Mish's Global Economic Trend Analysis |
- China’s Xi Vanishes; Where is the Man Rumored to Lead China Next Month? China Having Second Thoughts? What's the Worst That Could Happen?
- University of Phoenix Tops Debt Slave Racket with 35,049 Student Loan Defaults (Top Public School has 786); Debt Slave Collection Business is Booming; Housing and Economic Implications
- Actual Constitutional Case Against OMT and ESM; Why Bond Buying Undermines Democracy; Is Draghi Above The Law?
- German Constitutional Court Approval of ESM Not a Done Deal; Draghi's Fatal Mistake?
Posted: 10 Sep 2012 09:09 PM PDT A regime change in China is slated for next month. Yet Xi Jinping, the man rumored to be the next leader is missing in action. It is not uncommon for Chinese leaders to disappear from public life for extended periods, but it is uncommon for them to disappear smack in front of a regime change. It is also uncommon for them to skip planned and announced meetings with foreign leaders. Xi Jinping has cancelled at least four scheduled meetings with visiting dignitaries including a Russian delegation, Singapore's prime minister and US secretary of state Hillary Clinton last Wednesday and the prime minister of Denmark on Monday. So where is he? The Financial Times reports Rumours swirl as China's Xi vanishes. Where is Xi Jinping? The man anointed to run the world's most populous nation and second-largest economy has disappeared from public view just weeks before his expected elevation to lead the Chinese Communist Party.Speculation Intensifies The Business Standard reports China President-to-be Xi Jinping goes missing Speculation intensified on Monday over the whereabouts of China's presumptive new president, Xi Jinping, who has been missing from public view in recent days as the country prepares for a crucial leadership change.China Having Second Thoughts? It is damn strange to deny a meeting was supposed to take place especially after you invite the foreign press to take pictures. Unfortunately, I cannot shed any more light on the situation. However, I can postulate more speculative theories. Is there any chance China is having second thoughts about who the new leader will be? More likely, is there a growing concern about the alleged shift away from infrastructure and export-led growth to a consumer-driven model? I do not have the answers to either question but I can offer a statement "Let's hope not". China (and the world) desperately needs China to rebalance its economy, no matter what short-term pain rebalancing causes. And there will be pain. Chinese exporters will suffer, as will the commodity producing countries that export to China. GDP will decline and so will growth in jobs. However, postponement of rebalancing will only make matters worse. What's the Worst That Could Happen? The worst possible outcome would be for China to give up on a rebalancing shift coupled with a Mitt Romney victory who then does as he says he would, label China a currency manipulator, thereby starting a devastating trade war with China. Regardless of what the reasons are for the disappearing act, here is the key question: Will cooler heads prevail in China and the US? Let's hope so. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 10 Sep 2012 01:48 PM PDT Congratulations to the University of Phoenix, a private for-profit school, which has the dubious distinction of having 4,359 percent more student loan defaults than Columbus State, the top public school. A student loan is considered in default when it is 360 days delinquent. Number of Loans in Default The above chart from the New York Times article Bad Student Debt Stubbornly High as Collection Efforts Surge. There is now over $1 trillion in student debt and $76 billion of that is in default reports the NY Times in Debt Collectors Cashing In on Student Loans As the number of people taking out government-backed student loans has exploded, so has the number who have fallen at least 12 months behind in making payments — about 5.9 million people nationwide, up about a third in the last five years. Debt Slave Collection Business is Booming Last year the government paid $1.4 billion to collect defaulted loans of which $355 million went to 23 private debt collectors. Student debt collection is now the most sought-after contract within the industry. No wonder. Student loan collectors have the ability to garnish wages, seize tax refunds, and seize other government payments. Those in the debt slave racket are of course willing to do anything to keep the business alive. Obama wants to expand the program. Of course, so do all the universities and anyone associated with the slave trade. The schools and slave trade collection agencies are big contributors to politicians willing to accept campaign bribes to keep the student "aid" programs intact. Student "Aid" or Economic Prison Sentence? You know the answer to the question if you have any common sense. Student "Aid" is not for the kids. Virtually nothing of importance in the education industry is "for the kids". From public unions, to aid programs, and even grants, the entire system is geared to sending as many kids as possible to school, hoping to make debt slaves out of them for life. The only rational thing to do is kill every one of these ridiculous programs cold turkey. Those in the slave trade will fight tooth-and-nail against cutbacks, led no doubt by the University of Phoenix. For more on Student "Aid" please see
Major Economic Headwinds The effect on housing and the economy of these disastrous policies are enormous, yet Bernanke is not even bright enough to figure it out. Please consider a few snips from Central Bankers Fail to Understand Forces Holding Back the Economy; Ten Major Economic Headwinds Ten Major Headwinds
Housing and Recoveries Housing has led nearly every economic recovery for decades. So look at point number two above: Student debt holds back home-buying, marriage, and family formation. I expect housing to be weak for a decade because of those points. Prices will be stagnant for years as banks work off REOs. The structural overhangs of inept policies, bank bailouts, mortgage fraud, public unions, and boomer retirements guarantees Bernanke will not be able to stimulate lending to the degree he wants. Worse yet, Bernanke's policies only serve to increase the economic distortions and the tension between the 1% and everyone else. Addendum: Note to All Facebook Users: If you have not yet voted for your favorite charity (it costs nothing to vote), please do so. Chase is giving away $5 million to charity, and I have a cause that I support. Please click on this this link: Facebook Users, I Have a Favor to Ask, then follow the instructions. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 10 Sep 2012 11:02 AM PDT A post on the the Fibs and Waves blog by "Blankfeind" outlines the actual legal case against the OMT. I believe the case is rock solid. How the German constitutional court rules in two days is another matter. Please consider The ECB Thumbs Its Nose At The Law. On September 6th, the ECB announced its Outright Monetary Transactions program, known as OMT. Justified as a means for the ECB to repair monetary policy transmission and to recreate the singleness of monetary policy for the euro area, the OMT offers an unlimited commitment by the ECB to purchase short-term (one to three year) sovereign debt in the secondary markets for sovereigns who agree to certain conditions.Primary vs. Secondary Markets and Intent of the Treaty Former ECB president Jean-Claude Trichet (and one of the original architects of the treaties that created the eurozone), opened up this can of worms by allowing the ECB to buy bonds in the secondary market. Since the ECB could act as the end party immediately buying bonds from the original buyer, there is in practice virtually no difference between buying bonds in the primary and secondary markets. Here is the loophole Trichet exploited: Article 123 (ex Article 101 TEC) 1. ... Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments. Clearly, that could not possibly be what the treaty intended. When discussing the intent of the treaty, the ECB is already in violation. Now Draghi has gone a step further. "Blankfeind" continues ... Germany demanded the inclusion of Articles 123 and 125 of the Treaty on the Functioning of the European Union with the clear intent of protecting itself and its citizens from responsibility for the fiscal failings of other member states. Hence, OMT violates the intent of the applicable laws."Blankfeind" is certainly correct. And I point out the obvious creep in unconstitutional acts. Trichet capitalized on one misplaced word and debate over the intent of "directly" giving Draghi a bit of cover to even more blatantly break the law. Why Bond Buying Undermines Democracy In a direct criticism of "Draghi Almighty" Der Spiegel explains Why ECB Bond-Buying Plans Undermine Democracy Anyone who breaks a law can hardly excuse his actions by claiming that he is acting within the scope of the law. In any case, it won't help him much -- unless his name is Mario Draghi and he is the president of the European Central Bank (ECB).That is exceptionally harsh criticism of both the OMT and of chancellor Merkel from a magazine that is generally quite pro-euro. Is Draghi Above The Law? The answer to that question is obvious. He thinks and acts like he is. This should not be surprising. It is one of the direct corollaries of the Fed Uncertainty Principle, which I wrote on April, 3, 2008, long before the Fed started its big power grab. What I said about the Fed applies equally to the ECB and central bankers in general. Here are key excerpts. Fed Uncertainty Principle: The fed, by its very existence, has completely distorted the market via self reinforcing observer/participant feedback loops. Thus, it is fatally flawed logic to suggest the Fed is simply following the market, therefore the market is to blame for the Fed's actions. There would not be a Fed in a free market, and by implication there would not be observer/participant feedback loops either.Addendum: Note to All Facebook Users: If you have not yet voted for your favorite charity (it costs nothing to vote), please do so. Chase is giving away $5 million to charity, and I have a cause that I support. Please click on this this link: Facebook Users, I Have a Favor to Ask, then follow the instructions. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
German Constitutional Court Approval of ESM Not a Done Deal; Draghi's Fatal Mistake? Posted: 10 Sep 2012 01:33 AM PDT One puzzling aspect of ECB president Mario' Draghi's Outright Monetary Transactions (OMT) plan to save the eurozone is his doing so before the German constitutional court had approved the ESM. In spite of Draghi's emphasis on conditionality, OMT puts Germany directly at risk in an unlimited way. This modification to the ESM makes the constitutional case against it much stronger. I am not the only one who feels that way. Even the pro-bailout Eurointelligence site sees it that way. Here are some snips from the Eurointelligence Daily Briefing report A new legal case against ESM – that links Draghi's OMT to the current case This is the week in the which the German constitutional court will announce the most important ruling in its history. Herbert Prantl reports in Suddeutsche Zeitung on a new anti-euro case this morning that links last week's decision by the ECB to start Outright Monetary Transactions (OMT) to the current ESM case. The case was brought by Peter Gauweiler, a well-known Eurosceptic member of the Bundestag from the Bavarian CSU, and a serial litigator. Gauweiler argues that the OMT had fundamentally altered the ESM, and that the decision on the ESM should therefore be postponed (meaning a delay in the ratification by Germany). He also makes the legal points that the OMT decision did not constitute a breach of competence, but a permanent assumption of competences. When the Bundestag voted on the ESM, it did so under different circumstances. With the OMT, the Bundestag's authority is permanently circumvented.Draghi's Fatal Mistake? I certainly do not agree with Draghi, but the man clearly is not a dunce. Was there a strong reason to announce OMT, altering the ESM, before it was approved? Certainly, yields went into the stratosphere a few weeks ago. Yet, mere talk of rate caps and unlimited bond buying had yields collapsing last week. Did Draghi feel he could not wait another week? Did he see a need to strike first, fearing the court may otherwise have laid down guidelines against his OMT? Perhaps Draghi wanted to bring this all to a head right here right now, the sooner the better, even if it meant the court might rule on the need for a referendum. From that aspect, (and from the point of view of the pro-bailout crowd) the sooner Germany has a referendum, the more likely it would pass. A year ago I think a referendum would have passed with flying colors. Now 54% of Germans Want the Constitutional Court to Kill the ESM. With each passing day, more Germans are upset at the economy and the bailouts on top of it (see Germany Trifecta: Steep Drop in Construction New Business, Services New Business, Manufacturing New Business) and an increasingly large group want Germany out of the eurozone completely. Perhaps we should not overthink this. Occam's Razor suggests Draghi simply made a mistake in failing to see the bitter response from Germany and the potential implications down the road. I had been thinking the court would easily approve the ESM, but with reservations. However, the OMT changed the odds quite a bit. Regardless, we are going to find out one way or another in two days. Addendum: Note to All Facebook Users: If you have not yet voted for your favorite charity (it costs nothing to vote), please do so. Chase is giving away $5 million to charity, and I have a cause that I support. Please click on this this link: Facebook Users, I Have a Favor to Ask, then follow the instructions. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
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