Mish's Global Economic Trend Analysis |
- China Manufacturing Slips Back Into Contraction
- Rand Paul Has the Right Idea, Congress Should Apologize to Apple; Holy Grail of Tax Avoidance; The "Golden Goose"; Hypocrite McCain
- Bernanke's Semi-Annual Tap-Dance of Distortions, Half-truths, Lies, and Hypocrisy to U.S. Congress
- Abenomics in Review: Yen, Inflation, Exports, Imports
| China Manufacturing Slips Back Into Contraction Posted: 22 May 2013 10:15 PM PDT The HSBC Flash China Manufacturing PMI™ shows China Manufacturing Slips Back Into Contraction. Key PointsComment on the Comment Economic illiterates call for more "policy support" month after month. Such "support" is about to wreck Japan and the fools do not see it. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Posted: 22 May 2013 04:51 PM PDT Rand Paul created quite a stir in Congress when he Tweeted 'The Senate should apologize to Apple'.
Why did Paul Tweet Those Things? Because the Senator Carl Levin (D-Mich.) ripped Apple's 'Holy Grail' Of Tax Avoidance ahead of congressional testimony. It's absurd that Apple CEO Tim Cook Should be in Congress in the first place. Did Apple break any laws? Of course not. Is Apple responsible for the absurd tax code or is Congress? The answer of course is Congress. What About GE? Tax law is so absurd that GE paid no corporate income tax in 2010. GE also paid no corporate income taxes in 2009. For doing precisely the same thing, Cook had to appear before a senate subcommittee. GE's response "GE pays what it owes under the law and is scrupulous about its compliance with tax obligations in all jurisdictions." Mish says please note that the CEO of GE, Jeffrey Immelt, advises president Obama on business. Holy Grail of Tax Avoidance The Wall Street Journal reports Apple CEO Tim Cook, Lawmakers Square Off Over Taxes. Apple Inc.'s tax strategies came under harsh scrutiny Tuesday in the Senate, where lawmakers are finding it far easier to call for a simpler tax code than to produce one. Still, nothing in the deluge of bad publicity about the tax code in recent weeks touches on the most durable obstacle to congressional action on a broad tax overhaul. The two parties remain far apart on whether such a rewrite should also raise revenues to reduce the deficit. Democrats insist it should, while Republicans insist it shouldn't.Who is responsible to tax code, Levin or Apple? The "Golden Goose" Barron's reports 'You Shifted Your Golden Goose, It's Not Right,' Says Levin Apple (AAPL) CEO Tim Cook's offered his testimony on Capitol Hill, before the U.S. Senate Permanent Subcommittee on Investigations, regarding tax policy and overseas earnings, followed by questions from the Senators. Hypocrite McCain Fortune magazine says Senators Carl Levin and John McCain were careful to balance praise for Apple's (AAPL) achievements with outrage over its "convoluted and pernicious" (McCain's words) tax avoidance strategies. Sen. Rand Paul showed no such balance. He lit into his own committee's leadership for "dragging" one of America's great success stories into what he called a "show trial." Mish says McCain is one of the biggest hypocrites you can find when it comes to tax avoidance. There are two reasons companies keep profits overseas.
McCain Sponsors Repatriation Tax Holiday Accounting Today reported on October 6, 2011 McCain and Hagan Introduce Repatriation Tax Holiday Bill. Senators John McCain, R-Ariz., and Kay Hagan, D-N.C., introduced legislation Thursday allowing multinational corporations to repatriate their foreign earnings at a reduced tax rate. The bipartisan bill, known as the Foreign Earnings Reinvestment Act, aims to trigger the flow of $1 trillion from the foreign subsidiaries of U.S.-based multinationals at a reduced tax rate of 8.75 percent, as opposed to the statutory corporate income tax rate of up to 35 percent. It would accomplish this through a temporary dividends received reduction of 75 percent.McCain Should Apologize to Paul It seems to me that hypocrite Senator John McCain should apologize to Senator Rand Paul as well as to Apple. Instead The Hill reports Sen. John McCain (R-Ariz.), also defended the Senate inquiry, calling it "offensive" for anyone to accuse Levin of bullying. Final Thoughts It is absolutely absurd for taxes to be lower overseas than in the US. Current policy encourages movement of jobs and capital to foreign countries. If anything, taxes ought to be higher on foreign profits than lower. That would encourage investment in the US. I have been writing about this for years. Levin acts as if this is something new. Perhaps he is dumb enough that he just figured this out. Regardless, he still is not bright enough to realize where to point the finger. Finally, and as I also pointed out, tax repatriation policies do not help at all. And on that score Senator McCain is personally responsible. He does not know where to point the finger either. I will be glad when McCain retires. Rand Paul is the future of the party, McCain is the past. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Bernanke's Semi-Annual Tap-Dance of Distortions, Half-truths, Lies, and Hypocrisy to U.S. Congress Posted: 22 May 2013 11:50 AM PDT Inquiring minds with extra time on their hands this morning are plodding through the Full Transcript of Bernanke's Testimony To Joint Economic Committee, U.S. Congress looking for the usual collection of half-truths, distortions, and outright lies it usually contains. Here are some point-by-point statements by Bernanke with my comments immediately following each set of statements. Bernanke: Conditions in the job market have shown some improvement recently. The unemployment rate, at 7.5 percent in April, has declined more than 1/2 percentage point since last summer. Moreover, gains in total nonfarm payroll employment have averaged more than 200,000 jobs per month over the past six months, compared with average monthly gains of less than 140,000 during the prior six months. Mish: What Bernanke failed to say is real wages are anemic and the Fed's low interest rate policy is making it easy for corporations to borrow at excessively low rates and use the money to invest in hardware and software robots to fire workers. Excessively low rates also punish savers and those on fixed income. Bernanke: Payroll employment has now expanded by about 6 million jobs since its low point, and the unemployment rate has fallen 2-1/2 percentage points since its peak. Mish: Even if those were all full-time jobs, this was a very anemic recovery by historic standards. Bernanke: Despite this improvement, the job market remains weak overall: The unemployment rate is still well above its longer-run normal level, rates of long-term unemployment are historically high, and the labor force participation rate has continued to move down. Moreover, nearly 8 million people are working part time even though they would prefer full-time work. High rates of unemployment and underemployment are extraordinarily costly: Not only do they impose hardships on the affected individuals and their families, they also damage the productive potential of the economy as a whole by eroding workers' skills and--particularly relevant during this commencement season--by preventing many young people from gaining workplace skills and experience in the first place. Mish: That is a reasonably accurate set of statements but nowhere does the Fed admit its role in creating those conditions with its boom-bust, moral-hazard monetary policies. Bernanke: The loss of output and earnings associated with high unemployment also reduces government revenues and increases spending on income-support programs, thereby leading to larger budget deficits and higher levels of public debt than would otherwise occur. Mish: The fiscal deficit is high because of perpetual overspending by Congress on top of the Fed's boom-bust, moral-hazard monetary policies. Bernanke: Consumer price inflation has been low. The price index for personal consumption expenditures rose only 1 percent over the 12 months ending in March, down from about 2-1/4 percent during the previous 12 months. This slow rate of inflation partly reflects recent declines in consumer energy prices, but price inflation for other consumer goods and services has also been subdued. Nevertheless, measures of longer-term inflation expectations have remained stable and continue to run in the narrow ranges seen over the past several years. Over the next few years, inflation appears likely to run at or below the 2 percent rate that the Federal Open Market Committee (FOMC) judges to be most consistent with the Federal Reserve's statutory mandate to foster maximum employment and stable prices. Mish: The Fed has no idea what inflation is or why because the Fed ignores asset bubbles in stocks, in bonds, and in houses. It uses fatally flawed definitions of inflation, inaccurately measured at that. Berrnanke: Over the nearly four years since the recovery began, the economy has been held back by a number of headwinds. Some of these headwinds have begun to dissipate recently, in part because of the Federal Reserve's highly accommodative monetary policy. Notably, the housing market has strengthened over the past year, supported by low mortgage rates and improved sentiment on the part of potential buyers. Increased housing activity is fostering job creation in construction and related industries, such as real estate brokerage and home furnishings, while higher home prices are bolstering household finances, which helps support the growth of private consumption. Mish: Housing sentiment has indeed improved, but that is of course what happens when central banks artificially suppress rates with the purposeful intention of creating asset bubbles, not to help consumers, but to bail out banks still stuck with housing inventory they need to unload. Bernanke: Over the past four years, state and local governments have cut civilian government employment by roughly 700,000 jobs, and total government employment has fallen by more than 800,000 jobs over the same period. For comparison, over the four years following the trough of the 2001 recession, total government employment rose by more than 500,000 jobs. Mish: At best, that's a start. And it fails to address untenable union wages and benefits and absurd collective bargaining agreements of public workers. Bernanke: At the same time, though, fiscal policy at the federal level has become significantly more restrictive. In particular, the expiration of the payroll tax cut, the enactment of tax increases, the effects of the budget caps on discretionary spending, the onset of the sequestration, and the declines in defense spending for overseas military operations are expected, collectively, to exert a substantial drag on the economy this year. The Congressional Budget Office (CBO) estimates that the deficit reduction policies in current law will slow the pace of real GDP growth by about 1-1/2 percentage points during 2013, relative to what it would have been otherwise. Mish: It is preposterous to whine about pissy cuts in spending when the cuts have all been back-end loaded, and there are no real cuts in the first place. Congress did not really cut anything. It decreased the amount of expected budget increases and called that a cut. Bernanke: In present circumstances, with short-term interest rates already close to zero, monetary policy does not have the capacity to fully offset an economic headwind of this magnitude. Mish: Headwinds? From non-existent cuts? From a rollback of tax cuts that should never have happened in the first place? Bernanke: Although near-term fiscal restraint has increased, much less has been done to address the federal government's longer-term fiscal imbalances. Indeed, the CBO projects that, under current policies, the federal deficit and debt as a percentage of GDP will begin rising again in the latter part of this decade and move sharply upward thereafter, in large part reflecting the aging of our society and projected increases in health-care costs, along with mounting debt service payments. To promote economic growth and stability in the longer term, it will be essential for fiscal policymakers to put the federal budget on a sustainable long-run path. Mish: Note the blatant hypocrisy of Bernanke whining about non-existent cuts and about tax rollbacks the country could not afford, while warning Congress that something must be done to put the federal budget on a sustainable long-run path. Bernanke: Importantly, the objectives of effectively addressing longer-term fiscal imbalances and of minimizing the near-term fiscal headwinds facing the economic recovery are not incompatible. To achieve both goals simultaneously, the Congress and the Administration could consider replacing some of the near-term fiscal restraint now in law with policies that reduce the federal deficit more gradually in the near term but more substantially in the longer run. Mish: Yeah, right. Like what? Of course that's not his problem. He just begs Congress to kick the can down the road, which of course is all the Fed ever does too, while ignoring every asset boom-bust cycle along the way. Bernanke: With unemployment well above normal levels and inflation subdued, fostering our congressionally mandated objectives of maximum employment and price stability requires a highly accommodative monetary policy. Normally, the Committee would provide policy accommodation by reducing its target for the federal funds rate, thus putting downward pressure on interest rates generally. However, the federal funds rate and other short-term money market rates have been close to zero since late 2008, so the Committee has had to use other policy tools. The first of these alternative tools is "forward guidance" about the FOMC's likely future target for the federal funds rate. Mish: Got that? Forward guidance is supposedly a tool. In reality, the Fed is totally clueless about the economy, about housing, about jobs, and about where interest rates should be (as directly evidenced by repeat bubble-blowing exercises). Bernanke: The second policy tool now in use is large-scale purchases of longer-term Treasury securities and agency mortgage-backed securities (MBS). These purchases put downward pressure on longer-term interest rates, including mortgage rates. For some months, the FOMC has been buying longer-term Treasury securities at a pace of $45 billion per month and agency MBS at a pace of $40 billion per month. The Committee has said that it will continue its securities purchases until the outlook for the labor market has improved substantially in a context of price stability. The Committee also has stated that in determining the size, pace, and composition of its asset purchases, it will take appropriate account of the likely efficacy and costs of such purchases as well as the extent of progress toward its economic objectives. Mish: Note the dual mandate nonsense of jobs and inflation. It is impossible for bureaucrats and central planners to target one factor of the economy accurately. Two is insane. Yet, price stability is easy enough to achieve. Simply get rid of the Fed and fractional reserve lending. Here are some links on the absurdity of dual mandates. Bernanke: At its most recent meeting, the Committee made clear that it is prepared to increase or reduce the pace of its asset purchases to ensure that the stance of monetary policy remains appropriate as the outlook for the labor market or inflation changes. Mish: That makes sense (in a perverse sort of way). The Fed has no idea what it is doing so it needs to be prepared to do anything. Also note the irony of being prepared to do anything while promoting "forward guidance" as a tool. Bernanke: In the current economic environment, monetary policy is providing significant benefits. Low real interest rates have helped support spending on durable goods, such as automobiles, and also contributed significantly to the recovery in housing sales, construction, and prices. Higher prices of houses and other assets, in turn, have increased household wealth and consumer confidence, spurring consumer spending and contributing to gains in production and employment. Importantly, accommodative monetary policy has also helped to offset incipient deflationary pressures and kept inflation from falling even further below the Committee's 2 percent longer-run objective. Mish: What a bunch of self-serving nonsense. Higher asset prices have primarily benefited the wealthy. For discussion, please see Who Won? the 93% or the 7%? Why? Moreover, Bernanke does not understand the simple math of 2% inflation over time. When wage growth does not keep up, and it hasn't, huge economic distortions arise along with dependency on food stamps, disability, and other programs. In short, 2% stability, is very destabilizing. I spoke about this at length in Fallacy of Inflation Targeting. Here is the key chart. Inflation Targeting at 2% a Year  Over time, prices rise, but wages for the masses do not. Worse yet, Bernanke's cheap money philosophy makes matters worse because it encourages businesses to invest in hardware and software robots that will enable companies to fire more workers. There are no benefits of artificially low rates, at least to the average worker. Economist Steve Keen commented on that chart in Exponential Credit Petri Dish; Steve Keen Responds to "World Economic Forum Endorses Fraud" Post Bernanke: That said, the Committee is aware that a long period of low interest rates has costs and risks. For example, even as low interest rates have helped create jobs and supported the prices of homes and other assets, savers who rely on interest income from savings accounts or government bonds are receiving very low returns. Another cost, one that we take very seriously, is the possibility that very low interest rates, if maintained too long, could undermine financial stability. For example, investors or portfolio managers dissatisfied with low returns may "reach for yield" by taking on more credit risk, duration risk, or leverage. Mish: The committee would not recognize risk if it jumped up and spit in Bernanke's face. Low interest rates have already undermined future financial stability by encouraging "reach for yield" excessive credit risk, duration risk, and leverage. Bernanke: Because only a healthy economy can deliver sustainably high real rates of return to savers and investors, the best way to achieve higher returns in the medium term and beyond is for the Federal Reserve--consistent with its congressional mandate--to provide policy accommodation as needed to foster maximum employment and price stability. Of course, we will do so with due regard for the efficacy and costs of our policy actions and in a way that is responsive to the evolution of the economic outlook. Mish: Bernanke took one last opportunity to hide behind a ridiculous dual mandate while turning a blind eye to the destabilizing asset bubbles it creates. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Abenomics in Review: Yen, Inflation, Exports, Imports Posted: 22 May 2013 12:52 AM PDT With the Yen collapsing vs. all other currencies, inquiring minds may be wondering how prime minister Shinzo Abe's inflation policy is working out in practice. Let's start with a look at the Yen. Yen Daily Chart for One Year  In the last year, the Yen has fallen from 124.79 to 97.56. That is a decline of 21.82%. Recall that Abe's policy is an attempt to raise inflation and spur exports. Japan Still in Deflation On May 19, Reuters reported Japan's Amari: core core CPI showing signs of turning positive due to BOJ. Japanese Economics Minister Akira Amari said on Monday that core-core consumer prices, which exclude fresh food and energy, are showing signs of turning positive due to the Bank of Japan's aggressive monetary easing. Amari, speaking to reporters, also said the government still judges Japan to be in mild deflation as other measures of consumer prices are still falling when compared to the same period a year ago.Fancy that. Consumer prices are still falling in spite of a 21% plunge in the currency. OK, but what about exports and imports? Good question. I'm Glad you asked. Japan Exports Disappoint Please consider Japan Exports Disappoint, Full Benefits of Weak Yen Yet to Show Japan's exports rose less than expected in April from a year earlier due to weak demand from Europe and China, highlighting the challenges confronting the world's third-biggest economy as policymakers try to engineer a sustained revival.Abenomics Synopsis
People think Shinzo Abe is a hero because the Nikkei is up. I think Abe is an absolute economic nutcase who is going to create a currency crisis in Japan if he succeeds in changing the constitution like he desires (and quite possibly even if he doesn't). For further discussion, please see Will Shinzo Abe Succeed with Constitutional Changes to Militarize Japan and Further Destroy the Yen? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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