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luni, 9 iulie 2012

Watch Live: President Obama Speaks in the East Room

Your Daily Snapshot for
Monday, July 9, 2012

Watch Live: President Obama Speaks in the East Room

Today at 11:50 a.m. EDT, President Obama will deliver a statement on the need for Congress to act to extend tax cuts for middle class families in the East Room.

Watch his remarks on WhiteHouse.gov/Live

Photo of the Day

President Barack Obama looks at baked goods during a stop at Kretchmar's Bakery in Beaver, Pa., July 6, 2012. (Official White House Photo by Pete Souza)

Seth's Blog : The false choice of mediocrity

The false choice of mediocrity

Too often, we're presented with choices that don't please us. We can pick one lousy alternative or the other. And too often, we pick one.

I was struck by Apple's choice to put a glass screen on the original iPhone. Just six weeks before it was announced, Steve Jobs decided he wanted a scratchproof glass screen. The thing is, this wasn't an option. It wasn't possible, reliable, feasible or appropriately priced. It couldn't be done with certainty, and almost any other organization would have taken it off the list of appropriate choices.

It was unreasonable.

And that's the key. Remarkable work is always not on the list, because if it was, it would be commonplace, not remarkable.

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duminică, 8 iulie 2012

Mish's Global Economic Trend Analysis

Bug In Search of Windshield; Japan’s Current Account Surplus Shrinks 63% as Machine Orders Plunge 14.8%
Italy's Prime Minister Blames Finland and Netherlands for Spike in Yields
Excellent Anti-Union News From Multiple Places Including US Supreme Court
Trends in Duration of U.S. Unemployment

Bug In Search of Windshield; Japan’s Current Account Surplus Shrinks 63% as Machine Orders Plunge 14.8%

Posted: 08 Jul 2012 10:49 PM PDT

With every data point, I become more convinced the Global Recession is Upon Us.

Here is another data point to add to the list. Bloomberg reports Japan's Current-Account Surplus Shrinks 63% As Machine Orders Drop.

Japan's current-account surplus was the smallest in May since at least 1985 and machinery orders fell the most in more than five years, adding to signs a slump in demand is threatening the nation's rebound.

The excess in the widest measure of the nation's trade shrank 63 percent from a year earlier to 215.1 billion yen ($2.7 billion), the Ministry of Finance said in Tokyo today.

Machinery orders, an indicator of capital spending, fell 14.8 percent in May from the previous month, the Cabinet Office said, the biggest drop since comparable data were made available in 2005.

Explanation of Current Account

For those unfamiliar with the term Current Account Wikipedia offers this explanation:

In economics, the current account is one of the two primary components of the balance of payments, the other being capital account. It is the sum of the balance of trade (net earnings on exports minus payments for imports), factor income (earnings on foreign investments minus payments made to foreign investors) and cash transfers.

The current account balance is one of two major measures of the nature of a country's foreign trade (the other being the net capital outflow). A current account surplus increases a country's net foreign assets by the corresponding amount, and a current account deficit does the reverse. Both government and private payments are included in the calculation. It is called the current account because goods and services are generally consumed in the current period.

The balance of trade is the difference between a nation's exports of goods and services and its imports of goods and services, if all financial transfers, investments and other components are ignored. A nation is said to have a trade deficit if it is importing more than it exports.

Positive net sales abroad generally contributes to a current account surplus; negative net sales abroad generally contributes to a current account deficit. Because exports generate positive net sales, and because the trade balance is typically the largest component of the current account, a current account surplus is usually associated with positive net exports. This however is not always the case with secluded economies such as that of Australia featuring an income deficit larger than its trade surplus.

Why This Is Important

Japan's balance of trade is already negative, but the important point is the overall current-account of which trade is a part.

If Japan's current-account was negative, Japan would depend on foreign capital to make up the deficit. Will foreigners fund Japan at 0% interest rates?

I think not.

Bug In Search of Window

Japan has debt-to-GDP ratio of 220% and rising. As of July 9, the Yield on 10-year Japanese Bonds is .80%.

A mere rise of 2 percentage points would consume all Japanese revenues just to pay interest on the national debt.

Moreover, Japan's demographics are such that pension plans are now for the first time last year net sellers of bonds, not net buyers. For details, please see World's Largest Pension Fund Needs to Sell Japanese Bonds; Japan's Demographic Time Bomb Officially Goes Off

As John Mauldin commented in his book Endgame, "Japan is like a bug in search of a window." If you have not yet picked up a copy, please do so. It's a good read.

Once Japan's current account balance goes negative in a sustained way (and I believe that will indeed happen), the bug will have found the window.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Italy's Prime Minister Blames Finland and Netherlands for Spike in Yields

Posted: 08 Jul 2012 09:01 PM PDT

Like a drunk blaming a pebble in the road for causing his fall, Italy's Prime Minister Blames Finland and Netherlands for Spike in Yields.

Italian Prime Minister Mario Monti denounced unnamed "northern" EU states on Sunday for taking positions that contributed to spikes in borrowing costs for Italy and Spain.

In an apparent reference to Finland and The Netherlands, which cast doubt on the conclusions of last month's EU summit hailed as a watershed for the debt crisis, Monti said they undermined the eurozone's "credibility".

Finland has said it has no intention of footing the bill to cover the debts of other eurozone countries.

"Collective responsibility for other countries' debt, economics and risks; this is not what we should be prepared for," Finance Minister Jutta Urpilainen said in a newspaper interview.

For his part Dutch Central Bank president Klaas Knot, a member of the European Central Bank's governing council, took a similar line, saying: "If somebody wants to help southern Europe, then it has to be other governments, not the ECB."

Is there any country that recognizes its own responsibility in creating this mess?

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

Excellent Anti-Union News From Multiple Places Including US Supreme Court

Posted: 08 Jul 2012 04:09 PM PDT

At long last unions are on the run and losing battles in multiple places at once. Let's take a look at some dates and headlines.

June 7, 2012 LA Times: 2 big cities OK cuts to worker pension costs

Landslide victories on ballot measures to cut pension costs in two major California cities emboldened reform advocates, who said they expect a flurry of copycat initiatives and increased support for Gov. Jerry Brown's long-stalled push to curb the state's obligations to its employees.

In San Jose, nearly 70% of voters Tuesday approved a plan that gives workers the choice between increasing their pension contribution to 13% of their pay, currently 5% to 11%, or switching to a lower-cost plan with reduced benefits. It also steeply cuts benefits for new hires and tightens rules for disability retirements.

In San Diego, where pension cuts already have been implemented, voters opted to eliminate pensions for new workers. By a 66% to 34% margin, voters Tuesday endorsed Proposition B, which provides newly hired city employees with a 401(k) program, but preserves traditional pensions for new police officers.

The San Diego measure also calls for a five-year freeze on "pensionable" pay levels and removes elected leaders' ability to improve retirement packages without a popular vote. Leaders in both cities say voters were echoing a point that reform advocates have made for years.

June 7, 2012 Washington Times: Labor unions feel pain of pension reform votes in San Diego, San Jose

"San Diego's victory isn't just a win for San Diego taxpayers. It marks the beginning of the pension reform movement for our country," declared Lani Lutar, president and CEO of the San Diego County Taxpayers Association. "Tuesday the voters sent a very clear message to elected officials: Put the taxpayers first. Use our money prudently, and stop giving away benefits we can't afford."

Pension reform advocates call it a crushing defeat, a rising trend, and just the beginning. According to the California Foundation for Fiscal Responsibility, with the victories on Tuesday 18 of 20 pension reform measures have now passed in California since 2010. They have won with an average of two-thirds of the vote, even in more liberal cities like San Francisco.

July 6, 2012 Mercury News: State will not override local pension votes, Senate leader Darrell Steinberg says

"I would not favor doing anything that would affect the voter-approved initiatives," the Senate president pro tem told reporters Thursday, a day before the Legislature breaks for its summer recess. A spokesman for the Sacramento Democrat had said earlier that his boss "respects the will of the voters. ... It is presumed that any local initiative passed this year will be grandfathered-in to the eventual pension-reform legislation."

July 5, 2012 Union Watch - Steve Greenhut: US Supreme Court Slaps Down California SEIU Union Dues Collection Scheme

In Knox v. Service Employees International Union Local 1000, by a 7-2 vote, the high court slapped down the local – California's largest state-employee union – for deducting money from employees' paychecks and using it to fight against California campaign initiatives – without giving its covered nonmembers a chance to opt out of these political campaign contributions.

July 3, 2012 Town Hall - Gina Loudon: Labor Unions Suffer Defeat on Taxpayer Revolt

While the unions treat lawmakers in Sacramento, and most of the large cities like LA, San Francisco and Oakland like their concubines, having their way with them anytime they want, voters in the hinterlands, led by San Diego are not so compliant. In fact, voters in little El Cajon (pop. barely 100,000) showed big time el cajones by also becoming a charter city. A charter city differs from a general law city in that many of the day to day law making gets pulled from Sacramento to the local city council. Those laws include labor union laws. To date, voters in fully 122 California cities have voted to give Sacramento the bird.

The City of Vista passed their charter in 2007 on the prediction that taxpayers could save million of dollars on planned construction of two fire houses and other projects as charter cities could avoid being forced to pay Sacramento government-mandated wages or so-called "prevailing wages" on these projects. The measure passed by an overwhelming margin, but what did the unions do? Right. They sued. Today they lost.

In the matter of the State Building and Construction Trades Council of California ("Big Labor") v. The City of Vista ("Little Taxpayers"), the California Supreme Court ruled today in favor of the taxpayers. Taxpayers in every charter city in California now have the ability to squeeze out from under the oppressive Sacramento mandated "prevailing wages" under which a plumber in San Francisco makes over $100 per hour in total compensation. The taxpayers in Vista will be able to have their fire houses and have millions left over to build more parks or other amenities. The alternative would have been millions of dollars to prop up insolvent union pensions. That is the real issue here.

With their losing streak running from Wisconsin to San Jose to San Diego, big labor should realize that the peasants are revolting. The animals on Orwell's Animal Farm have seen that the pigs are their now masters, and they have met the new boss, who looks the same as the old boss. Their fate runs through Vista. So as the ink dries on the Vista decision, and more cities undoubtedly are contemplating enacting charters of their own, Sacramento lawmakers would be well-advised to make themselves scarce when big labor comes demanding more favors. Before Sacramento lawmakers try to do the unions' bidding and pass special laws to harm charter cities, they may take a vista at the cajones of the voters that are in full rebellion.

July 6, 2012 Town Hall - John Ransom: Teachers' Union Expelled from School District

The Douglas County School District, a suburban community south of Denver, Colorado, has decided to part ways with their teachers' union in the absence of progress on a new contract which expired June 30th, 2012.

"The Board of Education finds and declares that the Collective Bargaining Agreements between the District and the Unions," said the district on July 3rd in its formal resolution dissolving the bonds between the union and the district, "which had been effective from July 1, 2011 through and including June 30, 2012, are now expired and of no legal effect whatsoever."

The dissolution between the district and the union is unprecedented and sources close to the union tell me that unions are pensively watching, worried that other districts around Colorado and the country could take the same action as Douglas County has.

We can only hope.

Progress!!

This my friends is what's called progress. As Ransom suggests, we hope to see a lot more of it. I have every expectation we will.

Indeed, I would like someone to take the entire issue of collective bargaining of public unions as well as prevailing wage laws to the US Supreme Court.

It is time to end the insane grip public unions have on US taxpayers.

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

Trends in Duration of U.S. Unemployment

Posted: 08 Jul 2012 10:50 AM PDT

Duration of Unemployment by Percentage:
5 Weeks and Under, 15 Weeks and Over, 27 Weeks and Over

click on chart for sharper image

Quick Figures

In June of 1983, the percentage of those unemployed 27 weeks or longer peaked at 26%. That is the only month prior to April of 2009 above the 25% mark.
Starting April of 2009, every month has been above the 25% mark.
Starting July of 2009, every month has been above the 30% mark.
Starting December of 2009, every month has been above the 40% mark.

Grim Picture

The trends paint a grim picture. With each recession the duration of unemployment has increased.

Note that prior to 1990, shortly after recessions ended, the percentage of people unemployed 15 weeks and over, and 27 weeks and over dropped quickly.

The last three recessions did not follow that pattern and the recession starting in 2007 is unprecedented in obvious ways.

I believe a major reason the 27 weeks and over percentage is dropping now is people have exhausted all their benefits and have claimed disability or gone on "forced retirement" to collect social security benefits.

Since the global economy has stalled (see Plunging New Orders Suggest Global Recession Has Arrived) and the US is headed for recession if not in recession (see 12 Reasons US Recession Has Arrived Or Will Shortly) there is not much realistic hope of these numbers showing drastic improvement except by more forced retirements or rising disability claims.

For more on disability claims, please see ...

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

Seth's Blog : Art fears business fears art

Art fears business fears art

The artist says, "that sounds like business, and I want nothing to do with it. It will corrupt me and make me think small."

The businessperson says, "art is frightening, unpredictable and won't pay."

Because the artist fears business, she hesitates to think as big as she could, to imagine the impact she might be able to make, to envision the leverage that's available to her.

And because the businessperson fears art, she holds back, looks for a map, follows the existing path and works hard to fit in, never understanding just how vivid her new ideas might be and how powerful her art could make her.

There's often a route, a way to combine the original, human and connected work you want to do with a market-based solution that will enable it to scale. Once you see it, it's easier to call your bluff and make what you're capable of.

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sâmbătă, 7 iulie 2012

Mish's Global Economic Trend Analysis

Steve Keen Goes Off the Deep End With a "Debt Jubilee" (Free Money to Consumers) Proposal

Posted: 07 Jul 2012 06:32 PM PDT

Inquiring minds are watching Australian economist Steve Keen correctly debunk Paul Krugman in an interview with Lauren Lyster on Capital Account. Unfortunately, Keen's solution to the debt crisis leaves a lot to be desired.

Position of Keen

"Debt does not just matter at zero-bound conditions, debt matters all the time. The change in debt adds to demand. ... It could take 15 years of deleveraging before it's all over. That's why Krugman is wrong. You can't just cure this with deficit spending, you have to abolish the private debt as well."

So far so good. However, I strongly disagree with Keen's proposal of a "private debt-jubilee" which he defines a quantitative easing for the public.

Essentially Keen wants to print money and give it to the public on the provision they must pay down debt first.

Debt Jubilee Nonsense

Suppose everyone is given a "debt-jubilee". What is to stop consumers from immediately going back into insane levels of debt? More regulation? Government controlled printing presses? Academic formulas from all-knowing economists?

Please! Stop already.

Inflation Genie

I am in general agreement with Keen on numerous things.

For example, I agree 100% with Keen that lending comes first and reserves later. I also agree with Keen that the notion of excess reserves is fatally flawed, and so is the notion of money multipliers.

I scoff, along with Keen, with the idea that excess reserves are going to come pouring back into the economy causing hyperinflation or massive inflation.

For a discussion, please see my December 21, 2009 article Fictional Reserve Lending And The Myth Of Excess Reserves in which I rebut the idea espoused by Robert Murphy that the Inflation Genie is About to Get Out of the Bottle.

The idea was silly then and it is still silly now. I believe events have proven as such.

However, start giving money away as Keen proposes and I would change my tune about inflation in a hurry. Note that QE is essentially a loan but Keen's proposal is an outright gift.

Case For Deflation

Mind you there is absolutely nothing wrong with price deflation.

Who out there does not want the price of oil to drop or the price of food to drop? Who does not want more for their money at the department store? Who does not want the price of a college education to drop?

The answer to that last question is public unions, administrators, and for profit colleges. The answer to the above questions in general is those with first access to money, notably banks (and bank CEOs and executives who get paid to make more and more loans).

Free Market Economy

In a free market, the cost of an education would plunge like a rock. Internet services would spring up all over the place providing quality education. Absolving student debt or any other debts cures no structural problems.

More government and more regulation is not the answer. Nor is more Fed the answer. Nor are models. Nor is giving money away any part of the solution.

Big Fan of Keen

Bear in mind that I am a big admirer of Steve Keen. Steve has taught me a lot. I like his debt model. I just do not like his solution. It cannot and will not work, for reasons that quite frankly should be obvious.

Real Solution

Fractional reserve lending is at the very heart of the debt crisis. That is what enables banks to conjure up credit at will (as long as they are not capital constrained and as long as consumers and businesses want to borrow).

The solution therefore, is not free money and not more government intervention into free markets, but rather sound money and less government interference, coupled with the end of fractional reserve lending.

Yes, it will take time. Attempting to short-circuit the time required with "free money" would be a monstrous mistake, solving zero structural problems.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Merkel's Magic Hat Running Out of Rabbits; 54% of Germans Believe Further Bailouts Pointless; 160 German Economists Denounce Summit Results

Posted: 07 Jul 2012 11:48 AM PDT

A pair of articles translated from German and Spanish further highlights the pressure on German Chancellor Angela Merkel to not give into to further demands by Spain, Italy, and France.

160 German Economists Denounce Summit Results

The San Francisco Gate reports German Economists Denounce Summit Decisions

A group of German economists has denounced decisions made during last week's European Union summit, arguing Thursday that they risk increasing the exposure of taxpayers, retirees and savers to the debts of struggling banks.

In an open letter published by the daily Frankfurter Allgemeine Zeitung, a group of 160 economists wrote that German Chancellor Angela Merkel found herself forced to make "wrong" decisions during the gathering. The economists said they "view the step toward a banking union, which means collective liability for the debts of the banks of the eurosystem, with great concern."

"Banks' debts are nearly three times higher than government debts ... the taxpayers, retirees and savers in the so-far solid countries of Europe must not be made liable for backing these debts, particularly since gigantic losses are foreseeable from financing the southern countries' inflationary economic bubbles," they added.

The economists include Hans-Werner Sinn, the head of the prominent Ifo think-tank and a vocal critic of European leaders' rescue policies. They argued that "banks must be allowed to fail," with creditors who knowingly took investment risks bearing the burden.

Merkel rejected the criticism.

"First of all, this is about better banking supervision, and one can only say that that is urgently necessary," she told reporters.

Disingenuous Response by Merkel

Please note the disingenuous response (if not direct lie) by Merkel who says "this is about better banking supervision".

Of course this is about bailouts. It is also about the need to allow banks to fail. Let that happen, punish the bondholders, and kill fractional reserve lending and the situation will take care of itself.

Merkel also stated "This is absolutely not about any additional liability." That too is disingenuous. The amount of money may not have risen, but the odds of losses have increased.

I happen to believe that Merkel would sell her soul to save the euro but can't. She also cannot step over lines in the sand by the constitutional court. Otherwise she would have caved in far more than she has.

Tempers Flare Over Letter From Economists

Via Google translate from El Confidencial, please consider 160 German economists against aid to Spanish banks

"It's not going to save the euro, but the creditors of the banks." "It is unacceptable that taxpayers, pensioners and savers far the strongest countries in Europe are accountable for the debts and huge losses due to inflationary bubbles of the South." "Politicians think they can limit the huge sums spent to pay these debts and misuse through the future European Banking Supervision Agency. But they will not succeed while the debtor countries have a majority in the Eurozone structural. " Three key ideas of the open letter that 160 economists renowned citizens today directed the Federal Republic not to support the creation of a European Banking Union and, of course, direct aid to Spanish banks.

The initiative is a media bomb. Hot and tempers are already with the feeling that Angela Merkel gave away too much at the last summit to pressure from Mario Monti, Francois Hollande and Mariano Rajoy, what these economists, led by Hans Werner Sinn, director of the IFO Institute Munich, and Walter Krämer, an economist statistician of the city of Dortmund, is a kick in the butt to a foreign minister that the last thing needed now is the opening of a new public debate on aid to weaker members of the Union.

Teachers and economists are not alone. The chairman of the Federal Union of German Industry, Hans-Peter Keitel, has joined the criticism: "Germany has said, has to put back the red lines. There should never be a Salvation Fund Banks".

No Salvation Fund For Banks

There should not be a salvation plan for anyone, especially banks. One of the reasons this mess is so big is the repetitive moral-hazard bailouts of the financial sector by central banks and governments.

54% of Germans Believe Further Bailouts Pointless

Via Google translate from Der Spiegel, please consider Majority of Germans Believe Further Bailouts Pointless

The majority of the German population has resigned from the mammoth task of saving the common currency. 54 percent of respondents believe that Germany should not continue to fight for the euro rescue if billions more are needed. 41 percent call for further engagement in Germany, and five percent are undecided.

Skepticism Extends Through Almost All Political Parties

52 percent of respondents with a preference for the CDU / CSU, see "little sense" is that Germany continues to €-rescue battling, only 45 percent of union supporters have responded to another commitment, three percent is "uncertain". The situation is similar in the SPD of (54/43/3).

Even stronger was the rejection of at supporters of the Left: There were 68 percent believe that it hardly makes sense to continue fighting for the euro rescue, they involve billions more are needed. 28 percent supported the idea , and two percent said "do not know" or gave no information.

The largest euro-friends are apparently supporters of the Greens: 64 percent of supporters of the eco-party took the view that Germany's commitment to the euro should be continued rescue, only 30 percent were against it - six percent gave no details.

For supporters of the FDP, the responses for statistical reasons are not shown separately, they are represented in the survey with a too small number.

Fourth Front Against Merkel

The noose around Merkel's neck gets tighter, even as her own personal popularity is at an all-time high.

For details please see German Central Bank Head Warns Merkel on Repeated Weakening of Positions; Third Front Against Merkel

To that we can add safely add the 4th front - voters, and if you like, a 5th front of 160 economists.

Realistically, there is little more Merkel can do but bluff. Her magic hat has no rabbits left in it.

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

luni, 9 iulie 2012

Watch Live: President Obama Speaks in the East Room

Seth's Blog : The false choice of mediocrity

The false choice of mediocrity

More Recent Articles

duminică, 8 iulie 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Seth's Blog : Art fears business fears art

Art fears business fears art

More Recent Articles

sâmbătă, 7 iulie 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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luni, 9 iulie 2012

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duminică, 8 iulie 2012

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