Mish's Global Economic Trend Analysis

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• French Bank "Partial" 70% Greek Debt Rollover Proposal is Complete "Voluntary" Insanity
• Geithner Says Taxes on Small Business Must Rise So Government Doesn’t Shrink; Mish's Five Point Alternative Proposal
• China Rebuilds San Francisco-Oakland Bay Bridge, Pledges More Support for European Debt, Fuels Latin-America Debt Rally by Financing Ecuador Budget

French Bank "Partial" 70% Greek Debt Rollover Proposal is Complete "Voluntary" Insanity Posted: 26 Jun 2011 04:45 PM PDT Supposedly we are to believe that a rollover of Greek debt would be voluntary. Bear in mind that that rating agencies have said such rollovers would constitute default. Nonetheless, and in a preposterous attempt to avoid reality, French Banks Said to Offer 70% Greek Government Debt Rollover French banks, including BNP Paribas (BNP) SA, have told the French government they are willing to partly roll over maturing Greek government bonds in a bid to avoid a default by the debt-laden nation, three people familiar with the plan said yesterday. Under the proposal discussed in recent days between the French Banking Federation and the French Treasury, bondholders would re-invest about 70 percent of Greek sovereign debt maturing from mid-2011 to mid-2014, said one of the people directly involved with the talks. Fifty percent of the redemptions would go into 30-year Greek securities, with the remaining 20 percent invested in a fund made of "very-high quality" securities that would back the 30-year bonds, that person said. The proposal may be altered, he said. All three people spoke on condition of anonymity because the talks are ongoing and private. The idea of a voluntary rollover of Greek debt is in and of itself ridiculous. Now, French banks want to roll over 70% of the debt, dumping the rest of it it for whatever prices they can get, and have that rollover be considered voluntary. Is this preposterous or what? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Geithner Says Taxes on Small Business Must Rise So Government Doesn’t Shrink; Mish's Five Point Alternative Proposal Posted: 26 Jun 2011 03:30 AM PDT Sometimes you see a headline so silly you have to wonder if it is really accurate. Please consider this headline of an exchange between first-term Rep. Renee Ellmers (R.-N.C.) and the Secretary of the Treasury: "Geithner: Taxes on Small Business Must Rise So Government Doesn't Shrink" Treasury Secretary Timothy Geithner told the House Small Business Committee on Wednesday that the Obama administration believes taxes on small business must increase so the administration does not have to "shrink the overall size of government programs." The administration's plan to raise the tax rate on small businesses is part of its plan to raise taxes on all Americans who make more than $250,000 per year—including businesses that file taxes the same way individuals and families do. Geithner's explanation of the administration's small-business tax plan came in an exchange with first-term Rep. Renee Ellmers (R.-N.C.). Ellmers, a nurse, decided to run for the U.S. House of Representatives in 2010 after she became active in the grass-roots opposition to President Barack Obama's proposed health-care reform plan in 2009. When Ellmers finally told Geithner that "the point is we need jobs," he responded that the administration felt it had "no alternative" but to raise taxes on small businesses because otherwise "you have to shrink the overall size of government programs"—including federal education spending. Mr. Secretary, You are Wrong Ellmers ended the exchange with this statement "Mr. Secretary I would just like to close by saying, On behalf of the business owners in North Carolina and across the country, you are wrong". Geithner worries we may have to "shrink the overall size of government programs." Good grief. The first and foremost thing this country needs to do is dramatically shrink the overall size of government. The way to do that is easy: Slash military spending by at least 33% Cut wages and benefits of government employees Reduce the number of government jobs Get rid of needless programs including the department of energy, HUD, FHA, and the department of education Scrap Davis-Bacon and all prevailing wage laws that drive up expenses for federal, state, and local governments Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

China Rebuilds San Francisco-Oakland Bay Bridge, Pledges More Support for European Debt, Fuels Latin-America Debt Rally by Financing Ecuador Budget Posted: 26 Jun 2011 02:34 AM PDT China has its fingers in nearly every aspect of global financing as the following articles show. San Francisco-Oakland Bay Bridge Now Made in China The New York Times reports Bridge Comes to San Francisco With a Made-in-China Label At left: The San Francisco-Oakland Bay Bridge. The replacement eastern span is on the right, with the city of San Francisco beyond. Photo by Jim Wilson/The New York Times SHANGHAI — Talk about outsourcing. Next month, the last four of more than two dozen giant steel modules — each with a roadbed segment about half the size of a football field — will be loaded onto a huge ship and transported 6,500 miles to Oakland. There, they will be assembled to fit into the eastern span of the new Bay Bridge. The project is part of China's continual move up the global economic value chain — from cheap toys to Apple iPads to commercial jetliners — as it aims to become the world's civil engineer. The assembly work in California, and the pouring of the concrete road surface, will be done by Americans. But construction of the bridge decks and the materials that went into them are a Made in China affair. California officials say the state saved hundreds of millions of dollars by turning to China. "They've produced a pretty impressive bridge for us," Tony Anziano, a program manager at the California Department of Transportation, said a few weeks ago. On the reputation of showcase projects like Beijing's Olympic-size airport terminal and the mammoth hydroelectric Three Gorges Dam, Chinese companies have been hired to build copper mines in the Congo, high-speed rail lines in Brazil and huge apartment complexes in Saudi Arabia. In New York City alone, Chinese companies have won contracts to help renovate the subway system, refurbish the Alexander Hamilton Bridge over the Harlem River and build a new Metro-North train platform near Yankee Stadium. As with the Bay Bridge, American union labor would carry out most of the work done on United States soil. The new Bay Bridge, expected to open to traffic in 2013, will replace a structure that has never been quite the same since the 1989 Bay Area earthquake. At $7.2 billion, it will be one of the most expensive structures ever built. But California officials estimate that they will save at least $400 million by having so much of the work done in China. There is much more in the 2-page story including protests by US steelworker unions and charges of poor-quality Chinese steel. As a testament to the the current sad state of US manufacturing, the project director claims "Most U.S. companies don't have these types of warehouses, equipment or the cash flow. The Chinese load the ships, and it's their ships that deliver to our piers." China Pledges Continued Support for European Debt The Wall Street Journal reports China Pledges Continued Support for European Debt Chinese Premier Wen Jiabao on Saturday said China will continue to buy euro-denominated bonds to support Europe, in China's latest public endorsement of the efforts to contain a potential debt crisis in the common currency area. "China has been a heavy investor in the euro sovereign-debt market," Mr. Wen said at a news briefing. "We have bought a lot of euro bonds over the past years and we will continue to support Europe and the euro." "China is ready to seize the opportunity together with its European partners, tackling challenges and driving development to support the quickest possible recovery of the global economy and stable growth," he said. Analysts believe about two-thirds of China's reserves is invested in dollar assets, mostly Treasury debt. Chinese officials have said frequently in recent years that they want to diversify their holdings, but there are few other asset classes that can absorb investments on such a huge scale. In Hungary, Prime Minister Viktor Orban said China will double its trading volume with the country to US$20 billion by 2015. China will also establish a European logistics and transport hub in Hungary, in line with Hungary's earlier hopes to become a European hub for China as a logistics and commercial distribution center. "Talks today showed that China indeed would like to transport through that hub," Mr. Orban said. Debt Rally in Latin America Fueled by China Bloomberg reports China Lifts Latin America's Best Debt Funding Ecuador Budget Ecuador's bonds are rewarding investors with the best performance in Latin America as Chinese loans and higher oil prices boost confidence in the economy two years after the country defaulted on $3.2 billion in debt. Ecuadorean dollar debt has returned 13 percent this year, compared with 5.2 percent for Latin American sovereigns on average, according to JPMorgan Chase & Co. Yields on bonds due 2015 fell 238 basis points, or 2.38 percentage points, this year to 9.59 percent. Similar maturity Brazilian bonds yield 1.9 percent, down 97 basis points from the end of December. Loans from China that Ecuador says will reach at least $3 billion in 2011 and the government's forecast for oil revenue to exceed the budgeted amount by $601 million are reassuring investors that South America's seventh-biggest economy will keep servicing its debt, said Richard Francis, an analyst at Standard & Poor's in New York. Government investment and consumption are driving the economy's 12th straight year of expansion, he said. "China is providing substantial financing that's letting the government invest a lot more," Francis said in a telephone interview. "This year and next year there's no problem." Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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