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Yearly Archives: 2014

Steve Forbes: Circumstances in Our Economy Will Necessitate an Au Standard

“Business mogul Steve Forbes says that not only is a return to the gold standard a realistic option, but “circumstances” in our economy will necessitate it.

“We were on the gold standard for 180 years in this country’s history — did very well with it,” Forbes told J.D. Hayworth, John Bachman and Miranda Khan on “America’s Forum” on Newsmax TV on Monday.

“If we’d been on a gold standard since 1971, when Richard Nixon took us off the gold standard, today our economy would be 50 percent larger if we’d just maintained historic growth rates we had for the first 180 years of our existence,” the chairman and editor-in-chief of Forbes Media explained.

The gold standard is a monetary system in which the value of currency is equal to a fixed amount of gold. The currency can also be converted into gold.

“Gold gives money . . . stability just like the ruler measures length, the clock measures time, a scale measures weight,” Forbes added. “A dollar measures value and when the value is stable, you get a lot more investment, a lot more growth, a lot more opportunity.”

Without the gold standard in place, the dollar has grown increasingly unstable, even though there have been “periods of strength,” Forbes says. ….”

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RealtyTrac: U.S. Forclosures Hit an 8 Year Low

“Foreclosure activity across the United States dropped toan eight-year low in May as banks reclaimed fewer homes and foreclosure startssaw their lowest levels in years, RealtyTrac said in a report on Tuesday.

RealtyTrac, which tracks and maintains housing market data, said 109,824 properties across the country were at some stage of the foreclosure process in May. That marked a 5 percent decline from April and left foreclosure activity—foreclosure notices, scheduled auctions and bank repossessions—26 percent below the year-ago level.

May was the 44th consecutive month foreclosure activity was down on an annual basis, a sign of the housing market’s steady progress toward recovery.

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“This is showing that foreclosures are fading further into the rear-view mirror …”

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Why the Economic Bust Is Inevitable According To the Austrian Business Cycle Theory

“The key of the ABCT is that economies operate in cycles, they go through ‘booms’ and ‘busts’, ‘expansions’ and ‘recessions.’ A ‘crisis’ should not come as a surprise. Austrian School economists argue that central banks don’t help in smoothing the amplitude of the cycles, but are actually the root cause of the business cycle. While some may view that the expansionary monetary policy can mitigate the adverse effects of a crisis, the Austrian School begs to differ.

The paper does an outstanding job in explaining the ABCT and applying it on the major business cycles of the modern US economy. It also answers the question whether we have seen the end of the current crisis (“bust”). Although Barack Obama believes that “we have cleared away the rubble from the financial crisis and begun to lay a new foundation for stronger, more durable economic growth”, this report will tell you otherwise.

The Austrian Business Cycle Theory

Mises and Hayek believed that business cycles are a direct cause of excessive credit flow into the market, which is facilitated by an intentionally low interest rate set by the government. The supply of credit gives the false impression that money originally saved for investment has increased. By doing so, banks mislead borrowers into believing that the pool of investible funds is bigger, and therefore they tend to do what entrepreneurs do: invest in larger production facilities or projects they originally could not afford to finance. These investments bear what economists describe as a “longer process of production”, or capital good industries that stimulate a shift of investment away from consumer goods. This shift is unsustainable, and eventually a correction ensues. The reason is that you have a market that is out of balance and falsely directed to a level of investments that is far from reality. In other words, the state has instigated unsustainable growth.

austrian business cycle theory economy

What happens when the central bank comes in and artificially lowers the interest rate? To explain we take a look at the chart below prepared by Roger Garrison. In this chart, which relies on the Hayekian triangle depicting the different stages of production, Garrison illustrates how a change in the economy’s money supply affects its structure of production. The curve of the Production Possibility Frontier (PPF) shows different combinations of consumption and investment for any given economy (chart on the top right). Any point on the PPF curve is a sustainable mix between consumption and investment (savings).

There are three main scenarios:

  1. In a pro-savings economy: Investments go up, encouraged by a drop in interest rates. This point on the PPF corresponding to this lower interest rate shows that the economy directs its investments to earlier stages of production. As a result, the triangle expands horizontally.
  2. In a pro-consumption economy: Savings and investments (discouraged by the rise in interest rates) decrease. As a result, the triangle becomes shorter from the horizontal axis as investments go to lower order consumer goods.
  3. In the case of a policy-induced credit expansion: This scenario is depicted in the graph as Saug. Here we have two opposing factors at play as a result of the drop in interest rate. As it appears in the graph, the new interest rate encourages both an increase in investment as well as discouraging savings. The low interest rate intersects with both S (the real supply of money by savers given that low interest rate) and Saug (the supply induced by the central bank). These are basically the “mixed signals” we were talking about earlier. Both points are located on the PPF, but meet outside the curve, implying this level is neither efficient nor sustainable.

Hayekian triangle  economy

Who is behind the boom and hence responsible for the bust?

According to the ABCT and the Austrians, it all starts with the primary engineer of the cycle: the government. Any form of state intervention is an attempt to influence markets to prolong the process of needed adjustment and reallocation of resources to more productive uses. Therefore, by manipulating interest rates, governments negatively impact the economy as creators of the growth bubble– which in essence is artificial, distorted and imbalanced.

The illusion behind the boom

The illusion lies in the misallocation of investments or ‘malinvestment’, using Mises’ terminology. This mismanagement involves two concepts: “time preference” and “forced savings”. We recommend readers to go through the explanation of these concepts in the paper (embedded at the bottom). But for now, we highlight the following: It is a play on consumer behavior: Present consumption carries more value to individuals than future consumption. When interest rates are intentionally lowered, consumers are misled to thinking more money is available, and ready to be spent – when in fact their purchasing power, as per forced saving, has weakened. In this inflationary environment, everything is an illusion. Everything has become more expensive, whether wages, commodities, services, even assets and real estate.

SP500 QE 2014 economy

From boom to bust….”

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Russian Companies Seek Renminbi to Avoid Sanction Turmoil

“As we have been reporting (and forecasting for the past several years), the Eurasian anti-US Dollar axis is rapidly taking shape, with recent events catalyzed and certainly accelerated by US foreign policy in Ukraine, which has merely succeeded in pushing Russia that much closer, and faster, to China. The latest proof of this came overnight when the FT reported that Russian companies are preparing to switch contracts to renminbi and other Asian currencies amid fears that western sanctions may freeze them out of the US dollar market, according to two top bankers.

According to Pavel Teplukhin, head of Deutsche Bank in Russia, cited by the Financial Times, “Over the last few weeks there has been a significant interest in the market from large Russian corporations to start using various products in renminbi and other Asian currencies and to set up accounts in Asian locations.”

Andrei Kostin, chief executive of state bank VTB, said that expanding the use of non-dollar currencies was one of the bank’s “main tasks”. “Given the extent of our bilateral trade with China, developing the use of settlements in roubles and yuan [renminbi] is a priority on the agenda, and so we are working on it now,” he told Russia’s President Vladimir Putin during a briefing. “Since May, we have been carrying out this work.”

“There is nothing wrong with Russia trying to reduce its dependency on the dollar, actually it is an entirely reasonable thing to do,” …..”

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El-Erian: Jobs Market Hasn’t Hit the Wall

“Friday’s highly anticipated U.S. jobs report sheds light on a crucial question for the economy: How much more can the Federal Reserve do to stimulate growth and push down unemployment before it runs into undesirable inflationary consequences?

Economists have long been engaged in a discussion about the nature of unemployment in the U.S.: Is it more short-term and cyclical, or is it more structural and long-term? In the former case, accelerating growth can bring the unemployment rate back down to where it was before the crisis. In the latter case, the “natural rate” of unemployment would be higher, impairing the economy’s ability to create jobs and grow without stoking inflation beyond the asset markets.

Until recently, the debate was largely academic: Given the depth of the economic downturn, everybody recognized that there were lots of jobs to recover before unemployment fell anywhere near its natural rate. Moreover, with political polarization on Capitol Hill undermining a comprehensive policy response, there wasn’t much interest in figuring out how the natural rate itself could be improved.

Now, though, the question is gaining urgency. The widely followed U-3 unemployment rate has fallen to 6.3 percent, down from a 2009 peak of 10 percent and approaching — albeit frustratingly slowly — the pre-crisis low of 4.4 percent. Yet economists have yet to agree on a threshold beyond which inflation (outside the asset markets) might become a problem. Nor have they converged on a narrative about an important determinant of job creation — the level and composition of economic growth.

One group is quick to point to…”

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Bearish Shortsellers Reload Again Despite Five Years of Pain

“For five years it’s been the fate of American short sellers to be wrong, as the biggest rally since the Internet bubble steamrolled defensive trades.

They’re loading up again, sending bearish wagers in the SPDR exchange-traded fund tracking the Standard & Poor’s 500 Index (VIX) to almost 11 percent of its shares, the highest proportion since 2012, according to data compiled by Bloomberg and Markit Securities Ltd. Bets against atechnology ETF are 67 percent above the 12-month average.

One of the best things you could do in the stock market over the last three years has been to buy shares from short sellers, who borrow stock with the aim of replacing it once the price falls. After bearishness peaked in 2011 and 2012, theS&P 500 rallied more than 14 percent within six months. With U.S.valuations approaching levels not seen since 2007 and the Federal Reserve scaling back stimulus, the bears are back again.

“That, from a trader’s standpoint, is a bullish sign, because you don’t have too much optimism in the market,” Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham,Alabama, said by phone. “That there isn’t unbridled optimism shows that there could be more upside.”

Bearish Bets

Frontier Communications Corp. (FTR), a voice and data services company in Stamford,Connecticut, and Boise, Idaho-based chipmaker Micron Technology Inc. are among companies with the highest bearish bets. Their shares have soared more than 22 percent this year. A Goldman Sachs Group Inc. measure of the hedge fund’s biggest short holdings has risen 7.8 percent this year, compared with a 5.5 percent gain for the S&P 500.

More than $1.6 trillion has been added to American share values since the end of January amid accelerating economic growth and actions by central banks to stimulate the expansion. The S&P 500 advanced 1.3 percent to a record 1,949.44 last week as the European Central Bank cutinterest rates and U.S. unemployment stayed near a six-year low.

While the S&P 500 has rallied for 10 of the last 12 days and advanced each of the last four months, investors have been withdrawing money from the market. About $4 billion was pulled last month from the S&P 500 ETF, the world’s biggest with $164 billion in assets, data compiled by Bloomberg show. Funds that buy domestic shares have received $4.8 billion this year, compared with deposits of $25 billion in bonds.

Market Hiccup….”

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Your Tax Dollars at Work

“In South Florida, one of the nation’s top privately-run Medicare insurance plans faces a federal investigation into allegations that it overbilled the government by exaggerating how sick some of its patients were.

In the Las Vegas area, private health care plans for seniors ran up more than $100 million in added Medicare charges after asserting patients they signed up also were much sicker than normal — a claim many experts have challenged.

In Rochester, New York, a Medicare plan was paid $41 million to treat people with serious diseases — even though the plan couldn’t prove the patients in fact had those diseases.

These health plans and hundreds of others are part of Medicare Advantage, a program created by Congress in 2003 to help stabilize health care spending on the elderly. But the plans have sharply driven up costs in many parts of the United States — larding on tens of billions of dollars in overcharges and other suspect billings based in part on inflated assessments of how sick patients are, an investigation by the Center for Public Integrity has found.

Dominated by private insurers, Medicare Advantage now covers nearly 16 million Americans at a cost expected to top $150 billion this year. Many seniors choose the managed-care Medicare Advantage option instead of the traditional government-run Medicare program because it fills gaps in coverage, can cost less in out-of-pocket expenses and offers extra benefits, such as dental and eye care.

But billions of tax dollars are misspent every year through billing errors linked to a payment tool called a “risk score,” which is supposed to pay Medicare Advantage plans higher rates for sicker patients and less for those in good health.

Government officials have struggled for years to halt health plans from running up patient risk scores and, in many cases, wresting higher Medicare payments than they deserve, records show.

The Center’s findings are based on an analysis of Medicare Advantage enrollment data from 2007 through 2011, as well as thousands of pages of government audits, research papers and other documents.

Federal officials who run the Medicare program repeatedly refused to be interviewed or answer written questions.

Among the findings….”

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Documantary: United States of Secrets

Cheers on your weekend!

[youtube://http://watch?v=WUe6qyEXoJQ#t=10 450 300]

Internet-Censorship-CISPA-Newest-Cyber-Security-Bill-300x194

 

[youtube://http://www.youtube.com/watch?v=9QzDHPcNfrw 450 300]

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NFP Shows Improved Labor Stance on Headline Number, Looking Into the Report We Find Something Different

There was good news in today’s NFP report: at 138,463K jobs reported by the establishment survey, the US economy has finally not only recovered the prior cyclical high of 138,365K, but surpassed it by 98K. Congratulations.

And now the bad news. As the next chart shows…”

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A Closer look into the report

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Inventory Drawdown in Q1 GDP Revisions is Going to Continue

“Hmmmm….

An interesting paradigm shift is happening here.

I monitor lead times and vendor fill requirements on a fairly regular basis, including from some big e-Commerce folks.

In the last couple of months I’ve noted a rather dramatic shortening of inventory lead times from them — that is, expectation that if you are a vendor you will be able to ship product to them much faster than before.

Some of these shortenings are really dramatic — 50% or more.  Amazon, in particular, is getting extremely aggressive in this regard.

This implies that the inventory drawdown we saw in 1Q GDP revisions is going to continue.

That’s the macro-level impact.

But at the more-granular level, why becomes the question.  Inventory that is rapidly sold through is not much of a cost, other than the physical space to hold it.  That is a big deal, of course, but the trade-off is that if you have inventory in stock you are then able to fulfill customer demand more-quickly.  That’s the good part and what customers expect.

So what is leading to these rather-significant reductions?

We don’t know as of yet, but I can speculate…”

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Daring to Go Off Script

[youtube://http://www.youtube.com/watch?v=f3vwsTui0ZM#t=37 450 300]

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State of the Union: You are Fucked!

“If you make more than $27,520 a year at your job, you are doing better than half the country is.  But you don’t have to take my word for it, you can check out the latest wage statistics from the Social Security administration right here.  But of course $27,520 a year will not allow you to live “the American Dream” in this day and age.  After taxes, that breaks down to a good bit less than $2,000 a month.  You can’t realistically pay a mortgage, make a car payment, afford health insurance and provide food, clothing and everything else your family needs for that much money.  That is one of the reasons why both parents are working in most families today.  In fact, sometimes both parents are working multiple jobs in a desperate attempt to make ends meet.  Over the years, the cost of living has risen steadily but our paychecks have not.  This has resulted in a steady erosion of the middle class.  Once upon a time, most American families could afford a nice home, a couple of cars and a nice vacation every year.  When I was growing up, it seemed like almost everyone was middle class.  But now “the American Dream” is out of reach for more Americans than ever, and the middle class is dying right in front of our eyes.

One of the things that was great about America in the post-World War II era was that we developed a large, thriving middle class.  Until recent times, it always seemed like there were plenty of good jobs for people that were willing to be responsible and work hard.  That was one of the big reasons why people wanted to come here from all over the world.  They wanted to have a chance to live “the American Dream” too.

But now the American Dream is becoming a mirage for most people.  No matter how hard they try, they just can’t seem to achieve it.

And here are some hard numbers to back that assertion up.  The following are 15 more signs that the middle class is dying…

#1 According to a brand new CNN poll, 59 percent of Americans believe that it has become impossible for most people to achieve the American Dream…”

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DOW Candle Stick Analysis for Chart Chompers

“It’s not timing the market but time in the market”. Yep, we’ve all heard this refrain from market commentators on TV disguised as experts. Some go even further saying it’s impossible to time the market. Well, what a load of codswallop! Anyone that says this to you is a happily oblivious member of the Flat Earth Society (FES). Sure, FES members can still function well and be successful in their one dimensional world. Ignorant bliss can be extremely satisfying. However, in the analysis I’ve undertaken of the Dow, there is clear evidence presented that the market can, despite the naysayers, indeed be timed.

Let’s leave the timing aspect aside for the moment and using my top-down analysis approach begin with the yearly chart.

YEARLY CHART

That massive upmove in 2013 absolutely slaughtered the bears, possibly close to the point of extinction. Claws holding white flags of surrender were raised. Just the sign required that a significant top is close at hand. A big, positive candle such as the 2013 candle should normally see a little follow through action which we are experiencing right now. The 2013 high was 16588 while currently the 2014 high is north of 16700. Years of looking at charts has shown me that big candles like that generally need to be consolidated which may involve just a simple correction, which we have already seen, but can often be a reversal of trend. In a moment we’ll move on in a bid to determine which scenario is more likely going forward.

Before that I wanted to do some more long term work. I have added Fibonacci retracement levels of the whole upleg from the 1974 low of 570 to the current top. Now I don’t think we’ve seen the final top but I expect it to be only marginally higher so using the current top won’t have any significant effect on this analysis.

Firstly, we can see the 2009 low is close to the 61.8% level bottoming just under that level. (Using Fibonacci in this forward looking manner is a way to predict future tops and lows). This adds significance to that low and is an argument against the megabears predictions that the 2009 low will be taken out. My personal opinion is to look for a low around the 50% retracement level which is currently just above 8650. The 50% level is also one of Gann’s key levels. Another of Gann’s discoveries was that lows are often 50% of the high price. Currently, 50% of the high price is a bit above 8350. Of course, as the Dow rises higher so too will these Fibonacci and Gann levels.

My personal opinion is that the coming plunge will see most, if not all, of 2013’s gains wiped out before a rally into the end of the year. Then an even more bearish 2015 before final low in 2016 close to the levels I just outlined. Now this, of course, is purely speculation on my own part.

But we’re getting ahead of ourselves here. Let’s slow it down and move onto the monthly chart and see what that tells us.

MONTHLY CHART

This chart is very revealing. Firstly, I have drawn trendlines from consecutive lows starting from the March 2009 low, then the October 2011 low, the November 2012 low and finally the February 2014 low. It can be seen that each new trendline is getting steeper and steeper. We are now onto the fourth consecutive steeper trendline. That folks, is undeniable evidence that the bull market is in its last throes.

Secondly, I have added a Relative Strength Indicator (RSI) whereby a downtrend line can be seen. This shows that the recent Dow tops are declining in strength. A bearish divergence. Generally after the third bearish divergence a significant down move can be expected. (There’s the magic number three again.) We are now just awaiting the next Dow high to coincide with a weaker RSI reading than its previous two tops. Now keep in mind we are dealing with the monthly chart and the longer the timeframe the stronger the indication.

You will also notice I have drawn horizontal lines on the chart which refers to the levels of the 1998 high, 2000 high and 2002 low. Assuming the bull market since 2009 is just about finished, I wanted to look at potential correction ending levels. As Gann noted, old tops often become support in the future. So that brings into the frame the 2000 high of 11750 and the 1998 high of 9367. Now going back to the yearly analysis, the 2000 high appears too high. Sure there may be a short term reaction off that level but I still favour a lower level for the final correctional low. That brings us to the 1998 level. Corrections generally push into the old high levels giving them a decent test so we could assume a little below this level. That would also conveniently be close to the Fibonacci/Gann 50% level and Gann’s 50% of high price level as mentioned in the yearly analysis. Now if the 2002 low were to be taken out then the probabilities of breaking the 2009 low would increase dramatically. While not out of the question, it is a scenario I just don’t favour at all to be quite frank.

Let’s move on and view the weekly chart……”

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US Corporations Dump Dollar for Chinese Renmindi to Buy Imports

“The U.S. dollar is being increasingly dropped as the currency for settling international trade. But perhaps the latest trend provides the most startling evidence yet that the dollar is doomed as the world reserve currency.

The Financial Times reported today that U.S. corporations are using the Chinese renmindi to buy imports over three times more than they had the previous year:

China’s renminbi is rapidly displacing the US dollar as a trading currency not only in Asia and Europe but now also in the US home market.

The value of renminbi payments between the US and the rest of the world rose by 327 per cent in April this year from the same month a year ago (see chart) as more US corporations switched to using the Chinese currency to pay for imports from China, according to data from SWIFT, the international currency settlement firm.

First, US importers can slash the cost of imports from China by agreeing to trade in renminbi rather than US dollars, Lodge said. Second, a recent surge in the popularity of a host of renminbi-denominated financial market instruments are making it easier for US corporates both to hedge currency risk and to earn an investment return from the renminbi they hold.

 

U.S. corporations are just following the global trend where the largest economies in the world are jumping from the dollar Titanic. Last April, the world’s 12th-ranked economy joined a growing list of nations that have agreed to bypass the dollar in bilateral trade with China. China, ranked 2nd behind the U.S., also has similar agreements with Japan (3rd), Brazil (6th), India (9th), and Russia (10th).

Further, the BRICS nations appear ready to shake up the ‘world order’ with the deployment of their own development bank as reported today by Al Jazeera:

After more than six decades of dictating development policy in much of the emerging world, the Western-led International Monetary Fund and World Bank may soon have some competition.

The BRICS nations — Brazil, Russia, India, China and South Africa — are reportedly close to finalizing their long-awaited development bank and currency reserve, each valued at $100 billion, in what has been billed as a historic challenge by the world’s emerging economies to a global financial architecture that has been dominated by the U.S. and Western Europe since its post–World War II inception.

The IMF and World Bank also appear to be pushing for a global economic “reset”. “We need to push the reset button. The world is still much too much caught in a crisis-management mode,” said Klaus Schwab founder of the World Economic Forum earlier this year.

A sentiment echoed by IMF head Christine LeGarde during the same event….”

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The ECB Cuts Rates Less Than Expected

“Congratulations Europe: you now get to pay your insolvent bank to keep your deposits for you.

The full announcement:

At today’s meeting the Governing Council of the ECB took the following monetary policy decisions:

  • The interest rate on the main refinancing operations of the Eurosystem will be decreased by 10 basis points to 0.15%, starting from the operation to be settled on 11 June 2014.
  • The interest rate on the marginal lending facility will be decreased by 35 basis points to 0.40%, with effect from 11 June 2014.
  • The interest rate on the deposit facility will be decreased by 10 basis points to -0.10%, with effect from 11 June 2014. A separate press release to be published at 3.30 p.m. CET today will provide details on the implementation of the negative deposit facility rate….”

Full report

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Is the Housing Crisis Over? Not According to Popular Opinion

“For all the talk about a recovery, pundits, especially those who peddle expensive newsletters, continue to forget one key distinction of the New Normal: there are those for whom the recovery has never been stronger, well under 10% of the population, i.e., the already wealthy whose net worth is allocated in financial assets. And then there is everyone else, that vast majority of Americans, who not only have not benefited by the Fed’s relentless balance sheet expansion and accompanying asset reflation but whose incomes just posted the first declinein real terms since 2012.

It is this latter segment that should be concerned by a recent survey conducted by the MacArthur Foundation titled “How Housing Matters”.

According to the survey during the past three years, over half of all U.S. adults (52%) have had to make at least one sacrifice in order to cover their rent or mortgage. Such sacrifices included getting an additional job, deferring saving for retirement, cutting back on health care and healthy foods, running up credit card debt, or moving to a less safe neighborhood or one with worse schools.

More disturbing, the survey also found that while there are some indicators that the American public’s views about the housing crisis are shifting toward the positive, large proportions of the public are not feeling the relief: seven in 10 (70%) believe we are still in the middle of the crisis or that the worst is yet to come. ……”

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BOJ Warns of Eurozone Deflation, What Does the ECB Have to Offer ?

“OITA, Japan—On the day of a closely eyed European Central Bank policy meeting, a Bank of Japan board member warned of the risk of Europe slipping into chronic deflation, adding that slower growth in Europe could muddy the prospects for global growth.

The remarks by Takehiro Sato on Thursday highlight the divergence in the trajectory of inflation in Japan and the euro zone, a difference that will likely play out in their central banks’ respective policy choices.

The BOJ doesn’t need to “make adjustments” to its current policy at present amid an absence of risks coming into play but the central bank is “carefully observing if Europe will fall into Japan-style deflation” and what action it takes, Mr. Sato said. He declined to suggest what, if any measures, the ECB might implement….”

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“FRANKFURT–Thursday’s ECB meeting is shaping up to be one of the most important in recent years. The bank’s president, Mario Draghi, put financial markets on high alert for June action four weeks ago when he said the ECB was “comfortable acting next time.”

Other officials have since struck a similar tone. Time is running out. Annual euro-zone inflation weakened last month to just 0.5%, far below the ECB’s target of just below 2%. Grim economic reports have led to widespread expectations that the ECB will unveil a package of stimulus measures Thursday but stop short of large-scale asset purchases.

What will the European Central Bank do Thursday?

The ECB is widely expected to reduce all three of its key interest rates, on deposits, normal bank loans and emergency lending by 10-15 basis points (though it could go a bit more on the emergency rate because that is the highest of the three). That would bring the main lending rate at which banks can tap the ECB for cash–currently 0.25%–close to zero. The deposit rate, currently zero, would turn negative (see the chart below to see why that’s necessary). The ECB may also extend its policy of making unlimited loans available to banks well into 2016 and unveil a targeted lending program to help steer money to the private sector.

Is there anything else in the toolkit?

Other possibilities include a suspension of its weekly absorption of bank funds–called sterilization–under a previous bond-purchase program. That would add as much as €165 billion to the banking system. It could also do more on the liquidity side by making cheap loans available at long maturities with no strings attached or announce their intention to buy some asset-backed securities at a later date.

Which of these is the biggest deal?….”

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