marți, 25 februarie 2014

(Provided): 10 Ways to Prove SEO Value in Google Analytics

(Provided): 10 Ways to Prove SEO Value in Google Analytics


(Provided): 10 Ways to Prove SEO Value in Google Analytics

Posted: 24 Feb 2014 03:18 PM PST

Posted by Jeffalytics

Over the past two years I have flipped and flopped on my stance on (not provided) keywords in Google Analytics. For a long time I took a stance against complaining about missing keyword data in GA by asking the question "Why Do You Care So Much About (not provided)?"

Then at some point last fall while I was hanging out with some of my fellow GACPs, their complaints about the data we were missing behind the fog of https: search results influenced me enough to join the ranks of (not provided) complainers.

Not Provided Trends

Not Provided Trends from Not Provided Count

Fortunately, that was only short-lived. Knowing that (not provided) will eventually be 100% of our search keywords, I'm back to my old stance of saying "deal with it" when it comes to complaints about missing keywords in Google Analytics.

But how do we deal with it?

Let's start with defining the problem. Keywords have long fueled everything in SEO. From research through ranking through reporting, our lives as search analysts have been about granular keyword data. While in recent years the most effective SEO strategies have grown to center around creating great content, much of the industry is still conditioned around keywords being at the center of the universe. For many, keywords are the universe.

While most practitioners are gradually coming around to the changes in Google's preferences for ranking sites with high-quality content, we are also tasked with re-training all of those who have grown accustomed to receiving keyword data over the years.

Missing keyword data in Google Analytics is causing trouble for Internet marketers because our peers, bosses and clients are used to seeing this data in their reports. It's almost as if we are Pavlov, our report recipients are Pavlov's dog, and keywords are conditioned response.

Pavlovs Dog

Image found on The Thinking Blog

With a conditioned response to keyword data, it becomes tragic when it is taken away. When something is taken away, our instincts illicit a negative reaction. We are conditioned to behave this way.

The key to surviving is to give them more meat. Better meat!

We can do better than keyword reporting

While keywords have always been at the center of the SEO universe, reporting too heavily keyword data has long been a crutch for propping up weak and unoriginal marketing efforts. There are better ways to measure your organic search marketing performance, and many of them are already available for you within Google Analytics.

Instead of fixating on a handful of fat head keywords, it's time to train executives to focus on what really matters to your business: how organic search brings revenue (and ultimately profit) into your organization.

Fortunately, there are alternatives to measuring search performance purely based on keyword data. What follows are 10 ways that you can prove the value of your SEO efforts in a (not provided) world.

I first gave this presentation in January, 2014 at Superweek in Hungary. For those of you who learn best by going through slides, you can view all of the slides here:

For those of you who would benefit from an explanation of what these slides mean, the rest of this post is for you.

What follows are 10 ways that you can use Google tools to prove the value of your SEO efforts, even after (not provided) reaches 100%. Some of these may seem obvious, while I'm hopeful that others will give you an "aha" moment.

1) Measure overall organic traffic over time

Organic Traffic over Time

While search marketers may judge themselves by their abilities to rank for certain keywords, your organization will likely be judging you on two things: overall traffic and conversions. The good news is that if your site has been in existence for at least 13 months and you have goals configured in GA, you can work to prove your value by showing the recent growth that you have brought to the organization.

This can easily be done using the date comparison tool within Google Analytics. An executive in your organization may be used to seeing reports featuring information about individual keywords, but they will quickly forget about keywords if you can show them that you have grown organic search traffic by 200% year over year. The memory of keywords will be completely erased from their mind when they see the revenue growth of 150% year over year!

The Mind Eraser for Executives: Revenue and Profit

Revenue growth and profit erase the memories of keywords. Mind Eraser image from Wikipedia.

Executives are often compensated based on that same growth and profit. Showing them that you are a source of growth or profit for your organization is a key to obtaining more resources for your team, rising through the ranks of the organization and increasing your overall compensation.

Wouldn't it be great if the loss of granular keyword data were the key to your personal financial gain?

2) Segment organic search traffic by landing page

Now that we understand how focusing on the end result is the best area to focus with our bosses and our bosses bosses, we have to deal with the reality that it's very hard to optimize the ocean.

Knowing that you have tens of thousands of search visits to your site without any indicator of what drove them there is an ocean of useless data. That's what we are dealing with when staring at a screen with (not provided) keywords.

Not exactly useful

Not exactly useful

Good news: there are multiple alternatives to looking at the view above. In fact, if you can probably skip this report entirely. The quickest and easiest solution to find some level of granularity in Google Analytics is to look at the Landing Page primary dimension while in the organic keywords report. This will give you a view of the pages on your site that are driving the most organic traffic.

Organic Landing Pages

In my case, I can see that there are several pages on my site that are drawing organic search traffic. Since I wrote these posts, I can tell exactly what each page is about based solely on the article URL. For example, the #1 traffic driver for me is a post I wrote about auto posting your content to social media. I wrote this post after growing super frustrated about a lack of information on the topic during my previous Google searches.

As is often the case with my blog, I tend to write lengthy posts on a topic after growing frustrated on the information that is currently showing up in online searches. If I have to view 10 search results pages to piece together the answer to my question, then there is a tremendous opportunity to outrank the existing articles by writing something more comprehensive.

My SEO strategy for Jeffalytics is to provide the best answer to a question that I recently struggled with myself. I rarely worry about keywords, because I am concentrating on providing the answer and not fixated on keywords. I also understand that much of the traffic coming to the site will be from the long tail.

Reporting on the success of your pages vs. individual keywords gives you a much quicker indication of what content is working. Amplifying what is working is a key impactor of future success.

In your case, you may find that the #1 landing page for your site is your home page by a large margin. This is common for established brands and the home page often represents a branded query. If you want to get advanced with your reporting, try inferring brand/non-brand to your landing pages based on the URL and reporting on each separately.

Note: I am sure that my blog would benefit from a stronger keyword focus, but I can only do so much as a single author hobby blogger.

3) Use landing pages as a secondary dimension

If you are accustomed to looking at the organic keywords report in GA, or if your (not provided) count is still providing valuable data, then you may want to view the landing page as a secondary dimension within this report. This can be easily done by choosing landing page as a secondary dimension within the keyword report.

Secondary Dimensions for Organic Search

4) Use filters to make (not provided) more meaningful

The first three suggestions we give for dealing with (not provided) work out of the box with your Google Analytics account. For those of you who are bold enough to experiment with filtering the data coming in through your website, you can combine the organic keywords and landing pages into a single field by creating filters for your views in Google Analytics. The good folks at Econsultancy provided an awesome guide on how you can steal some of your keyword data back using advanced filters in GA.

*Please note that when applying filters to your data it is highly recommended to only do this with a NEW VIEW. Do not apply to existing views to your site for two reasons: 1) You might screw up the filter, which could prevent your site from collecting data and 2) The filter is not retroactively applied, so there's little advantage to applying to your main reporting profile anyway since you can't do an apples to apples comparison.

By applying the following filter to a new view, your (not provided) keywords become more meaningful.

Not Provided Filter

As you can see, the keyword not only becomes more meaningful, but it also frees up a secondary dimension for further analysis that would not be available to you otherwise. Think about all of the awesome analysis you can do now!

More Relevant Not Provided Reports

5) Use multi-channel funnels to prove value

Two areas that always suffer with last click attribution are organic search and social. This is because the visitors we receive from these sources are often at the top of the marketing funnel and don't often purchase on the first site visit. While we may influence their future purchase with our company, it doesn't always happen on the first date. It often takes a paid search ad, remarketing, email marketing or a direct visit to complete the buying process for these visitors.

Here is an example of how the content marketing funnel looks for a startup I am working with.

Content Marketing Funnel

Notice how prominent organic search and content marketing are at the top of the decision process and how they tail off as people begin to make purchases. This is the type of behavior that many companies experience when trying to draw in new customers (note that this is a simplified picture and YMMV). The above funnel is based loosely on industry specific research provided by Think Insights.

The easiest way to understand whether your business is impacted by a similar decision making funnel is to look at the multi channel funnels functionality within Google Analytics. My favorite is the assisted conversions report, because it allows us to see very clearly whether any of our traffic driving channels are understated with last click attribution.

Multi Channel Funnels

Understanding our last click + assisted revenue numbers can double the measurable impact of our organic search efforts.

6) Hook up with Google Webmaster Tools

I got the Hook Up

The closest direct replacement to (not provided) keyword data is the integration between Google Analytics and Google Webmaster Tools. By hooking up the two tools with each other, we unlock a wealth of keyword data that is slowly becoming more accurate.

While these reports are not available in Google Analytics out of the box, if you utilize the asynchronous version of the GA tracking code or Google Tag Manager, you can use these tools to verify ownership of your website through Google Webmaster tools. Once verified, you can connect the two products and have keyword data start rolling in to the Search Engine Optimization reports in Google Analytics.

Google Webmaster Tools Data

From here you can begin to see impressions for individual keywords, clicks and click through rates for Google search. While I don't find the information to be extremely reliable, the data is improving.

The key I have found once again to ensure accuracy is to once again look at the landing pages report as opposed to the "queries' section. In my case, the queries section only shows 6,720 clicks from Google off 161,182 impressions while the Landing Pages report shows 28,139 clicks for the same 90 day time period.

Landing Page Clicks

This is actually very accurate when compared to my organic landing pages for the same time period:

Organic Landing Pages

The difference in my case is that they only show the top 1,000 queries, which does not represent all of the long tail keywords that drive traffic. On the other hand, since I don't have close to 1,000 pages on this site, the top 1,000 landing pages do not get cut off by this limitation.

Top 1,000 Queries

Some of this may be attributed to the changes Google made on December 31, 2013 to have more detailed search queries in Webmaster Tools.

Google Webmaster Tools data may not be perfect, but in many cases it is all we have.

7) Segment organic search traffic by demographics

If you are not using the new Demographics reports in Google Analytics, you are seriously missing out on some amazing data. You're also not alone, because these reports are so new that very few people are using them to their fullest.

Why aren't people using them? Because first of all it may require a change to your base Google Analytics code to get them enabled. It also may require an update to your privacy policy.

The demographic report data is provided by Doubleclick and requires you to utilize the dc.js version of Google Analytics in order to access the data. This may require changing the code on your site if you are not already using the dc.js version of GA to enable remarketing. It is also not compatible with Universal Analytics at the moment. For Google Tag Manager users it's as simple as checking a box in your tag settings for GA.

For those of you who can navigate the above process and enable the reports, you can see some very cool data about who is interacting with your site. You can segment by the age range and gender of your visitors to understand who fits into your target market.

Organic Search Demographics

Better yet, you can create a secondary dimension that allows you to understand how an age range or gender performs by traffic source. Ever wonder whether males or females are better searchers? Do younger visitors convert better than older ones? You can answer these questions and adjust your search strategy based on the key demographics for your site.

Organic Search by Age

8) Use dashboards to surface the most important metrics

I love that we can share dashboards, segments and reports between accounts in Google Analytics. This makes it easier to consistently work across accounts and also allows users to have access to the works of analytics professionals in the click of a button. One of these professionals is Dan Barker, who grew so tired of having keywords (not provided) in Google Analytics that he created a website with resources dedicated to dealing with the problem. His site, Not Provided Kit, provides 6 different add-ons that you can install into your Google Analytics account.

Not Provided Kit

I especially like the custom dashboard that helps you understand some of the key information behind not provided keywords for your website. Brilliant!

Custom Dashboard

For a wealth of custom dashboards and reports, I highly recommend that you check out the Google Analytics Solutions Gallery.

Google Analytics Gallery

9) Paid and organic search reports in AdWords

Stepping outside of Google Analytics, these last two ways of dealing with (not provided) also come from Google. The first is utilizing the relatively new Paid & Organic keyword report in Google AdWords. This report marries data from your AdWords account and Google Webmaster Tools to help you understand where you have the best keyword coverage. This report helps you understand how often your site appears in paid and organic search for a given keyword that you are targeting.

Paid and Organic Search Reports AdWords

If your company is heavily involved in both paid search and organic, you can get started by linking AdWords and Webmaster Tools. From there, I recommend reading How to Use Google AdWords Paid & Organic Report by Lunametrics.

10) Use Google Trends

If you are still interested in understanding the interest and performance of individual keywords over time, you can always utilize Google Trends to gain insights into the popularity of a keyword over time or compare the relative search volume for two similar terms. This data can help you understand if interest is growing or shrinking in recent times, as well as aid you in targeting one keyword over another in your content marketing efforts.

Now if only Google used their own tools to see how interest in not provided has grown 500% since it was introduced into our lexicon in 2011.

Google Trends Gauge Interest

It's time to come clean

When something is taken away from us, it's hard not to react negatively to the change. As Avinash put it in his article about this very topic, you need to go through the five stages of grief to come out clean on the other side. It almost reminds me of Andrew Dufresne in the Shawshank Redemption.

Stop Worrying about Not Provided Shawshank

Andy Dufresne crawled through a river of (not provided) keywords and came out clean on the other side.

Free yourself of the burden of how things used to be. Keywords as you knew them are probably never coming back, so use this as an opportunity to advance your career, get paid more and make your company lots of money.

Hopefully these 10 tips will help you better understand where you can look to get at the data you need. Happy Analysis!


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AdSense Insider February 2014

Your Publisher ID: ca-pub-1492172262972996
February Edition
Welcome to our newly designed AdSense Insider. Now it’s easier to find out about our latest product news, events and tips. This issue, you’ll learn what tool is key to better understanding your audience, why it’s now easier to integrate Google products within WordPress and how you can build a more smartphone-friendly website.
Product news
Now Google and WordPress play better together
Using Google products within WordPress just got easier. You can try our Google Publisher Plugin (beta) now and see how easy it is to integrate Google products on your site.
Latest buzz
Local online forum grows into global destination
More than just talk, iSTORYA went from a site where a small group shared their views to a virtual home away from home for Filipinos all over the world. See how AdSense turned husband-and-wife team Gerald and Janice Yuvallos’ idea into a thriving destination -- and then share your AdSense story.
Your Google Analytics questions answered
Looking for answers on how you can get the most out of Google Analytics as an AdSense publisher? Tune in on February 26th.
We'll keep you posted with more news in March.
Until then, see you online.
Did you know:
2 million
There are over 2 million publishers in the AdSense program.
$9 billion
In 2013, we shared over $9 billion USD with our AdSense publishing partners..
Tip:
Try responsive ad units to help you build a smartphone-friendly website.
Was this message useful? Share your feedback with us.

Seth's Blog : Framers and polishers

 

Framers and polishers

The framer asks the original question, roughs out the starting designs, provokes the new thing.

The polisher finds typos, smooths out the rough edges and helps avoid the silly or expensive error.

Both are important. Unpolished work is hardly worth doing. 

Polishing is relentlessly reinforced in school and feels safe. Framing is fraught with risk and thus avoided by many. Too often, we spend our time on a little more polish, instead of investing in the breakthrough that a framer can bring.

       

 

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luni, 24 februarie 2014

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Ukraine Aftermath: Hunt for Yanukovich, Russia Denounces Interim Leaders, Documents Reveal Plans to Use Army on Civilians

Posted: 24 Feb 2014 04:30 PM PST

Let's tie up some loose ends on Ukraine, even as much uncertainty remains.

Documents Reveal Plans to Use Army on Civilians

Financial Times: Papers reveal Yanukovich plans to turn army against protesters
The Yanukovich regime had drawn up plans for a massive crackdown on protesters in Kiev using thousands of police and troops – and the chief of Ukraine's armed forces on Thursday last week ordered 2,500 army troops into the capital for an "antiterrorist" operation.

That order was never fulfilled, but leaked documents on Monday showed just how close Kiev came to a bloodbath that could have far exceeded the 100 deaths that occurred in clashes with police and snipers in downtown Kiev last week.

As well as the military documents, Ukrainian journalists were on Monday combing through piles of papers found dumped near Mr Yanukovich's luxury home outside Kiev, giving a fresh glimpse into his lavish spending and lifestyle.

One document apparently found at the log-built mansion at Mezhyhirya, posted online by Mustafa Nayem, an investigative journalist with the Ukrainskaya Pravda website, was a receipt for $12m in cash. Others included receipts stretching into millions of dollars for spending on decor at a gaudy home that has become a focal point of public rage.

But the most chilling were military and security papers. One set revealed that snipers who killed dozens of protesters on Kiev's central square last Thursday came from Ukraine's "Omega" special forces.
Hunt for Yanukovich

Financial Times: On the trail of Ukraine's missing Viktor Yanukovich
Viktor Yanukovich's whereabouts remained unknown for a third day on Monday, as rumours swirled that Ukraine's deposed president was hiding out in Crimea, a pro-Moscow stronghold with easy water access to Russia via the Black Sea.

While a few Ukrainian news outlets reported on Sunday night that Mr Yanukovich had succeeded in fleeing the country on his private yacht – the Bandido – by late Monday there were no reports of his arrival at a foreign destination. His options for escape, meanwhile, appeared to be narrowing.

Arsen Avakov, Ukraine's interior minister, announced early Monday that the new government had opened up a criminal case against Mr Yanukovich for "the mass murder of peaceful citizens". He added the government had been keeping careful watch over the former president's movements.
Russia Denounces Interim Leaders

Financial Times: Moscow takes aim at Ukraine's interim leaders and the west
Russia denounced Ukraine's interim leaders as dictators on Monday and blasted the western governments that it said helped bring them to power, in a sign that the toppling of President Viktor Yanukovich is triggering a regional stand-off.

The Russian foreign ministry claimed the new leadership was infringing on the human rights of Russians and other minorities in Ukraine. "This is headed towards the suppression of dissent in several regions of Ukraine by dictatorial and sometimes almost terrorist means," the ministry said in a statement.

Russia's furious statements came as the new Ukrainian authorities intensified their hunt for ousted president Viktor Yanukovich, who has not been seen since Friday, and tensions rose in Crimea, the Russia-friendly peninsula on the Black Sea.

In the Crimean port city of Sevastopol, home of Russia's Black Sea naval base, hundreds of pro-Russia protesters massed outside the city's main administrative building on Monday for more than five hours until the city council agreed to allow Alexei Chaliy, a Russian businessman, to take over immediately as mayor.

Waving Russian flags and wearing the arm bands of Russian Block, Crimea's leading pro-Russia political party, the crowd grew angry, shouting slogans such as "We won't let a fascist in!" and "Russia! Russia!"
Open House

Financial Times: Open house at Yanukovich's fabled palace
Ukrainians expressed shock and disgust as the full extent of Viktor Yanukovich's opulent lifestyle was revealed at the weekend.

Alerted via social media that Mezhyhirya – the president's fabled luxury estate, was no longer under heavily armed guard, thousands of people made the 15km trip from the capital to take a tour of the mansion and its attractions.

What they found was a 127-hectare site including manicured garden, a golf course, tennis courts, a shooting range, swimming pools and a marina as well as horses' stables. The purpose-built, five-storey dacha – essentially a large log cabin – was decorated with elaborate furniture and expensive chandeliers hanging from the ceiling.

Photographs on Twitter showed animals in a private zoo, a vintage car collection and a replica galleon on a lake. Visitors and commentators on social media expressed anger and disgust at the excesses revealed.

"I wanted to see where the money he [Mr Yanukovich] has stolen went," said Oleksander Heruk, 24, a computer programmer who visited the mansion.

"The first thing that shocked me was the colossal scale and tastelessness of the decor. It was shocking how megalomania had overtaken this person."
House Fit for a Tyrant

Mail Online: House fit for a tyrant: Protestors storm the sprawling, luxury estate of Ukraine's fugitive president which has its own private zoo, golf course and is half the size of Monaco

Mail Online has a series of images and videos. Here are a few images.









Many more pictures and videos on the site. It's amazing there was no destruction or looting. Cheers and best wishes to the citizens of Ukraine.

Unfortunately, many problems linger. Election uncertainty and chants of "Russia, Russia" in Sevastopol could easily lead to further violence.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Germany at Heart of Europe's Political Predicament; Squaring the Circle; When is the Breaking Point?

Posted: 24 Feb 2014 12:20 PM PST

Germany is at the heart of Europe's political predicament. Although the status quo cannot and will not work, there is no incentive to change.

Germany's Constitutional Court has strengthened the Eurosceptics and eliminates further moves by Germany towards debt mutualization.

Some think debt mutualization, eurobonds, and combined fiscal budgets are a good idea. Others, like myself, don't. Regardless, and as noted in Rethinking "Paper Tiger", those options remain off the table.

What remains on the table are policies that fuel high unemployment and undermine living standards says Brigitte Granville in Poking the Eurozone Bear.
Some take the sanguine view that the current "lie still" approach is adequate to ensure that the eurozone economy does more than avoid decline. From their perspective, Germany's decision over the last three years to permit actual and prospective transfers just large enough to prevent financial meltdown will somehow be enough to enable the eurozone finally to begin to recover from a half-decade of recession and stagnation.

But the fact is that these transfers – that is, European Stability Mechanism-financed bailout programs and the European Central Bank's prospective "outright monetary transactions" (OMT) bond-buying scheme – can do little more than fend off collapse. They cannot boost economic output, because they are conditional upon recipient countries' continued pursuit of internal devaluation (lowering domestic wages and prices).

Reinvigorating the eurozone economy requires a more radical effort to resolve the interlinked sovereign-debt and banking crises. Specifically, it demands sovereign-debt mutualization through Eurobonds, and thus the elimination of eurozone countries' fiscal sovereignty, and a full-fledged banking union with recapitalization authority and shared deposit insurance – a far cry from the arrangement that has been agreed.

If Europe's leaders continue to choose mild palliatives over bold tactics, the best-case scenario is a lackluster recovery, with GDP growing at a 1-2% annual rate. Unfortunately, this best case probably is not enough to prevent future sovereign-debt defaults in countries like Italy, Spain, and eventually even France. In other words, at some point, lying still will no longer be an option.

As it stands, Europe's political class is committed to internal devaluation in all of the troubled eurozone economies. The alternative approach – dismantling the eurozone to allow for external devaluations – has thus become the playground of hitherto marginal political parties, which are now surging ahead in opinion polls.

In France, the groups concerned – the National Front and the Union of the Left – represent political extremes. In Italy, a more ideologically neutral anti-establishment force may arise, with a much sharper anti-euro focus than Beppe Grillo's populist Five Star Movement, which emerged last year to become the country's third-largest political force. As these parties gain traction, the euro's chances of survival diminish.

In 2011, Edmond Alphandéry, a former economy minister, declared that a eurozone exit by a member country was as likely as a dollar exit by Texas or California. Here, on full display, was the wishful thinking that brought the euro into existence in the first place: its French architects dreamed of a Europe that could equal the US. That was always an illusory ambition, but it continues to cloud European leaders' judgment.

The single currency's advocates are right about one thing: political motives have always underpinned the establishment of monetary unions, from Latin America's in the period from 1865 to 1927 to that between Ireland and Britain from 1922 to 1979. But they are missing a crucial point: politics is also the reason for these unions' dissolution. When the economic costs and divergences become too much of a threat, the political will to do what it takes to ensure the common currency's survival collapses.

Voter reaction against the euro may well force the eurozone to stop lying still and take real action. The question is whether that would mean that some or all eurozone countries must go their separate ways.
Germany's Pyrrhic Victory

Also on Project Syndicate, please consider Germany's Pyrrhic Victory by Marcel Fratzscher.
The German Constitutional Court has ruled against the European Central Bank's pledge to buy potentially unlimited quantities of distressed eurozone countries' government bonds, and has called on the European Court of Justice (ECJ) to confirm its decision. Until that happens, the "outright monetary transactions" (OMT) scheme is effectively dead, weakening the ECB's ability to act as an effective and credible financial-market backstop at a time when European governments remain unwilling to fill the void.

How financial markets will digest the German court's ruling remains uncertain. There may be little initial reaction to the news, as there is no immediate threat to financial stability in the eurozone. But the big question is how markets will react in the future to bad news, whether about sovereigns or banks.

The tight feedback loop between sovereigns and banks in eurozone countries has become even more salient in recent years, as banks are holding an ever-larger share of their home countries' government bonds. The ECB's impaired ability to address sovereign and currency risks means that it will have to break the feedback loop via the banks – a more difficult and less effective approach that increases the likelihood of a market panic and a deeper crisis.

The German court's ruling jeopardizes the ECB's ability to act as an effective lender of last resort, thereby reducing its independence and ultimately undermining its ability to deal with market panics and crises – and thus to fulfil its primary mandate of price stability. The ruling makes it more urgent than ever that European governments establish a viable and effective banking union and strengthen the ESM as a backstop for countries in crisis.
When is the Breaking Point?

Notice the silliness of Fratzscher's last statement. He begs for a viable and effective banking union, when it should be perfectly clear the German constitution court won't allow for one.

Eventually something is going to break, and most likely at the worst possible time. Yet no one can say when. Meanwhile the imbalances continue to grow as complacency rules.

Spain 10-Year Government Bond Yield



That decline in yield looks like a good thing. But it comes with a huge risk. Spain's banks have plowed more and more into its own bonds. When yields rise, those banks are going to be in a huge amount of pain.

Here are some charts from Squaring the Circle.

Sovereign Bonds Held by Domestic Banks



Sovereign Bonds Held by Domestic Banks as Percentage of Assets



As long as yields decline, there are no problems. The crisis will be even bigger than before if and when yields rise. When that happens is anyone's guess. That it will happen is a near certainty.

One way or another Germany is going to pay a huge price. Theoretically, there are two solutions.

  1. Germany can pay the price by debt forgiveness and mutualization of debt
  2. Germany can pay the price via default when the eurozone breaks apart

If Germany will not allow option number one, the only viable choice is option number two. It would behoove Germany and the eurozone to have this discussion. Instead, Merkel has her head in the sand.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Monetarism, Abenomics, QE, and Minimum Wage Proposals: One Bad Idea Leads to Another, and Another

Posted: 24 Feb 2014 01:15 AM PST

Telegraph writer Ambrose Evans-Pritchard is back at it. In arguably his worst article ever, Pritchard complains France is Looking Straight Down the Barrel of a Deflation Shock.

Pritchard bemoans the horrors of falling prices and says "There is a technical solution to this. It is called QE. The European Central Bank can lift the entire EMU system off the reefs by launching a monetary blitz to meet its own M3 growth target of 4.5pc."

Pritchard ignores the fact that equity prices are back in bubble land. He ignores the fact that QE did not bring inflation to Japan. He ignores the fact that consumers desperately need falling prices. He ignores the fact that falling consumer prices do not stop consumers from buying anything.

Pritchard complains "French President François Hollande must now pay the price for kowtowing to the contraction polices of the eurozone."

Pritchard knows full well France is bound by eurozone policies. The only way France cannot "kowtow to the contraction polices of the eurozone" is if France leaves the eurozone. But Pritchard never mentions that. Instead he whines about falling prices.

One Centrally Bad Idea

Pritchard clings to the centrally bad idea that falling consumer prices will cause consumers to perpetually delay purchases.

In the real world, people have to eat. They have to buy gasoline for their cars. They have to buy clothes when they wear out. They have to heat their homes.

Those are relatively inelastic demands.

But there is also no evidence consumers will hold off for long on discretionary spending either. Every Christmas, shoppers line up for bargains. People continue to upgrade TVs, computers, monitors as they wear out, or simply because prices are lower and quality is up since they last bought.

In other words, people buy when bargains are many and stop buying when bargains are few.

Living Wages

Pritchard's solution is the same as that of many charlatans before him: Force prices up.

The Fed succeeded. As a result, people now bitch and moan about "living wages". Of course "living wages" are a moving target. Force prices higher and the more it takes to keep up with them.

People want $15 an hour for standing behind a cash register and handing you a sack of the worst food money can buy. It's ridiculous.

Hardly anyone ever points out the fact that wages have not kept up with inflation precisely because the Fed has done exactly what Pritchard wants.

People do not blame the Fed, nor do they blame economic illiterates like Pritchard. Instead they blame allegedly evil corporations like McDonalds and Walmart.

Actually, the world needs more Walmarts. I hope Walmart enters the health-care business in a big way. Costs would come down overnight. It would also be great if Walmart could directly compete with banks on financial services.

Costs Rising Faster than Wages

The problem is not that wages are too low, but rather costs rise faster than wages. Why does that happen? Because of the very central bank polices espoused by Monetarists like Pritchard.

Pritchard and others will note that falling home prices will slow bank lending and consumer credit. That is correct. OK, but what's the real problem?

The real problem is monetary inflation artificially jacked up the prices of assets (homes, cars, equities) upon which unsustainable loans were made. Rather than admitting that simple and obvious fact, Monetarists propose the solution is still more monetary printing which will do nothing but create even bigger asset bubbles.

Brief History

  • Monetarists act on the theory falling prices are a bad idea
  • The Fed prints money and holds rates too low
  • Housing bubble builds
  • Medical and education prices soar
  • Student loans soar to "help" the students
  • Because housing is not affordable numerous affordable housing programs appear causing still more unwarranted housing demand. Few see the bubble because housing is not in the CPI
  • Housing crashes
  • The affordable housing advocates are abhorred by falling prices
  • Fed bails out banks and steps in to support housing prices
  • Income inequality soars
  • Students remain stuck with debt

Because of one idiotic notion, that "falling prices are a bad thing", the Fed has generally managed to keep the CPI rising, with some things going up much faster than others.

In response to uneven price inflation, we have seen numerous "affordable housing" programs, massive student aid programs, bank bailouts at taxpayer expense, Obamacare to make medical insurance affordable, cash for clunkers, Abenomics in Japan, and countless other economic idiocies.

People propose bad idea after bad idea simply to fix problems caused by the previous bad idea. This is corollary six to the Law of Bad Ideas.

Law of Bad Ideas Corollary Six: Bad ideas lead to more bad ideas to fix problems caused by previous bad ideas.

Pritchard, like many before him and countless others yet to come, want higher inflation rates. Here is a table I put together that shows the silliness of it all.

Effect of Inflation Over Time

Year2% Annual Inflation4% Annual Inflation6% annual inflation10% annual inflation
1100.00100.00100.00100.00
2102.00104.00106.00110.00
3104.04108.16112.36121.00
4106.12112.49119.10133.10
5108.24116.99126.25146.41
6110.41121.67133.82161.05
7112.62126.53141.85177.16
8114.87131.59150.36194.87
9117.17136.86159.38214.36
10119.51142.33168.95235.79
11121.90148.02179.08259.37
12124.34153.95189.83285.31
13126.82160.10201.22313.84
14129.36166.51213.29345.23
15131.95173.17226.09379.75
16134.59180.09239.66417.72
17137.28187.30254.04459.50
18140.02194.79269.28505.45
19142.82202.58285.43555.99
20145.68210.68302.56611.59
21148.59219.11320.71672.75
22151.57227.88339.96740.02
23154.60236.99360.35814.03
24157.69246.47381.97895.43
25160.84256.33404.89984.97
26164.06266.58429.191083.47
27167.34277.25454.941191.82
28170.69288.34482.231311.00
29174.10299.87511.171442.10
30177.58311.87541.841586.31
31181.14324.34574.351744.94
32184.76337.31608.811919.43
33188.45350.81645.342111.38
34192.22364.84684.062322.52
35196.07379.43725.102554.77
36199.99394.61768.612810.24
37203.99410.39814.733091.27
38208.07426.81863.613400.39
39212.23443.88915.433740.43
40216.47461.64970.354114.48
41220.80480.101028.574525.93
42225.22499.311090.294978.52
43229.72519.281155.705476.37
44234.32540.051225.056024.01
45239.01561.651298.556626.41
46243.79584.121376.467289.05
47248.66607.481459.058017.95
48253.63631.781546.598819.75
49258.71657.051639.399701.72
50263.88683.331737.7510671.90


The above table shows what the price of something that costs $100 in year one will cost 49 years later at various inflation rates.

None of these inflation charlatans discuss what happens if wages do not keep up. Nor do they discuss the incentives businesses have to outsource jobs or automate because of high wages.

Amazingly, many people in academic wonderland are not satisfied with 2% annual inflation. They want 4% inflation or higher. For example, Laurence Ball at John Hopkins University claims to make a Case for Four Percent Inflation.

Ball is "grateful for suggestions from Olivier Blanchard, Daniel Leigh, Gregory Mankiw, and Richard Miller. This paper is prepared for the Central Bank Review, published by the Central Bank of the Republic of Turkey."

His paper was written in April 2013.

How is the Turkish Lira doing since that paper came out? Let's take a look.



Hmm. Once inflation steps in it seems difficult to turn it off.

Ball cited Gregory Mankiw, an economic professor at Harvard, who had an even more inane idea of drawing a number out of the hat every year and making currency ending in that digit worthless.

The effect would be 10% price inflation and lord only knows what asset price inflation would occur were Makniw to get his way.

Mankiw claims expiring currency would be a benefit. I responded Time For Mankiw To Resign

These charlatans sit in their academic ivory towers void of common sense and real world economics.

Of course economically asinine proposals from those in academic wonderland is expected behavior by corollary number four.

For the sake of completeness, here is a complete recap.

Law of Bad Ideas: Bad ideas don't go away until they have been tried and failed multiple times, and generally not even then.

Corollary One: Left alone, bad ideas get worse over time.

Corollary Two: The overwhelming desire to implement bad ideas leads to compromises guaranteed to make things worse.

Corollary Three: Those in positions of political power not only have the worst ideas, they also have the means to see those ideas are implemented.

Corollary Four: The worse the idea, the more likely it is to be embraced by academia and political opportunists.

Corollary Five: No politically acceptable idea is so bad it cannot be made worse.

Corollary Six: Bad ideas lead to more bad ideas to fix problems caused by previous bad ideas.

Although there is strong evidence that consumers will hold off making asset purchases (homes, stocks, bonds), when asset prices fall, there is not a shred of evidence of a meaningful reduction in consumer purchases due to falling consumer prices.

The irony is that QE tends to foster asset bubbles that ultimately crash, not a price rise in general goods.

Central banks in general, and the Fed in particular, are excellent examples of those in power, hell bent on implementing various bad ideas.

For further discussion please see Deflation Theory Reality Check.

Also see Bubblicious Questions: What Causes Economic Bubbles? When Do Bubbles Burst? Can the Fed Prevent Bubbles?

In yet another irony in this madness, monetarist polices benefit those with first access to money, namely the banks and the already wealthy. Yet the same academics screaming for higher inflation are typically the same ones screaming about income inequality.

The amount of damage caused by one central thesis "falling prices are a bad thing" is staggering. And to fix problems inherent in that central thesis, countless other bad ideas are sure to follow.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com