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Why No One’s Going to Drain this Swamp

March 9, 2017

Why No One’s Going to Drain this Swamp

The Financial Sector threw $2 Billion at Congress during the Election. Biggest Spenders? Not the Banks.

The Financial Sector – whose products, risk-taking, and shenanigans blew up the sector and everything around it during the Financial Crisis – has finally gotten the memo in a serious way: During the past election cycle (2015-2016), it doused the members of the US Congress with a record amount of money to “influence decision making” and get what they want: deregulation, handouts, and subsidies.

So how much? Over $2 billion.

That’s over $3.7 million per sitting member of Congress, according to a report released today by Americans for Financial Reform. The $2 billion tab fell into two categories:

  • Campaign contributions by companies, trade associations, and individuals associated with the financial sector: $1.104 billion. This was “almost twice that of any other specific business sector.”
  • Lobbying expenses by 460 financial sector entities: $898 million

“The financial sector is by far the largest source of campaign contributions to federal candidates and parties, and the third largest spender on lobbying,” the report explains, based on data by the Center for Responsive Politics (CRP), which tracks campaign contributions reported to the Federal Elections Commission (FEC) and lobbying expenditures reported to the Senate Office of Public Records.

This “Financial Sector” includes commercial banks, S&Ls, credit unions, finance and credit companies, securities and investment firms, accountants, and “miscellaneous finance.”

But actual amounts are much higher:

  • Entities often report this data “many months late”; contributions and lobbying expenses reported after February 8 are not included in the report.
  • “Financial Sector,” as defined by the CRP, excludes some trade associations and companies with a “very substantial financial interests,” such as the US Chamber of Commerce, which lobbies extensively on financial issues, and the National Auto Dealers Association (NADA) which lobbies on policy regarding auto loans.

…click on the above link to read the rest of the article…

Inflation To Rise – We expect UK, ECB and US Policy to Diverge

February 20, 2017

Inflation To Rise – We expect UK, ECB and US Policy to Diverge

Purely for geopolitical reasons, namely frustration at the failure of the governments of individual member states to respond to repeated calls for “structural reforms”, your authors had taken the view in recent months that the ECB might increase interest rates this year.

Our views are changing. The key to variances in interest rate policies is likely to be the 
relative tightness of labour markets in Europe, the UK and the US. In each of these three currency zones, when inflation has appeared (since the Great Financial Crisis) it has confined itself to the product market. Put differently there have been no spill over effects in the labour market. Because inflation has been small and limited to the product market, the impact on central bank policy has been minimal.

UK Interest Rates Should Rise Sharply Owing to Its Tight Labour Market 
John Butler recently wrote an article in The Guardian warning that, owing to several factors, consumer price inflation (CPI) in the UK, mid-January at 1.2%, could soar to 4% this year. Highlighting the base effects of the 20% fall in sterling’s value against the dollar and euro since the Brexit referendum, together with the near doubling of oil prices and increases in the prices of other commodities, he drew attention to the tightness of the UK labour market.

In fact, UK labour costs are rising against a backdrop of stagnant productivity. Noting that workers’ unions are already sabre rattling in limited competition industries such as government, healthcare and transport, inflation has crossed from the product market into the labour market, and it will probably be impossible to contain because, wage increases in a tight labour market have such a strong bearing on product costs, and so commences a spiral. Indeed, the only way to prevent the price level rising to more than double the 2% target is for interest rates to be raised, perhaps sharply.

…click on the above link to read the rest of the article…

Policy Makers, like Generals, Are Busy Fighting The Last War

January 22, 2017

Policy Makers, like Generals, Are Busy Fighting The Last War

The Maginot Line formed France’s main line of defense on its German facing border from Belgium in the North to Switzerland in the South.  It was constructed during the 1930s, with the trench-based warfare of World War One still firmly in the minds of the French generals.  The Maginot Line was an absolute success…as the Germans never seriously attempted to attack it’s interconnected series of underground fortresses.  But the days of static warfare were over – in 1940, the Germans simply drove around the line through Holland and then Belgium.  Had the Germans replayed WWI and made a direct attack, the Maginot Line likely would have done its job.  But Hitler wasn’t interested in a WWI re-do, so the fortifications were quickly rendered moot.  France, Europe, and the world would pay the price for generals fighting the last war rather than adjusting to the contemporary risks they faced.
In 2008, the economic generals at the various central banks likewise pulled out the playbook to refight the great depression…not realizing, this time was an entirely different opponent.  Federal governments and central bankers presumed doing what they had always done would again win the day.  Cut interest rates (this time to zero) to incent both public and private entities to refinance existing debt loads and undertake new, greater leverage.  This nearly free money would reduce debt service levels and the new loans would ignite a new wave of economic activity in the form of capital expenditures and small business creation.  Economic multipliers and velocity would ensure general prosperity with job and wage growth.  Instead, it’s the “Maginot Line” all over again for our economic generals as economic activity grinds to a stall absent the  illusory asset bubbles.  
BTW – if you are not a fan of charts or visual representations…this is not the article for you and likely best to stop here.

…click on the above link to read the rest of the article…

Currency Armageddon? A Word about the Hated Dollar

December 18, 2016

Currency Armageddon? A Word about the Hated Dollar

The “death of the dollar” will have to be rescheduled.

Sharply higher yields on Treasury securities and the prospect of more rate hikes by the Fed – in a world where other major central banks are still stewing innocent bystanders in the juices of NIRP, negative yields, and “punishment interest” – sent the hated dollar, whose death has been promised for a long time, soaring.

It soared against the euro. Or, seen from the other side, the euro plunged against the dollar, to $1.039, the lowest level since January 2003; down 35% from its peak of $1.60 during the Financial Crisis; down 10% from its 52-week high in March of $1.16; and down 2.7% from $1.068 yesterday before the Fed announcement.

Pundits are once again declaring that the euro will fall to “parity” with the dollar, as the ECB has been wishing for a long time, though it cannot admit officially that it is trying to crush the euro to give member states an export advantage. That would be “currency manipulation,” which is frowned upon in other countries. But a big wave of “money printing” and forcing yields below zero “to stimulate the economy,” whereby the currency gets crushed as a side effect, is OK.

Tourist destinations and flagship retailers in the US watch out: for your euro tourist customers, things are getting very expensive in the US, and some may choose to buy less or travel to cheaper countries.

The yen plunged 3% since the Fed announcement to ¥118.4 to the dollar. It’s down 15% since September. But it’s still higher than it had been in mid-2015, when it had sunk as low as ¥123 to the dollar.

…click on the above link to read the rest of the article…

Central Bank Economists: Bad Central Bank Policy Is INCREASING Inequality

March 11, 2016

Central Bank Economists: Bad Central Bank Policy Is INCREASING Inequality

While the leaders of the Fed and other central banks claim that their extraordinary monetary policies haven’t significantly increased inequality, economists with the world’s most prestigious financial agency, the Bank of International Settlements – known as “the Central Banks’ Central Bank” – just released a report showing otherwise.

BIS notes:

Our simulation suggests that wealth inequality has risen since the Great Financial Crisis. While low interest rates and rising bond prices have had a negligible impact on wealth inequality, rising equity prices have been a key driver of inequality …. Monetary policy may have added to inequality to the extent that it has boosted equity prices.

***

Inequality is back in the international economic policy debate. Evidence of a growing dispersion of income and wealth within major advanced and emerging market economies (EMEs) has sparked discussions about its economic consequences. Although there is no consensus on the relationship between inequality and growth, there are concerns that rising inequality may become a serious economic headwind. [Right.]

***

Moreover, the faster rise in remuneration at the very top of the income distribution relative to wage growth in the lower percentiles has been linked both to the rapid growth of the financial sector since the 1980s [correct] and to changes in the social norms that contribute to the determination of executive pay (Piketty (2014)).

***

The share of securities holdings, equity in particular, tends to be even higher at the top 5% or 1% of the distribution. [Obviously.]

Conversely, housing accounts for a higher share in the lowest net wealth quintile, for which low net wealth is in many cases a reflection of high levels of mortgage debt. In a number of cases, net wealth is negative, suggesting that liabilities, in the form of mortgage, consumer and other debt, exceed assets.

…click on the above link to read the rest of the article…

Greenspan Imagines Better, Alternate Universe in Which Greenspan Was Not Fed Chair

August 19, 2015

Greenspan Imagines Better, Alternate Universe in Which Greenspan Was Not Fed Chair

Alan Greenspan, the policy failure whose tenure at the Federal Reserve helped create the conditions for the largest financial crisis in nearly a century, was inexplicably given a major newspaper platform on Monday to opine about regulation, which he ideologically abhors.

So it came as a surprise to read the second paragraph of his Financial Timesop-ed, wishfully describing an alternative history of 2008, if only there had been robust regulation.

“What the 2008 crisis exposed was a fragile underpinning of a highly leveraged financial system,” Greenspan writes. “Had bank capital been adequate and fraud statutes been more vigorously enforced, the crisis would very likely have been a financial episode of only passing consequence.”

Greenspan must have temporarily forgotten that he had the power to accomplish both of these priorities as Fed chair.

Before the Consumer Financial Protection Bureau, the Fed had primary responsibility over consumer protection, including rule-writing, supervision, and prohibition of unfair and deceptive practices. They even were charged with resolving consumer complaints.

Greenspan famously did none of this during the inflating of the housing bubble from 2002 to 2006, instead extolling the virtues of adjustable-rate loans andmortgage securitization, even as fellow Fed governors and the FBI publicly warned about looming fraud. The responsibility for vigorously enforcing fraud statutes, then, fell to Greenspan, and he ignored it.

Greenspan also laments that Wall Street firms carried too much debt before the crisis, and not enough capital. More capital – in the form of stock or cash reserves – would have made sure banks, rather than taxpayers, covered their own losses. But Greenspan could have enacted this at the time, being the head of the most powerful financial regulatory agency from 1987 to 2006.

 

…click on the above link to read the rest of the article…

The Wall Street Ponzi At Work——The Stock Pumping Swindle Behind Four Retail Zombies

August 18, 2015

The Wall Street Ponzi At Work——The Stock Pumping Swindle Behind Four Retail Zombies

In the nearby column Jim Quinn debunks Wall Street’s latest claim that the American consumer is bounding back. He points out that on an inflation-adjusted basis retail sales are barely higher than they were a year ago, and, for that matter, are still only 4% greater in real terms than they were way back in November 2007.

That’s right. Nearly eight years and $3.5 trillion of Fed money printing later, yet the vaunted American consumer is struggling to stay above the flat line, not shopping up a storm.

And there is no mystery as to why. After a 40-year borrowing spree culminating in the final mortgage credit blow-off on the eve of the great financial crisis, the US household sector had reached peak debt. It was tapped out with $13 trillion of mortgages, credit cards, auto, student and other loans —–a colossal financial burden that amounted to nearly 220% of wage and salary income or nearly triple the leverage ratio that had prevailed before 1971.

Household Leverage Ratio - Click to enlarge

So, as is evident from the graph above, we are now in a completely different economic ball game than the consumer debt binge cycle that culminated in 2008. Households are deleveraging out of necessity, and that means that consumer spending is tethered to the tepid growth of national output and wage income.

Yet sell side economists and the financial press are so desperate for factoids that confirm the Keynesian “recovery” narrative——that is, the false claim that the US economy has been successfully lifted out of a growth rut by mega-injections of fiscal and monetary “stimulus”—— that they get just plain giddy about Washington’s seasonally maladjusted, endlessly revised monthly data squiggles.

Thus, in response to the 0.6% gain in July retail sales, The Wall Street Journal’s headline proclaimed, “In a Show of Confidence, Americans Boost Spending”.

…click on the above link to read the rest of the article…

 

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