Mish's Global Economic Trend Analysis

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• Evaluating "Obamaplan" Will Any of it Pass? Business Owner from California Chimes In
• "Orderly Insolvency for Greece Cannot be Ruled Out" says German Economy Minister; Mish says "Neither Can a Disorderly One"; Schaeuble Lie Confirmed
• Laugh of the Day: "Greece Bond Swap Progressing Well"

Evaluating "Obamaplan" Will Any of it Pass? Business Owner from California Chimes In Posted: 11 Sep 2011 04:08 PM PDT President Obama wants to spend $447 billion on a stimulus plan that will not stimulate a thing. Will any of it pass? The consensus is Expect 'Yes' on Tax Cuts, 'No' Elsewhere. The real takeaway from President Barack Obama's jobs agenda? Workers probably can count on continuing to pay lower Social Security taxes. Employers may not have to pay as much, either. The long-term unemployed probably will keep drawing jobless benefits. Congress can be expected to ratify new trade agreements with South Korea, Colombia and Panama. But don't expect Congress to funnel tens of billions of dollars into rebuilding schools and blighted neighborhoods, or helping local governments pay teachers and firefighters, or setting up an "infrastructure bank" to leverage federal loans for roads, water systems and other public works projects. "Enough of the stimulus," House Majority Leader Eric Cantor, R-Va., said Friday on CNBC. "We can't afford to keep spending money we don't have." Last December, Congress passed a one-year cut in Social Security taxes, reducing the rate for workers from 6.2 percent to 4.2 percent for 2011. Employers still pay the 6.2 percent rate, which is applied to wages up to $106,800. Obama proposes to extend the tax cut for a year and make it bigger, reducing the Social Security taxes paid by workers to 3.1 percent for 2012. He's also now proposing to extend the payroll tax cut to businesses on the first $5 million of their payroll. About 98 percent of companies have payrolls below the $5 million threshold, according to the White House. "This proposal would make the already arduous challenge of finding bipartisan agreement on deficit reduction nearly impossible, removing our options for deficit reduction for a plan that won't reduce the deficit by one penny," said Rep. Jeb Hensarling, R-Texas. "It's not the role of this committee to spend more money we don't have on jobs we don't get." Republicans also have qualms about the almost $50 billion cost of extending for one more year a jobless benefits program that allows up to 99 weeks of benefits for the long-term unemployed and covers about 5 million laid-off workers. But GOP leaders may go along with the idea after Obama embraced reforms, such as expanding to other states a Georgia program that uses unemployment funds for on-the-job training. "I don't think they want a fight over that," said Jack Howard, a GOP lobbyist. The White House promises to send up soon a list of ideas on how to pay for it all. Spend Now Cut Later Obama will come up with a list of ideas soon. Rest assured all of them will involve cutting future spending years from now or other sleight-of-hand magic like cutting programs that were not in the budget. Also possible are tax hike proposals that will be dead on arrival in the House. Ultimately it will be up to the gang-of 12 to figure out how to make this plan balanced. They have a difficult enough time already. Please appreciate the dilemma of Rep. Jeb Hensarling, R-Texas who said "It's not the role of this committee to spend more money we don't have on jobs we don't get." Business Owner from California Chimes In A business owner from California responded to Dissecting the Lies in Obama's $447 Billion "Shock-and-Awe" Reelection Ploy; Dead-on-Arrival in Congress? Alternative Proposal Will Not Cost a Dime Hello Mish I own and operate a contracting business in the San Francisco bay area in California. I can confirm that the motivation to hire more people due to a payroll tax rebate is zero. I did hire several workers in our spring ramp up as a normal course of business. It was nice to see payroll tax reductions, but it didn't motivate me at all to hire more, nor would it today, or ever. However, I avoided hiring one additional person that we would normally hire in July because of economic uncertainty and implications of "Obamacare". In regard to public works, we frequently do public works jobs here with merit shop workers. They certainly enjoy the extra pay and benefits (we pay fringe benefits in cash), but I would put my men up against any local union. Their skills are as good and their work ethic/attitude is far better. Union rules are toxic to the workplace and productivity. I have written my rep. and senators but unfortunately Senators Boxer and Feinstein are as liberal as they come. Business owners and those we do not hire are the ones who suffer from the misguided policies of liberals. That is one email from person, but I strongly suspect it represents the majority opinion of most business owners. 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.

"Orderly Insolvency for Greece Cannot be Ruled Out" says German Economy Minister; Mish says "Neither Can a Disorderly One"; Schaeuble Lie Confirmed Posted: 11 Sep 2011 11:28 AM PDT Mainstream media is chock full of humorous reporting today, including this Bloomberg headline Greek 'Orderly' Default Can't Be Ruled Out, Roesler Tells Welt An "orderly insolvency" for Greece must not be ruled out for the sake of stabilizing the euro, Die Welt reported, citing German Economy Minister Philipp Roesler. "To stabilize the euro there must be no taboos," the newspaper quoted Roesler as saying in an article to be published in tomorrow's edition. "If need be, that also includes an orderly insolvency of Greece, provided the instruments needed for that are available." Expect a Disorderly Default Put the "orderly default" theory right up there with the humorous idea "Greece Bond Swap Progressing Well" If there is a default, what possible reason is there for it to be orderly? Blame Trichet A year ago an orderly default may have been possible, but not now, thanks to "We say no to default" Trichet. Indeed, Trichet's stance accompanied by the ECB throwing tranche after tranche of money down the drain in repeated bailouts all but ensured a disorderly default. Merkel's Coalition Disintegrates German Chancellor Angela Merkel's coalition has disintegrated right in front of everyone's eyes. Adding fat to the fire, the German Economy Minister and the German Finance Minister are now in open dispute. Please consider a snip from Can Government Lies Calm the Markets? MarketWatch: ... German Finance Minister Wolfgang Schaeuble dismissed a report by Bloomberg News that German officials were readying a plan to recapitalize German banks should their Greek holdings overcome balance sheets. Schaeuble insisted that the agreement reached with Greece in July was still the focus of the government. "To speculate over other outcomes is pointless," he said, according to Dow Jones. Mish: Schaeuble's, statements are blatant lies or seriously discomforting truth. In this case, it is hard to know precisely which. I suspect lies (and we should all be hoping for lies) because unless the EU, ECB, and other government officials are making contingency plans for a Greek bankruptcy, there are going to be some very serious consequences soon. MarketWatch: European Union Commissioner for Economic and Monetary Affairs Olli Rehn told reporters after the G-7 meeting that European banks were better capitalized than they were a year ago. Mish: There's a lie, especially when the new head of the IMF is willing to admit banks need to be recapitalized. Schaeuble Lie Confirmed As suspected, we now have a confirmed lie made by finance minister Schaeuble. It took less than a day to ferret out the truth and mainstream media cannot even get the story correct. Der Spiegel reports German Finance Minister Prepares for Possible Greek Bankruptcy German Finance Minister Wolfgang Schäuble, who is reportedly doubtful that the country can be saved from bankruptcy, is preparing for the possibility of Greek insolvency. Officials in his ministry are currently reviewing scenarios for handling such a situation, exploring what it might mean for the rest of the euro zone. Under the first scenario for a Greek bankruptcy, the country would remain in the euro zone. Under the other, Athens would abandon the common currency and reintroduce the drachma. Sudden Revelation That's one hell of a sudden revelation given just yesterday Schaeuble stated "To speculate over outcomes other than agreements made with Greece in July is pointless" Der Spiegel continues ... The European bailout mechanism, the European Financial Stability Facility (EFSF), is playing a key role in those considerations. Soon the EFSF is expected to be given new powers agreed to by European leaders at a special euro crisis summit in late July. Two instruments at the EFSF's disposal are at the forefront of the Finance Ministry's scenarios. Bankruptcy Could Create Credit Crunch One of these key instruments would be credit lines provided to countries like Spain or Italy if investors stop lending them money after a Greek bankruptcy. If banks were forced to write off the billions in Greek government bonds on their books, they could become reliant on billions in rescue fund aid in numerous euro-zone countries. Both developments are to be expected in a Greek insolvency, regardless of whether the country exits the euro or not. Volker Bouffier, the governor of the state of Hesse, which is home to Germany's financial capital Frankfurt, is a member of Chancellor Angela Merkel's conservative Christian Democratic Union (CDU) party, as is Schäuble. Bouffier is now urging that the possibility for countries to leave the euro zone be created quickly. Current European Union treaties provide no provisions for a country to abandon the currency. "If the savings and reform efforts of the Greek government aren't successful, then we need to ask the question of whether we need new rules to make it possible for a euro country to leave the currency union," Bouffier told SPIEGEL. Merkel Allies Break Taboo Please consider Merkel allies break taboo with Greek default talk Senior politicians in German Chancellor Angela Merkel's center-right coalition have started talking openly about a Greek default, reflecting mounting concern in Europe's biggest economy about the debt crisis and pressuring Greece. "To stabilize the euro, there can no longer be any taboos," Philipp Roesler, economy minister and leader of Merkel's junior coalition partner, the Free Democrats (FDP), told Die Welt. FDP general secretary Christian Lindner went further, telling the Berliner Morgenpost his party had not ruled out the possibility of Greece leaving the euro zone. Even senior figures in Merkel's conservative Christian Democrats (CDU) are leaving open the possibility of default. "The way things are looking, you can no longer rule out a possible Greek restructuring," CDU budget expert Norbert Barthle told Reuters when asked about a default or euro zone exit. The stakes are high for Merkel who is battling to convince rebels in her coalition to vote for new powers for the European Financial Stability Facility (EFSF) on September 29. Although she will get the law through due to support from opposition parties, if she fails to secure a majority from the ranks of her own coalition parties her authority will be seriously dented and she may even have to call elections. Some members of her party have raised questions about Greece's continued membership of the euro zone. "If the Greek government's efforts to make cuts and reform are not successful, we must also ask the question whether we do not need new rules which make possible the exit of a state from the currency union," Der Spiegel quoted senior CDU member Volker Bouffier as saying. Merkel herself has ruled out an expulsion of Greece, saying it would trigger a domino effect, but rifts have been opening up in her coalition on the subject. On Saturday, the conservative Christian Social Union proposed threatening heavily indebted states with having to leave the currency union. Merkel is in a bind as she tries to push an agenda of greater economic integration as Germans grow more skeptical. A poll this week found 76 percent of Germans opposed to granting any further aid to heavily indebted Greece. Former German foreign minister Joschka Fischer fed public concern, saying on Sunday the euro could even collapse. "The situation in Europe is really as serious as it has ever been. Until now, I did not think the euro would fail, but if things continue like this then it will collapse," Fischer, foreign minister for the Greens in their coalition with the Social Democrats from 1998-2005, told Bild am Sonntag. While Schaeuble readily dispensed with lies, behind the scenes the Merkel government was clearly preparing for bankruptcy. 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.

Laugh of the Day: "Greece Bond Swap Progressing Well" Posted: 11 Sep 2011 09:54 AM PDT Eurozone news reporting is increasingly humorous. Take for instance this line of thought from Papandreou says to save Greece, stay in euro I will stop at the punchline. See If you can figure it out. Finance Minister Evangelos Venizelos said earlier Greece may even take additional fiscal measures in 2011 to make up for budget deficit slippage that threatens the disbursement of an 8 billion euro EU/IMF loan tranche. Venizelos pledged to further cut the civil service payroll, push privatizations and deepen labor market reforms. A G7 source said the troika (EU/IMF/ECB), which suspended talks with Athens last week in frustration at Greece's struggle to stick to its deficit reduction plan, would probably come up with a form of words in its next report to allow the next tranche of bailout funds to be paid. But the working assumption is that Greece will not avoid default indefinitely. However, a bond swap plan for private bondholders, which is part of the second bailout plan and is supposed to ease Greece's debt payments was progressing well, Venizelos said. "The private sector is responding very well to the PSI (private sector involvement)," he said, without elaborating, one day after an initial deadline for banks to express interest in the scheme expired. Did You Catch It? I suspect most did not catch the humor given it was extremely subtle. Of course the PSI proposal is going well. The PSI stipulates a 21% haircut on bonds. Meanwhile, more reasonable haircut estimates range from 50 to 90%. Anyone not willing to take a "voluntary" haircut of 21% is out of their mind. That the offering is going well is a sign of weakness, not strength. Papandreou said he would cancel the deal unless there was 90% participation. What a joke. Any bondholder turning down the offer should be fired for stupidity. Then again, they should have been fired long ago for buying Greek bonds in the first place. I am pleased mainstream media cannot figure these things out because it presents an endless stream of things to write about. 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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