Mish's Global Economic Trend Analysis

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Fiscal Cliff Talks Stall On Veto Threat; Name-Calling Begins; Showdown Over "Plan B"; Obama's Fantasyland Statements Posted: 19 Dec 2012 05:07 PM PST "Fiscal Cliff" Talks Turn Sour Yesterday, the sides were so far apart on critical issues that I wondered how a deal could be made in two days. The market saw it otherwise, mainly on hype Obama Offers Concessions Regarding Tax on Wealthy. Today is a different story as "Fiscal cliff" talks turn sour, Obama threatens veto. Talks to avoid a fiscal crisis appeared to stall on Wednesday as President Barack Obama accused Republicans of digging in their heels due to a personal grudge against him, while a top Republican called the president "irrational." Boehner and Obama have each offered substantial concessions that have made a deal look within reach. Obama has agreed to cuts in benefits for seniors, while Boehner has conceded to Obama's demand that taxes rise for the richest Americans. However, the climate of goodwill has evaporated since Republicans announced plans on Tuesday to put an alternative tax plan to a vote in the House this week that would largely disregard the progress made so far in negotiations. Obama threatened to veto the Republican measure, known as "Plan B," if Congress approved it. Boehner's office slammed Obama for opposing their plan, which would raise taxes on households making more than $1 million a year and is a concession from longstanding Republican opposition to increasing any tax rates. "The White House's opposition to a backup plan ... is growing more bizarre and irrational by the day," Boehner said through his spokesman, Brendan Buck. Concession Nonsense Reuters writers Matt Spetalnick and Mark Felsenthal and said "Boehner and Obama have each offered substantial concessions that have made a deal look within reach." What "substantial" concessions were those? This is how I stated things yesterday. Significant Differences There is a huge gap between $400,000 and $1,000,000 on tax hikes. There is a huge gap between $400 billion and a $trillion on entitlement cuts. Boehner wants a debt-ceiling deal to include spending cuts for every dollar upped. The gaps that still remain are huge. Nonetheless, the stock market acts as if a deal is at hand. To be sure, "token" concessions were made, but "substantial" is another matter. White House Said to Tell Business Groups Talks Stall Bloomberg reports White House Said to Tell Business Groups Talks Stall Obama administration officials told leaders of business and financial services groups that negotiations with House Speaker John Boehner have deteriorated in the past 24 hours, a person familiar with the meeting said. Obama said at the White House that he offered congressional Republicans a "fair deal" and accused them of "posturing" in the talks. Republicans need to "take the deal" he offered, the president said. Boehner, who is pressing Obama to accept deeper spending cuts and a higher income threshold for tax-rate increases, said if the president doesn't accept the Republican plan he'll be responsible for "the largest tax increase in American history." The $4.6 trillion tax increase over the next decade, scheduled to start taking effect in January, would be about 2.3 percent of the U.S. gross domestic product. In those terms, it would be smaller than a 1942 tax increase during World War II, which was 5 percent of GDP according to the Treasury Department. Who's Posturing? Obama accused the Republicans of posturing. It's only posturing if the Republicans give in. Perhaps it is Obama who is posturing. Perhaps both sides are posturing. If so, this is another case of the "pot calling the kettle black". Showdown Over "Plan B" Yahoo!Finance reports Boehner Challenges Obama With 'Plan B' Showdown House Speaker John Boehner pressed his backup tax plan Wednesday despite a White House veto threat, saying it will be approved Thursday by the GOP-controlled House. "Then the president will have a decision to make," Boehner said. "He can call on the Senate Democrats to pass that bill, or he can be responsible for the largest tax increase in American history." Earlier in the day, President Barack Obama threatened to veto Boehner's "Plan B," pressing instead for a deal to avert the "fiscal cliff." He said the two sides were only a few hundred billion dollars apart, and he hoped to get the job done before Christmas. "Plan B" calls for extending tax cuts for people making up to $1 million. The White House immediately rejected it Tuesday, saying it was unbalanced and didn't go far enough on seeking more revenue from the wealthy. Obama said he would continue to work with Boehner and was prepared to do "tough things." But he said he would not compromise on his demand that he be given authority to raise the debt ceiling without Congress' approval. "What separates us is probably a few hundred billion dollars," Obama said. "The idea that we would put our economy at risk because you can't bridge that gap doesn't make a lot of sense." Obama's Fantasyland Statements President Obama is in fantasyland, not only in terms of dollars but also in terms of the negotiation process itself. For starters, on the issue of tax hikes, Boehner would hike taxes on those making $1,000,000 while the president wanted hikes on those making over $400,000. That is a huge difference. The president would not negotiate on the debt ceiling. On the issue of being only "few hundred billion dollars" apart, I rather doubt it. But even if true, Obama would only give in a mere $50 billion on entitlement cuts. Plan "B" is a Sham On the other side of the coin, plan "B" which does not address the revenue side of the equation at all is certainly not fiscally prudent. In fact none of this negotiation is. Unfortunately, there is still time to snatch defeat from the jaws of victory. In this case, victory is letting the fiscal cliff happen. The other alternatives do even less to address out-of-control budget deficits. So, let the fiscal cliff happen. It would be better yet if genuine deficit cuts were added on top of the fiscal cliff, instead of being negotiated away in January. Don't count on that because both parties are more interested in talking about reducing the deficit than actually doing something about it. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Loan Default Rate Hits 11.23% in Spain, a New Record; Construction Defaults Hit 26.4%; Credit Plunges 5% Posted: 19 Dec 2012 10:31 AM PST Via Google translate El Blog Salmon reports Delinquencies expose the shame of Spanish banks How could it be otherwise, the delinquency has grown back no more and no less than 11.23% during the month of October. The figure represents a new record, exposing the shame of Spanish banks. The figures from the Bank of Spain dating 189.618 billion euros in loans considered doubtful of Spanish credit institutions. Obviously, the construction sector is the hardest hit of all the arrears of the companies related to fire brick defaults in its sector to 26.4%. The worst part is that nothing suggests that delinquencies have peaked, rather the opposite. In the coming months the arrears continue to set new records because it is now that the financial sector of our country is teaching the true reality of credit in Spain. Refinancing only served to prolong the agony and convey a false sense of calm in the sector. The brick has done too much damage to our country and now we are suffering the effects of the bursting of a housing bubble along with the historical financial deleveraging of Spanish banks. Also via Google translate from Spanish, the Guru's Blog provides interesting charts and commentary in Banking delinquency rises to 11.23% in October. New record We began to enter the area of ​​record breaking month after month. In October defaults on loans to financial institutions and businesses in October amounted to 11.23% , which marks a new record. Thus, the default rate of the Spanish financial system accumulates sixteen consecutive monthly increases since the last run monthly reference dates back to June 2011, when delinquencies fell to 6.41%, from 6.48% May 2011. Graph via ZeroHedge Delinquency Figures Non-performing loans amounted to 189.618 billion euros in October on a total loan portfolio of 1,688 trillion euros, which fell by just over 1 billion compared with the previous month. Specifically, the overall financial system credit has plummeted by 5% in the last twelve months, which translates to 90.009 billion euros less, while the doubters have climbed in the same period by 43.7%, with a jump of 57.651 billion. Quick Conclusions 1) Remember, 2008, 2009, 2010, 2011 and 2012. Each new cut, each new aid to banks, even changing the Constitution, was justified as a measure that would allow banks to return and give credit to companies. Well or lied or failed miserably, because since 2008 the credit companies has done more to diminish. And forget to increase again in the next two years. 2) Although small personal experiences can not be extrapolated, if there is somewhere in the balance sheet of banks which is hiding dwells, is in credit to businesses, industry and services. More or less has risen carpet property loans, although the bulk of the dirt just past a carpet to another, but where would the hand in the fire that is hiding a lot of provisioning is in default without the credit to industrial and service companies. The dismal results and conclusions speak for themselves. Does anyone doubt the situation in Spain would be better if Spain had only taken the "Iceland Solution", letting the failed banks fail rather than bailing them out at taxpayer expense? Thanks to El Blog Salmon, Gurus Blog, and Zero Hedge. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Addendum Thanks to Bran for correcting several instances of "million" that should have read "billion" and one instance of "billion" that should have read "trillion". 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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