities until unemployment drops to 6.5 percent.

Creating all this money out of thin air is overheating the printing press at the Treasury. The Fed’s balance sheet has swelled beyond $3 trillion, triple its 2008 value. This extraordinary effort has indeed kept interest rates close to zero, and that’s not necessarily a good thing. Easy money advocates insist the low rates will inspire the private sector to borrow cheap money for investing to create jobs and reduce unemployment. Instead, the economy remains stagnant, with unemployment still at 7.9 percent.

Low interest rates haven’t proved to be magic. While the housing sector has improved as some consumers take advantage to buy new homes, lenders don’t get much return on their investment. Consequently, lenders have become extremely picky, lending only to the small number of borrowers who pose almost no risk. Many companies are sitting on large cash reserves; they’re not investing because they’re scared of the red tape that keeps unreeling from Washington. Companies big and small are terrified of the havoc created by the passage of Obamacare. Even those in the golden years of retirement are feeling the pinch because their savings and investment accounts are pulling in near-zero yields. That leaves them with less money to buy goods and services.

The stock market has climbed even as the real economy has failed to grow. That’s a warning signal that the gains could be nothing more than an asset bubble that will pop when the Fed is forced to reverse course to curb inflation. The Fed must realize continuing down this path of failure only makes it harder for the economy to recover.

The Washington Times

Comment by Bill in Los Angeles
2013-02-26 20:24:31

Headline is “The Biggest Risk to the Stability of the Economy.”

Answer: Thugernment.

Comment by Bill in Los Angeles
Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-26 22:34:05

Exactly how many bubbles has the Fed had absolutely no role in creating?

I’ve totally lost track.

Comment by Cantankerous Intellectual Bomb Thrower™
2013-02-26 22:37:14

Fields Of Gold
Farmers bask in soaring prices
Feb 23rd 2013 | CHICAGO |From the print edition

A nice little earner

ON THE basis of headlines alone, you might be forgiven for thinking that last year’s record-breaking drought had devastated American agriculture. Across the Midwest (and farther afield) more than 1,000 counties in 26 states were declared natural-disaster areas—the largest such ruling that the US Department of Agriculture (USDA) has ever made. Yet despite withered crops, sun-baked soil and damage from wildfires, some think that farming is in the midst of another golden age, thanks to booming commodity markets and record prices for farmland.

In recent years strong global demand for food and biofuels has been pushing crop prices higher. The drought has helped, not hindered, profits. For farmers able to produce corn (maize), it raised prices dramatically. The average price of corn was about 20% higher last year than in 2010, and reached $8.49 a bushel (25kg) in August. For everyone else crop-insurance payments have stepped in, reaching a record $14.2 billion in payments in mid-February, a figure that is expected to go on growing a bit as insurers finalise the claims. This year, according to a report from the USDA on February 11th, farm profits may rise by 14% to $128 billion, the highest in real terms since 1973.

As crops are bringing in higher prices, and with interest rates at historic lows, farmland has become increasingly valuable to investors. Prices have been rising surprisingly fast. According to a new report by the Federal Reserve Bank of Chicago, prices in the Midwest leapt by 16% last year. Moreover, 2012 was the third consecutive year of big jumps in agricultural land values, and the increase was the third-largest since the late 1970s. Between 2010 and 2012 values rose by a cumulative 52%, matching the gains of 40 years ago.

Land values in Iowa, the biggest corn and soyabean producer, jumped 20%, the most among the five big agricultural Midwestern states (Illinois, Indiana, Michigan and Wisconsin are the others). The Federal Reserve Bank in Kansas City, which covers a different area, also reports a 20-25% increase in farmland prices from a year ago.

Such frothy numbers are drawing many comparisons with the farmland boom of the 1970s, which was followed by a bust in which land prices fell by 40% from their peak. In July last year Brent Gloy of Purdue University in Indiana told a symposium on farmland prices that increases were on a par with the most dramatic seen in the past 50 years. The rapid growth has already worried regulators, and as early as 2010 the Federal Deposit Insurance Corporation, which insures bank deposits and monitors the industry’s finances, sent a letter to lenders warning them to not let high farmland values lull them into lax lending practices.

Many observers are now wondering whether a repeat of boom-and-bust is on the horizon.

Comment by PeakHubris
2013-02-26 22:50:49

It’s good that Bernanke is watching for signs of bubbles. He was so on top of the housing bubble that we can be sure he will immediately tamp down anything which may threaten to inflate. He’s got things “contained.”

Comment by Jennifer
2013-03-17 12:48:45

As I have wrote many times, I feel that my desire to own my own home for my family is no longer a reality. I do not even want to get involved in this step of life as it is always on its ups and downs. If there is anything I don’t want to do is get involved in a commitment of 30 plus years and end up loosing my behind in it.

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