Central Perk: 03/01/2012

sâmbătă, 31 martie 2012

Mish's Global Economic Trend Analysis

Spiegel Says "Even a 1-Trillion Euro Firewall Wouldn't Be Enough"; Mish Says "The Bigger the Bazooka, the More Money Will be Lost"

Posted: 31 Mar 2012 12:57 PM PDT

Eurozone bureaucrats keep upping the ante as to how big a "firewall" is needed. And at every critical juncture, German Chancellor Angela Merkel has proven she is nothing but a liar. With every demand for additional firepower, comes an inevitable cave-in from Merkel supporting the move, no matter what she says in advance.

Meanwhile, the entire idea that firewalls can accomplish anything is ludicrous, given the key point that no currency unions in the absence of fiscal unions cannot and will not work.

I suspect Merkel understands this, merely wanting to get Germany so deep into bailouts step by step, that it will be reluctant to leave the Eurozone.

It is high time the German Supreme court step in and stop this nonsense.

However, nothing can stop Greece, Portugal, and Spain from leaving, and eventually they will. In the meantime, rest assured that every increase in firepower will be additional money of German citizens' pockets. The end-game will be a currency or banking crisis at the worst possible time.

For now, please consider 'Even a 1-Trillion Euro Firewall Wouldn't Be Enough'

European finance ministers meeting in Copenhagen on Friday agreed to boost the euro-zone firewall to over 800 billion euros. The move marks another U-turn on the part of the Merkel administration, which recently dropped its opposition to increasing the fund. German commentators warn that even the new firewall may still be too small.

German Chancellor Angela Merkel and her finance minister, Wolfgang Schäuble, have been accused of crossing many of the "red lines" that they have set for themselves over the course of the euro crisis, making U-turn after U-turn as the crisis escalated. They officially stepped over the latest red line on Friday, when European Union finance ministers meeting in Copenhagen agreed to boost the scope of the euro zone's firewall to over €800 billion ($1 trillion). Berlin had long rejected such an expansion out of hand.

The Nuclear Option

On Thursday evening, in the run-up to Friday's summit, German Finance Minister Wolfgang Schäuble had said he was prepared to combine the existing bailouts with the new permanent mechanism. He said that the €800 billion capacity was "convincing" and "sufficient."
But not everyone shares his view that the sum is enough. On Thursday, French Finance Minister François Baroin called for the permanent euro bailout fund to be increased to €1 trillion, to shore up market confidence and prevent contagion in the euro crisis. "The firewall, it's a little like the nuclear option in military planning, it's there for dissuasion, not to be used," Baroin said in a radio interview.

'Shifting Sand Dunes'

Opposition parties in Germany were quick to make political capital out of the Merkel administration's many U-turns during a debate on the euro rescue fund and the European fiscal pact in the German parliament, the Bundestag, on Thursday. "Your red lines have, in reality, become shifting sand dunes," Frank-Walter Steinmeier, floor leader for the center-left Social Democratic Party (SPD), said to widespread applause.

In December, Merkel argued, entirely convincingly, that boosting the euro bailout fund was the wrong course to take. After all, she said, it would reduce the pressure on crisis-stricken states to push through reforms. There was also the question of whether the creditor countries, including Germany, were in danger of being overwhelmed by ever-higher guarantees." "Now, the fund is indeed being expanded, and the coalition government's former concerns have suddenly disappeared. Instead, the administration is attempting to conceal its own U-turn with highly flawed arguments.

The left-leaning Die Tageszeitung focuses on the calls to boost the ESM to €1 trillion:

"One trillion euros is a lot of money, and yet even this huge sum will not be enough. But again, that's nothing new. For months, calculations have been doing the rounds that show that at least €1.5 trillion will be needed. The only interesting question left is how long it will take France and Germany to acknowledge this reality."

No Amount is Enough

For reasons noted at the top, no amount of money (that can reasonably be provided) would be sufficient. After all, there is a limit to what German citizens and taxpayers can stand. Besides,money alone cannot fix structural problems.

Finally, the "nuclear" option is nothing more than former US treasury Hank Paulson's "Bazooka" theory in disguise.

Bazooka Theory vs. Actual Results

"If you have a bazooka in your pocket and people know it, you probably won't have to use it." Paulson said at a Senate Banking Committee hearing. The reference was in regards to Fannie Mae and Freddie Mac.

Paulson believed that if he had the power to bailout Fannie Mae, the market would react to that possibility and no bailout would be necessary.

Now taxpayers have wasted close to $200 billion bailing out Fannie and Freddie bondholders (mainly PIMCO and foreign banks).

Flashback February 12, 2010: EU Leaders Deploy 'Bazooka' to Repel Attack on Greece

German Chancellor Angela Merkel and her counterparts yesterday pledged "determined and coordinated action" to support Greece's efforts to regain control of its finances. They stopped short of providing taxpayers' money or diluting their own demands for the country to cut the European Union's biggest budget deficit.

"It's like Paulson's bazooka," said Nielsen, Goldman Sachs's chief European economist in London. "It's a difficult balancing act -- saying something comforting to the market without committing money and hoping the market will take their word for it."

After a three-month long plunge in Greece's bonds amid speculation it was facing the threat of default, euro-region leaders yesterday ordered the country to slash its budget deficit and warned investors they would be willing to defend the country from speculative attack if necessary.

"This is not money for free," said Luxembourg Prime Minister Jean-Claude Juncker, who heads the group of euro-area finance ministers. "This is a strong commitment imposed on Greece."

How Well Did That Idiotic Bazooka Move Work Out?

Bazooka theory does not work, nor did threats to investors that the ECB and EMU would be willing to defend the country from speculative attack if necessary.

The same holds true today. The Bigger the Bazooka, the More Money Will be Lost.

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

Violence, Firebombings Erupt as Spain Announces €27 Billion Deficit-Cutting Plan; Spanish Economy Will Implode; Spain Headed for Bond Revolt and Bailouts

Posted: 30 Mar 2012 11:35 PM PDT

My friend Bran who lives in Spain writes ...

Hello Mish

Here are thoughts from the last couple of days on the strikes, protests, and violence in the wake of more austerity plans by Prime Minister Mariano Rajoy.

Pro-government news played down the strike to a virtual non-event, giving much criticism of the unions methods and exaggerations. Reality however, is that there is enough support by strikers to shape future politics, especially as austerity starts to bite.

The unions have promised to step up protests. The Indignado 15 Million Movement also protested, but separately from the unions.

One comment stuck out - German Chancellor Angela Merkel said the protests did not represent Spain. Maybe she was trying to be reassuring, but she is taking sides against maybe a million or so people of a foreign population, not very wise at best and otherwise agitating.

Spain Announces €27 Billion Deficit-Cutting Plan

MarketWatch reports Spain Announces €27 Billion Deficit-Cutting Plan

The Spanish government on Friday delivered what it called the biggest fiscal adjustment in the country's democratic history, unveiling a 27 billion euro ($36 billion) deficit-reduction plan that includes sharp spending cuts across government ministries and higher taxes for corporations.

With images of nationwide demonstrations and strikes against labor reforms still fresh, the weight of the budget appeared to fall on big companies and government spending. Labor unions said nearly 1 million took part in Madrid's rally alone Thursday evening.

Corporations will be asked to pay higher taxes this year, and their tax breaks will be reduced while the government said value-added-taxes would not rise. It said tax receipts for VAT would fall 2.6% as a result of weak growth in Spain.

Budget Minister Cristobal Montoro said all ministries would need to reduce their budgets by around 17% this year, which was slightly higher than expected, saving a total of up to €65.8 billion. Salaries for public workers will not be reduced, but will be frozen this year.

Electricity prices will rise 7%, to pay off a €24 billion electricity-tariff deficit that accumulated due to the difference between consumer prices set by the state and producer's costs. Tariffs paid by electricity companies will rise 5%.

Austerity Measures Prompt Spanish Workers To Strike

NPR reports Austerity Measures Prompt Spanish Workers To Strike

Workers walked off the job in Spain on Thursday, halting public transport, closing schools and leaving hospitals with emergency staff only. The general strike was called by unions in response to the conservative government's labor reforms, which let companies opt out of collective bargaining agreements and fire workers more cheaply. But more punishing austerity could still be to come, as Spain tries to whittle down its budget deficit under pressure from Brussels.

Violence Erupts in Spanish Strikes

The Washington Post has a nice 19-image slideshow Violence Erupts in Spanish Strikes. Here are a few images.

March 29, 2012
A demonstrator throws stones next to a burning Starbucks, which was stormed by demonstrators during clashes with police at the general strike in Barcelona. Spanish workers livid over labor reforms they see as flagrantly pro-business staged a nationwide strike Thursday and tried to bring the country to a halt by blocking traffic, closing factories and clashing with police in rowdy demonstrations.
Emilio Morenatti / AP

March 29, 2012
People attend a demonstration in Valencia, Spain, during a national strike.
Jose Jordan / AFP/Getty Images

March 29, 2012
A woman cries after demonstrators smashed a shop window during heavy clashes with police during a 24-hour strike in Barcelona.
David Ramos / Getty Images

Eurozone crisis live: Violence in Barcelona Amid Spanish General Strike

The Guardian has numerous images and videos in its report Eurozone crisis live: Violence in Barcelona Amid Spanish General Strike

Protesters crowd in Madrid's landmark Puerta del Sol square for a closing rally tonight. Photograph: Paul Hanna/Reuters

As many as 900,000 people took part in the march to Madrid's centre square, Puerta del So.

Spanish Economy Will Implode

Labor reforms are badly needed but electricity price hikes of 7%, higher corporate taxes, increased VAT and other tax hikes are not. Spain needs more time not more tax hikes. With unemployment rate already at 23.3% austerity measures are guaranteed to make matter worse, and tax hikes on top of it all will be the nail in the coffin.

Prime Minister Rajoy forecasts the Spanish economy will contract 1.7% and government GDP targets and budgets are based on that. I bet that 3% contraction minimum is in the works if Rajoy enacts the tax hikes and austerity measures as planned.

Things will be much worse if the violence and strikes stay in an elevated state. Unlike the protests a year ago, these strikes have more serious overtones.

Spain Headed for Bond Revolt and Bailouts

The idea that Rajoy will cut the deficit to 5.3% this year and 3% next year are purely Fantasyland proposals.

For now, the bond market has given Rajoy the benefit of the doubt, assuming you call 5.35% on the 10-year bond any kind of "benefit". With the suspension of the LTRO, and a budget targets that cannot possibly be met, look for a substantial move up in Spanish bond yields.

That will also punish any Spanish banks foolish enough to load up on bonds in a misguided carry-trade play. With Spain, nearly everything is worse than the government reports, and the reports are awful.

A bond market revolt and bailout are in the cards this year. Ultimately, Spain will not survive in the Eurozone.

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

Damn Cool Pics

Birds Talking Together & Kissing

Posted: 30 Mar 2012 08:36 PM PDT

At 'Birds of Eden' bird sanctuary in South Africa, an Indian Ringneck Parakeet and an Alexandrine Parakeet are talking together, and also making out. Plus you have a woman laughing hysterically!

Living in New York City: Expectations Vs Reality

Posted: 30 Mar 2012 07:55 PM PDT

Most people who want to move to NYC have this big impression that life here is filled with plenty of opportunities, glamour, and celebrities who are just dying to hang out with you in night clubs. While some of this can be true, most of the time, your expectations are nothing like the reality of actual city life. This hilarious visualization taken from Buzzfeed features a collection of expectations vs reality. From your future apartment to your career, hit the thumbs to check out this humorous look at the real NYC.

Passing the Buffett Rule So That Everyone Pays Their Fair Share

Your Daily Snapshot for
Saturday, March 31, 2012

Passing the Buffett Rule So That Everyone Pays Their Fair Share

President Obama calls on Congress to pass the Buffett Rule, a principle that ensures that millionaires and billionaires do not pay less in taxes as a share of their income than middle class families pay -- as a matter of fairness.

Watch the President's weekly address:

President Barack Obama tapes the Weekly Address in the Library of the White House, March 29, 2012. (Official White House Photo by Lawrence Jackson)

Weekly Wrap Up

Your quick look at this week on WhiteHouse.gov:

From Dartmouth to the World Bank: On Friday, the President named Dr. Jim Yong Kim – president of Dartmouth college, co-founder of Partners in Health and global health and development expert – as his choice to head the World Bank. “[Despite] its name, the World Bank is more than just a bank,” the President explained. “It’s one of the most powerful tools we have to reduce poverty and raise standards of living in some of the poorest countries in the planet.”

Nuclear Security Summit: Just after midnight on Saturday morning, President Obama boarded Air Force One and departed for a trip to South Korea. His three-day trip included a tour of the DMZ and a meeting with U.S. troops stationed at the border; a talk with students at Hankuk University; and a series of bilateral and trilateral meetings with foreign leaders -- including President Hu Jintao of China, President Nursultan Nazarbayev of Kazakhstan, and President Dmitry Medvedev of Russia.

All Right, Let’s Plant!: Students and Girl Scouts from across the country joined the First Lady on the South Lawn Monday for a sunny afternoon planting the White House Kitchen Garden.

Big Data, Big Deal: On Thursday, the Obama Administration announced the “Big Data Research and Development Initiative, "which promises to help accelerate the pace of discovery in science and engineering, strengthen our national security, and transform teaching and learning.

Facebook Timeline: The White House’s Facebook timeline launched on Friday, now providing both the latest news and a glimpse into history. The timeline highlights special moments from our rich history, including all forty-four presidential inaugurations, FDR’s first “fireside chat,” and the launch of the first White House website.

West Wing Week: Your video guide to everything that's happening this week at 1600 Pennsylvania Avenue. Watch here.

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Seth's Blog : How much for a really small slice?

How much for a really small slice?

When the hardware store sells you a single screw for a dime, shouldn't they just give it to you? Especially if you're a good customer?

Shouldn't that singer (you bought all her albums) return the love? You're only asking for a few seconds, a hug, a handshake, an autograph...

It's easier than ever to break your offering into smaller bits, into pieces that are part of the whole but are tiny on their own.

Add up enough small slices and that's the whole cake. Asymmetry is the rule now, not the exception.

Small slices can't be free in the long run, not if that's the only kind of slice there is.

Either you need to figure out how to sell your small slices, or you need to invent some big slices that are obviously worth what you need to sell them for.

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vineri, 30 martie 2012

Mish's Global Economic Trend Analysis

Canada Eliminates The Penny

Posted: 30 Mar 2012 01:06 PM PDT

In a welcome, albeit long overdue attack of common sense, Canada Eliminates Penny Costing Penny-and-a-Half to Make.

Canada will withdraw the penny from circulation this year, saving taxpayers about C$11 million ($11 million) annually and forcing retailers to round prices to the nearest nickel, the government announced in its budget today.

The Royal Canadian Mint, which has produced 35 billion pennies since it began production in 1908, will cease distribution this fall due to the coin's low purchasing power. Production and handling cost for the one-cent coin are a C$150- million drag on the economy, according to a 2006 study by Desjardins, a Levis, Quebec-based financial institution.

Business groups welcomed the move, which follows other countries such as Australia, Brazil and Sweden, and economists said it would have little impact on inflation.

The penny, with two maple leafs on one side and Queen Elizabeth II on the other, can continue to be used in payments. As they are gradually withdrawn from circulation, price rounding on cash transactions will be required, the government said.

Retailers and other businesses can continue to price goods and services in one-cent increments and there will be no need to reprogram cash registers, according to the government.

Catherine Swift, president and chief executive officer of the Canadian Federation of Independent Business, said the move will increase efficiency.

"It has been a long time coming," she said. "It's been a real pain more than anything else. We've actually polled our members on this and they're supportive."

Economists said there would be "little" impact on inflation. Actually, there will be "no" impact on inflation. The penny has not been discarded as a pricing point, rather final transaction costs will be rounded to the nearest nickel.

The US needs to follow suit. Dealing with pennies is a nuisance.

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

Question on Jobs: How Many Does It Take to Keep Up With Demographics?

Posted: 30 Mar 2012 10:29 AM PDT

John Mauldin pinged me with a question on jobs and demographics from one of his readers.

Hello John.
In past letters you have cited the need to create 125,000 jobs per month to stay even with the growth rate in the labor force. Dick Hokenson of ISI Research has recently published reports suggesting that 75,000 jobs is a more accurate estimate based on his demographic analysis. This difference obviously has profound implications for the pace of recovery and potential improvement in the unemployment rate. Have you seen any of Hokenson's work? Do you have any insights into why his analysis is so different than consensus?

How Many Does It Take to Keep Up With Demographics?

Ben Bernanke has estimated 125,000 jobs a month. That is the number I have been using recently.

However, based on demographics alone, I believe 75,000 is indeed the correct number.

75,000 is a number I arrived at a couple of years ago independently, for the boomer-bust years of 2013-2015.

So why use 125,000 if it only takes 75,000? I do not know Bernanke's rationale, but I can explain mine.

Between January 2008 and February 2010, the U.S. economy lost 8.8 million jobs.
In the last year, the civilian population rose by 3,584,000. Yet the labor force only rose by 1,569,000.
Millions of people dropped out of the labor force in the last several years and if jobs are available they will start looking again
As soon as people start looking for jobs, the number it will take to hold the unemployment rate steady will rise, perhaps to a number well above 125,000

Point number 4 above is the key issue.

Household Survey Data - March 9, 2012

click on chart for sharper image

Take a good look at the household survey from the latest BLS jobs report. Recall that the unemployment rate comes from the household survey, and not the headline jobs number.

Note that 428,000 jobs were allegedly created in February. Also note the unemployment did not change. Why? Because the civilian labor force went up by an even larger 476,000. Thus the unemployment rate actually rose a fractional amount that rounding took away.

If I would have told you that a rise in 428,000 jobs would not drop the unemployment rate you would have thought I was off my rocker. Yet it happened, assuming of course you believe BLS numbers, complete with amazing seasonal adjustments.

Back to School Stats

Let's take a look at some interesting points from Consumer Credit "Demolishes Expectations" Really? No Not Really! The "Non-Bounce" in Non-Revolving Credit

Non-Revolving credit rose $11.8 billion in December. However, $8.8 billion of that is growth in federal government loans (which just happens to be where student loans are parked).

Here are some charts I put together stripping out federal government loans.

Non-Revolving Loans Minus Government Loans

Non-Revolving Loans Minus Government Loans Detail

True Bounce in Percentage Terms

Note that the year-over-year "bounce" has not even gotten back to the zero-line in spite of exceptionally easy comparisons.

Middle-Aged Borrowers Pile on Student Debt

Reuters reports Middle-Aged Borrowers Pile on Student Debt

Educational borrowing is up for every age group over the past three years, but it has grown far more quickly among those between 35 and 49, according to the analysis of more than 3 million credit reports provided to Reuters by the credit score tracking site CreditKarma (CreditKarma.com). That group saw its school debt burden increase by a staggering 47 percent, according to the analysis.

The average student loan debt for those aged 38 to 41 was the biggest of that group -- about $12,000, up from just under $9,000 in 2009. Young people still carry the biggest student loan burdens; those aged 26 to 29 have an average of $14,000 in student debt. But the increased levels in middle-aged student debt is a new phenomenon.
Negative Payback on Retraining

The benefit of going back to school at age 49 is likely negative.

My friend "BC" comments:

The payoff for 40- and 50-somethings taking on debt to change occupations or trying to find jobs in "health care" or "education" and compete with Millennials trying to secure similar positions is low or negative.

Statistically, the benefit to "education" occurs between ages 14 and 22, where one goes to high school and university. Obtaining an MBA, law degree, or another graduate degree after age 26-28 historically has not resulted in a net benefit in terms of job/career prospects or wage/salary income; and this has become particularly the case since the late '90s.

In other words, the vast majority of people running up debt at universities, community colleges, and for-profit technical schools are wasting their time and money, as well as directing scarce resources to the "health care" and "education" sectors that don't need more misallocation further driving up costs.

Needless to say, there is no precedent in US history for middle-aged unemployed, underemployed, or unemployable Americans running up debt in an economy that has not created a net new private sector full-time job per capita in at least 10 years.
Fewer Nonfarm Employees Now Than December 2000

Here is one key chart (of many) from Fewer Nonfarm Employees Now Than December 2000; Unemployment Rate: Some Things Still Don't Add Up; Obamanomics?

Total Nonfarm Employees

There are currently 132,409,000 nonfarm employees. In December of 2000 there were 132,481,000 employees. How's that for job growth?

Retraining Scam

Job retraining is scam perpetrated by for-profit universities, fueled by statements from Obama regarding re-training people for new jobs.

Brick-layers are told they can be "chefs", take $10,000 courses and the universities call it a "success" if they land a job "in their field" at McDonald's. Unemployed roofers are led to believe they can become Java programmers, and they waste collective $billions trying. Meanwhile out of work Java programmers are told to take up a trade like roofing or auto mechanics.

The cost of education keeps rising because Obama (like Bush before him), keeps adding to the student loan program when the entire student loan scam really needs to be shut down.

Why Does the Scam Roll On and On?

No politician wants to stand up and tell the truth: Retraining is a waste of money and the odds of launching a new career in other than a low-paying job requiring few skills is simply not likely.

For-Profit universities pad politicians' pockets

One can always find success stories, but in aggregate, retraining middle-aged workers is a net waste of money.

To Paraphrase Joe Weisenthal

Now, to paraphrase Joe Weisenthal: "It's hard to think that the economy is NOT going back into a recession with numbers like these." The difference in viewpoint is understanding what the underlying numbers really represent.

Hiding Out In School

All those hiding out in school, including those going back to school for retraining are not counted in the ranks of the unemployed. Nor are discouraged workers, who stopped looking for a job.

As soon as those folks think there are jobs, they will start looking. Economically speaking, that would be a good thing if it happened, but it would also increase the number of jobs it will take to hold the unemployment rate steady.

In a vacuum, all things being equal, it would take about 75,000 jobs a month demographically speaking. But things are not equal. Millions of workers want back in the labor force and they will start looking, especially students who at some point will have no choice. It may take 150,000 jobs a month or even 175,000 jobs a month, if those workers come back into the labor force in a 2-year surge.

That is still not the end of the story. What if we slip back into recession and people stop looking? How many will it take then? The answer may be closer to 100,000. The middle of the road approach is to stick with the number I have been using recently which is 125,000 a month.

The irony is, the better the economy is, the more jobs it will take. One way or another, headwinds on lowering the unemployment rate are very strong.

All things considered, I see no reason to deviate from my "Structurally High Unemployment For a Decade" call made years ago and reiterated in January in Fundamental and Mathematical Case for Structurally High Unemployment for a Decade; Shrinking Job Opportunities and the Jobs Gap; The Real Employment Situation.

For further discussion please see Where is the Unemployment Rate Headed? Interactive Mapping Lets "You" Set the Parameters, and Plot a Graph

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

sâmbătă, 31 martie 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Damn Cool Pics

Damn Cool Pics

Passing the Buffett Rule So That Everyone Pays Their Fair Share

Seth's Blog : How much for a really small slice?

How much for a really small slice?

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