The Problem With Bubbles Is Skewed Incentives
A weekend topic on two housing bubble related reports. The Eurasian Review. “The following interview with Michael Hudson was conducted by Finnish journalist Antti J. Ronkainen. AJR: When the Great Financial Crisis escalated in 2008 the Fed’s response was to lower its main interest rate to nearly zero. Why? MH: The aim of lowering interest rates was to provide banks with cheap credit. The pretense was that banks might lend to help the economy get going again. But the Fed’s idea was simply to re-inflate the Bubble Economy. It aimed at restoring the value of the mortgages that banks had in their loan portfolios. The hope was that easy credit would spur new mortgage lending to bid housing prices back up – as if this would help the economy rather than simply raising the price of home ownership.”
“Banks did make money, but not by lending into the ‘real’ production and consumption economy. They mainly engaged in arbitrage and speculation, and lending to hedge funds and companies to buy their own stocks yielding higher dividend returns than the low interest rates that were available.”
“AJR: In addition to the near zero interest rates, the Fed bought US Treasury bonds and mortgage backed securities (MBS) with almost $4 trillion during three rounds of Quantitative Easing stimulus. How have these measures affected the real economy and financial markets? MH: In 2008 the Federal Reserve had a choice: It could save the economy, or it could save the banks. It might have used a fraction of what became the vast QE credit – for example $1 trillion – to pay off the bad mortgages and write them down. That would have helped save the economy from debt deflation. Instead, the Fed simply wanted to re-inflate the bubble, to save banks from having to suffer losses on their junk mortgages and other bad loans.”
“One therefore can speak of a financial war waged by Wall Street against the economy. The Fed is a major weapon in this war. Its constituency is Wall Street. Like the Justice and Treasury Departments, it has been captured and taken hostage. So neither the Fed nor the Justice Department or other U.S. Government agencies has sanctioned or arrested a single banker for the trillions of dollars of financial fraud. Just the opposite: The big banks where the fraud was concentrated have been made even larger and more dominant. The effect has been to drive out of business the smaller banks not so involved in derivative bets and other speculation.”
“The bottom line is that banks made much more by getting Alan Greenspan and the Clinton-Bush Treasury officials to deregulate fraud than they could have made by traditional safe lending. But their gains have increased the economy’s overhead.”
“AJR: How do TARP and QE relate to the Federal Reserve’s mandate about price stability? MH: There are two sets of prices: asset prices and commodity prices and wages. By ‘price stability’ the Fed means keeping wages and commodity prices down. Calling depressed wage levels ‘price stability’ diverts attention from the phenomenon of debt deflation – and also from the asset-price inflation that has increased the advantages of the One Percent over the 99 Percent. From 1980 to the present, the Fed has inflated the largest bond rally in history as a result of driving down interest rates from 20 percent in 1980 to nearly zero today, as you have noted.”
“Wall Street isn’t so interested in exploiting wage labour by hiring it to produce goods for sale, as was the case under industrial capitalism in its heyday. It makes its gains by riding the wave of asset inflation. Banks also gain by making labour pay more interest, fees and penalties on mortgages, and for student loans, credit cards and auto loans. That’s the postindustrial financial mode of exploiting labor and the overall economy. The Fed’s QE program increases the price at which stocks, bonds and real estate exchange for labour, and also promotes debt leverage throughout the economy.”
“AJR: Why don’t economists distinguish between asset-price and commodity price inflation? MH: The economics curriculum has been turned into an exercise for students to pretend that a hypothetical parallel universe exists in which the rentier classes are job creators, necessary to help economies recover. The reality is that financial modes of getting rich by debt leveraging creates a Bubble Economy – a Ponzi scheme leading to austerity and shrinking markets, which always ends in a convulsion of bankruptcy.”
The ICIS Chemical Business. “If you go all the way back to March 1637, some single tulip bubbles sold for ten times the annual wages of a skilled craftsman in Holland. Wind the clock forward to China’s debt-charged economic growth in 2008-2013, when house price to earnings ratios reached 14:1 in the country’s Tier 1 cities (Tier 1 cities are the biggest cities in China, such as Beijing and Shanghai).”
“There is no such excuse this time around as today’s economic difficulties – which are centred on the bursting of the China investment bubble – are the third such episode in the space of just 16 years. We might be lucky on this occasion and get away with only a prolonged period of lower global growth rather than another full-blown economic crisis. But every day almost, new data emerges indicating the scale of this most recent bubble – and thus the danger of something at least as big as 2008 – perhaps even bigger.”
“Take a 10 January article in the UK’s Financial Times as a very good example. Quoting Institute of International Finance data, the FT said that emerging market debts in the decade to mid-2015 had risen from $5.4trn to $24.4trn, which left borrowing equivalent to 90% of the region’s GDP.”
“Emerging markets in general were involved in this bubble, with their recent economic success primarily resting on events in China. Think of Brazil and what was once its strong commodity-led growth as China bought every tonne of iron ore it could get its hands on. The problem, as is always the case with these bubbles, is skewed incentives. On this occasion we can blame these skewed incentives on Western central banks, and particularly the US Federal Reserve. Here is how it worked, or, rather, did not work.”
“1. The Fed’s quantitative easing programmes drove interest rates to record lows, while also devaluing the US dollar. This did what the Fed intended, which was to force investors to seek ’stores of value’ in higher-yielding investments. Money poured into emerging markets, where yields were better, resulting in this alarming build-up of debt.”
“2. Because just about everyone believed that this bubble would go on and on, petrochemicals companies, most notably in the US, were tempted into major new capacity investments, particularly in polyethylene (PE). There has also been major over-investment in oil, which explains today’s collapse in oil prices.”
“‘People tend to ignore the warning signs during these bubbles. But in retrospect, they should have been obvious to every single one of us,’ said a Singapore-based business planner at a global chemicals company.”
“Here is another much broader-based statistic on China’s credit boom that should have been widely noticed: between Q4 2008 and Q1 2014 China’s total social finance (TSF) rose from 129% to 207% of GDP, according to Washington DC-based think tank the Brookings Institute. TSF is a measure of total new credit creation in China.”
“And, as we discussed in our last China Monthly, as leverage increased, its effectiveness in delivering growth declined: China’s government estimated that in 2014, each dollar of new debt was adding only 10 cents to GDP growth. But as the bubble inflated, as is the case in every investment mania, a theory emerged to justify why the bubble would go on and on – almost indefinitely.”
“This time around, the China and wider emerging markets bubble was based on the notion that hundreds of millions of people in these countries were rapidly become middle-class, under the definition of what it means to be middle class in the West. ‘The key moment was probably 2011, when the myth began to take hold that China had suddenly become middle-class,’ wrote Paul Hodges, chairman of the UK-based chemical consultancy, International eChem. They chose to ignore the detail of the report, which was that being middle-class in the emerging world actually meant per capita daily incomes of $2–20, based on purchasing power parity, said Hodges.”
“‘Even with two adults earning $20 a day, every day of the year, they would have an annual combined income of just $14,600, well below the poverty line in any Western country,’ he added. The Chinese government’s National Bureau of Statistics also placed average per capita high-end urban incomes in China at just $9,000 per annum in 2013. Anybody earning that amount of money in the developed world would probably be on welfare payments.”
“In the case of US PE expansions, placing all of the extra volumes always felt like a risky proposition, given what is a very mature US market. Here we have taken just one of the three major grades of PE – linear low density polyethylene (LLDPE) – as an example. US consumption is forecast to rise from around 4m tonnes in 2010 to approximately 4.8m tonnes in 2020. Meanwhile, capacity is set to increase from 4.5m tonnes/year to 7.9m tonnes/year.”
this is the big kick off weekend for re sales in most of the country-decent weather etc.
ZH has a great series of photos of China’s ghost cities.
http://www.zerohedge.com/news/2016-02-19/photographs-surreal-uncanny-emptiness-chinas-ghost-cities
I really do not get this phenomenon.
Waste on a scale never seen before. Yet it was very profitable for the few in on the skim. They are now tired of building ghost cities, steel mills and coal mines. What happens next?
What happens next ??
Thats the question the markets are asking….If China continues to contract, the emerging market economies could follow Venezuela…
“I really do not get this phenomenon.”
It’s a natural consequence of top-down central planning for an economy of 1+ billion citizens.
“major new capacity investments, particularly in polyethylene (PE)”
I’ve been directly involved in this expansion. The big dog is a company that rhymes with Cow that operates globally. Over the past decade or so they’ve been building ethylene facilities in Asia, Brazil and most recently as part of the biggest petrochemical plant project ever in the world In the Middle East. More recently they have been expanding in the US and still are. Expansion in Arabia is stopped. Expansion in Asia and Brazil is stopped. The expansion in Arabia was driven by high oil price (driven by cheap credit).
The US expansion from my viewpoint is driven by really cheap natural gas in the US. I’m not sure it is a perfect example of overcapacity driven by cheap credit, except that the cheap natural gas was a result of high oil prices and cheap credit. Anyway, when this party is over it is go time for me most likely.
Aside, LDPE is #4 on the recycle spectrum and one that is unloved by the conventional no-sort recycler. Shopping bags and such. It’s a bit of a challenge on our household trajectory to zero trash pickup. The weekly curbside service here is $400/mo. As I transition to depleting savings as a way of life, at 4% per year that is equivalent to $10,000 over 20 years. That’s a lot of beer and Cheetos! It has to go.
“$400/mo”
Oops. $400/year.
“depleting savings as a way of life, at 4% per year that is equivalent to $10,000 over 20 years”
Getting a look into certain ways of thinking about things can be extremely valuable. Depleting savings as a way of life, house appraisal based on inputs, the dry-cleaner effect … good rulers to have in my pocket. Thanks for taking the time to write it out. The report from the ethylene front lines is excellent stuff, too.
“which always ends in a convulsion of bankruptcy.”
Eloquently put.
‘today’s economic difficulties – which are centred on the bursting of the China investment bubble – are the third such episode in the space of just 16 years’
They are referring to the stock bubble, housing bubble and now the current situation.
‘The firm’s master hedge fund, Long-Term Capital Portfolio L.P., collapsed in the late 1990s, leading to an agreement on September 23, 1998 among 16 financial institutions…for a $3.6 billion recapitalization (bailout) under the supervision of the Federal Reserve.’
https://en.wikipedia.org/wiki/Long-Term_Capital_Management
The next morning I was standing in the lobby of a dotcom, looking at the WSJ with the CFO. We were at a loss of words. This was capitalism crossing the Rubicon. Three BILLION DOLLARS. And that lobby was fancy! It was a bubble too. And there was a day trading outfit upstairs full of trust fund kids. It all went poof.
‘the FT said that emerging market debts in the decade to mid-2015 had risen from $5.4trn to $24.4trn’
Jingle likes to say this isn’t 2000-whatever, and he’s right. This isn’t the Asian crisis of 1997, it isn’t the Russian crisis of 1998. It isn’t 2001 and it’s not 2008. But what is it? It’s the latest in a series of bubbles, which seem to get larger and not by a small amount, each time. What is 3 billion compared to today? A barely noticed energy outfit in Texas collapsed the other day losing 1 billion.
What’s going to happen? It’s not too much of a leap since it’s happened more than once; it’ll collapse (already happening). Then they’ll try to paper it over. Can they?
Greenspan Inc used to talk a lot about bubbles. Mostly saying they don’t exist and if they did they are invisible and if they occur the best they can do is clean up afterward. Back then there were no ghost cities in China or Africa, IIRC. There were no billionaire rows in New York or London. There was no legion of frackers or huge oil sands facilities. There hadn’t been a century of concrete production poured in 3 years. A lot has changed. This is way bigger than anything before. And most of it has happened since 2009.
I’m a little puzzled by this “inability to see bubbles.” The characteristic is pretty clear, and historically it’s always like this:
• When you can buy an item, and reliably sell it “shortly” thereafter, for more money.
That’s it. “Reliably sell it “shortly” thereafter for more money.”
Eventually word gets around that this money-making opportunity exists, and more money pours into that market. Price levels skyrocket in an inflationary fashion (more money chasing limited items). Then after a while, when prices are really stratospheric, market participants start wondering whether this can go on forever. Participants start trying to lock in profits. Money coming into the market slows, reducing the inflation level. People, for whom the only value of the purchased item was in selling it for more, try to lock in profits. Then the bubble pops.
With debt-leveraged bubbles (i.e. RE bubbles), and in the US in particular, the source of the funds is the government. As Combotechie observed recently, the buyer is not actually buying, but committing to buy, and that skyrockets prices, as that buyer’s primary concern is making the monthly payments. In a low interest environment, a higher sales price can yield the same monthly payment as a lower sales price with a higher interest rate (side note: I’m surprised at how many smart people this concept appears to baffle). The government transfers money to the seller, and the buyer commits to paying back the GSE over 15 or 30 years via the servicer.
You have cash buyers who are confident the government will keep funding the debt-leveraged buyers, to keep price levels up.
With all cash RE markets, they are more susceptible to the downturn until prices come in reach of the debt-leveraged buyer (link goes to GSE conforming loan limits), which provides a bit of a floor.
What happens when the debt-leveraged buyers realize it’s much harder to make a NET profit when taking into account the total cost of (temporary) ownership? Meaning, including transaction fees, interest, maintenance, taxes, utilities? Despite the first 250K-500K of profit is tax-free? (another government bubble-encouragement - I work a side business and make a few grand, the IRS taxes all of it. Flip a house and that’s essentially not taxed)
The thing with RE is that there are people who wish to consume the product - i.e. live in it. These folks have to keep up with the all-cash buyers, and flippers, and government price supports. So long as they can be hooked up to GSE money at an affordable monthly cost, their demand and ability to pay provides a certain floor.
So, in summary: There’s the non-debt-leveraged bubble item, which is not consumed by anyone and which is not supported by government backing, such as tulips and stocks. These have the classical bubble indicators and trajectory.
But then, you have the debt-leveraged bubble item which people do want to consume, which is supported by government funding. The path of this bubble is murkier. I keep thinking a long slow leak, but the Fed, government and Wall Street are quite creative in keeping the money coming into the market.
I read that a recent art auction was a bust.
Art is a bubble: Here’s how to short it - CNBC.com
http://www.cnbc.com/2014/…/art-is-a-bubble-heres-how-to-short-it.html
CNBC
Apr 3, 2014 - But right now, Chanos sees a speculative bubble forming in the art market. And he said the best way to hedge is to short the stock of Sotheby’s. … Chanos said that shorting the stock of Sotheby’s is the closest financial proxy to shorting the contemporary art market.
Art market in ‘mania phase’ and risks bursting of the bubble …
http://www.theguardian.com › … › Art & design › The art market
The Guardian
Jan 17, 2016 - “A certain part of the art market, especially postwar and contemporary, is in bubble territory,” said Anders Petterson, managing director of the …
Contemporary Art Market Bubble & Price Inflation
http://www.artbusiness.com/orwxb.html
The original version of this article pre-dates the mortgage meltdown. It started out as art market news; then it became art market history. Now in 2015 it’s back, …
JJ Charlesworth On Why the Art Market Is a Bubble That’s …
https://news.artnet.com/art-world/art-and-money-super-rich-312541
Jul 6, 2015 - J.J charlesworth argues there’s little reason to believe that the art market will see crashes, and last week’s London auctions hold some of the …
Academics Say the Art Market Bubble Is About to Burst—Are …
https://news.artnet.com/market/art-market-bubble-report-409136
Jan 19, 2016 - A new report by academics in Luxembourg claims that the art market is in a bubble that is about to burst. Are they right this time?
Take farmland. I’ve had a few posts on it over the years. IIRC, at first hedge funds and the like were buying it because there was some yield in a low yield environment. Prices took off and soon it was the price action that brought in buyers, not the crops. Low and behold, farmers found more land! Probably converting idle property to cash in. Oversupply ensues, China happens and crash.
A similar series of events is going on in multi-family housing. Low yield environment; but there’s an apartment returning 7% - jump on it. Now it’s the expected re-sale money that’s driving it and I’ve seen properties advertised at negative cap rates!
A similar series of events is going on in multi-family housing. Low yield environment ??
Yep….3-3.5% is standard fare around here and that on “record high” lease rates by a very large margin…If rents get compressed by overbuilding, a slowing of the job growth or both the CAP’s are going to go up significantly…
By the way…Local market observation…95050-95054
I have seen a lot of residential for lease signs come out across the board from duplex’s to larger apartment buildings…Seems like some dynamic has changed…Rents may have hit the wall…maybe we are seeing some out migration…maybe people are doubling up…Maybe they are moving to the new digs that are being built throughout the valley with all the bells & whistles…Don’t have a answer just the observation…
Are you sure?
San Jose, CA Housing Market Craters; Prices Plummet 8% YoY On Falling Rental Rates And Ballooning Inventory
http://www.zillow.com/san-jose-ca-95111/home-values/
I posted this Friday when discussing the biggest fall in rents was San Jose:
1 to 100 of 2500
https://sfbay.craigslist.org/search/sby/apa
1 to 100 of 949
https://sfbay.craigslist.org/search/sby/apa?query=free+rent
1 to 100 of 375
https://sfbay.craigslist.org/search/sby/apa?query=2+months+free
Similar searches for Seattle:
http://seattle.craigslist.org/search/apa
1 to 100 of 2500
http://seattle.craigslist.org/search/apa?query=“free+rent”
1 to 100 of 225
http://seattle.craigslist.org/search/apa?query=“2+months+free”
1 to 11
“The next morning I was standing in the lobby of a dotcom, looking at the WSJ with the CFO. We were at a loss of words. This was capitalism crossing the Rubicon. Three BILLION DOLLARS. And that lobby was fancy! It was a bubble too. And there was a day trading outfit upstairs full of trust fund kids. It all went poof.
…
What is 3 billion compared to today? A barely noticed energy outfit in Texas collapsed the other day losing 1 billion.”
The bailouts keep biggering and biggering. And with electronic printing presses available to summarily expand a central bank’s balance sheet, there really is no limit to how big the bailouts can get!
Just imagine what it does to lifetime fixed-dollar savings of Moms and Pops everywhere for central bankers to flood the coffers of their crony capitalist investment banking partners with unlimited amounts of electronic funny money!
BloombergBusiness
Secret Fed Loans Gave Banks $13 Billion Undisclosed to Congress
Bob Ivry, Bradley Keoun and Phil Kuntz
Bloomberg Markets Magazine
November 27, 2011 — 4:01 PM PST
The Federal Reserve and the big banks fought for more than two years to keep details of the largest bailout in U.S. history a secret. Now, the rest of the world can see what it was missing.
The Fed didn’t tell anyone which banks were in trouble so deep they required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates, Bloomberg Markets magazine reports in its January issue.
Saved by the bailout, bankers lobbied against government regulations, a job made easier by the Fed, which never disclosed the details of the rescue to lawmakers even as Congress doled out more money and debated new rules aimed at preventing the next collapse.
A fresh narrative of the financial crisis of 2007 to 2009 emerges from 29,000 pages of Fed documents obtained under the Freedom of Information Act and central bank records of more than 21,000 transactions. While Fed officials say that almost all of the loans were repaid and there have been no losses, details suggest taxpayers paid a price beyond dollars as the secret funding helped preserve a broken status quo and enabled the biggest banks to grow even bigger.
…
It’s a confidence game.
This was posted today:
‘The Kangbashi district of Ordos, China is a marvel of urban planning, 137-square miles of shining towers, futuristic architecture and pristine parks carved out of the grassland of Inner Mongolia. It is a thoroughly modern city, but for one thing: No one lives there.’
‘Well, almost nobody. Kangbashi is one of hundreds of sparkling new cities sitting relatively empty throughout China, built by a government eager to urbanize the country but shunned by people unable to afford it or hesitant to leave the rural communities they know. Chicago photographer Kai Caemmerer visited Kangbashi and two other cities for his ongoing series Unborn Cities. The photos capture the eerie sensation of standing on a silent street surrounded by empty skyscrapers and public spaces devoid of life.’
‘China has built hundreds of new cities over the last three decades as it reshapes itself into an urbanized nation with a plan to move 250 million rural inhabitants—more than six times the population of California—into cities by 2026. The newly minted cities help showcase the political accomplishments of local government officials, who reason that real estate and urban development is a safe, high-return investment that can help fuel economic growth.’
‘But it’s hard to start a city from scratch. Most people don’t want to live somewhere that feels dead, and these new cities sometimes lack the jobs and commerce needed to support those who would live there.’
“Cities and districts built without demand or necessity resulted in what some Chinese scholars have termed, literally,’walls without markets’,” says William Hurst, political science professor at Northwestern University. “Or what we might translate as uncompleted or hollow cities. Political exigency and investment hysteria trumped economic calculus or consideration of genuine human needs.”
‘Caemmerer learned about these cities early last year after reading a slew of “almost sensationalist” articles that painted them as modern ghost towns. Fascinated, he decided to visit China and see them himself. He spent almost three months exploring three cities during two trips last spring and fall.’
http://www.wired.com/2016/02/kai-caemmerer-unborn-cities/#slide-6
Two trips and months just to view three of these things.
‘From there he traveled south to Meixi Lake City. The development covers 4.3 square miles, encircles a manmade lake and is designed to one day house more than 180,000 people. The lake is lined with tidy paths and benches, and soft music emanates from speakers at all hours. Caemmerer saw many skyscrapers under construction, their skeletons wrapped in green scrim. Real estate agents scurried about, busily selling apartments in buildings soon to be completed. “I felt like I was walking into the future,” he says.’
Sounds ghastly. I would almost prefer to choke on Chinese air pollution than to live in an empty city devoid of life.
“Unborn Cities”
Stillborn cities?
LOL—that’s perfect, Blue!
From the first link:
“Antti J. Ronkainen: The Federal Reserve is the most significant central bank in the world. How does it contribute to the domestic policy of the United States?”
“Michael Hudson: The Federal Reserve supports the status quo. It would not want to create a crisis before the election. Today it is part of the Democratic Party’s re-election campaign, and its job is to serve Hillary Clinton’s campaign contributors on Wall Street. It is trying to spur recovery by resuming its Bubble Economy subsidy for Wall Street, not by supporting the industrial economy. What the economy needs is a debt writedown, not more debt leveraging such as Quantitative Easing has aimed to promote. But the Fed is in a state of denial that the U.S. and European economies are plagued by debt deflation.”
“The Fed uses only one policy: influencing interest rates by creating bank reserves at low give-away charges. It enables banks too make easy gains simply by borrowing from it and leaving the money on deposit to earn interest (which has been paid since the 2008 crisis to help subsidize the banks, mainly the largest ones). The effect is to fund the asset markets – bonds, stocks and real estate – not the economy at large. Banks also are heavy arbitrage players in foreign exchange markets. But this doesn’t help the economy recover, any more than the ZIRP (Zero Interest-Rate Policy) since 2001 has done for Japan. Financial markets are the liabilities side of the economy’s balance sheet, not the asset side.”
“The last thing either U.S. party wants is for the election to focus on this policy failure. The Fed, Treasury and Justice Department will be just as pro-Wall Street under Hillary. There would be no prosecutions of bank fraud, there would be another bank-friendly Attorney General, and a willingness to subsidize banks now that the Dodd-Frank bank reform has been diluted from what it originally promised to be.”
I was reading this:
‘Bush’s media corp feels his pain’
‘As the ex-front runner struggles, he gets sympathy from an unusual quarter — reporters covering his campaign.’
‘One correspondent for a major television network opined in New Hampshire that Bush was supposed to be “the” candidate, the one with the pedigree, experience, and money to go the distance.’
Yes, “the” candidate. We don’t even pretend the media is reporting anymore. Giant corporations tell us who is acceptable, who will keep the central bank chugging along, lining the wallets of wall street with infinite amounts of cash and free from jail.
Yes, I watched this compilation of Bush frustration yesterday:
https://www.washingtonpost.com/video/politics/jeb-bush-starts-to-get-frustrated/2016/02/18/8fe9768a-d69f-11e5-a65b-587e721fb231_video.html
I could almost feel sorry for him if he and his family hadn’t done so much harm over the years.
From a media standpoint, I found the exchange between Rubio and Cruz at the South Carolina debate really interesting:
“CRUZ: You know, the lines are very, very clear. Marco right now supports citizenship for 12 million people here illegally. I oppose citizenship. Marco stood on the debate stage and said that.
But I would note not only that — Marco has a long record when it comes to Amnesty. In the state of Florida, as speaker of the house, he supported in-state tuition for illegal immigrants. In addition to that, Marco went on Univision in Spanish and said he would not rescind President Obama’s illegal executive Amnesty on his first day in office. I have promised to rescind every single illegal executive action, including that one.
[Audience responds with a mixture “of applause and booing”].
RUBIO: Well, first of all, I don’t know how he knows what I said on Univision, because he doesn’t speak Spanish. And second of all, the other point that I would make…”
[Transcript of the Republican Presidential Debate, New York Times, February 14, 2016]
Turns out, Cruz does, in fact, speak Spanish, although he has nowhere near the fluency that Rubio does. But he knows enough to understand it.
However, the damning thing in that exchange is Rubio’s statement about not knowing what was said if you don’t speak Spanish. Millions of Americans don’t speak Spanish, and Rubio seems to be rather smug about them not knowing what he’s saying to those who do. Where’s the media on that?
his family hadn’t done so much harm over the years ??
The father & Jeb both seem like honorable men….The other one is rotten at the core…
“Banks did make money, but not by lending into the ‘real’ production and consumption economy. They mainly engaged in arbitrage and speculation, and lending to hedge funds and companies to buy their own stocks yielding higher dividend returns than the low interest rates that were available.”
The whole central banking rescue scheme seems highly incestuous, and designed to concentrate wealth in the hands of the 0.1℅.
Michael Hudson has some good points, but who has been president for the last 7 years? Yes, Clinton & Bush could have done much better (although the parties don’t share equal blame - at least some Republicans wanted to clip the GSE’s). Obama fully supports Wall Street (as do Hillary and Trump)
On a related note, central bankers seem to think they have god-like powers to, for example, create economic growth when the problems are structural (which is normally the case, definitely in the US, EU, and China).
Michael Hudson’s stuff has been posted regularly over at nakedcapitalism for years, and he’s no fan of Obama. I’m not sure why your first sentence has a “but.”
Also, is there evidence that Trump would be pro-Wall-Street like Obama and Hillary? Not challenging you, that’s a real question.
‘Trump said that his praise for Volcker reflects his own hawkish monetary policy, and expressed more concern about inflation than full employment. He said that while the current near-zero Fed interest rates benefit him as a businessman, they should be raised to avoid an asset bubble.’
‘From a business standpoint, “I like low interest rates,” Trump said. Yet he added that “from the country’s standpoint, I’m just not sure it’s a very good thing, because I really do believe we’re creating a bubble.”
‘Agree or disagree with Trump’s remarks, the actual presidential candidates in either party have rarely provided such a window into their views of Federal Reserve monetary policy. Only one Republican hopeful, New Jersey Gov. Chris Christie, has been as explicit as Trump. Echoing Trump’s concerns about an asset bubble, Christie condemned the central bank in June for its “easy money” policies.’
‘Though former Texas Gov. Rick Perry (R) gained notoriety in 2011 for calling then-Fed Chair Ben Bernanke’s monetary stimulus policies “treasonous,” he has not commented on the topic since then. Sen. Rand Paul (R-Ky.) is calling for the Fed to be audited and stripped of its regulatory authority, but has not explicitly addressed the Fed’s monetary policy.’
‘On the Democratic side, former Secretary of State Hillary Clinton did not mention the Federal Reserve in her otherwise policy-laden inaugural campaign speech in New York City on June 13. Former Maryland Gov. Martin O’Malley (D) and Sen. Bernie Sanders (I-Vt.) have said that the Fed should be held more accountable in its regulation of, and relations with, big banks, but have not laid out their positions on monetary policy, either.’
‘No economic thrills—or chills—loom on the horizon, at least according to Loretta J. Mester, president of the Federal Reserve Bank of Cleveland. Instead, Mester forecast slow and steady growth in remarks.’
‘Among her confidence builders: Consumer spending has remained strong and home prices have been rising by 5-6 percent annually, allowing homeowners to rebuild equity. (She brushed off the idea of an approaching housing bubble, saying homeowners are avoiding accumulating too much debt and lenders are being strict about loans.)’
5 to 6%? Loretta, land prices in Omaha Nebraska doubled or tripled in the past three years. And have wages gone up even 5 or 6% in the past decade? No, they’ve fallen nationally.
Thanks — that’s been my impression, that Trump has generally been critical of Wall Street and the financialized economy. I haven’t followed everything he says, though, so I wondered if BearCat had something else in mind.
Going to be an interesting year.
“The bottom line is that banks made much more by getting Alan Greenspan and the Clinton-Bush Treasury officials to deregulate fraud than they could have made by traditional safe lending.”
Where’s the Obama mention there? The crisis started under Bush, but Obama (who’s nickname of President Goldman Sachs means something) just kept going….
As for Trump, you need to look past his current statements to look at his past statements and current actions. He was for getting rid of Saddam before he was against it. And he definitely knows how to get loans from Wall Street http://www.redstate.com/leon_h_wolf/2016/01/22/every-bank-wall-street-owns-donald-trump/
He’s talking about deregulation. Dodd-Frank is a pathetic joke, but it’s technically more regulation, and Obama signed it. Obama didn’t deregulate, he gave the banks unlimited free money (Treasury, Fed appointments, bailout) and put bankers as a class permanently above the rule of law (DOJ). He did far worse than keep it going. And I’ve read enough of Hudson’s stuff to be certain that he’s in agreement on this point. But his point about deregulation is a different one, and his account of its history is correct as far as it goes.
Note that being right about the history doesn’t make him right about the solution: letting failed enterprises fail and prosecuting fraud, and stopping there, might have been a better solution than seeking re-regulation. But again I am quite certain that Hudson doesn’t view those as mutually exclusive options. Anyway, he’s a provocative thinker and I quite like his stuff.
Thanks for the link on Trump — going to read it now.
Dodd-Frank is a pathetic joke ??
Yes it is….Its a big part of the reason we are growing so slow and wages are down IMO…
‘On August 9, 1995, Netscape made an extremely successful IPO. The stock was set to be offered at US$14 per share, but a last-minute decision doubled the initial offering to US$28 per share. The stock’s value soared to US$75 during the first day of trading, nearly a record for first-day gain. The stock closed at US$58.25, which gave Netscape a market value of US$2.9 billion. While it was unusual for a company to go public prior to becoming profitable, Netscape’s revenues had, in fact, doubled every quarter in 1995.[24] The success of this IPO subsequently inspired the use of the term “Netscape moment” to describe a high-visibility IPO that signals the dawn of a new industry.’
https://en.wikipedia.org/wiki/Netscape
I remember this well. They wanted to raise something like $40 million and got a couple billion.
‘Greenspan’s comment was made during a televised speech on December 5, 1996 (emphasis added in excerpt): “Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”
— ”The Challenge of Central Banking in a Democratic Society”, 1996-12-05
‘The Tokyo market was open during the speech and immediately moved down sharply after this comment, closing off 3%. Markets around the world followed.[1][2] The prescience of the short comment within a rather dry and complex speech would not normally have been so memorable; however, it was followed about three years later by major slumps in stock markets worldwide, particularly the Nasdaq Composite, provoking a strong reaction in financial circles and making its way into colloquial speech.’
https://en.wikipedia.org/wiki/Irrational_exuberance
‘The Enron scandal, revealed in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the de facto dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganization in American history at that time, Enron was cited as the biggest audit failure.[1]‘
‘Enron shareholders filed a $40 billion lawsuit after the company’s stock price, which achieved a high of US$90.75 per share in mid-2000, plummeted to less than $1 by the end of November 2001.[2] The U.S. Securities and Exchange Commission (SEC) began an investigation, and rival Houston competitor Dynegy offered to purchase the company at a very low price. The deal failed, and on December 2, 2001, Enron filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. Enron’s $63.4 billion in assets made it the largest corporate bankruptcy in U.S. history until WorldCom’s bankruptcy the next year.[3]‘
https://en.wikipedia.org/wiki/Enron_scandal
See how the numbers keep getting larger? How many money losing silicon valley ventures are “valued” higher than Enron right now?
‘The federal takeover of Fannie Mae and Freddie Mac refers to the placing into conservatorship of government-sponsored enterprises Fannie Mae and Freddie Mac by the U.S. Treasury in September 2008. It was one of the financial events among many in the ongoing subprime mortgage crisis.’
‘On September 6, 2008, the director of the Federal Housing Finance Agency (FHFA), James B. Lockhart III, announced his decision to place two government-sponsored enterprises (GSEs), Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation), into conservatorship run by the FHFA.’
‘The same day, the Federal Reserve Bank chairman Ben Bernanke stated in support: “I strongly endorse both the decision by FHFA Director Lockhart to place Fannie Mae and Freddie Mac into conservatorship and the actions taken by Treasury Secretary Paulson to ensure the financial soundness of those two companies.”
‘The combined GSE losses of US$14.9 billion and market concerns about their ability to raise capital and debt threatened to disrupt the U.S. housing financial market. The Treasury committed to invest as much as US$200 billion in preferred stock and extend credit through 2009 to keep the GSEs solvent and operating. The two GSEs have outstanding more than US$5 trillion in mortgage-backed securities (MBS) and debt; the debt portion alone is $1.6 trillion.[6] The conservatorship action has been described as “one of the most sweeping government interventions in private financial markets in decades,”[7] and one that “could turn into the biggest and costliest government bailout ever of private companies”
‘By September 15, 2008, the 158-year-old Lehman Brothers holding company filed for bankruptcy with intent to liquidate its assets, leaving its financially sound subsidiaries operational and outside of the bankruptcy filing. The collapse is the largest investment bank failure since Drexel Burnham Lambert in 1990.[9][10] The 94-year-old Merrill Lynch accepted a purchase offer by Bank of America for approximately US$50 billion, a big drop from a year-earlier market valuation of about US$100 billion. A credit rating downgrade of the large insurer American International Group (AIG) led to a September 16, 2008 rescue agreement with the Federal Reserve Bank for a US$85 billion secured loan facility, in exchange for warrants for 79.9% of the equity of AIG.’
https://en.wikipedia.org/wiki/Federal_takeover_of_Fannie_Mae_and_Freddie_Mac
A short history of QE and the market
“The financial markets are not working as we’d like them to work … and this is an effort to address that situation.”
— Treasury Secretary Henry Paulson
‘November 25, 2008
Fed unveils $800 billion plan to bolster lending, housing’
‘March 18, 2009
Federal Reserve to buy $300 billion in longer-term Treasury bonds’
‘November 3, 2010
Federal Reserve to buy $600 billion in bonds’
‘The FOMC says it will buy up to $600 billion in long-term Treasurys until the end of June 2011, including about $75 billion this month. This is the second time the Fed engages in quantitative easing, as it snapped up $1.7 trillion in mostly housing-related assets between December 2008 and March 2010.’
‘September 21, 2011
Federal Reserve moves to lower interest rates on consumer loans with a $400 billion debt-swap program’
‘June 20, 2012
Fed extends ‘Operation Twist’
“We still do have considerable scope to do more and we are prepared to do more.”
— Fed Chairman Ben Bernanke
‘September 13, 2012
Fed to launch QE3 by buying mortgage securities
By an 11-to-1 vote, the Federal Reserve decides to launch a third round of open-ended bond purchases — so-called QE3 — saying it will buy $40 billion of agency mortgage-backed securities per month. The Fed also says it will keep its so-called Operation Twist in place.’
‘December 12, 2012
Fed to buy more bonds as it sets jobless target
The Federal Reserve announces a fresh bond-buying program worth $45 billion per month of longer-term Treasurys in another effort to reduce what the central bank calls an “elevated” unemployment rate.’
‘January 14, 2013
Bernanke downplays inflation risk of QE3
Federal Reserve Chairman Ben Bernanke plays down the fears of some more hawkish central bankers and investors that the Fed’s aggressive bond-buying program will lead to higher inflation. “I don’t believe significant inflation is going to be the result of any of this,” Bernanke says in a speech.’
‘May 22, 2013
Bernanke tells Congress ’step down’ in QE could come soon
Federal Reserve Chairman Ben Bernanke tells Congress that the U.S. central bank could slow down its asset purchase program in the next few months.’
‘September 18, 2013
Fed decides not to taper
The Federal Reserve holds its asset purchase program steady, putting off any decision for tapering until later in the year in a decision that surprises markets. By a vote of 9-to-1, the Fed holds its bond-buying program at $85 billion, citing tighter financial conditions. S&P 500, Dow rise to record closing highs.’
http://projects.marketwatch.com/short-history-of-qe-and-the-market-timeline/#9
The last date was around the time of this article. $85 billion, per month. Each month a sum larger than Enron’s failure. Openly and specifically aimed at stocks and house prices. Notice they talk about jobs. Why not spend $85 billion a month on jobs programs?
“Notice they talk about jobs. Why not spend $85 billion a month on jobs programs?”
How would that help keep money and power concentrated in the NYC-DC corridor?
It wouldn’t, but again, whatever happened to all those “shovel-ready” projects Obama promised to shore up crumbling infrastructure?
I would have liked to see a massive infrastructure improvement program nationwide. That would not have been malinvestment, IMO.
“I would have liked to see a massive infrastructure improvement program nationwide.”
There was one. Did you somehow snooze right through it?
From the first link above:
‘There are two sets of prices: asset prices and commodity prices and wages. By ‘price stability’ the Fed means keeping wages and commodity prices down. Calling depressed wage levels ‘price stability’ diverts attention from the phenomenon of debt deflation – and also from the asset-price inflation that has increased the advantages of the One Percent over the 99 Percent.’
‘Wall Street isn’t so interested in exploiting wage labour by hiring it to produce goods for sale, as was the case under industrial capitalism in its heyday. It makes its gains by riding the wave of asset inflation. Banks also gain by making labour pay more interest, fees and penalties on mortgages, and for student loans, credit cards and auto loans. That’s the postindustrial financial mode of exploiting labor and the overall economy.’
“There are two sets of prices: asset prices and commodity prices and wages.”
In today’s world the prices of assets are a measure wealth (untaxed wealth at that) and wages (after tax wages) are coaxed and lured out of worker’s paychecks and are are used to support asset prices - meaning they are used to support wealth (untaxed wealth), wealth that is not necessarily yet owned by the wage earners who support asset prices that the wage earners think they own but in fact do not.
What a beautiful world we live in, no?
Why not spend $85 billion a month on jobs programs ??
I agree but thats congresses job under fiscal policy…For 7 years they have had no interest in helping our economy return to healthy employment both in numbers and wages…That would have made obama look good and would sink their chances at the White House…I am convinced that for many of them, its either “win” or let the whole thing implode…
Dave,
Do you really believe wages are going to triple or quadruple to meet grossly inflated prices?
Of course not.
Prices will continue falling to dramatically lower and more affordable levels to meet prices.
Japan has had mortgage rates at 1-1.5% since the 80’s. Why do US banks need a wider margin at 3-4%? I’d refinance at 1% over my current 3.75%.
‘Negative interest rates are a calamitous misadventure’
‘When the debt-laden world faces the next global downturn, it will need the full power of helicopter money, not interest rate gimmicks’
‘The world’s central banks should take a deep breath and step back from the calamitous misadventure of negative interest rates. Whatever theoretical profit can be mined from this thin seam, it is entirely overwhelmed by the slow ruin of the banking system.’
‘Huw Van Steenis, from Morgan Stanley, calls negative rates (NIRP) a “dangerous experiment” that undermines the mechanism of quantitative easing rather than reinforcing it, and ultimately induces banks to shrink their loan books - the exact opposite of what is intended.’
‘The market verdict on the Bank of Japan and the European Central Bank speaks for itself. Bank equities have crashed by 32pc in Japan and by 26pc in the eurozone since early December. “Financial markets increasingly view these experimental moves as desperate,” said Scott Mather, from the giant bond fund Pimco.’
‘The policy blunder is creating a false fear that central banks have run out ammunition. It is distracting attention from the real failings of the global policy regime: lack of willingness to launch a New Deal and inject money directly into the veins of the real economy through fiscal stimulus when needed, and arguably to do so with turbo-charged effect through central bank transfers rather than debt issuance.’
‘Narayana Kocherlakota, ex-head of the Minneapolis Federal Reserve, reluctantly backs NIRP as deep as -3pc but calls it a “gigantic fiscal policy failure” that central banks must resort to such absurdities.’
‘The Bank of Japan and the ECB appear determined to double down with even deeper negative rates over coming weeks, even though critics warn that NIRP is entrenching the deflation-trap by pulling down long-term bond yields and jamming the signalling system of financial markets.’
‘They have already pulled away the trap floor on long-term bond rates, inadvertently causing a fresh rush into these safe-haven assets as funds sniff the prospect of much lower yields. Japan’s 10-year rates fell below zero last week. This is hardly the way to arrest the deflation psychology of the Japanese people.’
‘The distortions are now grotesque. The one-year euribor rate used in Spain to price floating mortgages (98pc of the total) is -0.012pc. This eats up the net interest margins of banks since they dare not charge depositors a fee, not yet at least. “It’s not healthy, it’s not sustainable, it’s mad,” said José María Roldán, head of the Spanish Banking Association.’
Is another tech stock bubble collapse upon us?
9:51 am ET
Feb 19, 2016
The Daily Startup: IPO Concerns Persist Amid Investor Anxieties
The IPO market has become of increasing concern for both investors and private companies, a shift that could have far-reaching effects across Silicon Valley and beyond.
That is because of the almost 175 companies that made their U.S. stock-market debuts in 2015, more than 70% are now trading below their IPO prices. On average their stocks are down about 20%. Also, nine of last year’s 10 largest U.S.-listed IPOs are now trading below their initial sale price. On average, those 10 stocks are down about 25%. With an IPO market basically shut for now, late-stage private companies that raised money last year are being asked to “revisit their spending plans for 2016” to make sure they can get to profitability on the cash they have so they don’t have to count on raising more money, said Byron Deeter, a partner in the Silicon Valley office of Bessemer Venture Partners.
…
Palo Alto
‘The presence of Chinese buyers diminished in our local market in the fourth quarter, scared off by stock-market selloff, slowing economic growth, currency devaluation, tightened restrictions on capital outflows and higher prices in the housing market. In mid-December, China’s benchmark stock index fell by 5.5 percent, its biggest daily slide since August, as Beijing authorities stepped up a crackdown on the securities industry.’
I can’t wait to find out how the disappearance of all-cash Chinese investors from North American west coast real estate markets affects prices!
Property
The Surge in U.S. Mansion Prices Is Now Over
Prashant Gopal
January 25, 2016 — 4:00 PM PST
Updated on January 26, 2016 — 3:55 AM PST
Chinese stocks, falling oil prices denting high-end home sales
Expensive homes led U.S. housing market out of 2008 slump
The six-bedroom mansion in the shadow of Southern California’s Sierra Madre Mountains has lime trees and a swimming pool, tennis courts and a sauna — the kind of place that would have sold quickly just a year ago, according to real estate agent Kanney Zhang.
Not now.
Zhang is shopping it for a discounted $3.68 million, but nobody’s biting. Her clients, a couple from China, are getting anxious. They’re the kind of well-heeled international investors who fueled a four-year luxury real estate boom that helped pull America out of its worst housing slump since the 1930s. Now the couple is reeling from the selloff in the Chinese stock market and looking to raise cash to shore up finances.
Across the U.S., the story is much the same. The world’s economic woes — from China to Russia to South America — are damping sales in the high-end real estate market. Haywire overseas stock markets and dropping currency values caused in part by plummeting oil prices are dulling demand for mansions, penthouses and winter escapes.
“There’s volatility in China and Russia and there’s the oil issue in the Middle East — I have no doubt there’s an impact overall on the market,” said Dan Conn, chief executive officer of Christie’s International Real Estate, the luxury-property brand of the auction house. “You’re not going to see material price increases in most markets.”
…
“falling housing prices”
Speaking of bubbles, whatever happened to the farmland price bubble?
Markets Commodities
Farmland Values Fall in Much of Central U.S.
Reports from regional Fed banks reflect continuing downturn in U.S. farm economy
Photo: Bloomberg News
By Jesse Newman
Updated Feb. 11, 2016 5:21 p.m. ET
Farmland values dropped across much of the U.S. Midwest in the fourth quarter, according to reports from the Federal Reserve on Thursday, a symptom of continued weakness in the agricultural sector fueled by several years of depressed crop prices.
Average farmland prices in the Federal Reserve Bank of Chicago’s district, which includes Illinois and Iowa, fell 3% from a year earlier and slipped 1% from the third quarter of 2015, officials said.
In the St. Louis Fed’s district, which is composed of parts of Illinois, Indiana and Missouri, prices for farmland fell 2.5% compared with a year ago, as farm incomes slid, the bank said.
In the Kansas City Fed’s district, which includes Kansas and Nebraska, nonirrigated cropland values sank 4% from a year before, while the average price of irrigated land declined 2%, the bank said. Irrigated farmland, which is common in the region, depends on man-made water systems for moisture rather than rainfall.
The three Fed reports reflect a continuing downturn in the U.S. farm economy, which has been marked by listless crop prices and softer demand for agricultural land after prices for both shot higher for much of the past decade. The yearslong farmland boom was fueled by drought and growing demand for grain from ethanol producers and foreign importers.
But last year, U.S. farmers collected bumper corn and soybean crops for the third-straight season, adding to already-plentiful world supplies at a time when a strong dollar and stiff global export competition are damping demand for U.S. supplies. Revenue for farmers has declined as a result, prompting the U.S. Department of Agriculture this week to project that net U.S. farm income will fall this year to the lowest level since 2002.
Midwestern bankers surveyed by the Fed banks in St. Louis and Kansas City said farm income dropped in the fourth quarter, and many lenders in all three districts expect land values to soften further in the current quarter as crop prices and farm profits remain subdued.
“Sustained weakness in corn, soybean and wheat prices has had a particularly negative effect on farm income because these three crops account for about 70% of harvested crop acreage in the Tenth District States,” the Kansas City Fed said in its report on Thursday.
Average values for ranchland, used for grazing livestock, were flat to lower in parts of the Midwest, according to the St. Louis and Kansas City Fed districts.
…
Million of new cases of appraisal and mortgage fraud, holding millions of excess, empty and defaulted houses, bottlenecking supply, crushing demand, fraudulent pricing…. the list goes on. And now they want another bailout.
“Fannie Mae At Risk Of Needing Bailout”
http://www.cnbc.com/2016/02/20/fannie-mae-at-risk-of-needing-a-bailout.html
‘Two companies — San Francisco’s DriverCars, and New York’s Juno — are trying to lure drivers disenchanted with the two dominant players in the ride-on-demand market onto their platforms. One of these start-ups, DriverCars, has even attracted an early investor in Uber — Keith Teare.’
“DriverCars believes that the weak spot of Uber is the drivers, because as the prices are being constrained and the share taken from the drivers is going up, there’s a lot for drivers starting to protest outside Uber’s offices,” said Teare.’
‘That some drivers are unhappy with the dominant players is hard to argue with. Drivers in New York and San Francisco staged protests on Feb. 1 over Uber’s fare cuts, which drivers said prevent them from earning a living wage. Uber said those cuts — initiated on Jan. 9 — were necessary to combat the post-holiday slump in demand, and that the reductions lead to more work, and ultimately higher earnings for drivers.’
‘Another issue that drivers have with Uber is the lack of tips.’
‘”The issue with Uber and Lyft’s model is that it’s really dependent on how far the drivers drive, and San Francisco is small,” said Hale. The average Uber driver that Hale speaks to makes between $1,500 and $2,500 per month if they are working full time, he said.’
http://finance.yahoo.com/news/uber-rivals-drivers-221133781.html#
‘DriverCars rides will on average be 25 percent cheaper than Uber and the app will not have surge pricing, said Hale.’
Delivering pizza is a better deal. Oh how can I get in on this $65 billion bonanza?
Uber and AirheadBNB are morphing into 2hr room rentals and mobile drug deals for hookers, johns, junkies and dealers. Anything illegal? Use AirheadBNB and Uber. And the empty pocketed home debtors in Californica are already doing this. Washing sheets, disposing condom wrappers, cleaning toilets and ferrying around petty criminals. Yep…. You’ve really come a long way.
AirHeadBNB and Uber…. poster children for money losing failed businesses.
“The Recession Isn’t A Few Months Away… It’s Already Started”
http://www.zerohedge.com/news/2016-02-21/recession-isnt-few-months-away-it%E2%80%99s-already-started
Based on the data, we’ve been in recession since 2006
“By ‘price stability’ the Fed means keeping wages and commodity prices down.”
Commodity prices are excluded from “core” inflation.
Will CPI be manipulated with hedonic substitutions on the way down to mask deflation?