US Politics - Why we can't have even mediocre things

[Larry of the Lawn]

Three threads within 24 hours is impressive on its own, no need to run up the score. Reboot.

[Littlefingers In The Air]

Can we get it right this time?

[lokisnow]

Jobs report might keep the fed from prematurely raising rates, so that's good.

[Disturber of Peace]

On a scale from Bernie to the restless ghost of R.R., where are you?

[Littlefingers In The Air]

I'm definitely far left of Bernie.

[ThinkerX]

Jobs report might keep the fed from prematurely raising rates, so that's good.

I may have to take issue with that statement. As of late I keep running across articles like this one - a bit 'out there,' but apparently with a factual core of sorts:

http://www.counterpunch.org/2015/08/28/looting-made-easy-the-2-trillion-buyback-binge/

Corporations are taking the retirement savings of elderly public employees and using them to inflate their stock prices so wealthy CEOs and their shareholders can enrich themselves at the expense of their companies. And it’s all completely legal. Under current financial regulations, corporate bosses are free to repurchase their own company’s shares, push stock prices into the stratosphere, skim off a generous bonuses for themselves in the form of executive compensation, and leave their companies drowning in red ink.

Even worse, a sizable portion of the money devoted to stock buybacks is coming from “massively underfunded public pension” funds that retired workers depend on for their survival. According to Brian Reynolds, Chief Market Strategist at New Albion Partners, “Pension funds have to make 7.5%,” so they are putting their money “in these levered credit funds that mimic Long-Term Capital Management in the 1990s.” Those funds, in turn, “buy enormous amounts of corporate bonds from companies which put cash onto company balance sheets…and they use it to jack their stock price up, either through buybacks or mergers and acquisitions…It’s just a daisy chain of financial engineering and it’s probably going to intensify in coming years.”

This explains why business investment (Capex) is at record lows. It’s because the bulk of earnings is being recycled into buybacks, over $2.3 trillion dollars since 2009 to be precise. And it’s all connected to the Fed’s zero rate policy. Zero rates have created an environment in which corporations no longer look for ways to grow their businesses, expand operations, hire more employees or improve productivity. Instead, they look for the quick fix, that is, load up on debt, buy more shares, goose the stock price, and walk away with a bundle.

It’s all about incentives. The Fed has created incentives that encourage financial engineering and stock manipulation as opposed to growth and productivity. And keep in mind that repurchasing shares is a form of margin buying, the same type of margin buying that triggered Stock Market Crash of 1929.

According to Dayen: “Prior to the Reagan era, executives avoided buybacks due to fears that they would be prosecuted for market manipulation. But under SEC Rule 10b-18, adopted in 1982, companies receive a “safe harbor” from market manipulation liability on stock buybacks if they adhere to four limitations.”

I keep running across similar articles, some mainstream, some not, linking the current zero rate interest policy to a not so distant financial disaster - possibly larger than the 2007-2008 mess.

I suspect Obama is concerned about this fiscal house of cards, and his support for the odious TPP his attempt at a partial solution: he saw the Chinese market crash coming, and the TPP as a way to mitigate the damage.

[White Walker Texas Ranger]

Trump's love for MacArthur makes perfect sense.

They're both shamelessly self promoting loudmouth blowhards were nonetheless pretty good at their jobs (real estate development and commanding hundreds of thousands of men in war, respectively)

They were also both much better at being shamelessly self promoting loudmouth blowhards than they were at their actual jobs.

[lokisnow]

I may have to take issue with that statement. As of late I keep running across articles like this one - a bit 'out there,' but apparently with a factual core of sorts:

http://www.counterpunch.org/2015/08/28/looting-made-easy-the-2-trillion-buyback-binge/



I keep running across similar articles, some mainstream, some not, linking the current zero rate interest policy to a not so distant financial disaster - possibly larger than the 2007-2008 mess.

I suspect Obama is concerned about this fiscal house of cards, and his support for the odious TPP his attempt at a partial solution: he saw the Chinese market crash coming, and the TPP as a way to mitigate the damage.

ugh, mobile sites make everything harder, I hope this link works, check out the last graph, the current situation is still at the peak worst situation of the prior two recessions to the current recession. We've come a long way in this recovery, but things are still as bad as they were at their worst back then. Every metric we can measure of real people shows the same thing the labor situation has only returned from catastrophic down to merely "peak" of prior disasters. If you look at measures that don't involve real people only the fake people of Wall Street you say the stock market has recovered so all is well. But the labor market hasn't. If the fed raises rates at this point, when the labor market is still recovering they risk killing off the slow and steady return to normalization and instead they lock in stasis at this current level we will never fully recover absent an unforseeable large exogenous shock ala wwii.

So it may be that zero rates are causing behavior problems as your link suggests but the fed don't have a lot of choice. that's because the fed doesn't have the tools to use qe to fund an infrastructure bank or use qe to directly helicopter money to people, they're stuck between a rock and a hard place because they can only affect fake Wall Street side of things and hope it somehow trickles into the real side of the economy.

I would worry about stuff like your article had the labor market normalized, but the labor market is still at peak 2004 recession, or peak 1982 recession levels, and leaving it at those horrific levels is far more damaging, long term.

At least rate raises, when they do come will probably be only once or twice a year for several years.

http://bv.ms/1PQr3pA
Bloomberg View

[ThinkerX]

So it may be that zero rates are causing behavior problems as your link suggests but the fed don't have a lot of choice. that's because the fed doesn't have the tools to use qe to fund an infrastructure bank or use qe to directly helicopter money to people, they're stuck between a rock and a hard place because they can only affect fake Wall Street side of things and hope it somehow trickles into the real side of the economy

Except that's not going to happen, as the past few years demonstrate.

What will happen is there will be a trigger event of some sort that will cause a catastrophic crash of the markets. There were (and maybe still are) a lot of nervous jitters that the recent Chinese crash could be such a trigger event.

[Lord Mord]

Thinker,

Are you saying that lokisnow's qualms are invalid? Is it not true that raising rates will begin to choke off what little progress is being made in employment?

ETA: And how much should they be raised to try and stave off the worst of a crash?

[ThinkerX]

This has got to be a fluke. At least it might be a fluke. Maybe?

http://www.msn.com/en-us/news/politics/poll-trump-beats-hillary-head-to-head/ar-AAdXQUs?ocid=msnclassic

Republican presidential front-runner Donald Trump leads Democrat Hillary Clinton head-to-head, according to a new poll released Friday.


The poll by SurveyUSA finds that matched up directly, Trump garners 45 percent to Clinton’s 40 percent.

In other head-to-head matchups, Trump beats out Sen. Bernie Sanders (I-Vt.) by 44 percent to 40 percent; Vice President Joe Biden by 44 percent to 42 percent; and former Vice President Al Gore by 44 percent to 41 percent.

The poll also found that 30 percent of respondents believe Trump will eventually be the Republican nominee, leading the field.

This might explain the other articles I have been coming across lately about the flat out desperation of the GOP leadership to sink Trump's campaign at all costs. I'm starting to think the GOP (leadership) might hate Trump worse than Obama.

[ThinkerX]

Are you saying that lokisnow's qualms are invalid? Is it not true that raising rates will begin to choke off what little progress is being made in employment?

ETA: And how much should they be raised to try and stave off the worst of a crash?

Rates should have been raised years ago. As it is, I suspect it is too late for such exercises to have much effect.

To go back in time a bit: Back in early 2007, I began tracking articles describing this or that aspect of the mortgage meltdown, posting links and excerpts to some of them on this site - to a often hostile reaction. A number of prominent posters on this site flat out refused to believe the crash could happen - right up until it did.

I am starting to see the same sort of articles NOW that I saw back then - ones pointing out there are major unfixed problems with the financial sector that cannot be compensated for over the long or even medium term. The piece I linked to is just one of several such. The Chinese mess seems to have really rattled some people. I see graphs and charts and articles comparing this or that aspect of the current situation to the run-up to the 2007-2008 mess, and the parallels appear to be there.

[Shryke]

So Kansas is continuing it's example of the complete failure of the GOP as a governing party with now trying to defund the judicial branch because they won't stop declaring his policies unconstitutional:

http://www.motherjones.com/mojo/2015/09/why-entire-kansas-court-system-could-shut-down

On Wednesday night, a district judge in Kansas struck down a 2014 law that stripped the state Supreme Court of some of its administrative powers. The ruling has set off a bizarre constitutional power struggle between the Republican-controlled legislature and the state Supreme Court. At stake is whether the Kansas court system will lose its funding and shut down.

 

Last year, the Kansas legislature passed a law that took away the top court's authority to appoint chief judges to the state's 31 judicial districts—a policy change Democrats believe was retribution for an ongoing dispute over school funding between the Supreme Court and the legislature. (Mother Jones reported on the standoff this spring.) When the legislature passed a two-year budget for the court system earlier this year, it inserted a clause stipulating that if a court ever struck down the 2014 administrative powers law, funding for the entire court system would be "null and void." Last night, that's what the judge did.

 

Kansas Attorney General Derek Schmidt warned that last night's decision “could effectively and immediately shut off all funding for the judicial branch.” That would lead to chaos. As Pedro Irigonegaray, an attorney for the Kansas judge who brought the legal challenge against the administrative law, put it, “Without funding, our state courts would close, criminal cases would not be prosecuted, civil matters would be put on hold, real estate could not be bought or sold, adoptions could not be completed."

 

Both parties in the case have agreed to ask that Wednesday's ruling remain on hold until it can be appealed to the state Supreme Court, so that there is a functioning court to hear the appeal. On Thursday, a judge granted the stay. Meanwhile, lawyers involved in the case and advocates for judicial independence are preparing a legal challenge to the clause of the judicial budget that withholds court funding. Sometime in the next few months, the state Supreme Court is likely to rule on whether the legislature has the right to strip the Supreme Court of its administrative authority, and whether it can make funding for the courts contingent on the outcome of a court case.

 

 

TLDR: The GOP threatened the judicial branch with defunding if they struck down a law they had passed targeting the judicial branch for previous things they had struck down. The judicial branch called that bluff. Now shit going crazy.

[Shryke]

Rates should have been raised years ago. As it is, I suspect it is too late for such exercises to have much effect.

To go back in time a bit: Back in early 2007, I began tracking articles describing this or that aspect of the mortgage meltdown, posting links and excerpts to some of them on this site - to a often hostile reaction. A number of prominent posters on this site flat out refused to believe the crash could happen - right up until it did.

I am starting to see the same sort of articles NOW that I saw back then - ones pointing out there are major unfixed problems with the financial sector that cannot be compensated for over the long or even medium term. The piece I linked to is just one of several such. The Chinese mess seems to have really rattled some people. I see graphs and charts and articles comparing this or that aspect of the current situation to the run-up to the 2007-2008 mess, and the parallels appear to be there.

 

No, that's dumb as heck. The pieces you kept linking were rightly criticized for being from crank loons. And still are.

[Fragile Bird]

Interest rates will start going up if not this month then some time soon. One of the growing concerns is the idea the US will put itself in the situation of Japan, and be trapped in a near zero interest rate environment for another decade, if no attempt is made to break out.

And, as silly as it may sound, there is a need to raise interest rates so that when the next downturn comes, and there will be a next downturn, there is room to lower them again if the economy needs to be stimulated.

Janet Yellen is undoubtedly very sensitive to the fear that raising rates will hurt the US economy, and knows that historically speaking the first interest rate increase during the depression, when things started to look like they were getting better, had to be reversed when things then got worse again.

[ThinkerX]

No, that's dumb as heck. The pieces you kept linking were rightly criticized for being from crank loons. And still are

The problem is they correctly called most of the institutions that went under - a year or more before they did go under. Big exceptions were Citi and BOA, which the government resorted to extraordinary measures to save.

[ThinkerX]

And here is another one:

http://www.cnbc.com/2015/09/03/stop-blaming-china-the-problem-is-bigger-than-that-stock-market-commentary.html

According to the Bank for International Settlements (BIS), since 2010 the amount of U.S. dollar-denominated debt issued by foreign companies has grown by 50 percent from $6 trillion to $9 trillion. The proximate cause of this debt buildup was the impact of U.S. Federal Reserve quantitative easing on bond yields — as the Federal Reserve bought bonds, yields were pushed lower and investors were forced to search globally for higher-yielding financial instruments. This demand for yield fueled a credit binge of unprecedented scale.

The global carry trade works like this: An emerging-market company issues bonds denominated in U.S. dollars; critically, the yield on these bonds is above the yield of U.S. corporate bonds but BELOW the yield on shadow-banking instruments within the emerging markets. The relatively higher yielding bonds attract investors searching for yield; at the same time, the emerging-market company can invest the proceeds of the bond sale into higher yielding instruments. The emerging-market company earns the difference between its low yielding U.S. dollar bonds and its high yield emerging-market investments. This is financial engineering by another name.

The global carry trade works especially well under three conditions: 1) There is a large interest-rate differential between the U.S. and the emerging country, 2) The emerging country's currency is rising, and 3) Currency volatility is very low. All three of these conditions have been present since 2010 and have been fuel for this massive build in debt. However the economic slowdown in China coupled with the U.S. Federal Reserve ending quantitative easinghas resulted in a strong U.S. dollar (weak emerging-market currencies) and tremendous currency volatility — thereby significantly reducing the attractiveness of the carry trade.

The credit expansion of the carry trade resulted in emerging-market money supply growth that was the basis for economic growth. In fact, it was the virtuous spiral of credit/money growth fueling economic growth that produced investor demand for emerging market bonds. Now, I fear, that process is beginning to reverse.

The reversal of this process means a reversal of the capital flows from emerging market back to the United States. The strength of the U.S. dollar and weakness in emerging market currencies is a reflection of the process reversing. What this means is that the world is beginning a global deleveraging on a scale that it has never experienced. One of the knock-on effects of this global deleveraging is a slowdown in China. I do not mean to suggest that the sky is falling, but markets do not like uncertainty and investors tend to shoot first and ask questions later. Therefore we are probably in for a lot more volatility

Of course, both CNBC and Brian Kelly are completely lacking in credibility.

[lokisnow]

The problem is they correctly called most of the institutions that went under - a year or more before they did go under. Big exceptions were Citi and BOA, which the government resorted to extraordinary measures to save.

shadowstats was is a stopped clock. CNBC is a much better source.

[lokisnow]

Interest rates will start going up if not this month then some time soon. One of the growing concerns is the idea the US will put itself in the situation of Japan, and be trapped in a near zero interest rate environment for another decade, if no attempt is made to break out.

And, as silly as it may sound, there is a need to raise interest rates so that when the next downturn comes, and there will be a next downturn, there is room to lower them again if the economy needs to be stimulated.

Janet Yellen is undoubtedly very sensitive to the fear that raising rates will hurt the US economy, and knows that historically speaking the first interest rate increase during the depression, when things started to look like they were getting better, had to be reversed when things then got worse again.

I dunno, I know that's the rationale, but I don't think any non stock price metrics have normalized so it's premature to try to create breathing space when only in the last few months have we begun to reach the peak levels of previous recessions, much less started a recovery from those peaks back to normal.

http://www.vox.com/2015/8/28/9221657/fed-september-meeting-rate-hike?utm_medium=social&utm_source=email&utm_campaign=vox&utm_content=share:article:top


Sent from my iPad

. A hike in September or October would give the Fed more ammunition for the next recession.

This is a doubly misguided view. First, it's not true that there's nothing the Fed can do to stimulate the economy with interest rates at zero. Second, even if it were true that the Fed has no other tools, the proposed rate hike wouldn't solve the problem.

Returning to the status quo is no better than sticking with it
It is true that if the Fed raises interest rates this fall, then it has the option of lowering them in the spring if the economy looks weaker. But it is also true that if the Fed doesn't raise interest rates this fall, then it still has the option of deploying zero interest rates in the spring.

The hike-now-to-cut-later proposition is a bit like saying that I should gorge myself on M&Ms this afternoon so that I can lose weight next week by cutting down on snacks.

Moreover, it's simply not true that there are no stimulative monetary policy measures the Federal Reserve can take when short-term interest rates are already zero.

Policy options include:

Printing money to buy longer-term government bonds (quantitative easing)

Printing money to buy foreign government bonds (currency devaluation)

Abandoning inflation rate targeting in favor of price level (or nominal income) targeting

Last but by no means least, even though academic economists thought for a long time that it would be impossible to have interest rates that go below zero, this turns out to be empirically false. Academics had thought that because paper money pays a zero percent interest rate (i.e., it's a piece of paper), electronic bank deposits could never pay a lower rate than that, since people would just hold cash instead.

But it turns out that storing gigantic piles of cash in a safe way is expensive and inconvenient, and using giant piles of cash as a payment medium is even more expensive and inconvenient.

Academics are not practically minded people, so this was not really in their minds when they formed the conventional wisdom about the impossibility of negative interest rates. But over the winter of 2014-'15, plenty of European countries experienced negative interest rates, so we know they are possible.

"Higher rates today to cut rates tomorrow" turns out to be a bad solution to a problem that doesn't even exist.

[ThinkerX]

Printing money to buy longer-term government bonds (quantitative easing)

Seen a fair number articles the past few years claiming this is already SOP. Same articles claims this practice has some bizarre side effects.

Printing money to buy foreign government bonds (currency devaluation)

And there goes the minimum wage pay increases, along with other gains made be ordinary folk lately. Goods becoming more expensive, budgets becoming more strained.

Plus as the article I linked to points out, the international situation is looking dang shaky at the moment.

Abandoning inflation rate targeting in favor of price level (or nominal income) targeting

And just how likely is this?

"Higher rates today to cut rates tomorrow" turns out to be a bad solution to a problem that doesn't even exist.

Uhh...no. Those low rates came into being as a result of an emergency situation. Rates this low are an extreme aberration, not the new normal.

I dunno, I know that's the rationale, but I don't think any non stock price metrics have normalized so it's premature to try to create breathing space when only in the last few months have we begun to reach the peak levels of previous recessions, much less started a recovery from those peaks back to normal.

Without drastic measures, the overall economy is not going to significantly improve past current levels.