Mish's Global Economic Trend Analysis

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• Merkel, Sarkozy Reject Euro Bonds and Expansion of Rescue Fund; What Does it Mean? Middle of the End for Merkel
• Miami Declares Financial State of Emergency, Gives Unions Two Weeks to Agree to Cuts; California Revenue $541 Million Below July Forecast
• Amazingly Absurd Loan "Guarantee" Arrangement Between Finland and Greece
• Media Ignores Ron Paul So Blatantly, Even Time Magazine Recognizes It; "Why?" is Easy to Explain
• Sarkozy, Merkel Propose Balanced Budget Amendments for 17 Eurozone Nations, a Financial Transaction Tax and a "True European Economic Government"
• Germany, France Slide Toward Recession; German Economy on Verge of Contraction

Merkel, Sarkozy Reject Euro Bonds and Expansion of Rescue Fund; What Does it Mean? Middle of the End for Merkel Posted: 16 Aug 2011 08:14 PM PDT After all the debate and hype, with many clamoring for a European nanny state complete with common bonds, it has come down to this, at least for now: Merkel, Sarkozy Shun Euro Bonds German Chancellor Angela Merkel and French President Nicolas Sarkozy rejected an expansion of the 440 billion-euro ($633 billion) rescue fund and rebuffed calls for joint euro borrowing to end the debt crisis, saying greater economic integration was needed first. The leaders of Europe's two biggest economies agreed to press for closer euro-area cooperation, tougher deficit rules and a harmonization of their corporate tax rates. A plan to resubmit a financial-transaction tax, which the European Union rejected in 2010, sent stocks lower in New York trading. What Does it Mean? For starters it means Angela Merkel no longer has capability to ram her ideas through the German Bundestag, the national parliament of Germany. It also means that even if she could have, the measure would have failed. The Dutch prime minister essentially rejected Eurobonds, and it is likely Finland would have as well. More importantly, Germany's Finance Minister Wolfgang Schäuble emphatically stated "I rule out eurobonds for as long as member states conduct their own financial policies and we need different rates of interest in order that there are possible incentives and sanctions to enforce fiscal solidity." Given that it takes a unanimous approval from all Eurozone nations to enact Eurobonds, Merkel and Sarkozy both realized political support was simply not present. Middle of the End for Merkel This is the "middle of the end" for Merkel. She has exhausted all of her political capital fighting a battle that is far bigger than she is. Merkel will not survive this mess. Sadly, Merkel had it correct in the beginning, initially insisting on haircuts on bondholders. She gave in to the "no haircuts" fantasy under pressure from ECB president Jean-Claude-Trichet and French president Nicolas Sarkozy. I said at the time it was a fatal Merkel mistake. Since then, Greece defaulted anyway and there are haircuts on bonds. More haircuts are coming. Rescue Fund Insufficient A "rescue fund of $633 billion is insufficient. All it takes to exhaust that fund are renewed problems in Italy or Spain, or increasing problems in France. All are likely. Expect more talks of EuroBonds in the not too distant future. 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.

Miami Declares Financial State of Emergency, Gives Unions Two Weeks to Agree to Cuts; California Revenue $541 Million Below July Forecast Posted: 16 Aug 2011 03:43 PM PDT The "good news" keeps right on rolling. As such, I keep wondering which major US city will be the first to declare bankruptcy. Please consider candidate Miami. Miami Declares Financial State of Emergency Bloomberg reports Miami Declares 'Financial Urgency' as It Moves to Cut Worker Pay, Benefits Miami, facing a $61 million fiscal 2012 deficit, declared a state of "financial urgency" for a second straight year, moving toward wage and benefit cuts. The declaration gives unions for municipal workers two weeks to agree to contracts for the year that starts in October or be subject to actions imposed by the City Commission. Workers including police and firefighters absorbed about $80 million in reduced pay, health insurance and pensions in fiscal 2011. "In order to balance the budget, sacrifices have to be made by everyone," Pat Santangelo, a spokesman for Mayor Tomas Regalado, said today by telephone. The city is the state's second-largest by population, after Jacksonville. Miami joins at least two Florida cities that also have invoked the fiscal statute, including one that may force reductions on union workers. Hollywood, which made a declaration in May, is set to cut salaries, including for police and firefighters, as much as 12.5 percent. State law gives cities special powers when they declare financial urgency. Standard & Poor's cut Miami's general-obligation bond rating two steps to BBB, the second-lowest investment grade, on June 28 and gave it a negative outlook, partly because of lawsuits from city unions stemming from cuts imposed in August 2010. The legal actions "expose the city to significant liabilities at a time when its available reserves and liquidity are low," S&P said in a report. Bankruptcy the Best Solution for Miami It is time to end these piecemeal negotiations that should not even be happening in the first place. A bankruptcy agreement could dissolve the unions and all their agreements. Miami is dire straits because of unions, and unions, not taxpayers should suffer the consequences. Bankruptcy is the best solution for Miami. California Revenue $541 Million Below July Forecast More budget cuts are coming to California where Revenue Fell $541 Million Below July Forecast. California revenue fell short of budget estimates by $541 million or 9.2 percent in July, the first month of the 2012 fiscal year, the state Finance Department reported. The data was similar to figures from Controller John Chiang, who said Aug. 9 that cash receipts for the month missed the forecast by $538.8 million. Chiang said the shortfall may mean further budget cuts are needed. The next round of budget cuts will be as contentious as the last round, only the amounts will be smaller. Once again I suggest cutting union wages and benefits, ending defined benefit pension plans, scrapping prevailing wage laws, ending collective bargaining arrangements, and making California a right-to-work state. Those things will all do wonders for containing costs. Note that just a few months ago the state was bragging about beating revenue estimates. What happened? Recession, that's what. The global economy is headed straight for one, if not in one already. Republicans in California need to get some real concessions before agreeing to tax hikes. I suggest an end to collective bargaining and passage of right-to-work laws. 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.

Amazingly Absurd Loan "Guarantee" Arrangement Between Finland and Greece Posted: 16 Aug 2011 02:28 PM PDT The idiocy of the day comes from Finnish Finance Minister Jutta Urpilainen regarding loan guarantees for the bailout of Greece. Please consider Finland and Greece agree on loan guarantees Finance Minister Jutta Urpilainen said in a Tuesday press conference that Finland and Greece have reached common ground on loan guarantees demanded by Finland for its participation in the Greek bailout package. The agreement still requires approval from other eurozone states. The Finnish and Greek Finance Ministries have agreed that the Greek state will transfer a sum to the Finnish state, which, together with interest on that sum, will serve to guarantee Finland's share in the bailout loan to the troubled southern state. The guarantee sum would, however, be only a fraction of the money that Finland is contributing to the rescue package. Urpilainen has not divulged a concrete sum, because that is still being negotiated. Got That? If not, let me explain by an two-point analogy. You agree to give a homeless drug addict on skid row $10. In return, he immediately hands back to you $1 as a "guarantee" he will pay back the other $9, with interest, at an agreed upon rate. Clearly there is no guarantee of anything. Rather the initial effective loan amount is reduced by the amount of the alleged guarantee. Urpilainen is looking for approval of her nonsensical proposal from the rest of Eurozone states. I hope they have enough sense to laugh in her face. However, the proposal is so stupid, EU officials just might seriously debate it 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.

Media Ignores Ron Paul So Blatantly, Even Time Magazine Recognizes It; "Why?" is Easy to Explain Posted: 16 Aug 2011 12:50 PM PDT The mainstream media continues to ignore Republican candidate Ron Paul to the point of absurdity, favoring candidates that no one has even heard of, such as John Huntman. For an incredibly humorous take, please watch Jon Stewart give a well-deserved slap in the face to Fox News, and media in general. Link if above video does not play: http://www.thedailyshow.com/watch/mon-august-15-2011/indecision-2012---corn-polled-edition---ron-paul---the-top-tier Time Magazine Chimes In Time Magazine chimes in with their take in The Morning After: Jon Stewart Sticks Up for Invisible Man Ron Paul In a way, criticizing the political media for imbalanced coverage of the Iowa Straw Poll is like criticizing the sports media for imbalanced coverage of the Lingerie Bowl. It's a nonbinding, festival-like event in which candidates essentially buy votes (or at least buy entrance, food and entertainment for their voters), so arguably the most misleading thing the media does in covering it is, well, covering it at all. Still, if one is going to pay rapt attention to an unpredictive electoral stunt, shouldn't you at least pay attention to the leading candidates whose success the stunt unpredicts? That didn't happen for Ron Paul​, who came within a percentage point of beating Michele Bachmann in Iowa, and yet, as this Daily Show segment lays out, was ignored even after the fact in listings of "top-tier candidates," being put behind peers who he beat or who didn't compete. The sheer, smug dismissiveness with which the political press treat the libertarian Congressman in these clips is really something. And it's yet another example of political media winnowing the pack in advance by deciding who is a "serious" candidate and who isn't—in this case, seemingly, by deciding that Paul's beliefs are too far out there or, maybe more likely, simply don't easily fit the left-right narrative. I'm not, by the way, making the argument that Paul would have a serious shot at the GOP nomination in any case. That hardly matters, though; a candidate with obvious significant support can still have a serious effect on the race, and its ideas, and that's news. Or it should be, if the horserace handicappers didn't insist on deciding their news angles in advance. Time Magazine missed one critical aspect in its coverage of the straw poll: It was Michele Bachmann who bought her way to the top, not Ron Paul. Paul a Significant Factor Regardless of what one thinks of Ron Paul's chances, Time Magazine hits the nail on the head with analysis worth repeating: "A candidate with obvious significant support can still have a serious effect on the race, and its ideas, and that's news. Or it should be, if the horserace handicappers didn't insist on deciding their news angles in advance." The media, especially Fox News is biased against Ron Paul. Why? Fox news like warmongers. Ron Paul wants to end wars and cut the defense budget. Republican hypocrites want military spending far in excess of what is needed, and they don't want to raise taxes for it. Yes, we need to cut entitlements. We also need to cut military spending, not by a little, by a lot. Finally, we need structural Republicans should be sounding the horn on, but mysteriously are not. Simple Facts of the Matter The US can no longer afford to be the world's policeman. US military spending equals the next 9 countries combined. US military spending nearly equals the whole rest of the world combined. Those numbers do not include military spending hidden in other buckets. Blast of New York Times and Liberal Media I took on the "Liberal Media" discussing needed structural reforms in a blast at the New York Times called Growing Gloom for States and Cities; Who is to Blame? What About Solutions? I propose 4 badly-needed reforms as follows Proposed Reforms Scrap Davis-Bacon and all prevailing wages laws that force up costs of construction and other projects at the city, county, state and federal level. End Collective Bargaining of public unions. Governor Scott Walker in Wisconsin shows the dramatic results that can happen if this is done. School districts that had budget deficits hugely in the read, saw them immediately go into the green, and not even for reasons that one might think. I wrote about it in Union-Busting is a "Godsend"; Elimination of Collective Bargaining is the Single Best Thing one Can do for School Kids Pass national right-to-work laws. Again this will help cash-strapped cities, counties, and states that have to deal with union-mandated pricing instead of competitive pricing. The goal of government should be to provide the most benefit for the least cost. The goal of unions is to provide as little work as possible for the most cost. It's time we end that model. Immediately kill defined benefit plans for government workers and accept the idea that promised benefits will be reduced voluntarily or via bankruptcy. Why Republicans failed to hammer home those issues when they had a chance in budgets negotiations is a mystery (except of course for number 4 which would reduce their own benefits). Why Fox News ignores Ron Paul is not a mystery. Fox News supports warmongers and is purposely attempting to ignore, if not outright discredit those with other viewpoints. Anyone who plays the video can come to no other logical conclusion. I support Paul's effort to reduce military spending substantially. Please see Defense Industry Bribes and Legislative Whores for reasons we overspend. I failed to mention in that article that Union Bribes and Legislative Whores is equally applicable. The result is the worst-of-both-worlds compromise. The US spends too much on defense and too much on entitlements. 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.

Sarkozy, Merkel Propose Balanced Budget Amendments for 17 Eurozone Nations, a Financial Transaction Tax and a "True European Economic Government" Posted: 16 Aug 2011 10:06 AM PDT Today, French President Nicolas Sarkozy renewed his call for a financial transaction tax, this time with agreement from Germany. Moreover, German Chancellor Angela Merkel and Sarkozy propose a common eurozone government. The leaders of France and Germany are pushing all 17 nations that use the euro to enshrine balanced budgets in their constitutions and want greater collective governance of the eurozone. French President Nicolas Sarkozy says he and German Chancellor Angela Merkel want a "true European economic government" that would consist of the heads of state and government of all eurozone nations. The new body would meet twice a year and be led by EU President Herman Van Rompuy. Sarkozy and Merkel presented their proposals after meeting Tuesday in Paris amid signs of economic slowdown and after an exceptionally turbulent week on financial markets prompted by concern about Europe's financial health. Stocks Fall as Europe Floats Financial Tax Bloomberg reports Stocks Fall as Europe Floats Financial Tax U.S. stocks fell, following the biggest three-day rally for the Standard & Poor's 500 Index since 2009, as French President Nicolas Sarkozy said his nation and Germany will propose a financial transaction tax. There are few details yet on the financial transaction tax, but it sounds like another scheme to bailout banks at the expense of others. Is the US far behind? In regards to the balanced budget amendment, sadly so. The US needs one but Democrats and President Obama oppose the idea. In regards to a financial transaction tax, don't expect one here, for now. 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.

Germany, France Slide Toward Recession; German Economy on Verge of Contraction Posted: 16 Aug 2011 01:32 AM PDT Signs point that the Eurozone economy is already in recession, but no one has called it yet. Instead, headlines read like this: German Economy Almost Stalled in Q2 The German economy, Europe's largest, almost stalled in the second quarter as the region's sovereign-debt crisis weighed on confidence. Gross domestic product, adjusted for seasonal effects, rose 0.1 percent from the first quarter, when it jumped a revised 1.3 percent [down from 1.5%], the Federal Statistics Office in Wiesbaden said today. Economists had forecast growth of 0.5 percent, according to the median of 33 estimates in a Bloomberg News survey. French Stagnation France said last week its economy stagnated in the three months through June, while reports on Aug. 5 showed Italy's GDP rose 0.3 percent and Spain's increased 0.2 percent. Austria's economy grew 1 percent. The German statistics office revised first-quarter growth down from an initially reported 1.5 percent. Europe's malaise is further confirmation of a cooling global economy. Japan cut its annual growth forecast last week on weaker export prospects, Hong Kong's economy unexpectedly shrank in the second quarter and China's expansion slowed. In the U.S., Federal Reserve Chairman Ben S. Bernanke signaled he may expand record monetary stimulus to revive a faltering recovery and reduce unemployment stuck around 9 percent. Things have deteriorated must faster than anyone thought could happen. Moreover, as I have noted many times previously, austerity measures in Italy, Spain, Greece, Ireland, Portugal, and France cannot help, at least in the short-to-intermediate term. It may take years for Italy, Spain, etc productivity measures take hold. Germany does not have austerity measures, yet it is on the verge of contraction anyway. 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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