| Americans Prefer Spending Cuts Over Tax Hikes; Obama Throws Fat Pitch, Republicans Will Not Even Step Up to the Plate Posted: 15 Jul 2011 06:09 PM PDT A Gallup poll shows On Deficit, Americans Prefer Spending Cuts; Open to Tax HikesAmericans' preferences for deficit reduction clearly favor spending cuts to tax increases, but most Americans favor a mix of the two approaches. Twenty percent favor an approach that relies only on spending cuts and 4% favor an approach that uses tax increases alone.
Overall Results - Any Political Affiliation
Both Republicans and Democrats appear willing to raise the debt limit, provided the government outlines plans to significantly reduce federal deficits in the future. The parties generally agree on making deep spending cuts, but do not agree on whether tax increases should be included to help reach their target goals for deficit reduction. Many Republicans in Congress oppose any such tax increases; thus, the legislation may not pass if tax hikes are included.
Americans do not necessarily share this view, with 20% saying deficit reduction should come only through spending cuts. That percentage is a little higher, 26%, among those who identify as Republicans. Republicans do, however, tilt heavily in favor of reducing the deficit primarily if not exclusively with spending cuts (67%) as opposed to tax increases (3%). Fifty-one percent of independents share that preference. Democrats are most inclined to want equal amounts of spending cuts and tax increases (42%), though more favor a tilt toward spending cuts (33%) than tax increases (20%).
Results by Political Party
The question does not make clear what types of tax increases Americans might be willing to accept, or whether those saying deficit reduction should come "mostly" from spending cuts would prefer that the proportion of spending cuts be closer to 51% or 99%. The public has been willing to endorse higher taxes on wealthy Americans in recent months, in terms of allowing Bush-era income tax cuts to expire and as a means of keeping Social Security solvent. Republican Voters Open to CompromiseThere are other questions in the survey including questions on "why" people are concerned about the debt limit. Inquiring minds may wish to give the link a closer look. The interesting factor to me is that only 26% of Republicans say the budget should be balanced only with spending cuts. Among the Democrats, only 8% say it should be done only with tax hikes. The key take-away is Americans from both parties are willing to accept a budget balancing process that is weighted towards spending cuts as long as there are some tax hikes. Congress is not open to the same viewpoint. As I said, I am open to compromise as long as the cuts are genuine, the cuts are not back loaded, and as long as some other key items are tossed in the mix, such as scrapping Davis-Bacon and ending collective bargaining of public unions. The US would benefit greatly from such an approach. Unfortunately, Republicans are willing to piss away a golden opportunity to present such a plan in favor of plans that will likely not reduce the deficit at all. Obama Throws Incredibly Fat PitchObama says he is ready to make hard choices. I suggest Republicans should put him to the test. Obama offered up a fat pitch that Republicans can hit out of the park. All Republicans have to do is insist on ending collective bargaining rights of public unions and scrapping Davis-Bacon in return for very modest tax hikes. Such a deal would be well worth it. Republicans would even win if Obama rejected it. Sadly, Republicans will not play ball at all. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| More BullSweet Stress-Free Tests of European Banks Posted: 15 Jul 2011 10:23 AM PDT Ho Hum. EU officials have announced the results of more Stress-Free bank tests in Europe. 20 banks were expected to fail, only 8 did. Please consider 8 Banks Fail EU 'Stress Tests'Eight banks flunked the European Union's "stress tests," with a combined shortfall of €2.5 billion ($3.54 billion) in capital under a simulated worst-case economic scenario, the European Banking Authority said.
The EU regulator said Friday that another 16 banks narrowly passed the tests, which examined the abilities of 90 top lenders across Europe to endure a deteriorating economy and strained financial system.
By awarding a relatively clean bill of health to the vast majority of Europe's banking industry, the tests are likely to be greeted with skepticism. Analysts and investors were bracing for as many as 20 banks to fail and to need to raise tens of billions of euros of new capital.
Last year's tests, widely discredited for being overly lax and inconsistently enforced, saw seven lenders fail, with a combined capital deficit of €3.5 billion.
Spain, whose economy and banking system are reeling from a collapsed real-estate market, is home to the largest number of failures, with five banks dipping beneath the 5% threshold, the EBA said. Another seven Spanish lenders barely passed, with capital ratios between 5% and 6%.
Two Greek banks and one Austrian bank also failed the tests, the EBA said. In addition to Spain, the countries with banks that nearly failed are Cyprus (one bank), Germany (two), Greece (two), Italy (one), Portugal (two) and Slovenia (one).
In Ireland, which had to accept an international rescue last fall after its banking system imploded, all three of the tested banks easily passed the tests.
"The European bank stress tests this year have done a poor job of building confidence," said Heinrich Haasis, president of the German Savings Banks Association, in a statement Friday. "The task now is to ensure that no additional uncertainty affects the markets." Did the stress tests include a Greek default? What about Irish, Portuguese, or Spanish defaults. What exactly was stressed? The answer to those questions is no. Here is the Executive Stress Test SummaryThe stress test exercise. The 2011 EBA's EU wide stress test had the objective of assessing the resilience of a large sample of banks in the EU1 against an adverse but plausible scenario. The scenario assesses banks against a deterioration from the baseline forecast in the main macroeconomic variables such as GDP, unemployment and house prices – for instance, GDP would fall 4 percentage points from the baseline. The scenario includes a sovereign stress, with haircuts applied to sovereign and bank exposures in the trading book and increased provisions for these exposures in the banking book. Changes in interest rates and sovereign spreads also affect the cost of funding for banks in the stress. The stress testing methodology, which was published by the EBA on March 18th, 20112, entails a static balance-sheet assumption, and also does not allow the banks to take actions to react to shock. The resilience of the banks is assessed against a benchmark defined with reference to capital of the highest quality -- Core Tier 1 (CT1) -- set at 5% of risk weighted assets (RWA). It is interesting to see "Stress Tests" in quotes. It appears the article does not believe there was much stress to the tests and I don't either. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Zepol: U.S. Imports Down 7.4% in June, Big 3 Postpone New Transpacific Service; Soft Patch or Prolonged Global Slowdown? Posted: 15 Jul 2011 09:19 AM PDT I received some interesting shipping data points from a friend in the shipping industry. Data points are from reportedly from American Shipper and Zepol. US Imports Fell 7.4% Year-Over-Year- U.S. import shipment volume for June 2011 dropped 7.4% from June 2010
- TEUs, decreased 4.6% from the previous month
- Total number of U.S. bound shipments fell over 6% from June 2010.
- Year to date, U.S. import volume is up 4.8 percent.
- June decrease largely due to a nearly 6% decrease in shipments from Asia
- China shipments fell 5.8%
- Japan shipments increased 2.5%
- Shipments from Central America fell 4.9%
- Shipments from South America fell 7.6%
TEU stands for "Twenty-foot equivalent unit", a measure used for capacity in container transportation. Big 3 Container Lines Postpone New Transpacific ServiceThe world's three biggest container lines have postponed plans to introduce a transpacific shuttle service this year until the second quarter of 2012, one of the lines said Wednesday. Maersk Line, Mediterranean Shipping Co. and CMA CGM had planned to start in May a new transpacific loop but adverse demand conditions forced the lines to postpone the start of the service three times. Service has been pushed back until 2012. Soft Patch or Prolonged Global Slowdown?The soft patch theory is slowly dying on the vine, if not completely dead. Numerous supporting data points in manufacturing, ISM, jobs, in the US, Europe, and China confirm this is more than a soft patch. Europe will be back in recession soon and the US will follow. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Italian, Spanish Bond Yields Head North, Greek, Irish Bond at New Record Highs Posted: 15 Jul 2011 08:29 AM PDT It will be interesting to see how long it takes for Italian government debt yields to take out the spike high right before Trichet interfered in the Italian bond market. On the interference, yields tumbled across the board, but Greek and Italian bond yields have already made new highs. Greece 2-Year Government Bonds
Ireland 10-Year Government Bonds
Italy 10-Year Government Bonds Spain 10-Year Government Bonds The Bloomberg charts are inaccurate but the current yield information is accurate. On July 12, Italian yields broke above 6% before Trichet stepped in to buy Italian government debt. How long will it take before yields hit 6% again? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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