marți, 12 iunie 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

"Dead Before Arrival": Bundesbank Shoots Down EU Banking-Union Proposal; Eight Lessons the EU Needs to Learn

Posted: 12 Jun 2012 12:47 PM PDT

A group of eurozone Nannycrats has agreed to meet later this month to devise a master plan for a eurozone fiscal and banking union.

Here is a synopsis from my post on Sunday Details of the Secret "Nannyplan" Emerge; Proposed Nannygroup Uniforms

Nannyplan Details

  • Plans will create a "genuine fiscal union" in which individual member states would no longer be able to independently take on new borrowing. 
  • Governments would only be able to decide how to spend money that is covered through their revenues.
  • Any country that needs more money than it takes in would have to report that need to the group of euro finance ministers.
  • Finance ministers will decide which financial levels are justified and would then issue joint euro bonds to finance these new borrowing needs.
  • "The exclusive group of ministers would be led by a full-time chair, who could ultimately rise to the position of European finance minister"
  • This "powerful group of finance ministers" would be controlled by a new European body in which representatives of national parliaments would have seats.

Nannyplan Synopsis

  1. The proposal is to create group of nannies (similar in theory to the Fed except the decisions are primarily fiscal). 
  2. The group of nannies will be headed by a master-nanny (think someone like Bernanke or in this case Jean-Claude Trichet). The nanny-master will originally be a full-time chair. However, that person could ultimately rise to the position of "European Finance Minister (EFM)", but also known as "Grand Poobah".
  3. The nannies will be controlled by elected politicians who will no doubt appoint a master-nanny who will do what the majority wants.

List of Nannycrats Working on the Master Nannyplan

  • European Union Commission President Jose Manuel Barroso 
  • European Council President Herman Van Rompuy 
  • Euro group head Jean-Claude Juncker 
  • European Central Bank President Mario Draghi 

Notably missing is anyone representing Germany although the plans include eurobonds. Even if one ignores the eurobond issue, the nannyplan cannot possibly fly.

Barroso Pushes Nannyplan in Financial Times Interview

Yesterday, EU Commission President Barroso pitched his Banking Union idea in a Financial Times Interview making a preposterous claim that his plan "could be achieved without treaty changes".
All 27 EU countries should submit their big banks to a single cross-border supervisor as part of a banking union to be enacted as soon as next year, the president of the European Commission has urged.

The plan, which would also include an EU-wide deposit guarantee scheme and a rescue fund paid for by levies on financial institutions, could be achieved by next year and without changes in the bloc's existing treaties, Mr Barroso said.

He also wants to accelerate action on existing proposals for the deposit guarantee scheme and bank resolution, which are primarily handled at a national level.

George Osborne, the UK chancellor, insists Britain will not be part of any banking union that makes its taxpayers liable for recapitalising eurozone banks or puts major British banks under the watch of an EU supervisor.
Bundesbank Warns on Banking Union

UK chancellor UK George Osborne immediately shot down the idea for the UK. One day later the Bundesbank, Germany's Central Bank, did the same.

Please consider Bundesbank warns on EU banking union
Germany's Bundesbank has warned of possible risks from banking union in the EU, saying it would be tantamount to a back-door pooling of sovereign debt, unless accompanied by fiscal union that allowed control over national budgets.

Sabine Lautenschläger, vice-president of the Bundesbank, said banking union could only work in tandem with fiscal union – meaning some common cross-border binding rules on how countries could set budgets.


The "decisive question" of banking union was the "interplay between liability and control" because a crisis in one country's banks could require financial help from taxpayers in other countries, Ms Lautenschläger said. "Whoever accepts liability also has to have a right to control, especially when it is potentially a question of very large sums as in the case of a banking crisis."

"The extremely important discipline of the market would be partially lost. Even more seriously, joint liability for banks would, at least, partially extend to the sovereign bonds of these countries," she said. "The result would be joint sovereign liability through the back door – without the possibilities for intervention and control, and therefore the protection, of a fiscal union."

Ms Lautenschläger also cast doubt on how quickly any banking union could be implemented, saying "comprehensive EU treaty changes" would be needed.
"Dead Before Arrival"

Note that this is not a case of "dead-on-arrival". Rather, this is a case of the Bundesbank declaring the proposal is "dead-before-arrival" given the nannyclowns have not yet gotten together to finalize their plans.

Barroso claims the EU needs to learn the lessons of the sovereign debt crisis. On that I agree. The difference is Barroso failed to learn the proper lessons.

Eight Lessons the EU Needs to Learn

  1. The euro helped ruin Greece, Spain, Portugal, and Ireland.
  2. 17 nations will never agree to give up sovereignty to a group of eurocrats in Brussels.
  3. Even France does not want to give up sovereignty. Instead, France wants more socialism, free money, and eurobonds.
  4. Socialism and capitalism do not mix easily or well. France, Spain, and Greece are against badly needed work and pension reforms. France is taking a giant step back on work-related issues right now.
  5. France is dead-set-against the end of crop subsidies, an untenable position in a "United States of Europe" type proposal.
  6. Fiscal unions will not pass and would not solve all the structural problems even if they did pass. There are simply too many cultural and philosophic differences that cannot possibly be fixed in any reasonable timeframe, if ever.
  7. The Euro is a failed concept and cannot possibly work. 
  8. The proper thing to do is dismantle the eurozone and get rid of all the nannycrats before the market further takes matters into its own hands

The Key points are 6, 7, and 8 with the market providing a big warning on number 8 right now.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Fitch Managing Director Says Spain Will Miss Budget-Deficit Targets By "Substantial Margin"; Yields in Spain and Italy Soar; Spanish 10-Year Yield Hits Record High 6.83%

Posted: 12 Jun 2012 09:56 AM PDT

The selloff on Spanish and Italian bonds continued today with yields in Spain hitting euro-era record highs.

On the deficit side of matters, I do not believe Spain will meet its budget-deficit targets, and neither does Fitch.

Fitch Managing Director Ed Parker said Spanish Prime Minister Mariano Rajoy will miss budget-deficit targets this year "by a substantial margin." according to a Bloomberg report.

10-Year Spanish Bond Yield Hits Record High

The previous euro-era 10-year Spanish Bond Yield high-water mark was 6.7%. That record was shattered today with a rise to 6.83%, closing at 6.7%, right at the previous high. The yield closed up 20 basis points (.2 percentage points).

Yields Climb in Italy

10-Year bonds in Italy were hammered as well, with the yield climbing as high as 6.3% before settling at 6.17%, up 14 basis points.

Emperor Has No Clothes Moment

Yesterday, on news of a Spanish bailout, stocks and bonds gapped up (yields down). The yield on the 10-year Spanish bond dropped as low as 6.01%, but the selling began immediately.

I commented that the sell-the-news reaction represented An "Emperor Has No Clothes" Moment: ESM Has Failed Already.

The jump from 6.01% coupled with significant follow-through today offers substantial evidence that time has expired for Europe to address the crisis.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

23% of Small Business Owners (Approximately 6.21 million) Report "No Pay for a Year"; New Zealand, Singapore, US, Best Places to Start and Run a Business

Posted: 12 Jun 2012 12:59 AM PDT

Citing a new survey by Citigroup, CNBC Reports All Work, No Pay for Some Small Business Owners.

Here are some interesting highlights.
  • Over the past few years, business owners report that they have, at one time or another, taken less profit (78 percent), worked more hours than usual (70 percent), and used their own money to help the business survive (69 percent).
  • 54 percent of respondents say they have gone without a paycheck in order to keep the business running.
  • 23 percent of owners have gone without pay for one year or more.
  • More than one-third of owners (38 percent) said their employees worked overtime without pay
  • 18 percent of owners said employees either missed paychecks or had paychecks delayed.
  • Access to financing doesn't come up in the top five most important issues among small businesses. Instead, business owners cite lack of sales and consumer confidence.

I would like to show a link to the Citigroup report but I cannot because CNBC did not provide one. Readers know this is one of my pet peeves, so I am calling them on it.

Recession Brought Small-Business Boom

Inquiring minds just may be wondering how many small businesses there are. A report written May 20, 2011 may surprise you.

Please consider Recession Brought a Small-Business Boom
"Compared to 2007, there was a huge increase in the number of business failures in 2008, 2009, and 2010. In fact, the number of business failures in 2009 was almost twice that of the amount of failures in 2007," writes Byron Vielehr, president of global risk and analytics at D&B, in response to questions emailed by Portfolio.com.

"2009 and 2010 bore witness to the highest percentage of startups in more than a decade. The rate of new businesses had also been steadily climbing since 2006. As a result, the number of businesses in 2010 compared to 2007 is higher."

As of 2010, D&B estimates, there were about 23 million small businesses in the United States, employing nearly 81 million workers.
27 Million Small Businesses

Citing the Small Business Association (SBA) Get Busy Media reports 27 million small businesses in Small Business Stats for Small Business Week 2011
According to the SBA

  • There are 27+ Million Small Businesses in the US.
  • Between 60% & 80% of all new jobs created in our country can be attributed to Small Business.

Startup Times and Costs

There are some interesting charts and graphs in the article. Here is a clip showing several pertinent pieces of information.



Singapore and New Zealand are the best two places to start a business and run a business. The US is 4th and 3rd respectively.

It would be interesting to see where Greece, Italy, Spain, Ireland, and Germany fall, but there are no links to the data or studies.

Ease of Startup Explains Recession Boom

Notice the success stats on the above graph do not add up.  If 44% of new firms survive 4 years, by implication 56% don't. Yet somehow only 49% fail in 5 years. 

Regardless, the above chart explains the startup boom at the height of the recession. Millions of people started businesses and most of them will not make it.

Stats from 2007 and 2008 as to how many businesses will last 5 years are invalid. Business climate is far more unfavorable now.

Crunching the Numbers

If there are 27 million small business owners and 23% have not received any pay for a year, there are 6.21 million business owners who received no paycheck for at least a year.

Notes About Unemployment

Bear in mind, that making money or receiving a paycheck is irrelevant to the BLS when they compute the unemployment rate. If you work as little as 1 hour, whether you collect a paycheck or not, you are considered employed.

In addition to the 6.21 million business owners with no paycheck, factor in those selling trinkets on EBay out of desperation and collecting a few dimes in the process.

Also factor in all those starting multi-level marketing schemes and calling it a business. How many get sucked into that losing proposition every year? Yet, to the BLS, it's a job if you worked any hours.

The ease of starting a business in the US is a great thing. Unfortunately, making money in a small business startup is not so easy.

Historic trends suggest half of small businesses will fail within 5 years, and I highly suspect future trends will be much worse.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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