Central Perk: 12 dec. 2010

duminică, 12 decembrie 2010

Mish's Global Economic Trend Analysis

Minnesota Governor Tim Pawlenty on Public Unions vs. Taxpayers
Jim Chanos: "Adam Smith will get his Revenge on China's Real Estate Bubble"
Williams Calls for "Great Hyperinflationary Great Depression"; A Very Easy Rebuttal
Sunday Funnies 2010-12-12 Art of Congressional Compromise

Minnesota Governor Tim Pawlenty on Public Unions vs. Taxpayers

Posted: 12 Dec 2010 05:39 PM PST

I have finally found another governor besides Chris Christie who makes me want to stand up and salute. Minnesota Governor Tim Pawlenty says the moral case for unions does not apply to public employment.

Please consider Government Unions vs. Taxpayers by Governor Tim Pawlenty.

Much has changed. The majority of union members today no longer work in construction, manufacturing or "strong back" jobs. They work for government, which, thanks to President Obama, has become the only booming "industry" left in our economy. Since January 2008 the private sector has lost nearly eight million jobs while local, state and federal governments added 590,000.

Federal employees receive an average of $123,049 annually in pay and benefits, twice the average of the private sector. And across the country, at every level of government, the pattern is the same: Unionized public employees are making more money, receiving more generous benefits, and enjoying greater job security than the working families forced to pay for it with ever-higher taxes, deficits and debt.

How did this happen? Very quietly. The rise of government unions has been like a silent coup, an inside job engineered by self-interested politicians and fueled by campaign contributions.

Public employee unions contribute mightily to the campaigns of liberal politicians ($91 million in the midterm elections alone) who vote to increase government pay and workers. As more government employees join the unions and pay dues, the union bosses pour ever more money and energy into liberal campaigns. The result is that certain states are now approaching default. Decades of overpromising and fiscal malpractice by state and local officials have created unfunded public employee benefit liabilities of more than $3 trillion.

We proved that even in deep-blue Minnesota, taxpayers can take on big government and big labor, and win. In coming years, that fight will have to be joined throughout the country in city halls, state capitals and in Washington, D.C.

Reformers would be wise to adopt three overriding principles.

First, we need to bring public employee compensation back in line with the private sector and reduce the overall size of the federal civilian work force. Mr. Obama's proposal to freeze federal pay is a step in the right direction, but it falls well short of shrinking government and eliminating the pay premium enjoyed by federal employees.

Second, get the numbers right. Government should start using the same established accounting standards that private businesses are required to use, so we can accurately assess unfunded liabilities.

Third, we need to end defined-benefit retirement plans for government employees. Defined-benefit systems have created a financial albatross for taxpayers. The private sector dropped them years ago in favor of the clarity and predictability of defined-contribution models such as 401(k) plans. This change alone can save taxpayers trillions of dollars.

The moral case for unions—protecting working families from exploitation—does not apply to public employment. Government employees today are among the most protected, well-paid employees in the country. Ironically, public-sector unions have become the exploiters, and working families once again need someone to stand up for them.

If we're going to stop the government unions' silent coup, conservative reformers around the country must fight this challenge head on. The choice between big government and everyday Americans isn't a hard one.

I Salute Governor Tim Pawlenty

Governor Pawlenty, I salute you. Moreover I call for the scrapping of Davis-Bacon, prevailing wage laws, the end of defined benefit plans for all public workers, and the end to collective bargaining of all public union workers.

The US desperately needs to look at pension benefits of public union workers, even existing benefits.

I do not know where Pawlenty stands on military spending or other critical issues but his stance on public unions is certainly a breath of much needed fresh air.

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

Jim Chanos: "Adam Smith will get his Revenge on China's Real Estate Bubble"

Posted: 12 Dec 2010 01:51 PM PST

China bulls may wish to consider the other side of the story as noted by Chanos in China Overbuilding to 'Hit a Wall'

"Construction is 60-plus percent of GDP, compared to exports of 5," said Chanos, who is the founder and president of Kynikos Associates.

"The problem is that consumption as a percentage of Chinese economy has declined in the last 10 years, from 40 to 35 percent. It's all real estate," he said. After the US, China has the world's second largest economy.

Chanos said that steel, iron ore, cement and other materials needed for construction will be "under pressure."

Video Notes

China is building US-priced condos where the average income is $3500 per person.

Margins on Chinese companies are razor thin. If China hikes rates substantially most companies in China will lose money. Chanos thinks they already are. "Every company we have looked at has accounting issues. The lower you get in the story the more interesting it becomes."

If China implodes, Chanos thinks the US will fare relatively well on the basis "Europe exports more to China than the US, and that South America is dependent on China as are parts of Asia."

When asked about the sustainability of what China is doing, Chanos commented that a lot of what the state is doing is "misdirected investment" in order to keep nominal growth. At the end of the day, that will come back to haunt them.

Chanos mentioned Adam Smith a couple of times in the interview. Adam Smith is author of The Wealth of Nations.

"Adam Smith will get his revenge in China's real estate market. It is very difficult to manage these kinds of bubbles."

I happen to agree with Chanos on all counts, adding that an implosion in China, or even a significant slowdown would be beneficial to the US dollar. For additional discussion of the US dollar please see Williams Calls for "Great Hyperinflationary Great Depression"; A Very Easy Rebuttal

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

Williams Calls for "Great Hyperinflationary Great Depression"; A Very Easy Rebuttal

Posted: 12 Dec 2010 11:52 AM PST

Those looking for Sunday entertainment can pull out the popcorn and watch this video of John Williams calling for the "Great Hyperinflationary Great Depression", coming your way soon.

I have rebutted such thinking a hundreds of times, so I do not even have to write a rebuttal. It's been prepared in advance. Here is a 5 point summary of where Williams goes wrong.

1. Williams focuses on money supply, ignoring credit although credit is far more important
2. William ignores numerous global interconnections. Calling for hyperinflation in the US alone ignores happenings in Europe, Japan, and China. I remain amazed at how US-centric hyperinflationists in general are. Monetary printing in China far exceeds that in the US, and it is the Euro and the Yen most at risk now, not the US dollar.
3. Williams ignores relatively small changes in Social Security that can keep that system afloat for another decade or longer. Regardless, SS is a huge future problem that will matter at some point, just not now. Currently, collapsing consumer credit in the US is soaking up all the Fed's printing.
4. Williams ignores numerous constraints on the Fed and Congress
5. Williams ignores US gold holdings, the largest in the world
6. Williams ignores the massive influence of consumer attitudes and bank attitudes towards lending.

For a look at constraints, please see Failure to Consider Constraints - My Response to "Has Mish Deflated the Inflationistas?"

For a look at global interconnections including a discussion of rampant inflation in China and why hyperinflation is more likely in Japan than the US, please see Multiple Simultaneous Games of "Chicken"; Price Controls on Walmart; China Declares Shift to "Prudent" Monetary Policy

For a look at currency issues including a lengthy discussion of credit and why it is important please consider Fiat World Mathematical Model

Finally, Williams seems to ignore that hyperinflation is primarily a political event not a monetary event. The idea the world is going to flat out abandon dollars anytime soon is quite simply preposterous.

For further discussion of inflation, deflation, and what causes hyperinflation, please see "Straight Talk" with Economic Bloggers, an interview with Chris Martenson.

My call does not change. The US will go in and out of deflation for a considerable period of time, just as Japan did. The determining factor is mark-to market valuation of credit and money supply.

Right now, the Fed has temporarily overcome massive deflationary forces. For how long remains to be seen.

For the "hyperinflationary great depression", all we have to do now is wait a year to see.

Addendum:

Numerous people have asked me to respond to Deflationists Take Note: Bernanke Succeeds In Offsetting Shadow Banking Collapse

For starters I do not concern myself with M3 and I have been consistent on ignoring it in both directions.

Moreover, monetary inflation never really stopped, and that is something I have said many times, even called for in advance. It is irrelevant given that credit is far more important.

If one views inflation through the eyes of monetary measures alone, then we will have the absurd scenario of seeing "deflation" just as the economy is strong enough for Bernanke to start contacting the Fed's balance sheet. Practically speaking that is of course preposterous, and it is one of many reasons focusing on various monetary measures in isolation leads to absurd conclusions.

This is not pointing a finger at ZH as I actually agree with his statement "Bernanke Succeeds In Offsetting Shadow Banking Collapse".

In simple terms, the Fed and government spending have temporarily overcome credit deflation. This is nothing new. It has gone on since March of 2009.

I did think the economy was about ready to slip back into deflation in summer of 2010, but speculation on QE followed by actual QE put that on hold.

Now, Congress has stepped to the plate with more stimulus and that will likely put the kibosh on a double dip-recession in 2011. I did not see that coming and I do not know anyone who did. I think Bernanke is the one who put Obama up to that. If so, it does suggest the economy is far weaker than most realize.

However, the idea that either QEII or the new stimulus is going to ignite serious "price inflation" is flawed. Even with that stimulus, all Congress really did is replace the stimulus effects now expiring. It will take that stimulus to barely maintain the economy at the stall rate.

One thing I agree with Bernanke on is the GDP stall rate is about 2.5%. I look at it this way: The first 2.5% of GDP is hedonics, imputations, and other statistical nonsense that did not happen at all.

Thus, it should be no surprise there is little to no decrease in unemployment until GDP starts growing faster than 2.5%.

Finally, risks are still skewed to the downside. State cutbacks loom, Build America Bonds (BABs) are set to expire, risk of municipal bankruptcies is great, home prices are again contracting, inventories are rising, Europe is likely to slip back into recession, and there still is no driver for jobs yet benefits for 99er's are set to expire. Yes Congress did extend the program, but not the number of weeks, at least not yet.

That is one hell of a lot of headwinds even if Congress extends the number of weeks of unemployment insurance. I am sure I missed many more.

All things concluded, there is ample reason to believe the US is still following the path of Japan, and on a marked-to-market credit aspect basis the US will likely hop in and out of deflation for the foreseeable future.

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

Sunday Funnies 2010-12-12 Art of Congressional Compromise

Posted: 12 Dec 2010 12:36 AM PST

How Congress Approached the Tax Compromise

Charles Hughes Smith weighs in with a humorous way to stimulate the economy. Please consider White House, Republicans Offer Bloggers $100K Each in Compromise Deal

An Irishman Speaks His Mind

This video has been making the rounds. It is hilarious but it does contain very harsh language.

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

Seth's Blog : Everyone and no one

[You're getting this note because you subscribed to Seth Godin's blog.]

Everyone and no one

Two things are always not true:

Everyone likes this.

No one likes this.

Sorry.

If you try to please everyone, the few you don't delight will either ruin your day or ruin your sense of what sort of product you should make.

And if you believe the critic who insists that no one is going to like what you made, you will walk away from a useful niche.

One other thing: Sometimes it's easy to confuse, "the small cadre of people I want to impress because my ego demands that this 'in' group is important," with "everyone." They're not the same.