Mish's Global Economic Trend Analysis

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Australia Roundup: Hundreds of Restaurants Close Rather Than Pay 250% Holiday Rate; Massive Housing Incentive, Still No Buyers Posted: 27 Jan 2013 09:09 PM PST It's time once again to take a look at happenings down under. Restaurants are closing en masse rather than pay double time and a half to stay open on holidays. Please consider Penalties blamed for taking high-end dining off menu. The annual survey of the 7500- member Restaurant and Catering Australia reveals a 33 per cent jump since 2011 in the numbers of restaurateurs saying they cannot afford to open on public holidays. Public holiday penalty rates require employers to pay double time and a half, equating to pay rates of at least $40 an hour. Robert Marchetti, executive chef of Sydney's Icebergs Dining Room and Bar and North Bondi Italian Food and owner of highly acclaimed restaurants in Sydney and Melbourne, said some of his businesses - including Neild Avenue - would be closed today, while those that opened would be providing a "public service". "The government are a bunch of monkeys who don't understand business," he said. "We're not living in the 1960s anymore. Australia has its head stuck up its arse on IR. Following ACTU Secretary Dave Oliver's Christmas Eve call for the Fair Work Act to be changed to enshrine penalty rates as a minimum entitlement, United Voice liquor and hospitality division Secretary Tara Moriarty said the issue was one the industry raised every public holiday. "Penalty rates haven't made the sky fall in yet, despite them constantly making suggestions to the contrary," she said. Shop, Distributive and Allied Employees Association national secretary Joe De Bruyn said the closure of some businesses on public holidays would simply mean more business for the restaurants that stayed open. "Penalty rates have been part of workers' entitlements for decades," he said. Unions were awaiting the outcome of a Fair Work Australia hearing on penalty rates. "While the unions put up a very strong case for preserving penalty rates, the employers' case was a pathetic performance," Mr De Bruyn said. Double-Time and a Half Insanity You have to love the mentality "the sky is not falling yet" mantra, especially when it clearly is. Who pays for this absurdity? Consumers in general of course. Business owners and employees of businesses who cannot afford to pay double-time and a half, also get hit hard. House and Land Incentives Property Observer notes House-and-land incentive and discounts from $5,000 to $126,000 New housing finance and building approval figures suggest there will be no swift rebound in demand for new housing. There was a 10.3% fall in home loan commitments for new dwellings and a 0.3% drop in building approvals for new houses in November, according to seasonally adjusted ABS figures. New home buyers can secure discounts in the thousands and sometimes tens of thousands of dollars on select blocks of lands and new homes in Melbourne, the Gold Coast and Sydney. There are also generous first-home buyer incentives on offer from NSW, Queensland, Tasmanian and South Australian state governments for those buying or building new homes. $30,000 Listed residential developer Peet is offering savings of up to $30,000 on "certain lots" in residential communities on the outskirts of Melbourne. $22,000 Listed developer Devine is offering to pay mortgage repayments for up to a year on behalf of approved purchasers who sign an unconditional contract to purchase a new Devine house and land package before February 28 2013 under its Devine Mortgage Break promotion. Melbourne builder Carlisle Homes is offering a $30,000 discount off the retail price of double-storey homes and $22,000 off the retail price of single-storey homes in its luxury Affinity and T Range collections. There is currently no end date to this promotion. $10,000 Up until February 25 2013, Stockland is offering approved purchasers a $10,000 VISA gift card to spend as they wish. $76,000 - $126,000 Discounts of up to $126,000 are on offer for residential lots in The Highlands community in the Ecovillage, Currumbin Valley on the Gold Coast. Massive Housing Incentive, Still No Buyers Macrobusiness reports Developers Go Completely Mad. Today, Property Observer has provided a comprehensive list of incentives being offered by developers in a bid to lift sales, which are in addition to generous incentives on offer in New South Wales, Queensland, Tasmania and South Australia. Clearly, such developer incentives are failing to stimulate demand and could actually be precluding the new home market from functioning properly. Australia's property development industry appears to be caught in a pincer. If they don't abandon incentives in favour of transparent land price deductions, financing of new house and land packages will remain problematic and sales will likely continue to struggle. At the same time, reducing the listed price by the same value as the bonuses and incentives being offered could lower their collateral value, potentially triggering the banks to call in more equity from bank-financed developers to bring their loans back to agreed conditions and/or loan terms. Straight price cuts are also more likely to aggrieve recent purchasers that paid higher prices. How Fast the Collapse? The housing bubble in Australia has clearly burst. All that remains to be seen is how fast things collapse. Meanwhile, Australia's unions still cling to an already dead model, oblivious to the fact the boom is over. 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.

"Libertarian Turned Keynesian" Responds Posted: 27 Jan 2013 12:49 PM PST In response to How to Debate Paul Krugman: "Ask Questions Like a Child", a self-proclaimed "Libertarian Turned Keynesian", a graduate of Columbia University, writes ... Hello Mish I want you to publish this rebuttal to your post. You can use my first name if you'd like with Libertarian-turned-Keynsian in brackets. Let's say there are 8 million healthy, unemployed people in US. The Treasury can simply print 4 million pieces of IOU claiming that the holder of this piece of paper is entitled to a free massage or a free cleaning services or free haircut or free baby-sitting or free moving (basically any service worth $50 with negligible raw material) from another unemployed person and simply distribute it to unemployed people. What happens? On Day 1, the 4 million who got the coupons tender their coupons and receive services (increase in daily GDP 4 million * 50 == 200 Million). On Day 2, the opposite happens and this goes on quite a while. Now, lets say the economy improves and 2 Million get employed. Now essentially we have 1 Million extra coupons (inflation). Treasury will tax the lucky/rich people who have a job and a coupon and essentially retire them. Or, let's say the economy deteriorates and 2 more more million get unemployed. Now there are few coupons and some may be willing to do the job for 3/4th of a coupon (deflation). Now essentially Treasury can print extra 1 million and distribute them. Notes: 1) We need flexible money supply. 2) Having gold standard is stupid. What does amount of gold supply have to do with anything? 3) We increased GDP by simply printing pieces of paper. Bonus: Let's say someone comes with a brilliant idea that one unemployed can actually perform two jobs a day. Now instantly the capacity doubled and Treasury can print double the amount of IOUs. So Ridiculous I Hardly Know Where to Start I did not post the first name of "Libertarian Turned Keynesian" on purpose. His name was unusual enough that he could be found. The above response is clearly absurd. I reply only because it is precisely the kind of "something for nothing" silliness that is frequently taught in higher education. Any person with a modicum of common sense, at any education level beyond 7th grade, should understand what happens to demand as soon as free money stopped. Any person with a modicum of common sense, at any education level beyond 7th grade, should understand costs of goods and services would soar if free money was handed out in any significant amount. Any college graduate should understand the difference between nominal GDP and "real" inflation adjusted GDP. Any college graduate should understand what happened in Zimbabwe and Weimar Germany. Any person with any amount of common sense should understand it's what you get for your money, not how much you have, that matters. Ignoring the typos, clearly the writer has absolutely zero sense of the difference between nominal GDP and wealth. In nominal terms (using the number of Zimbabwe dollars in circulation as "wealth"), Zimbabwe was economically the strongest country in the world. Unfortunately, they cannot teach common sense in schools. Instead they teach Keynesian claptrap. Then economically illiterate graduates write me things similar to the above. This kind of thing happens all the time, frequently with emails ending in ".EDU". Addendum: Spare the Monetarists? Reader Ayal asks "You target your attacks at Keynes and Keynesians, but why do you spare the Monetarists?" The simple answer is I don't. Bernanke is primarily a monetarist with some Keynesian tendencies as well.  QE is 100% monetarism and I attack that all the time. Countless times I have pointed out that Japan tried both monetary and fiscal stimulus and failed. One can also search my blog for Greg Mankiw, the high priest of monetarism to see what I have to say. If I had to pick one of article in that search reference to read, it would undoubtedly be Modern Day Fairy Tale of 3 Economic Wizards (Except It's True) Comment It's quite shocking  what comes out of our education system. Of course, what comes out is hugely influenced by economically illiterate teachers at the highest levels in education. Addendum 2: Not a Hoax Several people suggested the email was a hoax.  It's not. I have additional correspondence with this person thanking me for not using his name. And a Google check of his name with numerous references ties back to Columbia. 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.

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