The economy continues to limp along. Here are some of the articles that caught my eye over the past week to ten days. All are worth reading.
1. Jamie Dimon warns next crisis could see ‘more volatile’ markets: (Link may expire) The chief executive of JPMorgan Chase warns that excessive regulation of banks has become an obstacle. Here's an excerpt.
Mr Dimon has been known as one of the few bank chief executives willing to challenge the regulatory architecture put in place since the 2008 crisis. Some of the individual warnings have been aired before but never woven into a Dimon crisis scenario.
He said that, unlike in 2008 when JPMorgan attracted $100bn of deposits from weaker competitors, it was “unlikely that we would want to accept new deposits the next time around”.
He wrote that while investors would traditionally flock to safe-haven securities in a storm, there would be “a greatly reduced supply of Treasuries to go around — in effect, there may be a shortage of all forms of good collateral” because of new liquidity requirements tying up safe assets at banks.
Noting that banks underwrote stock offerings to help shore up other banks during the last crisis, he said they “might be reluctant to do this again”.
Mr Dimon added that non-bank lenders, which have taken over parts of the market previously occupied by banks, would “not continue rolling over loans or extending new credit except at exorbitant prices that take advantage of the crisis situation”.
. . .
He repeated his complaint that different agencies were ganging up on banks, which were “now frequently paying penalties to five or six different regulators (both domestic and international) on exactly the same issue”.
There's more at the link. As (almost) always, bureaucracy appears to be a deadening hand on the market.
2. How Rich and Poor Spend (and Earn) Their Money: The Wall Street Journal analyzes disparities in spending patterns between rich and poor in US society. It's an eye-opener. For example:
For many Americans, the rise in food and housing prices is a tough squeeze. That’s because—even in an era with low overall inflation—low-income Americans spend a disproportionate share of their money on food and housing.
New data from the Labor Department show the extent of the discrepancy. The bottom 10% of Americans, by income, devote 42% of their spending to housing and an additional 17% to food–nearly 60% of their total spending, according to the Consumer Expenditures Survey. By contrast, the wealthiest 10% of Americans dedicate only 31% of their spending to housing and 11% to food–closer to 40% of total spending.
This underscores one reason that inflation feels different household to household: People spend their money in such different ways. A parent with children in college or daycare might scoff at the notion that inflation has been low for the last five years. Conversely, someone with no car payment and no mortgage but who does a lot of driving may be feeling flush from the plunge in gas prices.
Again, more at the link, complete with graphs showing the extent of the disparities. Very interesting.
3. Exhausted world stuck in permanent stagnation warns IMF: From across the Atlantic, the Telegraph conveys a grim prognosis.
The global economy is caught in a low-growth trap as innovation withers and the population ages across the Northern Hemisphere. It will not regain its lost dynamism in the foreseeable future, the International Monetary Fund has warned.
The IMF said the world as a whole has seen a “persistent reduction” in its growth rate since the Great Recession and shows no sign of returning to normal, marking a fundamental break in historical patterns.
This exposes the global economic system to a host of pathologies that may be hard to combat, and leaves it acutely vulnerable to a fresh recession. It is unclear what the authorities could do next to fight off a slump given that debt ratios are already at record highs and central banks are running out of ammunition.
. . .
The report almost seemed to describe a spent world where the great leap forward from the computer age and the internet is already over and little more can be squeezed out of universities as the “marginal return to additional education” keeps falling.
More at the link.
4. Disaster Is Inevitable When The Two Decade-Old Stock Bubble Bursts: A Forbes contributor lays it on the line.
Six years after the Global Financial Crisis, the U.S. stock market continues to soar to new heights with nary a pullback or correction. In this piece, I will explain why the stock market is experiencing a new bubble that is actually another wave of the bubble that has existed since the mid-1990s.
A two-decade old bubble? Yes, you’ve read that correctly. Most people will consider this assertion preposterous, but the facts don’t lie. Though the U.S. stock market has been experiencing a bubble for two decades, it will not last forever. I believe that the ultimate popping of this bubble will have terrifying consequences for both investors and the global economy that is tied so closely to the stock market.
More at the link.
5. Stuck With a House That Can't Be Sold: The Atlantic points out a major problem undermining the US housing market.
Homes that were bought for a “reasonable” price at the top of the market are now floundering in negative equity and according to Svenja Gudell, the director of economic research at the real-estate data firm Zillow, there’s a good chance that such properties will never be worth the mortgage debt owed on them. “In the lowest third of the housing market, not only are you more likely to be underwater, but homeowners tend to be very deeply underwater,” says Gudell. “It will take a really long time to lift some of those homeowners out of negative equity. And some of them will never reach positive equity.”
. . .
Across America about 5.4 million homes are still upside-down on their mortgages, according to an estimate from CoreLogic, which provides real-estate data and analytics. By most estimations, more than 10 percent of homeowners are still stuck in homes for which they owe more than the property is worth.
More at the link.
There's another very important article, but it's so important I'm going to give it a blog article of its own. Look for it to follow this one in a few hours.