Central Perk

luni, 6 decembrie 2010

A Surprise Visit to the Troops in Afghanistan

Your Daily Snapshot for
Monday, Dec. 6, 2010

Photo of the Day

President Barack Obama visits with a platoon of U.S. troops at Bagram Air Field that recently lost six members in Afghanistan, Dec. 3, 2010. (Official White House Photo by Pete Souza)

Seth's Blog : In search of accomplices

[You're getting this note because you subscribed to Seth Godin's blog.]

In search of accomplices

Regular readers know that I've run a few free instensive education programs in my office. You can see details about them here, here and here.

Starting in four weeks, I'm trying a different approach. A paid 7 month gig helping me build a significant new publishing venture (I'll be announcing the details of the venture here on Wednesday morning).

I'm looking for two or three people to work with me in my office outside of New York, engaged in every element of the project, from copywriting and editing to social media to business development to promotion. My goal is to offer you a hands on experience with full exposure to the market, to technology and to shipping great work out the door. When we're done, I think you'll be qualified to start your own gig or find a great job in media.

There's an online application, then an in person interview for a few people in mid-December and we start January 4th. Obviously, this means you'll need easy access to New York, valid work permits and fantastic verbal, technical and writing skills. I'm offering each person as much education as I can, along with a $25,000 stipend in exchange for their work.

If you know someone who can use the boost that this might offer (and can do the work) I hope you'll share this with them. Applications close on December 10th.

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duminică, 5 decembrie 2010

Mish's Global Economic Trend Analysis

Multiple Simultaneous Games of "Chicken"; Price Controls on Walmart; China Declares Shift to "Prudent" Monetary Policy
Royal Bank of Scotland Says China's Credit Bubble on Borrowed Time, Warns of Sovereign Default by China
Global Development Statistics Come to Life: 200 Countries, 200 Years, 4 Minutes
Hillary Clinton vs. Sarah Palin on WikiLeaks
Meaning of "Compromise"
Sunday Funnies 2010-12-05 Bernanke Discusses Groupon

Multiple Simultaneous Games of "Chicken"; Price Controls on Walmart; China Declares Shift to "Prudent" Monetary Policy

Posted: 05 Dec 2010 10:34 PM PST

China's is overheating. Consumer prices in aggregate rose at an annual rate of 4.4% as of October. Food price are up 10.1 percent according to China Financial Daily.

Moreover, accelerating inflation is hurting profit margins in China's service sector. China's non-manufacturing PMI fell to a nine-month low in November, with new orders in consumer service industries showing outright contraction.

In response to these inflationary price pressures, China declared a shift to a "prudent monetary policy", including price controls at Walmart.

This begs the question: Since when do price controls constitute "prudent policy"? Price controls have never worked in history and this time will be no different.

This is a pretty long post, but please stay tuned until the end for an analysis of Multiple Simultaneous Games of "Chicken".

Topics include a comparison of monetary and credit growth in the US vs China, a look at the problems in Japan, a detailed look at various games of "chicken" central banks play with each other, and a detailed look at various games of chicken that speculators play with the market.

To fill in the details however, we need to start from the top with a look at China's overheating manufacturing sector.

Chinese Manufacturing Growth Accelerates

To date, interest rate hikes have not yet have any effects on industrial output. China's latest PMI survey shows Manufacturing Growth Accelerates

China's manufacturing grew at a faster pace for a fourth straight month in November, indicating the economy can withstand higher interest rates as price pressures escalate.

The Purchasing Managers' Index rose to 55.2 from 54.7 in October, China's logistics federation said on its website today.

Cement prices have climbed to a record, the state-run China Daily reported today. Consumer prices may have climbed 4.8 percent in November after October's 4.4 percent gain, which was the biggest in 25 months, according to China International Capital Corp.

Spot prices of power-station coal at Qinhuangdao port, a Chinese benchmark, rose to a two-year high this week.

The Irish Times reports the biggest increase in China's PMI came in the sub-index for input prices, which climbed to 73.5 from 69.9 a month earlier.

Service Sector Contraction

Unable to pass on price hikes, China's Services Industry Slows as Inflation Erodes Margins.

China's non-manufacturing purchasing managers' index fell to a nine-month low in November as accelerating inflation eroded service companies' margins.

The index dropped to 53.2 from 60.5 in October, according to a statement today by the Beijing-based National Bureau of Statistics and the Federation of Logistics and Purchasing. A reading above 50 indicates an expansion. A separate service PMI released by HSBC Holdings Plc fell to 53.1, a near two-year low.

"Inflationary pressure has started to show a negative impact on service expansion," the logistics federation said in today's statement.

The non-manufacturing measure encompasses business and consumer services as well as construction and real estate. The non-manufacturing new-order index fell to 50.1 last month from 56.3 in October, and new orders in consumer service industries indicated a contraction, with a reading of 47, today's data show.

Shift to "Prudent" Monetary Policy

In response to the huge yet likely understated price inflation, China declares shift to "prudent" monetary policy

China will switch to a prudent monetary policy from a moderately loose stance, the Communist Party's top leaders decided on Friday, a change that could pave the way for more interest rate increases and lending controls.

At the same time, the Politburo elected to maintain China's proactive fiscal policy, an indication that the government wants to continue to ramp up investment spending even while taking tightening steps to control inflation.

"It means that all sorts of monetary policy tools to control liquidity and to control inflation can now be used," said Ken Peng, an economist with Citigroup in Beijing.

"In the past we've been clearly focusing on administrative measures. Going forward we could be using more price adjustments via interest rates," he said, adding that he expected five rate increases by the end of next year.

China Places Price Controls on Wal-Mart

Would five rate hikes by the end of 2011 be enough? Since the answer is unknown, prudence would dictate for China to start hiking now in order to slow rampant credit expansion.

Instead, Wal-Mart Among Companies Facing China Price Controls.

The southwestern Chinese city of Kunming, where Wal-Mart Stores Inc. and Carrefour SA have operations, has imposed temporary price ceilings on daily necessities to counter inflation.

Kunming's government asked five retailers -- three non- Chinese, one Chinese and one based in Hong Kong -- to report any price adjustments and give reasons for the changes two days in advance of making any alterations, the National Development and Reform Commission's local branch said on its website yesterday.

Besides the five companies, other food, cooking-oil and beverage producers are requested to apply for government approval 10 working days before making price changes, the statement said.

The city government also imposed temporary price ceilings on daily necessities in major parts of the city starting from yesterday to the end of February, according to the statement. Prices of grain, cooking oil, meat, eggs, milk and noodles are to be kept at levels before Nov. 17, the statement said.

The city limited retail prices of vegetables, depending on type, to 40 percent to 100 percent higher than wholesale prices, the statement said.

Price Controls Never Work

Not once in history have price controls every accomplished anything good, unless you consider shortages a good thing. Expect shortages and black market pricing if the service sector and grocery stores cannot pass on input price increase.

The market's response last Friday was swift and severe as noted by the following commodity charts.

Grains

Metals

Crude

Chicken

It's not chicken prices that are important but rather the very dangerous game of chicken that China is playing. Money supply and credit are soaring in China and along with that explosion of credit is rampant inflation.

Economics Junkie has a nice set of chart comparing Money Supply in the US vs. China.

M1 in China

M1 (China) vs TMS1 (US)

Domestic Credit Contraction in US

According to the Fed Z1 Flow of Funds Report US domestic nonfinancial credit has been in contraction for 9 consecutive quarters, while domestic financial credit has been in contraction for 6 consecutive quarters.

This means one or more of the following conditions are true, most likely all of them.

US banks are reluctant to lend
US businesses and consumers are reluctant to borrow
Banks are capital impaired and do not want to lend
Chargeoffs exceed new loans

Total debt is up 4.8% but only because of massive government spending (much of it completely wasted on futile stimulus measures).

Moreover, the mark-to-market valuation of debt sitting on the balance sheets of banks is likely an absolute disaster. What cannot be paid back won't, and real estate loans are still extremely problematic.

Unfortunately, we don't have an accurate assessment of just how bad things are from a mark-to-market perspective because the FASB has suspended rule changes and the Fed and FDIC purposely looks the other way on horrendous bank balance sheets for as long as they can.

We do know the official problem bank according to the 3rd Quarter 2010 Quarterly Banking Profile rose from 829 to 860. The unofficial total is 919.

The problem banks total would be higher yet judging from Texas Ratios. Meanwhile, in China ....

Credit Up by 9.3 Trillion Yuan

Please consider Fitch says slower credit rise premature

China's credit growth this year has not slowed materially from the rapid pace in 2009 despite headline data pointing to a slowdown, Fitch Ratings said in a report yesterday.

The rating agency said that Chinese banks have been off-loading trillions of yuan in loans this year by artificially reducing their holdings of discounted bills and by re-packaging the loans into investment products for sale to investors.

The report came on the same day that China said it would change to a "prudent" monetary policy in 2011 from a "relatively easing" stance.

According to the report, the balance of Chinese banks' discounted bills was understated by as much as 1.65 trillion yuan (US$250 billion) at end of the third quarter.

A discounted bill is an accepted draft against which a loan is made and the interest is deducted immediately. Through the action, bill holders can acquire cash before its maturity date at lower rate. It could be a channel for companies to get capital while bypassing the loan quota.

Banks held more than 2.5 trillion yuan (US$375 billion) in credit not reflected in their balance sheets in wealth management products at the end of November.

"Adjusting for these factors, the amount of new credit extended through the end of the third quarter was on par with the 9.3 trillion yuan extended in the same period a year ago," Chu said. "Credit conditions remain loose, which explains why inflation and property prices stay stubbornly high."

China's Credit Expansion is 28% of GDP

US GDP is close to $15 trillion. This year's borrowing, including government deficit spending at roughly, is $1.7 trillion, or 11% of GDP. Money supply growth is 5%.

In contrast, China's GDP is about $5 trillion with annual credit growth of 9.3 trillion Yuan (about $1.4 trillion), a whopping 28% of GDP. China's money supply growth has been over 20%, most of the time since 2007.

Credit Bubble on Borrowed Time

The Royal Bank of Scotland says China's Credit Bubble on Borrowed Time, Warns of Sovereign Default by China

According to The Telegraph "Property prices are 22 times disposable income in Beijing, and 18 times in Shenzen, compared to eight in Tokyo. The US bubble peaked at 6.4 and has since dropped 4.7. The price-to-rent ratio in China's eastern cities has risen by over 200pc since 2004".

Citing Fitch, The Telegraph reports "private credit in China has grown to 148pc of GDP, compared to a median of 41pc for emerging markets."

Yes Virginia, there is rampant inflation, in China, not the US.

A Bit About Hyperinflation

Several misguided writers cite rising commodity prices and money supply growth in the US and warn of hyperinflation in the US by the end of 2011 or early 2012.

They ignore the fact that inflation in China is the primary driver for commodity price hikes; they ignore currency debasement the world over; they ignore extremely important trends in consumer credit and bank lending; and they especially ignore consumer and business attitudes regarding debt and credit.

That's one hell of a lot of things to ignore.

Bear in mind that hyperinflation is a complete loss of faith in currency. Political, not monetary events kick off hyperinflation.

Given that the US is one of the most political stable countries in the world, with large gold reserves, with the world's strongest military, and with an increasingly conservative Congress, the idea that hyperinflation will hit the US anytime soon is preposterous.

Multiple Simultaneous Games of Chicken

As noted above, China plays chicken with commodity prices, credit expansion, and price controls. That is not the only game of chicken.

Internationally, there are multiple simultaneous games of chicken.

For example, Bernanke plays chicken with China via a QE policy hoping to force China to jack up its interest rate, something China does not want to do.

Bernanke plays a second game of chicken with Congress, treading on fiscal policy while demanding Congress not comment on monetary policy.

Bernanke plays a third game of chicken attempting to spur inflation in the US while simultaneously holding down long-term interest rates. Can that possibly work? For how long? At what cost?

Bernanke Plays Chicken with the Bond Market

Trichet Plays Chicken with the Euro

Trichet and the EU are in various games of chicken regarding the on-again-off-again strategy of buying sovereign bonds while offering "unlimited cash" to fight the alleged attack on the Euro (See ECB Offers "Unlimited Cash" for 3 Months at 1%, Buys Government Bonds to Fight Acute Tensions; Ireland, Take the Money and Buy Gold)

The only thing that can save Europe is if senior bond holders take a haircut on debt owed by Greece, Ireland, Spain, and Portugal that cannot possibly be paid back.

Instead of admitting the above, Trichet pulled out the "unlimited cash" bazooka. The problem with offering unlimited cash is that it is a high-interest loan that leaves the debt intact and puts a huge interest-rate penalty on top of it.

Ireland cannot possibly pay back its debt even at 0% interest. Yet the EU and IMF expect Ireland to come up with interest at 5.8%, on a huge loan, when its budget deficit is 30% of GDP, and its economy is in contraction. Mathematically this Ponzi scheme cannot possibly work.

Australian and Canadian Chicken

The Reserve Bank of Australia played its own games of chicken, letting property bubbles get sky high in order to prevent a recession in 2008. Now, in spite of still rising commodity prices, Australia is on the brink of recession, with 3rd quarter GDP falling to .2%.

Those plowing into Australian dollars in belief it is a safe haven just may have another thing coming when the Reserve Bank is forced to cut rates to combat a recession it refused to allow the last go around.

Australia is finally poised to crash with massively rising housing inventory and multiple failed property auctions. The Australian economy will be in shambles when housing collapses. Imagine what happens when China slows and commodity prices sink as well. The Australian stock market could be in for one nasty spill.

Canada has its own property bubble to reckon with, much the same as Australia. Indeed, most Canadian and Australian housing proponents are in their own Fantasyland bubble chanting "It can't happen here."

It will.

Chicken Japanese-Style

In one of the biggest games of chicken the world has ever seen, Japan is hell-bent on defeating deflation. The result is staggering. Japanese government debt is 200% of GDP and growing, but inflation is nowhere to be found.

Why is there no inflation in Japan? Because like the US, and unlike China, there is little to no credit expansion in Japan.

This shows the importance of credit expansion as opposed to monetary expansion alone. Nearly everyone gets this wrong in spite of overwhelming evidence that rampant credit growth is the driver for inflation.

Actually, to be far more accurate, net expansion of credit is inflation, not a driver of inflation.

To understand the paramount importance of credit, please see:

In spite of ever-expanding national debt, Japan's long-term interest rates are the lowest in the world. Yet, because of demographics and a rapidly aging population, Japan will soon have to draw down on its "savings", all of which went into treasury bonds at 1%, all of it already spent, and 200% more, in various nonsensical deflation-fighting efforts.

The problem for Japan is interest on the national debt will consume all revenues if Japan's long-term interest rates rise to a mere 3%. Yet, demographics show higher interest rates are nearly guaranteed unless Japan decides to default.

The interesting thing about default is that countries frequently default on external debt but seldom default on debt owed to its own citizens. Nearly all of Japan's debt is internal. Will Japan default on that debt or will Japan attempt to print its way out?

Should Japan try printing instead of defaulting, it faces a currency crash. If taken to extreme measures, Japan could conceivably see a complete loss of faith in the Yen (hyperinflation). At this juncture, hyperinflation is far more likely in Japan than the US.

The critical question for Japan is "How long can this imbalance continue before it blows up in one direction or the other?" Interestingly, Japan may blowup both ways, first in one direction then the other, so the order and timing of bets is important.

Yuan Chicken

Interestingly, myopic, dollar-centric eyes remain focused on a US currency crash even though a Japanese Yen or Euro crash seems far more likely.

However, the ultimate currency irony pertains to the Yuan, especially with Bernanke and Congress pleading for China to allow the Yuan to strengthen.

Here is the reason: Hot money is flowing into China in speculation of rising interest rates, 10% perpetual growth, and a rising value of the Yuan.

Few bother to think ahead as to what happens when that hot-money flow reverses or what happens if China cannot expand at the expected rate of growth for any reason. The kicker is that China cannot possibly grow at 10% perpetually and peak-oil is the reason.

Peak-oil stares China-bulls straight in the face, but they are too blind to see it.

Crude Chicken

Crude prices are soaring higher and higher, not only because of peak-oil but also because of the game of chicken Bernanke plays with QE and the game of chicken China plays with interest rates. In response, shipping and manufacturing costs rise, China overheats, and a price squeeze mounts on businesses unable to pass along all the input price hikes.

Meanwhile, China-bulls (nearly everyone) cheer that which is unsustainable, and China itself thinks it can control prices with price-controls. As icing on the speculative cake, hedge funds, pension plans, and other speculators continually rollover ever-increasing numbers of futures and other derivatives which increases the risk for everyone.

All things considered, it seems likely that such speculation, in conjunction with China finally hiking interest rates enough to matter, will cause a second crash in commodity prices (including crude) before peak-oil finally takes its toll.

Investing Chicken

Bernanke and China together have acted in a manner that puts huge price pressures on the service sector, especially small businesses that cannot pass on prices. This will end, and it will not be pretty when it does end.

Yet, hedge funds, pension plans, and other investors plow into commodities, currencies, and emerging market equities as if growth in China, Asia, and Australia and their currencies is a "sure-thing".

Getting out in time is the key to success of hedge-fund and investing chicken, yet many do not even understand the nature of the game they are playing.

Chicken-Math

Every country including the US wants to export its way out of this mess. It's mathematically impossible. It's also mathematically impossible for Europe to grow its way out of its problem with the tactics taken by Trichet and the EU.

It's mathematically impossible for the US to cut its budget deficit, be the world's policeman, and not reduce entitlement spending. It's impossible to grow our way out of pension problems.

It's mathematically impossible for tariffs to solve our problems, yet Congress plays chicken with China on that score every month. Bernanke and Geithner have recently joined Congress in that game of chicken.

Collective Chicken

I hope you now see how interrelated and complicated this mess is, complete with simultaneous central-bank competitive currency devaluation tactics in Japan, China, and the US, with no possible currency tactics in Ireland, Greece, Portugal, and Spain (countries that arguably need currency tactics)!

Chicken End-Game

From Bernanke to Trichet, to China, to Australia and Canada, to hedge funds and investors, to currency and carry-trade speculators, very few understand the inevitable end-result of chicken.

It's called a crash.

We are in a currency endgame that no one on this planet can be sure how or when it ends, or who blows up first. I highly doubt the US is first, and certainly none of the above suggests US hyperinflation. Nonetheless, the order in which things blowup is very important, depending on which side of each trade you are on.

If that was not bad enough, the odds of a multiple simultaneous crash (or rapid series of crashes) is high and growing as central bankers pull out ever-increasing, counter-productive, and clearly destabilizing bazooka-stops, hoping-against-hope to keep a lid on things.

Is it any wonder the price of gold keeps soaring?

In the meantime, various pressures mount. At some point the global pressure cooker will blow sky high. I suspect the Eurozone or Japan will be the first of the big boys, but any number of scenarios are possible. When this complicated mess does blowup (and it will), all the "sure thing" traders on the wrong side of a bet will realize too late, that they played one game of chicken too many.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Royal Bank of Scotland Says China's Credit Bubble on Borrowed Time, Warns of Sovereign Default by China

Posted: 05 Dec 2010 08:32 PM PST

Royal Bank of Scotland has advised clients to take out protection against the risk of a sovereign default by China. Although not predicting default, risk protection is one of its top trade trades for 2011.

Ambrose Evans-Pritchard has the story in The Telegraph article China's credit bubble on borrowed time as inflation bites

"Many see China's monetary tightening as a pre-emptive tap on the brakes, a warning shot across the proverbial economic bows. We see it as a potentially more malevolent reactive day of reckoning," said Tim Ash, the bank's emerging markets chief.

Officially, inflation was 4.4pc in October, and may reach 5pc in November, but it is to hard find anybody in China who believes it is that low. Vegetables have risen 20pc in a month.

RBS recommends credit default swaps on China's five-year debt. This is not a forecast that China will default. It is insurance against the "fat tail risk" of a hard landing, with ramifications across Asia.

Diana Choyleva from Lombard Street Research said the money supply rose at a 40pc rate in 2009 and the first half of 2010 as Beijing stoked an epic credit boom to keep uber-growth alive, but the costs of this policy now outweigh the benefits.

The economy is entering the ugly quadrant of cycle – stagflation – where credit-pumping leaks into speculation and price spirals, even as growth slows. Citigroup's Minggao Shen said it now takes a rise of ¥1.84 in the M2 money supply to generate just one yuan of GDP growth, up from ¥1.30 earlier this decade.

The froth is going into property. Prices are 22 times disposable income in Beijing, and 18 times in Shenzen, compared to eight in Tokyo. The US bubble peaked at 6.4 and has since dropped 4.7. The price-to-rent ratio in China's eastern cities has risen by over 200pc since 2004

As it happens, Fitch Ratings has just done a study with Oxford Economics on what would happen if China does indeed slow to under 5pc next year, tantamount to a recession for China. The risk is clearly there. Fitch said private credit has grown to 148pc of GDP, compared to a median of 41pc for emerging markets. It said the true scale of loans to local governments and state entities has been disguised.

The result of such a hard landing would be a 20pc fall in global commodity prices, a 100 basis point widening of spreads on emerging market debt, a 25pc fall in Asian bourses, a fall in the growth in emerging Asia by 2.6 percentage points, with a risk that toxic politics could make matters much worse.

If there is a hard-landing in 2011, China's reserves of $2.6 trillion – or over $3 trillion if counted fully – will not help much. Professor Michael Pettis from Beijing University says the money cannot be used internally in the economy.

While this fund does offer China external protection, Mr Pettis notes wryly that the only other times in the last century when one country accumulated reserves equal to 5pc to 6pc of global GDP was US in the 1920s, and Japan in the 1980s. We know how both episodes ended.

The Telegraph article is a very good read and inquiring minds will want to take a closer look.

I will have more on China, Japan, and Europe in a much longer post coming up shortly. The post will compare monetary and credit growth in the US vs China, with a detailed look at various games of "chicken" central banks play with each other as well as games of chicken various speculators play with the market.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Global Development Statistics Come to Life: 200 Countries, 200 Years, 4 Minutes

Posted: 05 Dec 2010 03:08 PM PST

Here is an incredibly cool video in which statistics virtually come to life, right before your eyes. Swedish academic superstar Hans Rosling graphically illustrates global development over the last 200 years.

The video starts out slow for about 38 seconds. Please stick with it. After 45 second you will not want to shut it off. This is visual and informational entertainment at its finest.

If that video does not play for you, please try http://www.flixxy.com/200-countries-200-years-4-minutes.htm

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Hillary Clinton vs. Sarah Palin on WikiLeaks

Posted: 05 Dec 2010 02:34 PM PST

Occasionally I am pleasantly surprised by what politicians have to say. In this case, I am not only pleasantly surprised but shocked by some Statements from Secretary of State Hillary Clinton Regarding WikiLeaks.

Secretary of State Hillary Clinton pressed Central Asian governments on Tuesday to expand democratic freedoms, saying countries which quash human rights only make themselves less competitive on the global stage.

Launching a tour amid uproar over the leak of a huge cache of classified U.S. diplomatic cables by a whistleblower website, Clinton also said she was committed to Internet freedom.

She said it was important that "governments don't overreact" to information that they do not like being aired in public.

Clinton also said she was a "big believer" in Internet freedom. "It is always better to err on the side of more expression, more information, and then try to counter it with other information," she said.

"We also have to be very careful that governments don't overreact," she said, saying both sides had to be careful when navigating the minefield of Internet freedom.

Hillary Clinton vs. Sarah Palin on WikiLeaks

Please contrast those thoughtful unemotional statements from Hillary Clinton with the emotional paranoia from Sarah Palin as noted in Former Canadian Prime Minister Adviser Calls for Assassination of WikiLeaks Founder Assange; Assinity from Sarah Palin

Sarah Palin Compares Assange to Bin Laden

Tom Flanagan joins media darling Sarah Palin who thinks Assange is like an Al Qaeda terrorist
Sarah Palin has demanded that WikiLeaks founder Julian Assange is hunted down like Osama bin Laden. In an extraordinary outburst on Facebook, the former Alaska governor attacked the White House for 'incompetent handling of this whole fiasco.'

Assange is not a "journalist," any more than the "editor" of al Qaeda's new English-language magazine Inspire is a "journalist."

'He is an anti-American operative with blood on his hands.

'His past posting of classified documents revealed the identity of more than 100 Afghan sources to the Taliban. 'Why was he not pursued with the same urgency we pursue al Qaeda and Taliban leaders?'
Excuse me for asking but since when does exposing corruption and hypocrisy make one an al Qaeda' terrorist? Is the whole world supposed to stand up and salute our illegal wars, our torture of civilians, our holding of prisoners in Cuba with no charges being filed. Are we supposed to salute or simply look away from fraud by our banks and coverups in our Treasury department?

Sarah Palin is currently leading the Republican candidates, but of the major candidates she performs worst against President Obama. She may be the one person Obama could beat.

According to the latest ABC Poll 67% say she is not qualified to be president.

Said George Will "After the 2008 campaign she had two things she had to do. She had to go home to Alaska and study. She had to govern Alaska well. Instead she quit halfway through her first term and shows up in the audience of Dancing With The Stars and other distinctly non-presidential venues.

Such stunts will have media fools fawning all over her, but in crunch-time it won't win elections. 2008 is proof enough.

I am no Hillary Clinton fan. I believe she lost the nomination to Obama because she would not admit her mistakes in supporting the war in Iraq. Until I read the above article, I have not agreed with her on anything substantial that I can recall.

I did not vote for Obama in 2008 nor did I vote for McCain. I would not have voted for Hillary Clinton either. And I still would not vote for Hillary Clinton.

I vote for policies, not parties, and Hillary has far too much baggage.

However, I will tell you this: Her calm statements on this very emotional issue show that Hillary is far more qualified to be president of the United States than media-grubbing Palin, dancing with the stars, hoping to get attention.

Regardless of what you think about WikiLeaks, anyone who compares Assange to Bin Laden has mush for brains. Moreover, it's not this one incident I am talking about, it's a series of media gaffs a mile long that made Palin the laughingstock of the Republican party that I am talking about.

If Republicans know what is good for them, they will abandon Sarah Palin before she ruins their chances in 2012.

Independents overwhelmingly went for Obama in 2008. They overwhelmingly went for Republicans in 2010. If Republicans are dumb enough to nominate Palin in 2012, we may easily see President Obama back in the Whitehouse for another term, and that is something this country clearly cannot afford.

Chris Christie, would you please run for president? Independents would flock to you.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Meaning of "Compromise"

Posted: 05 Dec 2010 12:04 PM PST

Sometimes the word to fear most out of congress is "compromise". Typically it means both parties load up a bill with massive amounts of spending while simultaneously preaching the need for deficit reduction.

Once again that is the unsustainable path down which we are headed now that Obama signals possible tax compromise.

On the heels of the U.S. Senate's rejection of his tax-cut plan, President Obama has signaled he is willing to compromise, according to media reports Sunday.

The Senate on Saturday turned back bids by Democrats to permanently extend middle-class tax cuts enacted during the Bush administration, while ending the rate reductions for the wealthy. The Senate move had been expected.

Later Saturday, Obama called the votes "very disappointing" but told Democratic leaders he would be open to discussions on extending tax-cuts for the wealthy in return for concessions from Republicans, The Wall Street Journal reported.

Divide and Conquer Fails

I discussed this setup on November 30, in Critical Middle-Class Tax Cut Vote Coming Up: Will Democrats Divide and Conquer Strategy Work?

Divide and Conquer

The Democrat strategy is to divide and conquer. Dare the Republicans to veto middle-income tax cuts, while delaying votes on everything else.

With procedural issues in the Senate the overriding factor, the question comes down to which party would get most of the blame if nothing passes. Sadly, that's what's become of politics.

There are several of ways this could progress:

1. Congress passes a bloated, unaffordable bill with every favor either side wants
2. Nothing passes at all
3. Something in between.

Let's assess the odds of each scenario.

The Bloated, Unaffordable Option

Senator Durbin may cave into Republican wishes as long as he gets everything he wants (earned-income tax credit, the childcare tax credit, the 'Making Work Pay' credit, and extension of unemployment benefits).

Should that happen, expect one hell of a bloated tax bill which would prove the Republicans are hypocrites about reducing the deficit. It would also test Obama's mettle given that he has stated the country can't afford to borrow $700 billion to extend lower tax rates for top earners.

Would the president then veto the legislation?

I doubt it, and that would make Obama a hypocrite for signing the bill and the Republicans hypocrites for passing it. Unfortunately, neither side really cares about the "hypocrites label" given that hypocrisy is an everyday occurrence in both parties.

Thus, I believe passage of a bloated bill that both sides agree we cannot afford is the most likely possibility. Assume something like a 45% chance.

The Nothing Passes Option

It is certainly possible that nothing gets passed because of Senate infighting. Should that prove to be the case, it would be a forerunner of something that is all but guaranteed to happen in the next Congress.

If "nothing passes" expect a huge jump in bankruptcies and foreclosures and the economy to veer back towards recession, with everyone pointing the finger at everyone else.

Also expect Bernanke to go ape-sheet in unpredictable ways.

Bear in mind a huge jump in bankruptcies and foreclosures may be coming anyway, but passing noting will provide the opportunity for more political finger-pointing.

I rate "nothing passes" as the least likely possibility with something like a 15% chance.

The In-Between Scenario

In-between covers so much ground that it's hard to address every case. Should this happen, I would think it would be closer to the "one hell of a bloated bill" than not.

Congressional Meaning of Compromise

To congress, the word "compromise" does not mean giving up anything you want. Instead, it means giving the other guy something you do not want him to have, in return for a similar favor.

The process is much like asking a group of kids at a birthday party if they want cherry pie, chocolate cake, or fudge for desert and if there is no consensus winner, everyone gets a full slice of each, with chocolate chip cookies thrown in for good measure because that's what cousin Susie likes. It's irrelevant whether or not cousin Susie is even at the party.

Is it any wonder there is never any lasting progress on reducing the deficit?

Some Real Compromises

I would gladly trade extending unemployment benefits for a ground-breaking compromise such as scrapping Davis-Bacon or ending Collective Bargaining for public unions. Indeed, that kind of innovative compromise would have me singing hallelujah from the top of Sears Tower.

Much less enthusiastically, I would accept extending unemployment benefits if the compromise was to cut military spending to pay for it. However, a compromise to extend unemployment benefits for a doubling of reductions anywhere else would be a very good deal, although light-years away from the ground-breaking deal I mentioned above.

The same applies to extending the tax cuts for the wealthy. Fine, I am all in favor of extending tax cuts, but the Republicans should have to give up something they want to get it if they are serious about deficit reduction. Again, I would suggest a big enough reduction in military spending to cover it or better yet doubling a reduction in military spending to cover it.

There is amazingly fertile ground for real compromises. Unfortunately, another "green shoot" opportunity for genuine compromise is about to wither on the vine.

If this "compromise" farce passes as now expected, Obama and the Republicans are both hypocrites. So what else is new?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Sunday Funnies 2010-12-05 Bernanke Discusses Groupon

Posted: 05 Dec 2010 04:22 AM PST

Mid-speech Bernanke has sudden inspirational flash of brilliance regarding Groupon.

The idea for the first cartoon above came from reader "Everett". I came up with the second one. If you have suggestions please send them my way.

Bear in mind, two two things:

1. They need to be current events
2. I may get far more suggestions than I can possibly use.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Seth's Blog : Living with doubt

[You're getting this note because you subscribed to Seth Godin's blog.]

Living with doubt

... is almost always more profitable than living with certainty.

People don't like doubt, so they pay money and give up opportunities to avoid it. Entrepreneurship is largely about living with doubt, as is creating just about any sort of art.

If you need reassurance, you're giving up quite a bit to get it.

On the other hand, if you can get in the habit of seeking out uncertainty, you'll have developed a great instinct.

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luni, 6 decembrie 2010