| Three Worst States to Conduct Business: California, New York, Illinois Posted: 20 Sep 2011 04:45 PM PDT Anyone who lives in Illinois, California, or New York will not be surprised by a survey that shows they are in the group of the Three Worst States to do Business. Illinois ranked among the three worst states for business, according to a survey of U.S. corporate executives released Monday.
Nearly one quarter of the survey's 322 respondents said Illinois had one of the least favorable business climates, according to Development Counsellors International, which specializes in economic development and tourism marketing.
Taxes and high costs were among the factors that contributed to the state's poor showing in the survey. California was deemed to have the worst business climate, followed by New York and Illinois.
Illinois recently increased its income tax rate, which has prompted several companies, including Chicago-based CME Group, to consider leaving the state.
Texas, North Carolina and South Carolina were viewed as having the best business climates, according to the survey. Best and Worst States, Things in Common- Illinois, New York, and California all have Democratic governors.
- Illinois, New York, and California all have governors beholden to public unions.
- Illinois, New York, and California are not right to work states.
- Texas, North Carolina, and South Carolina are all right-to-work states.
- Texas, North Carolina, and South Carolina do not have governors beholden to public unions.
Right to Work States  Chart courtesy of National Right-to-Work legal defense foundation. Addendum:One person emailed that I went "too far" regarding "forced unionism". The fact of the matter is I did not go far enough. Forced unionism and forced collective bargaining is tantamount to slavery as I have noted before. Here are a couple of good reads. Paul Krugman, Stephen Colbert, Bill Maher, others, Ignore Extortion, Bribery, Coercion, and Slavery; No One Should Own You!Collective Bargaining neither a Privilege nor a RightEven FDR Understood the ProblemPublic unions get into bed with management and politicians and work out sweet deals for themselves at taxpayer expense. No one looks out for the taxpayer. Even FDR understood the problem. Message from FDRInquiring minds are reading snips from a Letter from FDR Regarding Collective Bargaining of Public Unions written August 16, 1937. All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations when applied to public personnel management.
The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations.
Particularly, I want to emphasize my conviction that militant tactics have no place in the functions of any organization of Government employees.
A strike of public employees manifests nothing less than an intent on their part to prevent or obstruct the operations of Government until their demands are satisfied. Such action, looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Six Things the Fed May Announce Tomorrow (But Likely Won't); Would Any of Them Matter? Gaming the Reaction Posted: 20 Sep 2011 09:14 AM PDT Courtesy Breakfast with Dave (via Zerohedge Forget Operation Twist: Rosenberg Says Bernanke Will Shock Everyone With What Is About To Come), let's take a look at some ideas of Dave Rosenberg and see how likely each one is, and whether any of them would matter. The consensus view that the Fed is going to stop at 'Operation Twist' may be in for a surprise. It may end up doing much, much more. And this may be one of the reasons why the stock market is starting to rally (a classic 50%+ retracement, which always occur after the first 20% down-leg in a cyclical bear market would imply a test of 1,250 on the S&P 500 at the very least). Hedge funds do not want to be short ahead of next week's FOMC meeting, and who can blame them?
In other words, if Bernanke wants to juice the stock market, then he must do something to surprise the market. 'Operation Twist' is already baked in, which means he has to do that and a lot more to generate the positive surprise he clearly desires (this is exactly what he did on August 9th with the mid-2013 on- hold commitment). It seems that Bernanke, if he wants the market to rally, is going to have to come out with a surprise next Wednesday. If he doesn't, then expect a big selloff.
What he is likely to do is another story, but here are some options:
- Expand the balance sheet further and simply buy more bonds (at the longer end of the curve).
- Eliminate the interest paid to commercial banks on excess reserves (to try to spur lending).
- Announce an explicit ceiling on the 10-year note yield (say 1.5%), which the Fed has done in the distant past. Based on Bernanke's prior rhetoric, this would seem to be a preferred strategy (though the Fed relinquishes control of the balance sheet).
- Buy foreign securities (bail out Europe and weaken the U.S. dollar — talk about killing two birds with one policy stone).
- Announce an explicit higher inflation target or perhaps a lower unemployment rate target (i.e. reinforce the DUAL mandate).
- As Mr. Bernanke stated for the record in November 2002, the Fed does have broad powers to lend to the private sector indirectly via banks, through the discount window. It could offer fixed-term loans to banks at low or zero interest, with a wide range of private assets (including, among others, corporate bonds, commercial paper, bank loans, and mortgages) deemed eligible as collateral. For example, the Fed might make 90-day or 180-day zero-interest loans to banks, taking corporate commercial paper of the same maturity as collateral. Such a program could significantly reduce liquidity and term premiums on the assets used as collateral. Reductions in these premiums would lower the cost of capital both to banks and the nonbank private sector.
Note that this is all for a trade. As we saw back on August 9th, we had a huge rally but the market is no higher today than it was then. All we have seen since is a huge amount of volatility. The above from Rosenberg at Gluskin Sheff, from "Breakfast with Dave", via ZeroHedge. Mish Analysis of 6 Alternatives- Buy the long end of the curve: What would it do? 10-Year yields are near all-time below 2%. Would another .5% lower to 1.5% accomplish anything? About the only thing I can think it might do is increase the Fed's exit problem down the road.
- Eliminate Interest on Excess Reserves: I think the Fed should eliminate interest on reserves because printing money then handing interest straight over to banks on that money is outrageous. However, banks are capital impaired. Paying interest on excess reserves is one way of slowly recapitalizing banks over time. It would be a huge policy error for the Fed (from their point of view, not mine), to eliminate interest on excess reserves.
- Announce an explicit ceiling on the 10-year note yield (say 1.5%): Rosenberg calls this the preferred scenario. It has three problems: It will not accomplish much, if anything, for the real economy. It would increase the exit problem of the Fed down the road. And worst of all it would increase the exit problem by an unknown amount. Defending an interest rate target, as Switzerland just did, means buying unlimited quantities of treasuries from any sellers.
- Buy foreign securities: This one is interesting, and little discussed. Moreover, the market is clearly focused on problems in Europe. Were the Fed to announce backstopping debt of Italy, it could easily start a huge market reaction (if a market reaction is the goal). However, there are obvious political problems of this policy and if the ECB will not do buy sovereign debt, why should the Fed? Note that once the EFSF is in place the ECB stops buying debt.
- Announce an explicit higher inflation target or perhaps a lower unemployment rate target: The goal of driving rates lower while announcing a higher interest rate target sure seems counterproductive, especially at the long-end of the yield curve. Should the Fed announce a lower unemployment target, members of Congress would pressure the Fed until that goal was reached. The Fed most assuredly will not want that pressure.
- Fixed-term loans to banks at low or zero interest: Banks will not lend for 10 years or even 2 years (remember they are capital impaired and have few good credit risks willing to borrow) if the Fed will only backstop the loan for 90 or 180 days. I am not sure the Fed would try this anyway, but if they did I fail to see how it would spur much lending. It does nothing to solve capital impairment.
Problems EverywhereI see huge potential problems for all 6 of Rosenberg's alternative. The most bang-for-the-buck (if the goal was to goose the markets), would come from bailing out Europe. Moreover, I suspect Treasury Secretary Geithner might even be pushing Bernanke in that direction with his TALF for Europe ideas. However, bailing out Europe would be one of the more politically risky choices. Would that stop Bernanke? Probably, at least for now, but perhaps not down the road when things become unglued in Europe. Operation Twist LikelyMy assessment of the situation is that Operation Twist (selling the short end of the curve and buying the long end to keep from expanding the Fed's balance sheet) will not do any good. Yet, the Fed will not do much more than that, other than a little extra yapping about what they might do later. When it comes to "later" any of the six items above are fruitful grounds for hope, even though such hope is misplaced as noted by the discussion of problems above. Gaming the ReactionThe market focus is clearly on Europe. Should good news come out tomorrow say 30 minutes after Bernanke makes his announcement, whatever Bernanke says may be meaningless, even in the short-term. With that in mind, we just might see an announcement tomorrow afternoon by the EU and IMF that Greece was approved for the next tranche of loans Thus, meaningless statements from Europe may easily (and temporarily) override meaningless statements from the Fed. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Point of No Return: Will it be Japanization, Monetization, or Crisis 2.0? Posted: 20 Sep 2011 12:50 AM PDT I believe the Eurozone will break apart. Eurobonds are dead, so are fiscal unions. The question is really what path the crisis takes. Via email, Saxo Bank chief economist Steen Jakobsen outlines several scenarios in a series of three emails that I spliced together. There are three major ways of dealing with this crisis:
- Japanization – A Slow Death - Like Japan. Accept deflation, along with slow gradual restructuring, massive fiscal deficits, negative real-rates, housing prices lower than 30 years ago and a stock market valuation at less than 50 per cent of its peak
- Crisis 2.0 – A Forest Fire of deleveraging, political and economic changes created by necessity and need for moving forward. This scenario features a deep one-to-three year recession followed by better debt to equity, more realistic future expectations, and a public sector under control.
- Monetization – The extend-and-pretend forever solution, buying time – more of the same, patch work solutions, slowly forcing Europe towards fiscal consolidation not changing the Maastricht but the ECB charter to allow it to be lender-of-last-resort. This is the final phase of 'Maximum Intervention' – bigger and bigger direct support on liquidity(as seen today) and no impact on the solvency.
In the 'Maximum Intervention' macro theme the next policy response will be something new, yet more of the same – this has been the historic reaction function of the EU. The consensus right now is that the ECB wants EFSF enlarged from 440 billion EUR to 2.000 billion EUR size in order to get ahead of the EU debt crisis. This is opposed by the Germany.
Another solution is to start Quantative Easing, using the ECB to print money, similar to the US, Japan, UK and Switzerland – this is opposed, for now, by the ECB.
The European "TALF" scheme proposed by Geithner is a full blown move to QUANTATIVE EASING in Europe, the legal standing vis-à-vis Maastricht and the Constitutional Court in Karlsruhe is shaky at best.
I doubt the Germans will accept this – and even that the ECB will want their mandate changed directly. The Germans wants Crisis 2.0 – the ECB wants EFSF enlarged to + 2.000 billion EU.
Eurobonds Dead
Any solution 'permanent' in nature is in violation of German Constitutional Court – meaning pretty much Euro-bonds is out. (As Germany would have to be lender-of-last-resort when everyone else goes bankrupt)……Any solution temporary could fly vis-à-vis the Constitutional Court but ONLY if approved by full parliament.
Everything else coming to the table is talk, talk and more talk. American "experts" fail to understand the above and …. Most importantly as you have heard me say 1000x of times: 'Never underestimate the political will of politicians to make this work/survive' – Never!
The point of no return is here – Between now and the installment paid out in October we have major risk.
This week will tell if FOMC comes to rescue or we start the hard part of Crisis 2.0 – the deconstruction of capital needed to create the political will to do proper economic and political changes. Geithner's TALF Play Rejected by GermanyPortions of Steen's comments were written last Friday. On Saturday, as Steen expected, Germany threw a money wrench into Geithner's leveraged TALF play as noted by Bloomberg in Germany Rejects Using ECB to Lift EFSF Rescue-Fund FirepowerGermany's top two finance officials rejected using the European Central Bank to boost the euro-area rescue fund's firepower, rebuffing a suggestion by U.S. Treasury Secretary Timothy Geithner.
The German stance risks leaving the euro area without sufficient means to prevent the crisis from engulfing Spain and Italy.
"The EFSF's sole purpose is the financing of states and that's in order as long as it's done via the capital market," Bundesbank President Jens Weidmann told reporters today. "If it's done via the central bank it constitutes monetary state financing," which is forbidden under European Union rules. Fed Uncertainty Principle in PlayPlease note that corollaries 2, 3, and 4 of the Fed Uncertainty Principle are in play. Simply substitute ECB wherever you see Fed. Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.
Corollary Number Three: Don't expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.
Corollary Number Four:
The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it's easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.
Note that ECB president Jean-Claude Trichet purchased sovereign bonds of Greece, Italy, Portugal, Spain, and Ireland (over the heated objections of the German Central Bank) in what many think was a violation of the Maastricht Treaty. Thus, while it may seem Maximum Intervention is out, " Never underestimate the political will of politicians to make this work/survive – Never!" Ultimately Crisis 2.0 It IsNeither Maximum Intervention nor Japanization are sustainable. There simply is no political will by anyone for prolonged Japanese-style debt-deflation, and maximum intervention will blow up eventually. Eventually Crisis 2.0 will take hold, and the sooner the better. Crisis 2.0 (at least as I see things) can itself resolve in one of three ways, as noted in Eurozone Breakup Logistics (Never Believe Anything Until It's Officially Denied)I am not sure if Steen will agree with this, but I see Crisis 2.0 terminating in Plan B or Plan C. - Plan B: Greece, Spain, Portugal, Italy and the "Club-Med" states break away from the Euro.
- Plan C: Germany, Austria, the Netherlands and Northern Europe break off the Euro. Alternatively Greece leaves via plan B, then Plan C takes over for everyone else.
- Plan A: Defend the Euro at all Costs - is similar to Steen's Maximum Intervention play and is therefore unworkable long-term.
Plan C is the least destructive for everyone, but politics may prevent it. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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