Mish's Global Economic Trend Analysis |
- Trade War Threat Looms Once Again; Senate Takes Up Bill to Punish China for Manipulating Currency; How Many Jobs Would Tariffs Create?
- Greek Cabinet to Fire 20% of Public Workers; Unconstitutional Action? What if Greece Says "* You" to the Troika?
- House is Gone but Debt Lives On; Expect Huge Surge in Deficiency Lawsuits
Posted: 02 Oct 2011 06:35 PM PDT Trade wars and tariffs never solve anything. Nonetheless Congress addresses Chinese currency manipulation After years of trying, Congress is taking another stab at retaliating against what many see as Chinese manipulation of its currency to make its exports to the United States cheaper and U.S. goods more expensive in China.Tariffs Will Cost Jobs Anyone who thinks government officials can determine if and when currencies are "misaligned" has no economic sense, is engaging in populist rhetoric to buy votes, or both. The clowns at the Economic Policy Institute think tariffs will create 2 million jobs and reduce the trade deficit by $120 billion. I suggest tariffs will cost jobs. Manufacturing will not return to the US, nor will manufacturing of any sort, on account of tariffs. Wage differentials are too great and trade channels will simply shift (at great expense) to another country. However, prices will rise, sales will slow, and the squeeze on consumers will accelerate. Here is a simple example: Let's assume a 35% tariff on underwear. How many jobs will return to the US ? 50? 100? Any? Let' be generous and assume 500 (although the answer is most likely zero). In return for those 500 jobs, everyone in the United States has to pay 35% more for underwear? Is that a good trade-off? Clearly the answer is no, but it is much worse than that. We also need to address the question "how many jobs would be lost because underwear is 35% higher?" Whatever additional money is spent on underwear by 300 million Americans will come at the expense of those consumers spending less on something else, perhaps eating out, perhaps buying toys, or perhaps buying shirts. To save 500 or whatever manufacturing jobs, everyone buying underwear will cut back on something else. Those cutbacks will have a real effect on shipment of goods (trucking), eating out, recreation, etc., just to benefit underwear manufacturers. Magnify the underwear example by the vast numbers of idiotic lawsuits from manufacturers that will stem from a law that only requires some bureaucrat to figure out if a currency is misaligned. Then figure out how much bureaucratic expense and waste will that cause? Lindsey Graham and Mitt Romney are definitely on the wrong side of this issue. If Congress is foolish enough to pass such a law, and president Obama is foolish enough to sign it, expect to lose a half million jobs minimum because of it. Depending on retaliations and how things escalated, 2 million jobs lost would not be surprising in the least. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 02 Oct 2011 11:00 AM PDT Government workers make up 20% of the Greek labor force. Worse yet, most of them cannot be fired for virtually any reason. That is about to change, and it's a much needed change for the better. However, the idea that it will reduce the budget deficit to required levels by 2012 or even 2014 is ludicrous. When that does not happen larger haircuts will be unavoidable. Reuters reports Greek cabinet to approve '12 budget, plan to sack state workers The Greek cabinet is expected to approve a contentious plan Sunday to lay off state workers, and sign off on a draft of next year's budget, in a race to slash spending, free up bailout loans and stave off bankruptcy.Unconstitutional Action? From an eventual economic recovery standpoint, even more government workers should be fired than proposed. Moreover, the retirement age of workers needs to be increased, and pensions reduced. However, such actions are against the Greek constitution and I see no reference the Greek constitution was actually changed. I can only find a call for a change by prime minister George Papandreou, on June 19, 2011: Greek PM calls for constitutional change amidst enduring crisis Democracy International discusses the proposed referendum on July 15, 2011 in Direct Democracy in Greece & the 2011 Referendum Greek Economy in Depression, will Further Collapse Since government spending adds to GDP by definition, Greek GDP will collapse. Worse yet, tax hikes are precisely the wrong thing to do in the midst of an economic depression, and will not aid the recovery in any time frame. There is no chance Greek can make its budget deficit estimates unless they are radically changed, and probably even if they are radically changed (on my assumption the budget estimate changes will not be radical enough). It will be interesting to see what kind of unrealistic haircuts the Troika comes up with next. Anything under 50% is ridiculous (with some estimates running as high as 90%). Yet I will take a wild stab at 30%, (up from 21%). Looking ahead to the Exit of Papandreou Looking ahead, prime minister George Papandreou will not survive the next election. He is hanging by a thread now, with a mere 4-seat majority in Parliament. Will the next government go along with all these proposals? I highly doubt it. What if Greece Says "* You" to the Troika? All these actions by the Troika are based on the silly belief the Troika is in control of a Greek default and can set the parameters thereof. The Real Deal Greeks are so pissed at banks, at bailouts, at austerity, at Greek Prime Minister Papandreou, and at the Greek parliament the majority simply does not care if a revolt is worse than further austerity measures. Greek citizens they have been lied to so often they probably cannot tell the difference between relatively good scenarios and disastrous ones if they tried. The one thing they do correctly understand is bailouts were not setup for the benefit of Greece, but rather the benefits of lenders. So what would you do if you were Greek? If you were wealthy and mobile you would pull your money out of Greek banks and leave. Otherwise, you would be at the point of telling the EU, ECB, and IMF "* You". Portugal and Spain are in the same boat, just not as advanced. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
House is Gone but Debt Lives On; Expect Huge Surge in Deficiency Lawsuits Posted: 02 Oct 2011 12:43 AM PDT Forty-one states allow lenders to sue for mortgage debt if a home fetches less than the mortgage in a foreclosure sale. It always will. Such lawsuits are one of the reasons I have consistently advised people to consult an attorney before walking away. For a nice write-up on deficiency judgments please consider the Wall Street Journal article House Is Gone but Debt Lives On. Joseph Reilly lost his vacation home here last year when he was out of work and stopped paying his mortgage. The bank took the house and sold it. Mr. Reilly thought that was the end of it.Laws vary from state to state and things may depend on whether or not the loan is a recourse loan or not. Once again, before walking away, and before considering a short-sale or bankruptcy, please consult an attorney who knows real estate laws for your state. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
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