Central Perk: Mish's Global Economic Trend Analysis

marți, 20 noiembrie 2012

Mish's Global Economic Trend Analysis

No Greek Deal; Talks Postponed Till Monday; Who Blinks First?
Sky City: China to Build World's Tallest Building, 220 Stories, in 90 Days
Ron Paul on Sound Money Prospects for USA
"Entirely Self-Made" Crisis; I Love My Family But ...

No Greek Deal; Talks Postponed Till Monday; Who Blinks First?

Posted: 20 Nov 2012 11:00 PM PST

A marathon nannycrat session ended with no deal as the IMF played hardball insisting Greece reduce debt to 120% of GDP by 2020.

Not to worry, Jean-Claude "Lie When It's Serious" Juncker says progress was made.

CNN Money says No deal for Greece as talks drag.

European finance ministers concluded a marathon meeting Wednesday without finalizing the details of a debt-reduction package for Greece.

The absence of an agreement endangers the release of the next round of Greece's international bailout package, funding the country needs to remove the threat of bankruptcy and a messy exit from the eurozone.

Jean-Claude Juncker, the Eurogroup president, said in a statement that the discussion was "extensive" and that progress was made.

"The Eurogroup ... made progress in identifying a consistent package of credible initiatives aimed at making a further substantial contribution to the sustainability of Greek government debt," Juncker said.

Devil in Compromise

I have no doubt the discussion was "extensive". Whether or not any progress was made is certainly debatable, and we certainly cannot believe Juncker on that score, or for that matter any score.

Please consider Greek debt can only become sustainable by 2022 if all steps taken

Greek debt can fall to below 120 percent of output by 2020 only if euro zone countries accept losses on their loans to Athens, provide additional financing or force private creditors into selling Greek debt at a discount, according to a document prepared for a meeting of finance ministers on Tuesday.

The 15-page document shows that without a package of debt-reducing measures Greek debt will fall to 144 percent of GDP in 2020, 133 percent in 2022 and 111 percent of GDP in 2030, from a current level of around 170 percent.

"The package of options will not make it possible to arrive at a debt-to-GDP ratio of close to 120 percent in 2020 without taking recourse to measures that would entail capital losses or budgetary implications for euro area member states or envisage a more comprehensive DBB entailing the activation of collective action clauses," the document said.

Deferring interest payments by 10 years to 2022 on loans made through the euro zone's temporary rescue fund would cut Greek debt by 43.8 billion euros, or 16.9 percent of GDP.

If the European Central Bank (ECB) returned the profits it made on its Greek bond portfolio, Greece's debt would be fall by a further 4.6 percent in 2020, the document showed.

Buying back 10 billion euros worth of Greek bonds from private investors at 50 cents per euro would result in debt falling by 2.4 percent of GDP by 2020.

But the combined elements would still fail to reduce the overall debt-to-GDP ratio to 120 percent by 2020, the level the IMF has deemed as "sustainable". If that target cannot be reached, the IMF may withdraw from the Greek bailout programmes.

Who Blinks First?

As long as the IMF, ECB, and Germany remain firm, there could not possibly have been any progress made.

I certainly see no signs that any party is willing to budge. The ECB cannot accept losses by treaty, Merkel is highly unlikely to bend ahead of the German election, and the IMF has been adamant regarding the year 2020.

These logjams have a way of breaking at the last second but either Germany or the IMF will have to budge.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Sky City: China to Build World's Tallest Building, 220 Stories, in 90 Days

Posted: 20 Nov 2012 01:58 PM PST

Given China already has entirely empty cities, as well as the world's largest mall (and it's empty), one can only wonder what the occupation rate of its next project will be.

Nonetheless, Gizmodo reports China Will Build the Tallest Building In the World in Just 90 Days.

According to its engineers, this will be the tallest skyscraper in the world by the end of March of 2013. Its name is Sky City, and its 2,749 feet (838 meters) distributed in 220 floors will grow in just 90 days in Changsha city, by the Xiangjiang river. Ninety days!

It's not a joke. According to the construction company, the skyscraper will be built in just 90 days at the unbelievable rate of five floors per day.

Pre-Fab Magic

They will be able to achieve this impossibly fast construction rate by using a prefabricated modular technology developed by Broad Sustainable Building, a company that has built 20 tall structures in China so far, including the a 30-story hotel [constructed in 360 hours - see link for time-lapse video].

Record numbers

Unlike the Burj Khalifa, the tower will be mostly habitable. Its final height will be 2,749 feet high (838 meters). Compared that to the Burj's 2,719 feet (829 meters), which include the spire at the top resulting in a total of 163 floors.

Sky City will use an astonishing 220,000 tons of steel. The structure will be able to house 31,400 people of both "high and low income communities". The company says that the residential area will use 83-percent of the building, while the rest will be offices, schools, hospitals, shops and restaurants. People will move up and down using 104 high speed elevators.

The record figures don't stop there: in addition to the 90-day construction time—as opposed to the 210 days initially reported by the Chinese media—the company claims it will cost $1,500 per square meter as opposed to the Burj's $15,000 per square meter, all thanks to the prefab technology.

They also claim it will be able to sustain earthquakes of a 9.0 magnitude and be resistant to fire for "up to three hours," as well as be extremely energy efficient thanks to thermal insulation, four-panned windows and different air conditioning techniques that were already used in their previous constructions.

Artist's Rendition

Readers from Chicago will quickly recognize that skyline.

Chicago's Hancock Building (with two spires at the top) is 100 stories tall (1,127 feet) tall. Thus the "Sky City" rendition is not remotely to scale.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Ron Paul on Sound Money Prospects for USA

Posted: 20 Nov 2012 09:12 AM PST

Following his "Farewell to Congress" speech last week, Congressman Ron Paul talks to GoldMoney's Andy Duncan about the achievements and legacy of his recent presidential campaign – particularly in the context of monetary policy.

They discuss the recent re-publication of his book The Case for Gold and his forthcoming chairmanship of the Campaign for Liberty.

Paul also talks about the likelihood of America returning to some form of gold standard in the years ahead and the prospects for private currency issuance; what the next four years under President Obama are likely to hold; and the shale oil revolution.

Ron Paul also talks about the election and why Mitt Romney lost. His view is quite similar to mine, and it's one reason why I could never support Romney and instead voted for Libertarian candidate Gary Johnson.

Link if video does not play Ron Paul on Sound Money Prospects for USA

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

"Entirely Self-Made" Crisis; I Love My Family But ...

Posted: 19 Nov 2012 11:55 PM PST

As debt that cannot possibly ever be paid back spirals out of control, it is amusing (as well as saddening) to watch widely-read economists propose still more of the same policies that have failed time and time again.

Today's silliness comes from Ambrose Evans-Pritchard at the Telegraph.

Pritchard's headline title Merkel's day of reckoning as taxpayer haircut on Greece looms makes perfect sense as does his opening gambit.

We are at last nearing the awful moment when the curtain is ripped away. Greece's economy has contracted 7pc over the last year. Public debt will spiral to 190pc of GDP in 2013. Leaving aside the Gothic horror of youth unemployment at 58pc, Greece's debt trajectory is simply out of control.

I have no quibbles with that paragraph, or for that matter, many paragraphs that follow. Unfortunately, Pritchard concludes with Monetartist claptrap, as to how things ought to be.

Fiscal policy is too tight. Monetary policy is too tight. Regulatory policy is also too tight since it is forcing banks to raise capital buffers even as the slump deepens.

Professor Paul de Grauwe from the London School of Economics said the deepening crisis is "entirely self-made" and "very dangerous" as passions fly. Angela Merkel had to slip into Portugal last week almost secretly to outwit demonstrators and avoid a "national sovereignty" march. One of her diplomats was assaulted by a mob in Greece.

It would have been so much easier for Euroland, for the Project, for North-South comity, if the ECB had let rip a long time ago with quantitative easing to cushion the blow from fiscal tightening, but that is to suppose a different Europe existed.

"Entirely Self-Made" Crisis

The crisis most certainly is "Entirely Self-Made", just not in the manner de Grauwe and Pritchard state.

The sad thing is Pritchard knows full well the euro was doomed from the start. He was one of the original eurosceptics, predicting accurately the euro could not survive.

Now, in spite of all the numerous structural flaws of the euro, somehow we are to believe things would be "much easier for Euroland if the ECB had let rip a long time ago with quantitative easing".

What a crock. If QE worked and fiscal stimulus worked, Japan would not have debt-to-GDP ratio of 230%. Japan's national debt now exceeds a quadrillion yen!

A quadrillion is a number with 15 zeros. 1,000,000,000,000,000. Can that ever be paid back? How?

Ivory Tower Economists in Academic Wonderland

In the US, Fed chairman Ben Bernanke is now in round three of QE. This round is undefined. Has QE created any jobs? If so where?

In addition to QE the US has been running budget deficits exceeding $1 trillion for four straight years. What the heck is that other than Keynesian stimulus?

It has failed. But economists like Paul Krugman want more of it (please see Mish on Capital Account: "Time for Krugman to Leave Ivory Tower for Real World").

Krugman will claim deficit spending prevented disaster. It did no such thing. All it did is pile up the debt that cannot possibly be paid back.

The average 7th grader likely understands that he cannot spend more money than he has for years on end. The average economist does not.

That is one of the reasons we are in this mess. And as I have said repeatedly, hyperinflationists fail to understand this is not just a US problem.

Central Bankers' Potemkin Village

If there was one report this entire year that you should read in entirety, Central Bankers' Potemkin Village by Kyle Bass at Hayman Capital is the one.

The article is lengthy (at 31 pages) and is protected from text copy, but requires no password to read. It will be well worth your time to read the entire thing.

The following charts are all from the article.

Total Assets of Global Central Banks

Click on any chart for sharper image

Somehow Pritchard believes things would be different if only the ECB engaged in more QE. Really? Seems to me the increase in ECB assets has hardly stabilized a thing.

To the extent that it did, it certainly fixed no structural problems.

Kyle Bass comments "QE just doesn't stimulate private credit demand and consumption in an economy where total credit market debt to GDP already exceeds 300%. The UK is the poster child for abject failure of QE. The Bank of England has purchased over 27% of gross debt (vs. 12% in the US). UK bond yields are now negative in real terms by at least -1%. Unlimited QE and the zero lower bound (ZLB) are likely to bankrupt pension funds whose expected returns happen to be a good 600 basis points or more higher than the 10-year risk-free rate."

Indeed! I wrote about this long ago in Hello Ben Bernanke, Meet "Stephanie".

Please give that a read in case you missed it.

Monetary Printing ECB, Fed, Bank of Japan

Did that work? If you think it did, then consider the next chart.

US GDP vs. Incremental Debt

For every dollar of incremental debt, the US gets 8 cents in additional GDP, down from $4.61 in 1952. Is this a good bargain?

Krugman seems to think so.

Total Global Credit Market Debt in $Billions

There is $225 trillion in global credit market debt. Is that going to be paid back? I suggest not.

Bass writes ... "How many Europeans understand how large host-country banking systems are in relation to government tax revenues? How many Japanese have questioned how (if ever), a quadrillion yen of debt will ever be repaid when it represents over 20X central government revenues? (Answer: it can't be). Very few participants are aware of the enormity and severity of the problems the developed world faces. ... The only path left is a full restructuring (default) of most sovereign debts of developed nations."

I Love My Family But ...

Many economists complain that Germany is to blame for refusing to go along with eurobonds (joint euro based debt).

Bass asks "How many of your extended family would you assume all past and future debts with jointly and severally? ... As much as I love my extended family, I would never agree to be jointly and severally liable with any of them."

Would you?

Yet somehow, we are to believe the solution for the eurozone mess is for Germans to be jointly liable for the debt of Greeks, Spanish, Portuguese, and Irish.

Really? Without starting a war?

Bass writes "Sadly, looking back through economic history, all too often war is the manifestation of simple economic entropy played to its logical conclusion. We believe that war is an inevitable consequence of the current global economic situation."

If that seems far-fetched, then think of the hotbed in the Mideast with Iran. Think of the rise of the neo-Nazis in Greece. Think of the conflict between Japan and China over uninhabited islands in the East China Sea.

Those unaware of the seriousness of the dispute between China and Japan should read Taiwan Claims Islands Too; What's the Dispute Really About?

I thank Kyle Bass for this report and reiterate if there was one report this entire year that you should read in entirety, Central Bankers' Potemkin Village by Kyle Bass at Hayman Capital is the one.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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