Mish's Global Economic Trend Analysis |
- Head-Banging Revisited; Obama’s 'Have-It-All' Budget; Mish Proposal
- Ukraine Floats the Hryvnia: It Sinks, As Expected, Down 45% Today; Carpetbaggers Take Over
- Playground Bully Theory vs. Eurozone Gang Rules; The Only (and Ironic) Solution
| Head-Banging Revisited; Obama’s 'Have-It-All' Budget; Mish Proposal Posted: 05 Feb 2015 06:14 PM PST Dead on Arrival On Sunday, in More Obama Dead-on-Arrival Tax Proposals, a post regarding Obama's proposed corporate tax hikes, I asked a simple question ... Is there a point to beating your head against a concrete wall? The answer would seem to be "no", yet President Obama continues to do just that with dead-on-arrival proposals. .... If he's attempting to pound some sense into his head, it's clearly not working. Republican Head Banging Now it's the Republican's turn at head-banging.
From the Washington Examiner: "The debate sounded like it usually does — with Democrats hammering Republicans trying to strip away the law's insurance subsidies and other benefits, and Republicans contending that the law remains unpopular among the public and has raised insurance costs for some people or cost them hours of employment." What's the Point? Obama will veto the legislation, assuming the Senate does not kill it first. That begs the question: Is there a point? In Praise of Head-Banging I see the error in my ways. There is a point to it, although it certainly will not pound sense into anyone's head. In contrast to typical Washington compromise non-solutions, head-banging seldom does much harm. In fact, head-banging provides entertainment value. In comparison, history suggests legislation nearly always makes matters worse. And it has for decades. Obama's 'Have-It-All' Budget What worries me now is this: $4 Trillion Budget Replaces 'Mindless Austerity'. Politico explains further in Barack Obama's 'Have-It-All' Budget. President Barack Obama released a $4 trillion budget Monday designed to convince Americans that they can have it all: more tax breaks for the middle class, more spending on government programs, and just enough cuts and tax hikes to keep the nation's deficits under control.Obama Threatens to Veto Any Bill That Does Not Increase the Budged A Washington Post article is even more scary: Obama may have new leverage with his $4 trillion budget. Obama warned that he will veto spending bills that do not do away with the sharp automatic budget cuts, known as "sequestration," also adopted as part of that deal."More Spending" Compromise Obama will not accept budget cuts and Republicans will not accept tax hikes. The compromise solution is the same as it's always been: Republicans will get more defense spending and the Democrats will get more social spending. Neither side is willing to address the real problem: Both social spending and military spending is out of control. The fake deficit-hawk Republicans will cave in, as they always do. A head-banging result where nothing at all happened would be a better result. Mish Proposal I would readily make concessions if I got something significant in return. Here's my bargaining list.
My proposals would start a genuine recovery enabling cities and states to shed debt obligations in bankruptcy while lowering costs for much needed infrastructure improvements. President Obama says he is willing to make some "tough choices". Republicans never present him with any. Instead, both parties just spend more and more without fixing any fundamental problems. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Ukraine Floats the Hryvnia: It Sinks, As Expected, Down 45% Today; Carpetbaggers Take Over Posted: 05 Feb 2015 01:25 PM PST On February 3, I posted a chart of the "official" exchange rate at 16.24 hryvnias to one US dollar. In reality, the true exchange rate on the black market was on the order of 21.5 hryvnias to the dollar. See Black Market in Ukrainian Currency Masks True Extent of Decline; Banks Impose 30% Foreign Exchange Fee; Freely Floating Hryvnia Announced. Rumor had it that Ukraine would float the currency today. That rumor was correct as was my call as to what would happen. This is what I said on February 3: How Low Will It Go? Hryvnia One Day Price Action  Chart courtesy of Bloomberg. Click on chart for sharper image. The decline shown today is 45.13%, but as stated above, that decline really occurred over time, as measured by the black market. What are those intraday gyrations are all about? I strongly suspect intervention to prevent an even bigger plunge. If so, another collapse is coming up. In the last year the Hryvnia sunk from 8.29 to the dollar to 24.35 to the dollar. That's a decline of 66%, not far off my 73% projection. It will get there, and probably more unless the IMF steps in very soon. Ukraine Floats Currency, It Sinks Bloomberg reports Ukraine Floats Currency, It Sinks. In recent months, Ukraine was probably pursuing the most clueless exchange rate policy in Europe. In the run-up to the October parliamentary election, President Petro Poroshenko used his good relationship with National Bank governor Valeria Gontareva to persuade her to keep the exchange rate below 13 hryvnias to the U.S. dollar. In late September, banks were ordered not to sell more than 3,000 hryvnias' worth of foreign currency per day to their customers. At the same time, the National Bank started holding special auctions in which it sold $3 million per day to banks to set a so-called "indicative rate" that they were supposed to follow in transactions with clients.Carpetbaggers Take Over The last paragraph above says it all. The only thing I disagree with is the reference to the "Russian-instigated" war. Make no mistake, this was a "US-instigated" war. Russia merely stepped into it, in support of separatists. The IMF Carpetbaggers have arrived. Total destruction of the country is at hand. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Playground Bully Theory vs. Eurozone Gang Rules; The Only (and Ironic) Solution Posted: 05 Feb 2015 10:50 AM PST Playground bullies pick on the weak and the feeble. Extortion (lunch money, allowances, etc.) are common means of avoidance. But feeding the bully never does any good. It's only when the bullied party takes action (a punch in the nose qualifies but so might complaining to the principal), does resolution of the problem occur. It's much harder on a bully facing a gang. Punching a gang leader in the nose could get you killed. A frequent and unfortunate happening in inner city schools is for the bullied person to seek relief by joining the gang. I am not talking about Chicago, Detroit, or LA inner-city schools. I am talking about Germany, the ECB, and the gang of 17 vs. Greece. Who's the Bully? In the following discussion, some might object to my posing Germany as the bully. They will claim Greece did this on its own. The reality is both sides are guilty. Germany knew (or should have known) that Greece was a bad risk. There is a price to be paid for making bad loans. That price is inevitable default. When you insist you do not have to pay a reasonable price for mistakes you made or insist that debt be paid back when it can't, you become a bully. Keeping the Gang In Line A few days ago I saw this report Eurogroup leaves door open for Syriza to partially renegotiate. On February 2, the EU Observer reported France, US Support Greece in Debt Battle. That bit of hope did not last long. Yesterday, French President Francois Hollande warned Greek Prime Minister Alexis Tsipras that "respecting the rules is necessary for all, for France too, and it's not always easy." Also yesterday, The Financial Times reported Spain Keeps Hawkish Eye on Greece as Southern Solidarity Crumbles. Gang Solidarity Reached What happened to the token gestures towards Greece? Gang leader Germany squashed every overture towards Greece, no matter how slight. Then, having reached solidarity against the outcast, the Mob Enforcer (affectionately known as the ECB) threw down the gauntlet. For a description of the enforcement process, please see ECB Revokes Greek Bonds as Collateral; ECB vs. Novices; Brass Knuckles. When it comes to playground bullies there are five possible resolutions. Five Outcomes
Those are no other choices. In practice, number one does not happen until everything else has failed a number of times. On the playground, choices number 2 or 3 most often win. Choice number 4 goes something like this: "Give me another candy bar and I will be your friend." If the bullied party pays up, The bully soon demands an extra candy bar a week. Admission of Obvious Truth The first step in solving a problem is to admit you have one. In a interview yesterday on Zeit Online, Greek finance minister Yanis Varoufakis admitted the obvious truth: "I'm the Finance Minister of a Bankrupt Country". It took an amazing amount of time to admit the obvious truth, but the important point is the truth is finally on the table. Effectively, Greece finally admitted that it has no more funds to pay the bully. That's an important step, and it precludes option number 2, perpetual payment to the bully. It also precludes option number 3 because properly joining the gang requires payment owed to the gang, and Greece does not have those funds. It is bankrupt. Option 4 is the can-kicking exercise everyone hopes for. However, Greek Prime Minister Alexis Tsipras and his finance minister Yanis Varoufakis have ruled that out. They do not want a can-kicking truce that does not properly take into consideration one simple fact: Greece is bankrupt. If Greece is truly serious, there's nothing left but option 5: The bullied party finally decides it has had enough. Does Option 5 Mean Grexit? I have been thinking about option 5 quite a bit. What if Greece defaults, but claims it will stay on the euro? Who is going to kick them out of the eurozone gang? Eurozone Gang Rules Rules of the eurozone gang are such that once in the gang, no one can kick you out. No one can stop you from leaving, but there is no means to kick someone out. The ECB can shut off all funding, but as long as Greece maintains a primary account surplus (current account surplus excluding debt service), what is the ECB to do? Greece does have a primary account surplus (tax receipts are sufficient to pay the bills excluding debt payments), but if Syriza honors its election promises, that surplus would instantly melt. Only Solution A default with the intention of keeping the euro is the only solution, assuming Syriza is truly serious about wanting to stay on the euro. It will not be easy, but it appears feasible. Greece would need to institute all kinds of reforms immediately. Syriza would also have to abandon many left-wing proposals and Greece would likely have to agree to pay back the ECB and the IMF in full. In regards to the bulk of the debt owed, Greece could then ask for and eventually get the debt restructuring conference it wants. The payoff for my proposal would be spectacular. Spectacular Payoff
Ironically, Greece would become more like Germany! Isn't that what everyone claims to want? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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