Central Perk: Mish's Global Economic Trend Analysis

sâmbătă, 4 decembrie 2010

Mish's Global Economic Trend Analysis

Obama Signs Trade Agreement with South Korea
Euro Infighting Continues as Belgium Breaks Ranks with Germany and France; Pressure Cooker Gauge on Red
Ron Paul Suggests We Need "Fed-WikiLeaks"

Obama Signs Trade Agreement with South Korea

Posted: 04 Dec 2010 09:46 PM PST

It had to happen eventually. By signing a trade agreement with South Korea, President Obama did something I generally support. However, the devil is in the details, so please consider Obama hails South Korea trade as victory for US workers

President Barack Obama on Saturday praised a newly sealed trade deal with South Korea as a landmark agreement that promises to boost the domestic auto industry and support tens of thousands of American jobs.

The pact, which requires congressional approval, would be the largest since the North American Free Trade Agreement with Canada and Mexico in 1994. Obama said the South Korean deal would support at least 70,000 American jobs -- welcome news with the latest unemployment figures showing nearly stagnant job growth. The president said that jobs report showed more needed to be done.

Representatives from both countries broke through a stalemate Friday morning on issues related to the automobile industry.

South Korea would allow the U.S. to lift a 2.5 percent tariff on Korean cars in five years, instead of cutting the tariff right away. Each U.S. automaker could export 25,000 cars to South Korea as long as they met U.S. safety standards; disputes over safety standards had effectively stood as a barrier to U.S. auto exports into Korea. A U.S. tariff on Korean trucks would be phased out and South Korea would eliminate its tariff on U.S. trucks immediately.

South Korean President Lee Myung-bak praised the deal as bringing huge economic benefits to both countries and further boosting the two nations' alliance.

"The accord is significant because it lays the groundwork for a 'win-win' relationship by reflecting the national interests of Korea and the United States in a balanced manner," Lee said in a statement posted on the presidential website.

The overall agreement would eliminate tariffs on more than 95 percent of industrial and consumer goods within five years. The U.S. International Trade Commission estimated that would increase exports of U.S. goods by at least $10 billion. The deal would also open up South Korea's vast $560 billion services markets to U.S. companies.

My one complaint is the deal phases in over 5 years. It should be immediate.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Euro Infighting Continues as Belgium Breaks Ranks with Germany and France; Pressure Cooker Gauge on Red

Posted: 04 Dec 2010 05:17 PM PST

Infighting over the size of the bailout fund has broken out as the Belgian Finance Minister Breaks Rank with German Chancellor Merkel

Belgian Finance Minister Didier Reynders said the euro region could increase the size of its 750 billion-euro ($1 trillion) bailout fund, breaking ranks with German Chancellor Angela Merkel and France's Nicolas Sarkozy.

Reynders told reporters in Brussels that the current cash pool could be increased if governments decide to create a larger fund as part of a permanent crisis mechanism in 2013. "If we decide this in the next weeks or months, why not apply it immediately to the current facility?"

While Sarkozy and Merkel rejected expanding the fund on Nov. 25, European Central Bank President Jean-Claude Trichet yesterday indicated governments should consider just such a move.

The International Monetary Fund also supports increasing the facility after 2013, said Reynders at the end of a week that saw Belgian bond spreads jump to the highest in at least 17 years.

"The difficulty we have is like other countries in Europe: we need to solve the problem of contagion coming from Greece, Ireland and maybe now Portugal," Reynders said. "We don't have any real problem in Belgium for the moment like that."

"The permanent mechanism must be with a huge amount of money -- if you don't organize, you always have speculation if it is enough for one, two or more countries," Reynders said. "For the moment the discussion next week will be about approving the plan for Ireland and then to have some information about the situation in Portugal."

Pressure Cooker Gauge on Red

Would it matter if Trichet announced tomorrow a willingness to extend $20 trillion?

I suggest that if such an announcement mattered at all, it would be in the opposite manner these clowns think. If anything, it would cause an emperor-has-no-clothes moment that would spook the market and crash the Euro.

Greece and Ireland are insolvent. Spain, Portugal, and Belgium are under sever stress. The proper way to alleviate the stress is to admit a need for haircuts on senior bonds, and take those haircuts.

For a discussion, please consider Barbershops Open in 2013, Market Screams for Haircuts Today; European Crisis Spreads to Core as Belgian Bond Yields Surge; Another "Stress Test" Scam

Unfortunately, instead of considering haircuts on senior bonds, ECB president Trichet, Christian Noyer (the governor of the Bank of France), and Belgian Finance Minister Didier Reynder, all insist there will be no haircuts.

The instruction manual says the cooker will explode if the pressure is too great, yet Trichet, Noyer, and now Reynder keep increasing the pressure. The longer they attempt to walk this irresponsible line, the more the pressure will build.

How much more pressure the cooker can take is anyone's guess, but the gauge is clearly in the red zone and the cooker is liable to explode at any time.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Ron Paul Suggests We Need "Fed-WikiLeaks"

Posted: 04 Dec 2010 03:20 PM PST

This is a quick post on the need for more transparency at the Fed. I will have more on Ron Paul including a Congressional email campaign early next week, when more will see it.