Central Perk: 23 iul. 2011

sâmbătă, 23 iulie 2011

Mish's Global Economic Trend Analysis

No Austerity for France, Just the PIIGS
It's Official Now, Fitch Declares Greece in Default; German Central Bank Openly Critical of Deal
Central Falls Gives Ballots to Police and Firefighters Asking for 50% Pension Reductions or Risk Losing Everything in Bankruptcy Court

Posted: 23 Jul 2011 09:15 PM PDT

Although the deal just worked out requires all but the troubled Eurozone economies to reduce deficits to 3% by 2013, Francois Baroin, the French finance minister, says Greek deal won't mean austerity for France

France will not need to introduce austerity measures in response to increased debt exposure from the euro zone's new rescue plan for Greece, its finance minister said on Saturday.

Baroin, who recently succeeded IMF-bound Christine Lagarde, told the newspaper: "France is participating in the form of a guarantee.

"...Since last year, European statisticians have told us that the debt of the European Financial Stability Facility (bailout fund) should be linked to each country according to what it guaranteed.

"Beyond that accounting impact, France doesn't need to borrow more and our deficit isn't impacted. Neither the EFSF nor obviously France will be impoverished by this plan."

Facing an election in 2012, the government aims to cut the public deficit from an estimated 5.7 percent of GDP this year to meet an EU-imposed limit of 3 percent in 2013.

Austerity or not, it is precisely this deficit reduction play that has Krugman screaming "It's 1937". Please see Greece Defaults; Krugman Screams It's 1937; Maastricht Treaty Needs Revisions; "European Monetary Fund" Created; German Taxpayers on the Hook for a recap.

I find it unlikely that France will meet those targets. Moreover, and although Ireland, Greece, Portugal, and Spain are exempt from that 3% by 2013 ruling, it is 100% certain Greece and Ireland will need another bailout by then.

Expect to see this deal run into enormous difficulty by the end of the year, if not the end of next month.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

It's Official Now, Fitch Declares Greece in Default; German Central Bank Openly Critical of Deal

Posted: 23 Jul 2011 01:44 PM PDT

In what constitutes an anticlimactic moment of sorts, Fitch Calls Greece Default.

Fitch ratings agency declared Greece would be in temporary default as the result of a second bailout, which Athens said had bought it breathing space.

But the agency pledged to give Greece a higher, "low speculative grade" after its bonds had been exchanged and said Athens now had some hope of tackling its debt mountain, which most economists still expect to force a deeper restructuring in the future.

An emergency summit of leaders of the 17-nation currency area agreed a second rescue package on Thursday with an extra 109 billion euros ($157 billion) of government money, plus a contribution by private sector bondholders estimated to total as much as 50 billion euros by mid-2014.

Under the bailout of Greece, which supplements a 110 billion euro rescue plan by the European Union and the International Monetary Fund in May last year, banks and insurers will voluntarily swap their Greek bonds for longer maturities at lower rates.

"Fitch considers the nature of private sector involvement... to constitute a restricted default event," said David Riley, Head of Sovereign Ratings at Fitch.

"However, the reduction in interest rates and extension of maturities potentially offers Greece a window of opportunity to regain solvency, despite the formidable challenges that it faces," he said.

German central bank chief Jens Weidmann was openly critical of the package, saying it shifted risks onto taxpayers in countries with stronger finances and weakened incentives for governments to keep their finances under control.

"This weakens the foundation for a currency union based on fiscal self-responsibility," said Weidmann, a European Central Bank policymaker, although he conceded the deal could help ease financial market tensions.

Given that nothing has been solved, the climax of this saga has still not yet been seen. The deal still requires every member nation to approve changes to the Maastricht Treaty, which may not happen. Moreover, Greece is just the first of many nations to test the system. Ireland, Portugal, Spain, and Italy are waiting on deck. Finally, will German taxpayers go along with a plan their own central bank is highly critical of?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Central Falls Gives Ballots to Police and Firefighters Asking for 50% Pension Reductions or Risk Losing Everything in Bankruptcy Court

Posted: 23 Jul 2011 08:42 AM PDT

In a scene that is going to play out in scores of cities across the nation, unions are going to come to grips with the fact that pensions are not sacrosanct. Please consider Rhode Island city asks retirees to cut their pensions

As cities across the United States struggle to keep their finances afloat, Central Falls, Rhode Island, is taking a novel approach to try to avoid bankruptcy.

The city is asking police and firefighter retirees to give up 50% of their pension.

On Tuesday, a state-appointed receiver, Judge Robert Flanders, met with constituents to discuss options that will prevent the city from filing for bankruptcy, but the choices seemed limited: either volunteer for the pension cut, or risk losing it all.

Each of the 141 city retirees will receive a voting ballot and a packet by the end of the week, showing how much of their pensions will be slashed if they agree to volunteer for the benefits cut.

With August set as the deadline for further decisions on the financial future of the city, Flanders hopes to find out residents' decisions by the end of the month.

Though the measures seem drastic, residents are being told that it's a far better choice than "being at the mercy of the bankruptcy court."

"It was a very difficult meeting, there was a lot of concern and anger," said Trainor of Tuesday's event.

Flanders "hopes, in the case of the retirees, that they would agree," Trainor said.

"Better to accept his proposal than taking a chance with the bankruptcy court," he added.

Simple Rule

What cannot be paid won't. Taxpayers have had enough. Central Falls is a small and troubled city, but this same scene is going to eventually hit Pittsburgh, Oakland, Houston, Detroit, San Francisco, Los Angeles, Chicago, and most likely every major city in the country.

Benefits are untenable. The sooner something is done, the better off everyone will be.

Things That Must Change

Defined benefit pension plans for government workers must end
Davis-Bacon and prevailing wage laws that drive up costs of Federal projects and clobber city and municipal governments must come to an end
National right-to-work laws must be enacted
Collective bargaining of public unions must end
Existing pension benefits must be renegotiated

Unions will not like any of those but they are all going to happen.

I am disappointed that Rand Paul and others in the Senate did not take up points 2 through 4 in the budget negotiations. Small tax hikes in return for those items would have been well worth it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Damn Cool Pics

Tips from Jenna Marbles: How To Get Ready For A Date

Posted: 22 Jul 2011 09:12 PM PDT

Jenna Marbles, is a vlogger who has gotten big giving people - particularly ladies - sarcastic advice. You might remember her videos on how to trick people into thinking you're good looking or how to avoid talking to someone.

Well now she's teaching us how to get ready for a date, and has some solid pointers. So hey, if you've already learned to flirt, why not prepare yourself for all of the hot dates you're about to go on?

Military Humor - Part 3

Posted: 22 Jul 2011 06:23 PM PDT

With heavy weaponary and a lot of time on their hands weird things are bound to occur. Here is another collection of very funny pictures of what happens when our troops get bored.

Previous parts:
Military Humor - Part 1
Military Humor - Part 2