Mish's Global Economic Trend Analysis |
- Greecification of Spanish Politics and the Lies of Spain's Ministers
- Business Activity Contracts in Japan, Modest Expansion in China; PBOC Rate Cut Seen
- Ukraine Hikes Rate to 30%, Requires Corporations to Sell 75% of Foreign Currency Earnings; Miners Not Paid For 3 Months
- Chicago's Only Possible Salvation: Bankruptcy - a Name That Cannot be Spoken
| Greecification of Spanish Politics and the Lies of Spain's Ministers Posted: 03 Mar 2015 10:22 PM PST There's an excellent post on Keep Talking Greece this evening on the simmering feud between Greek prime minister Alexis Tsipras and Spanish prime minister Minister Mariano Rajoy. Tsipras made a claim that Rajoy's plan is to "wear down, topple or bring our government to unconditional surrender before our work begins to bear fruit and before the Greek example affects other countries… And mainly before the elections in Spain. ... for obvious political reasons". Spanish foreign minister García Margallo, returned fire with a statement (a lie actually), that "Had Spain not given €32.744 billion to Greece, it could have increased the unemployment benefits by 50 percent or increase pensions by 38 percent." Theheart of the bickering is the rise of the Spanish political party Podemos to the top of the Spanish polls. Elections are later this year. Pablo Iglesias, the leader of Podemos, and Tsipras are good friends. Greecification of Spanish Politics With that backdrop, let's pick up the discussion with a look at the Keep Talking Greece article "Hellenization" of Spanish politics or How PM Rajoy lies about the Greek loan. It doesn't matter whether SYRIZA and PODEMOs have a lot or just a few things in common. PM Rajoy is concerned that if SYRIZA manages to achieve some austerity relaxation, his days on the Spanish PM's chair are counted.Adding Up the Numbers First let's take a look at the numbers as discussed in Revised Greek Default Scenario: Liabilities Shifted to German and French Taxpayers; Bluff of the Day Revisited. Dr. Eric Dor, director of IESEG School of Management in Lille has the following numbers.
Foreign Minister, García Margallo has the total on the nose, but only €6.65 billion was a loan. The rest was a guarantee that could not be spent. Without a doubt Margallo knows the rest were not loans and is thus purposely telling a lie. The €26 billion mentioned by economy minister Luis de Guindos appears to be roughly bilateral loans plus EFSF plus SMP. Conspiracy Charges I commented on the conspiracy charges in Greece Accuses Spain and Portugal of Conspiracy; 3rd Greece Bailout Discussion Under Way for €30-50 Billion. Spanish Prime Minisiter Mariano Rajoy is making a big mistake. Spain can use debt relief. And the citizens of Spain want debt relief.Third Bailout Discussions or Not? Economy Minister Luis de Guindos said third bailout talks are underway. Juncker said they are not underway. Jeroen Dijsselbloem, who chairs the euro zone finance ministers' group said the same thing. Spokeswoman Simone Boitelle joined the deniers with this statement "Euro zone finance ministers are not discussing a third bailout." It's possible that Juncker, backed up by two others, is actually telling the truth. Known liars don't always lie. If so, the only possible conclusion is that Spain's, Economy Minister Luis de Guindos lied when he stated such discussions were underway. Given that a key campaign pledge of Syriza was no more bailouts, and given the other lies by Spanish officials for political purposes, I think we know who's lying and why, even if such discussion will become necessary in the next four months. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Business Activity Contracts in Japan, Modest Expansion in China; PBOC Rate Cut Seen Posted: 03 Mar 2015 06:57 PM PST Markit has new reports out today on service activity in China and Japan. The former shows a bit of growth, the latter contraction. Because the reports are diffusion indices that give no weighting to the size of the companies reporting, one must look at these reports with a broad brush. Japan Business Activity Contracts The Markit Japan Services PMI shows service sector business activity contracts in February. Key pointsModest Expansion in China The Markit HSBC China Services PMI shows business activity growth at five-month high. Key PointsPBOC Rate Cut Seen Growth in China, assuming one believes the reports is expected to be seven percent this year. It appears as if the tread-water PMI mark in China delivers such growth. Nonetheless, Bloomberg reports PBOC Seen Cutting Again as China's Economy Slows, Survey Shows. The People's Bank of China will cut benchmark deposit and lending rates again next quarter as the economy slows, according to economists surveyed by Bloomberg.Reflections on China It's interesting that various indicators in China routinely go in and out of contraction, yet China constantly delivers growth that would make the rest of the world envious. Chinese growth is certainly overstated, but not because of any PMI reports. Rather, shadow bank lending of dubious quality adds to GDP (but shouldn't). Malinvestments of all sorts add to GDP (but shouldn't). And finally, pollution (not factored in at all), should subtract from GDP. None of the above is factored in. I don't know and cannot guess China's true GDP, but without a doubt, China's GDP is overstated and slowing. The entire world is slowing. By the way. Rate cuts are precisely the wrong thing to do. There is no need for a "looser policy". China needs to rebalance and rate cuts prolong the status quo of over-dependence on housing and infrastructure. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Posted: 03 Mar 2015 03:23 PM PST In an effort to arrest hyperinflation and general panic over rising food prices, Ukraine's Central Bank Hikes Benchmark Rate to 30 Percent. Ukraine's central bank will raise its benchmark refinancing rate to 30 percent from 19.5 percent, the head of the central bank said on Tuesday, as the bank tries to rein in rocketing inflation and persistent currency weakness.Interbank Trading There is no "threat of inflation", there is inflation. In light interbank trading, the quote ranged from 24.50 to 25.00 UAH/USD compared to 30.01 on February 26. With all the restrictions, and gimmicks, it's hard to call this a market. Corporations Must Sell 75% of Foreign Currency Earnings In addition to the rate hike, NBU Extends Rule Mandating Sale of 75% of Foreign Currency Earnings. The national Bank of Ukraine extended the requirement for mandatory sale of 75% of foreign exchange earnings, said the head of the National Bank of Ukraine Valeria Gontareva on Tuesday.Miners Block Road Due to Lack of Payment for Three Months Ukraine is so broke it has not been able to pay miners at state-owned mines. Please consider Rebellious Miners Blocked the Road Lviv-Kovel" The movement on the inter-regional highway from Lviv to Kovel was paralyzed: The road was blocked by striking miners, demanding payment of wage arrears.Miners Protest in Kiev Also consider Miners of Western Ukraine Announced an Indefinite Strike in Kiev. Among the strikers at the Verkhovna Rada [Ukrainian Parliament] are many workers from Western Ukraine, in particular, seven buses with miners from the Lviv region.Miners Forced Into Army Want to get paid? Join the Army. In the Volhynia region of Ukraine, sent 800 Miners Sent Draft Notices. Miners in Western Ukraine who threatened a large-scale rebellion over a three-month salary delay were drafted into the army.Black Market Rates Reader John whose sister lives in Lviv, has not heard from her for a few days. Thus, I cannot say how the black market has responded to the miner protests or the rate hike to 30%. Hopefully within a couple days I will have the street exchange rates to post. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Chicago's Only Possible Salvation: Bankruptcy - a Name That Cannot be Spoken Posted: 03 Mar 2015 12:08 PM PST Is the Chicago pension system so messed up and union work rules so entrenched the only way to change either of them is bankruptcy? I think so. So does Dennis Byrne who wrote on his blog today Chicago's Only Salvation: A Detroit-Like Bankruptcy. This is a guest post from Byrne. Chicago's Only Salvation: A Detroit-Like Bankruptcy Wait, I thought only the Republican Party was being torn asunder by a rift between the establishment middle and the fringe. That impression was nailed down, again, last week by the embarrassing fracture among House Republicans over funding for the Department of Homeland Security. But don't forget last Tuesday's Chicago primary in which incumbent Rahm Emanuel, the so-called establishment candidate, was forced into a runoff election for mayor with progressive Cook County Commissioner Jesus "Chuy" Garcia. Observers on the right and left expect that Garcia's unexpected success bodes well for progressives and is bad for moderate, establishment Democrats. That includes "centrist" (I don't necessarily agree with the label) and president-in-waiting Hillary Clinton. They see an uprising among progressives that'll energize the drive to draft the far-left Sen. Elizabeth Warren, D-Mass., to challenge Clinton. Suggesting that a national movement is afoot to cleanse the Democratic Party of centrist heretics, they also point to the election of New York Mayor Bill ("I'm a progressive, don't call me liberal") de Blasio. Others said last year's election of labor-backed Ras ("We are the mayor") Baraka as Newark, N.J., mayor energized progressives. Locally, left-wing Democrats have draped their mantle over the shoulders of Garcia. That's happened even though, after reading his answers to the Tribune's Candidate Questionnaire, I wouldn't call him the perfect progressive. The Illinois branch of MoveOn.org (the left's noisy equivalent of the right's tea party) endorsed Garcia. The Chicago Teachers Union and assorted progressive activists credit themselves for Garcia's unexpectedly strong showing and their successes in several alderman races. So, yes, there is a fissure within the Democratic Party, between the establishment types and progressives. So what? Frankly, I don't care about whatever splits are ripping apart whatever political party. More important than political process is the substance of the issues — the incredible, shrinking city of Chicago. At least give Emanuel credit for trying to confront the city's calamitous deficits and debt. Give Garcia and his supporters a thumbs down for not only failing to try to provide some realistic, convincing answers, but for wanting more of the same policies that are sinking the city and the schools. How dare Emanuel close down 50 Chicago schools! Keep them open, but don't ask how to pay for them. How dare Emanuel face the real problem of government labor costs! Pretend that the Chicago Public Schools don't have to find $688 million in pension payments in fiscal 2016. Hey, get rid of those red light cameras; they're only there to make a bundle of money for the city! Jump on Emanuel for finding sneaky ways to increase revenues without raising property taxes. Applaud Garcia when he promises no property tax increases. In this, progressives are true to form. Pain avoidance is a priority. More and costly programs are desperately needed. Instant gratification trumps the long-term common good. Saving for our children's future is inconsequential. Emanuel and Garcia, the latter especially, are criticized for not coming up with a better solution. Few commentators have great ideas, either. The problems have become too mind-boggling. Turning over all the tax increment financing, or TIF money, that has been salted away won't do it. New and higher taxes will fall short. Promises of "operating more efficiently" are hollow. The idea of a state bailout from nearly bankrupt Illinois is preposterous. Don't even look to Washington. There's a reason no one is putting forth a realistic solution: There is none. Chicago is too far in over its head to dig itself out. The only solution is the one whose name may not be spoken: bankruptcy. It worked in Detroit. Last December, it emerged from what was the nation's largest municipal bankruptcy after about 17 months of court supervision. Ironically, under bankruptcy, the city's homicide rate, the highest in its history, dropped 18 percent, The New York Times reported. Police average response time dropped to less than 18 minutes, from 58 minutes. Replacement of the city's streetlights — of which 40 percent failed to work — is in the offing. Detroit isn't out of the woods yet, but it's in a better place now than when there appeared to be no hope, none at all. Rip Chicago's finances out of the hands of the connivers, special interests and political opportunists and give them to a court-appointed manager to oversee the necessary reorganization. Start with Chicago Public Schools and, if necessary, throw in the entire stinking mess, called city of Chicago. Might as well include the state of Illinois, too. End Guest Post Byrne is a Chicago Tribune contributing op-ed columnist and author of forthcoming historical novel, "Madness: The War of 1812." Byrne is also a reporter, editor and columnist for Chicago Sun-Times and Chicago Daily News. Election Runoff In an election runoff, mayor Rahm Emanuel faces Jesus "Chuy" Garcia. The Chicago Tribune endorses Rahm Emanuel. One can quibble over Emanuel's accomplishments. And Emanuel certainly has his faults as the Tribune noted in an endorsement.
Jesus "Chuy" Garcia When asked about the Chicago's pension crisis, Garcia's non-solution is even more problematic. Consider three statements made by Garcia in the Tribune's Candidate Questionnaire.
Garcia also wants to put more police on the street. Garcia's solution apparently involves magic because it maintains benefits and adds police officers without hiking taxes, at least property tax hikes. Nowhere does Garcia explain how he pays for his position. Simply put, Garcia is in Fantasyland. The Problem and The Solution Even with Chicago's recent financial reforms and spending curbs, there's a $300 million hole in the 2016 budget and a $550 million balloon payment for police and fire pensions due next year. The Chicago Public Schools system faces an unfunded pension obligation of more than $9 billion. The problem is debt and untenable pension promises. Someone needs to step up to the plate and admit the obvious:
Nothing else works. Unions will fight every other attempt, just as they have done now. Say the Word! Bankruptcy is the word no one wants to say, but eventually bankruptcy will be thrust upon Chicago. Detroit would have been in recovery years ago had it taken that action years ago. Instead, every mayor of Detroit fought bankruptcy for a decade or more after it was perfectly obvious that bankruptcy was in the cards. Every delay made matters worse. Hopefully Chicago will not suffer the same sad fate of delay after delay accompanied with crumbling infrastructure. Pension Plan Review For more on the sorry state of Illinois pension plans, please see ...
For a look at pension plans in general, PIMCO founder Bill Gross (now with Janus Capital) says There's Too Much Debt, Too Many Zombie Corporations, and Low Interest Rates Destroy Pension Systems. Conclusion Byrne has it correct. Chicago's only possible salvation is bankruptcy. Let's admit the problems and the solution before more damage is done. The Illinois legislature needs to permit bankruptcy because that is the only conceivable solution, not just for Chicago, but for numerous Illinois cities afflicted with untenable pension plans. Delay means more problematic tax hikes accompanied with business and personal flight. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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