Mish's Global Economic Trend Analysis |
- Japan Industrial Production Declines 2.6%, 3rd Quarter Capital Spending Drops 9.8%, Corporate Sentiment Drops to Minus 4; Powder Keg Waiting for a Spark
- Italians Cut Spending in Worst Christmas in 10 Years; Debt in Spanish City of Gandia 50% Higher than Previously Reported; Harsh Times Ahead for All Europe
- Ron Paul Did Not "Walk Out" of CNN Interview; Blatantly Biased Headline by Time Magazine; Six Reasons to Vote for Paul
- Brazil is World's 6th Largest Economy, Overtaking UK Earlier this Year. Can Brazil Overtake France by 2016? What about BRICs in General?
Posted: 27 Dec 2011 06:52 PM PST A torrent of bad news hit Japan in November. Please consider some details from the Bloomberg article Japan Factory Output Falls on Global Slump
Japan blames this mess on a strong Yen and Thailand's worst flooding in almost 70 years. The flooding crippled the output in Southeast Asia of Japanese companies such as Sony Corp. and Honda Motor Co. Japan created four separate "supplementary budgets" totaling of 20 trillion yen ($257 billion) to deal with the the earthquake and tsunami. In 2012, Japan will create a "separate budget" for reconstruction. However, no matter how many piles spending is split into, Japanese deficit spending cannot be hidden. Japan's problems don't stop there. Europe is Japan's third largest export market, and Europe is a basket case. Europe will remain a basket case if Eurozone austerity measures are even modestly implemented. Land of the Rising Debt Pater Tenebrarum had some excellent charts and commentary in his post Land of the Rising Debt Government spending does not 'spur growth'. If it did, Japan would have been the world's growth engine for the past two decades. In reality, every cent the government spends must be taken from the private sector and therefore can no longer be spent or invested by it. We can see what the government's spending achieves (not much) – what we cannot see is what would have been achieved had the government left well enough alone and the private sector had saved, spent and invested instead. This is the 'broken window effect' – one must not only consider the obvious economic effects of a policy, but also the 'unseen' ones. Government spending is a burden, not a boon.Powder Keg Waiting for a Spark The pertinent point is not the sorry state of affairs including a debt-to-GDP ratio of 220%, but rather when it matters. So far Japan has avoided printing on the scale of the Bernanke Fed, but one has to wonder how long that can continue in spite of Japan's dire worst in the industrialized-world demographics. Tenebrarum points out "At the moment, JGB's trade like 'risk free' debt, in spite of the fact that Japan has lost its 'AAA' rating long ago and has been downgraded again this year, with further downgrades likely. Should the percentage of foreign ownership of JGB's rise significantly, the probability of a 'non-linear' debt market convulsion will rise commensurately. The Japanese government can 'financially repress' its own institutions, but not foreign investors." "It seems rather like a powder keg waiting for a spark". Indeed! Moreover, Japan's efforts to kick the can down the road perpetually issuing short-term debt that will need to be rolled over at some point insures the explosion will be massive once the debt-bomb finally ignites. Please see Japan Seeks to Market Record 145 Trillion Yen Bonds in 2012; Kicking the Can Japanese Style for a brief analysis. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 27 Dec 2011 12:54 PM PST Spanish City of Gandia is Insolvent Courtesy of Google Translate El Economista reports The debt of the City of Gandia exceeds 300 million euros The Deputy Mayor for Economic and Financial Officer of the City of Gandia, William Barber, has appeared before the media to explain and detail the results of the audit report conducted by Deloitte, commissioned by the new municipal government. The result is 300,066,000 euros, although the municipal government of the PP, initially estimated that out of about 200 million.Not an Isolated problem Every official in Spain repeats the line they will not raise taxes. In the case of Gandia which is in a situation of "negative equity" (bankrupt), how the heck does the city propose paying suppliers? Gandia is not an isolated problem. Please consider Spanish Implosion Coming Up; Deficit Up, Receipts Down, a Need to Cut 40 Billion in Expenses from 90 Billion; Spain's "Hidden Deficit" for another take on "hidden deficits" coming to light. Italians Cut Spending in Worst Christmas in 10 Years Bloomerg reports Italians Cut Spending in Worst Christmas in 10 Years Italian retailers had the worst Christmas in 10 years, consumer group Codacons said, as austerity measures to combat the sovereign debt crisis prompted households to cut spending.I am trying to get a handle on the percentage decline and the magnitude of the decline. The consumer group estimates "as much as 40 percent" but believe that appears to be by sector, not overall spending. Courtesy of Google Translate, here is another link from El Economista: The Italian Christmas spent 400 million euros less than in 2010 The Italians spent this Christmas 400 million less than last year, according to a report by the Consumer Federation of ONF, met with another federation Coldiretti farmers who notes that Christmas dinner and lunch on day 25 spent 18% less than in 2010.Austerity Kicks In, Harsh Times Ahead for Europe Translation is not entirely clear. As measured by a 400 million decline from 4,400 million, spending is down 9%, not the 18% Coldiretti farmers reference. Regardless, various austerity measures will take a direct bite out of Spain, Portugal, Italy, France, and Greece via reduced wages, rising unemployment rate and extremely harsh times. With the rest of Europe pulling back, and with China cutting back, the export machine of Germany is headed for major problems. Thus, austerity will take an indirect bite out of Germany and the trade surplus countries as well. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 27 Dec 2011 10:19 AM PST In response to Attack Dogs Unleashed on Ron Paul; No Need to Rethink Endorsement; Plus Side of Attack Dogs I received many emails informing me that Ron Paul did not walk out of an interview with CNN with Gloria Borger. The Daily Paul, posted the entire CNN interview that shows a much different picture than portrayed by Time and CNN. Blatantly Biased Headline by Time Magazine Play the video and you will see the interview was effectively over. Time Magazine posted a very slanted headline Paul Walks Away. Piling on the Nonsense David Frum, CNN Contributor, piles on the nonsense Codger, crank or more? It's fair to say that almost no one who has followed the controversy believes that Paul is telling the truth about any of this. The authorship of the newsletters is an open secret in the libertarian world: they were produced by a community of writers led by Paul aides Lew Rockwell and Murray Rothbard, who wrote a newsletter of their own at the same time that expressed similar ideas in similar language. The racism of the newsletters -- and the elaborate lying subsequently deployed to evade responsibility for the newsletters -- say much about the ethics of Paul himself and the circle around him.Fair to Say?! It's certainly not fair to make that claim. Can I see a poll please? Moreover, Libertarians do not hold the racial beliefs stated by David Frum. If someone wants to talk about ethics, it's just as easy for me to claim "It's fair to say the vast majority of those following the Paul story understand that CNN writers like Gloria Borger, David Frum, and Wolf Blitzer do not care about the news, they only care about generating sensational headlines, any way they can. Moreover, CNN openly support wars, regardless of the ethics of war, because war is good for ratings." I do believe that's "fair to say", although like David Frum I do not have a poll to prove it. While on the theme of "fair to say" I would like to point out this comment made by "EasyRhino" to Frum on the CNN blog: "Keep in mind Frum is a 5 star chicken hawk who defended the invasion of Iraq and advocates regime change in Iran and Syria, everything Paul is against." Contact CNN I might also point out that it's "fair to say" the CNN writers must be cowards because they do not have a direct way to contact them via email. You can however, Send a General Email to CNN and let them know what you think of their reporting. Attempts to Turn Non-News into News This biased reporting of "walking away" is a case of news agencies attempting to "make news" where there is no news. Moreover, a couple of questions by Gloria Borger, including the question of returning money, were economically inane. There is no one to return money to, as Paul pointed out. Still when pressured by Borger, Paul should have been more direct with something like "Sorry Gloria, things I did not say over 20 years ago and have explained to CNN a number of times are not meaningful and are not news, no matter how much you try to spin it so. What is relevant today is my position on the economy, on troops in Afghanistan, and on reducing the deficit, not things I never said, and more importantly never acted on in all my years in Congress." Six Reasons to Vote for Paul
As I have pointed out before, President Obama and Mitt Romney are Nearly One and the Same! This is not a case of the lesser of two candidates, this is a case where one electable candidate and one electable candidate alone has a platform that makes sense. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 27 Dec 2011 12:22 AM PST Earlier this year, Brazil surpassed the United Kingdom as the world's 6th largest economy. Moreover, Brazil's finance minister makes the claim Brazil to Remain Ahead of U.K. Economy and will surpass France by 2016. Brazil will remain one of the fastest-growing nations in the coming years after overtaking the U.K. this year to become the world's sixth-largest economy, the country's Finance Minister Guido Mantega said.Is Brazil Fundamentally Different? This reminds me of forecasts that China will soon overtake the US. China won't and energy is the reason. Is Brazil fundamentally different? Please consider the American Thinker article Import Brazil's Oil Policy, Not Brazil's Oil In 1980, Brazil imported 77 percent of its oil. Now it imports 0.0 percent. During that same time period, America increased its oil imports from roughly 30 percent to 70 percent. If Brazil can become completely self-sufficient in oil, why can't America start becoming more self-sufficient?To answer the question, Brazil can produce relatively cheap energy from sugar cane, something that cannot be said about ethanol from corn. Fundamentally, if Brazil can produce ethanol cheaper than the US, then the US should indeed import Brazilian ethanol, contrary to the opinion expressed by American Thinker. Furthermore, the US certainly can and should end agricultural tariffs that drive up the price of corn and ethanol. Let's take a sidetrack for a moment to look at one aspect of US agricultural policy. In Support of Hemp Certainly the US should legalize hemp for softer-than-cotton fibers that use far less water and energy-wasteful fertilizers. Hemp quickly grows up to 5 metres in height with dense foliage which blocks weed growth. This means herbicides are not needed and the field is weed free for the next crop. Unlike cotton hemp does not have a high water requirement. The hemp plant has a deep tap root system which enables the plant ot take advantage of deep subsoil moisture, thus requiring little or no irrigation.Why is Hemp illegal? Warmongers like to wage endless wars or drugs, so do manufacturers of artificial fibers, so do fertilizer companies, and of course the cotton industry does not want competition either. OK let's return to Brazil. Brazil Inflation When inflation is running comparatively hot, as it is in Brazil, you have a perception of growth that really isn't there. In "real" inflation-adjusted terms, Brazil's growth does not look spectacular. Brazil Real GDP Brazil Economy Stalls Q3 Trading Economics reports Brazil Economy Stalls in Q3 Brazil Economy failed to grow from the previous three months for the first time since the first quarter of 2009, as credit curbs, higher borrowing costs and budget cuts checked demand. The GDP grew 2.1 percent from the same period a year ago.Brazil vs. France Might Brazil overtake France by 2016? Given Europe is likely headed for an extremely nasty recession, it might be reasonable to assume that. But what if China slows, Europe slows, and the US slows? Can Brazil put up sufficient internal demand? What about Brazil's inflation rate and the possibility Brazil's central bank is forced to slam on the brakes? What About BRICs in General? In a balance-sheet recession and global slowdown (especially a slowdown with defaults), it is the balance-of-trade surplus countries that will take a hit. Thus, I expect both Germany and China to take a hit, and I have said so many times. Should Brazil be any different? Can energy make the difference? Might stupidity from politicians outweigh everything else? The last question is easy enough to answer, even if the other questions aren't. Certainly, poor decisions by politicians may trump everything else. And when it comes to poor economic policies, the EU is in the lead. However, even if Brazil does grow faster than the UK or France, what growth is Brazil priced for, and how sustainable is it? I do not have answers to all those questions, nor does anyone else. The situation is far more complex than it appears at first glance. However, the questions do provide a framework for further analysis. By the way, the above discussion shows the frequently touted "BRIC" grouping (Brazil, Russia, India, China), is fundamentally flawed. Each country must be evaluated individually because of vastly differing energy needs, inflation, and internal politics. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
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