Mish's Global Economic Trend Analysis |
- Down Under: Economists Surprised by Jump in Australian Unemployment Rate
- Third Greek Bailout? Another €53.8 Billion Needed? Primary Account Surplus Revisited
- Missing the Boat on Right-to-Work
- Life After Eurozone; Final Exam Crunch Time
| Down Under: Economists Surprised by Jump in Australian Unemployment Rate Posted: 11 Feb 2015 08:38 PM PST On February 3, the Reserve Bank of Australia cut interest rates to a record low 2.25%. Did economists think the RBA had a reason for that cut or did they they think the RBA was playing darts and landed on a "rate cut" square? The latter would make sense, because the Sydney Morning Herald notes a Surprise Jump in Unemployment to 6.4 Percent. The Australian Bureau of Statistics said on Thursday that the number of people employed fell by 12,200 to 11.668 million in January, against market expectations of a fall of 5,000.Potential Growth Why does anyone place any faith in central bank or economists' estimates of "potential growth". I suggest it is impossible to accurately come up with such a number. But given they have, I will take the "under" for quite some time. For more on the misery down under, please see Australia Coming Apart at the Seams. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Third Greek Bailout? Another €53.8 Billion Needed? Primary Account Surplus Revisited Posted: 11 Feb 2015 12:18 PM PST Greece has two major financing problems. One is long-term, the other happens right now.
It is amusing to hear talk of a third bailout given that Greek Prime Minister Alexis Tsipras wants to put an end to the second, and certainly will not accept a third. Yet, here we go again. How Much Would a Third Bailout Cost? The Financial Times goes over the math in How Much Would a Third Greek Bailout Cost? One of the unmentioned problems looming over the current Greece standoff is the fact that Athens will need a third bailout, regardless of what happens in a week's worth of Brussels meetings that start on Wednesday. Eurozone officials say that both Yanis Varoufakis, the new Greek finance minister, and his boss, Alexis Tsipras, have acknowledged that in private meetings.Best Case Scenario The Financial Times concludes that a best-case scenario is €37.8bn, assuming healthy tax receipts and solid economic growth that were forecast during the last bailout review even though tax receipts and growth both lag perpetually optimistic projections. Gross Borrowing Needs  60% of Greek debt is owed to eurozone countries, but in regards to short-term financing needs, there is not a penny of relief to be found. No principal or interest is due until 2017 at the earliest. Who Does Greece Owe? In Greece Presents Bailout Plans to EU Finance Ministers the BBC has a nice table that shows percentages of debt owed.  The immediate problem is the upper right quadrant. Key Dates  Where Can Greece Get €11 billion? Between March and August, Greece needs to come up with €11 billion. From where? Greek revenues have plunged badly because Greek citizens reacted in advance of Syriza's victory and Tsipras' pledge to cut some taxes. Primary Account Surplus Revisited Unless Greece runs a primary account surplus (current account surplus not counting debt payments or interest on debt), it will need external funding. The Wall Street Journal reported Greece Expects Primary Budget Surplus for 2015. Does that take into consideration plunging tax revenues? If not, can Syriza step up collections in time? If the answer to either question is yes, then Greece can walk away and stay on the euro, albeit without the spending programs Tsipras wants. For further discussion of how Greece can default and still stay on the euro, please see
Should Greece need external financing, then Grexit applies. The world won't end. There is Life After Eurozone Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Missing the Boat on Right-to-Work Posted: 11 Feb 2015 10:12 AM PST This is my first submission to the Illinois Policy Institute, a nonprofit, non-political organization that deserves your support. Illinois Chamber Misses the Boat on Right-to-Work The Illinois Chamber of Commerce recently took interesting, as well as contradictory, positions regarding the minimum wage and Right-to-Work legislation. On one hand, the chamber is not in favor of minimum-wage hikes for Illinois. On the other, the chamber says "Illinois doesn't need right to work (laws) to compete with its neighbors." At the root of both of these policy issues is the state's ability to compete and attract job creators. If the chamber acknowledges that a minimum-wage increase is a jobs killer, how can it oppose Right to Work, which is proven to attract new businesses? Contradictory positions The Chicago Tribune highlighted the chamber's positions in the article, "Minimum wage battles to continue in 2015." Chicago's minimum wage will rise to $13 an hour in 2019 from the current $8.25 an hour. The Tribune noted the organizations that came out against the hike: "Business groups, including the Chicagoland Chamber of Commerce and Illinois Restaurant Association, said the city's measure was a job killer. They warned that Chicago's increase would drive many companies out of the city and force others to layoff employees or to close. Raising minimum wage, they said, has a domino effect as higher-paid workers also will expect increases, putting more pressure on the profitability of small businesses."Strangely, Maisch also contended "Illinois doesn't need right to work (laws) to compete with its neighbors." Those positions are contradictory. To understand why, one must investigate the tie between "prevailing wage" laws, Right-to-Work laws and collective bargaining. Prevailing Wage Illinois' Prevailing Wage Act governs the wages a contractor or subcontractor is required to pay to all "laborers, workers and mechanics" who perform work on public projects. This wage is to be "no less than the general prevailing hourly rate as paid for work of a similar character in the locality in which the work is performed." As the Illinois Policy Institute noted in Unions take advantage of Illinois' prevailing wage law, "This almost always is taken to mean the union rate, even though union workers make up less than 40 percent of the construction workforce and union wages are often 50 percent higher than those of nonunion workers." Want to repair roads? Add another wing onto a public school? Fund a bond for any public project? Cities have to pay the "prevailing rate." Those prevailing rates apply to every imaginable public project, spilling over into many private projects as well. Prevailing rates are in direct opposition to the idea behind Right-to-Work laws. Under properly formed Right-to-Work legislation, any contractor should be able to bid on any project, regardless of a government-mandated prevailing wage. Preferably, the needed legislation on these two issues should be accomplished in one fell swoop. If it takes two acts, one for Right to Work and another to repeal prevailing wages, so be it. The third piece of the puzzle is collective bargaining. Wisconsin Offers Example on Collective Bargaining Wisconsin Gov. Scott Walker passed legislation in 2011 to eliminate collective bargaining for most public workers in the Badger State. Then a curious thing happened, as reported by the Washington Examiner: "The Kaukauna School District, in the Fox River Valley of Wisconsin near Appleton, has about 4,200 students and about 400 employees. It has struggled in recent times and this year faced a deficit of $400,000. But after the law went into effect, at 12:01 a.m. Wednesday, school officials put in place new policies they estimate will turn that $400,000 deficit into a $1.5 million surplus. And it's all because of the very provisions that union leaders predicted would be disastrous.Some of the most important improvements in Kaukauna's outlook are because of the new limits on collective bargaining. Overnight, the Kaukauna, Wisconsin, school district turned a $400,000 deficit into a $1.5 million surplus. In essence, Illinois needs to do the same. Specifically, Illinois desperately needs to do three things, all of them related:
Whether this is done in one fell swoop or in three separate acts does not matter except in terms of time, and Illinoisans have little time to spare. Businesses and private citizens are fleeing the state at record rates in search of a healthier business climate and to avoid enormous property taxes. Illinois cannot afford for these losses to continue much longer, especially if another national recession should occur. Illinois fared poorly in the last recovery, and another recession may very well do in the state – especially state pension plans – unless appropriate measures are enacted soon. The Illinois Chamber of Commerce, and others coming out against Right to Work in the Land of Lincoln, would be wise to reconsider their position. Mike "Mish" Shedlock End Submission This article appeared on Illinois Policy Institute on February 6, under the same title "Missing the Boat on Right-to-Work". Illinois Policy Newsletter I encourage those who live in Illinois as well as those interested in Illinois state policies to subscribe to the Illinois Policy Newsletter. It's free, and it will keep you informed about Illinois matters important to you. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Life After Eurozone; Final Exam Crunch Time Posted: 11 Feb 2015 02:33 AM PST Final Exam Crunch Time The Showdown in Europe is now into final exam crunch time. Greece's Yanis Varoufakis heads for showdown talks with his fellow eurozone finance ministers on Wednesday afternoon, buoyed by a strong endorsement from parliament for the government's hardline stance to renegotiate its bailout.Cancelled by Failure Animosities and German arrogance are so high, the best thing for Greece to do is tell the rest of the eurozone, to "bleep off". That was my position years ago actually, but acceptance in Greece is now sufficient to allow just that to happen. Thankfully, kick-the-can compromises are no longer acceptable to Greece. Life After Eurozone The fear for Germany should not be of Grexit per se, but rather a successful exit. If Greece can leave and be better off, then so can Italy, Spain, Portugal, and Ireland. Let Germany and France have the euro. Amusingly, put on those terms, Germany would likely not want it either. Meanwhile, the best thing to do for all involved is to relax, take a deep breath, and work out a plan as to what will happen when Greece defaults. If that means Grexit, then so be it. I suggest the world will not end. For now, Greece says it cannot and will not pay back debt obligations. Germany says Greece will. Let's see who is right. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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