Central Perk: 11 dec. 2013

miercuri, 11 decembrie 2013

Mish's Global Economic Trend Analysis

Introducing the Knightscope K5 Security Robot, Effective Cost $6.25 per Hour
Rich Don't Pay Most of the Taxes (They Pay All of Them); Reflections on the "Almost Rich"
High-Powered Idiocy from Academic Wonderland; Three Reasons Banks Not Lending; Blinder is Blind
Milk Futures Set to Double if Farm Bill Does Not Pass

Introducing the Knightscope K5 Security Robot, Effective Cost $6.25 per Hour

Posted: 11 Dec 2013 08:43 PM PST

Knightscope Inc. has introduced a crime-fighting R2D2 look-alike robot with an effective cost of $6.25 per hour.

Silicon Valley startup Knightscope Inc. is developing an "Autonomous Data Machine" with the potential to perform the oftentimes monotonous task of keeping watch over property more cost effectively and comprehensively than a human security guard. The company today revealed it has already started securing beta customers for its first two models, the Knightscope K5 and K10.

The robots, which share a passing resemblance to R2-D2, collect real-time data via a network of sensors. These sensors can include a 360-degree high definition video camera, high quality microphones, thermal imaging sensor, infrared sensor, radar, lidar, ultrasonic speed and distance sensors, air quality sensor, and optical character recognition technology for scanning things like license plates.

Knightscope says the K10 model is intended for vast open areas and on private roads, while the K5 robot is better suited to more space-constrained environments.

K5 vs. R2D2

K5 Closeup

Effective Cost $6.25 per Hour

Bloomberg reports Crime-Fighting Robotic Guard... for $6.25 an Hour

Above video: Knightscope CEO Bill Santana Li discusses the company's security robots with Emily Chang on Bloomberg Television's "Bloomberg West."

K5 ready for prime time yet? Perhaps not, but they do have a dozen beta customers lined up. Regardless, this introduction is an indication of where things are headed.

The most impressive thing to me is the company just started in April. Look at what they have done in a short time. The Knightscope Team Bio is impressive.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Rich Don't Pay Most of the Taxes (They Pay All of Them); Reflections on the "Almost Rich"

Posted: 11 Dec 2013 03:32 PM PST

Counting transfer payments such as foods stamps, Medicaid, Medicare, and other government welfare, Congressional Budget Office (CBO) analysis shows the top 40% pay 106% of all taxes (more than all of them). In turn the bottom 60% get money back.

Please consider The rich do not pay the most taxes, they pay ALL the taxes by CNBC reporter Jane Wells.

Buried inside a Congressional Budget Office report this week was this nugget: when it comes to individual income taxes, the top 40 percent of wage earners in America pay 106 percent of the taxes. The bottom 40 percent...pay negative 9 percent.

The key table is in Box 1 on PDF page 11 (report page 7) of Distribution of Household Income and Taxes. The report was released in December 2013 but data is for 2010.

Highlighting is mine.

Key Facts

The bottom 20% had average income of $8,100 but received $22,700 in annual assistance, netting $30,800 in after-tax income.
The second quintile had average income of $30,700 but received $15,200 in annual assistance, netting $43,400 in after-tax income.
The middle quintile received a bit more than they paid out, with $2,600 in annual assistance to be precise.

That money had to come from somewhere, and it did.

The highest quintile paid $52,500 more in taxes each year than they got back.
The second-highest quintile paid $8,800 more in taxes each than they got back.

Wells concludes ...

Fair or not, I will let you be the judge. People who make more should pay more, generally speaking. In America, they are. Yes, the rich (and almost rich) are getting richer. When it comes to individual income taxes, they're also covering the entire bill. And leaving a tip.

Reflections on the "Almost Rich"

I would be hard-pressed to call the fourth quintile "almost rich". And I rather doubt they are getting much, if any richer, inflation-adjusted.

The benefits to this recovery are concentrated in the top 10%, with most of that in the top 1%. Thank the Fed for that outcome.

For further discussion, please see ...

Regardless of who you think is to blame for rising income inequality, the report sheds a great deal of light on where tax dollars are coming from, and where they go.

Fair is in the eyes of the beholder.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

High-Powered Idiocy from Academic Wonderland; Three Reasons Banks Not Lending; Blinder is Blind

Posted: 11 Dec 2013 12:59 PM PST

Alan Blinder, a professor of economics and public affairs at Princeton University and former vice chairman of the Federal Reserve, is back at it.

In an Op-Ed in the Wall Street Journal, Blinder says "Don't only drop the interest rate paid on banks' excess reserves, charge them."

Please consider The Fed Plan to Revive High-Powered Money.

Unless you are part of the tiny portion of humanity that dotes on every utterance of the Federal Open Market Committee, you probably missed an important statement regarding the arcane world of "excess reserves" buried deep in the minutes of its Oct. 29-30 policy meeting. It reads: "[M]ost participants thought that a reduction by the Board of Governors in the interest rate paid on excess reserves could be worth considering at some stage."

As perhaps the longest-running promoter of reducing the interest paid on excess reserves, even turning the rate negative, I can assure you that those buried words were momentous. The Fed is famously given to understatement. So when it says that "most" members of its policy committee think a change "could be worth considering," that's almost like saying they love the idea. That's news because they haven't loved it before.

Not long ago—say, until Lehman Brothers failed in September 2008—banks held virtually no excess reserves because idle cash earned them nothing. But today they hold a whopping $2.5 trillion in excess reserves, on which the Fed pays them an interest rate of 25 basis points—for an annual total of about $6.25 billion. That 25 basis points, what the Fed calls the IOER (interest on excess reserves), is the issue.

Unlike the Fed's main policy tool, the federal-funds rate, the IOER is not market-determined. It's completely controlled by the Fed. So instead of paying banks to hold all those excess reserves, it could charge banks a small fee, i.e., a negative interest rate, for the privilege.

At this point, you're probably thinking: "Wait. If the Fed charged banks rather than paid them, wouldn't bankers shun excess reserves?"

If the Fed turned the IOER negative, banks would hold fewer excess reserves, maybe a lot fewer. They'd find other uses for the money. One such use would be buying short-term securities. Another would probably be lending more, which is what we want.

Initial Thoughts

For starters, my first thought was not "Wait. If the Fed charged banks rather than paid them, wouldn't bankers shun excess reserves?"

Banks are not holding excess reserves because the Fed pays them 0.25% interest annually. Banks are holding excess reserves in spite of the fact the Fed pays them 0.25% interest annually!

The difference is huge. And the three-fold reason is simple.

Three Reasons Banks Not Lending

Banks do not have credit-worthy customers.
Credit-worthy customers do not want to borrow.
Banks are capital impaired.

Is number 3 that unbelievable?

I think not. Banks still do not have to mark assets to market. What are they hiding?

Even if one assumes banks are not capital impaired, reasons 1 and 2 are sufficient enough to explain why banks are not lending.

Are Corporations Starved for Cash?

National Federation of Independent Business (NFIB) surveys businesses each month to see what their main issues are.

Loans are never high on the list. Here is the NFIB November 2013 report.

NFIB chief economist Bill Dunkelberg explains ... "The year is not ending on a high note in the small-business sector of the economy. The 'bifurcation' continues with the stock market hitting record high levels, but the small-business sector is showing little growth beyond that driven by population growth. There is also a hint that employers are getting an inkling of what Obamacare might mean for labor costs, concern about the cost and availability of insurance bumped up 3 percentage points after a long period of no real change. Small-business owners who provide health insurance may soon find that their plans 'unacceptable' to Obamacare and be obliged to either pay more for the coverage or abandon it and pay the benefit in cash. This will be a major source of angst and uncertainty in 2014."

Most Important Issues Facing Small Businesses

22% of small businesses complain about government red tape (which I presume includes Obamacare), 21% complain about taxes, and 15% complain about poor sales.

Only 2% of small businesses complain about financing.

Large corporations are flush with cash (debt really). They don't want or need to borrow either (but they are happy to keep rolling over debts at lower-and-lower interest rates).

Blinder is Blind

Those in academic wonderland are too blind to see what should be perfectly obvious: Banks would not accept a paltry 0.25% if they thought they had creditworthy customers willing to borrow.

And although creditworthy customers don't want to borrow, Blinder wants the Fed to force banks to lend anyway! To Whom? Banks can only do so by lending to non-creditworthy customers. How would that work out?

Let's step back and ask a simple question: Why are there excess reserves?

The simple answer: The Fed is printing money banks don't want or can't lend because banks are capital constrained or lack of creditworthy borrowers.

I am 100% in favor of not paying interest on alleged excess reserves but not for reasons stated by Blinder. Rather, I am in favor of unwinding every bit of QE madness that created the excess reserves in the first place.

Clear Signal

That Blinder wants to pay negative interest rates on excess reserves ought to send a signal to Blinder and others the Fed's QE policy was a failure (assuming one believes the Fed's stated reason for QE was to spur borrowing and job growth).

I believe the real reason for paying interest on reserves was a backdoor way of recapitalizing banks slowly over time. Regardless, the primary result of QE was the creation of bubbles in stocks and bonds.

It's time to end the monetary madness, not double down on it with extremely ill-conceived and poorly-written notions of forcing banks to lend.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Milk Futures Set to Double if Farm Bill Does Not Pass

Posted: 11 Dec 2013 03:37 AM PST

Unless a farm bill passes by the end of the year, the crop subsidy program will revert to 1949 policies and the government would be required to stockpile milk until it reached $37.20 per hundred pounds. The current price is about $19.00.

Why our legislators would write ridiculous laws like this is totally beyond me, but they did.

The House wants to pass an extension to resolve the issues, but the Senate says no. So here we sit wondering if the price of milk is going to double.

Bloomberg reports Extension of Farm Subsidies Rebuffed by Senate Democrats

An extension of U.S. agriculture subsidies to late January was rebuffed yesterday by Senate Democrats, who said they won't pass any House plan for temporary funding before Congress breaks for the holidays.

"We're not going to do an extension," Senate Agriculture Committee Chairwoman Debbie Stabenow, a Michigan Democrat, told reporters. "If the House leadership would just stay through next week, like the Senate is staying, we would actually be able to get" a new five-year farm-policy bill, she said.

If Congress doesn't act before year's end, U.S. dairy support programs will revert to a 1949 statute that when fully implemented would double the wholesale price of milk.

The Agriculture Department hasn't said when it could implement the law, which could take months. Lawmakers are reluctant to head home for the holidays to headlines about milk prices of $7-per-gallon in the new year.

Cuts to food stamps, along with changes to crop insurance programs and other farm aid, have been stumbling blocks as lawmakers seek to resolve differences in Senate and House versions of a reauthorization of agricultural programs.

The main effect of an extension to the end of January would be to allay fears of milk prices rising after Jan. 1, when dairy is the first crop program set to revert to the 1949 policies form the underlying language of all subsequent farm bills.

Under the law, the government would be required to stockpile milk until it reached $37.20 per hundred pounds, nearly double the current price of dairy futures traded in Chicago.

Other commodities, including corn and wheat, would see their programs revert to archaic programs later in the year.

I rather doubt it comes to this but stranger things have happened.

Lots of questions:

Why are food stamps tied to farm bills?
Why do we have crop supports?
Why would legislators write bills that would revert to arcane 1949 provisions?

I propose the elimination of all price supports, elimination of all tariffs, and to make some common sense reforms to the food stamp program, but I expect none of that to happen.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com