Central Perk

duminică, 19 octombrie 2014

Mish's Global Economic Trend Analysis

Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit"

Posted: 19 Oct 2014 08:33 PM PDT

The ECB has been concerned about falling consumer prices. I propose that's 100% stupid, yet that's the concern.

When the euro declined vs. the US dollar, the ECB was happy that inflation would inch back up. The fear now is that falling oil prices will take away the alleged gain of a falling euro.

With that backdrop, credit the Financial Times for the absurd headline of the week: Eurozone Fails to Benefit from Weak Currency as Oil Price Slides.

Pity the policy makers given the job of rescuing the eurozone from deflation.

The unorthodox steps the European Central Bank has taken since June – including a programme of private-sector asset purchases – have caused a steep fall in the euro. The single currency is down 8.4 per cent against the dollar and 4.75 per cent on a trade-weighted basis from its peaks this year.

The weaker exchange rate will ease pressure on the ECB in its fight to raise inflation back to its target of just below 2 per cent. Mario Draghi, the central bank's president, has said the currency's earlier strength explains 0.4 percentage points of the fall in inflation since 2012. In that year, prices were growing 2.7 per cent a year.

But just as this depreciation is starting to fuel inflation, the ECB must contend with a fall in oil prices that all but wipes out the effect of a sliding currency. A weaker euro should swiftly raise the cost of imported energy. Instead, Brent crude has fallen 9 per cent in euro terms this month alone. This is the main reason why eurozone inflation fell again in September to 0.3 per cent, a five-year low – a figure confirmed by data on Thursday.

"The drop in oil prices is a problem for the ECB," says Marco Valli, an economist at UniCredit, adding, however, that the situation would have been far worse without the single currency's fall.

"The impact on inflation is already visible and significant – if you still had the euro at 1.40 to the dollar, eurozone inflation would probably be zero."

Pity the Keynesian Fools

Financial Times writers Delphine Strauss and Claire Jones say "pity the policy makers." I say pity the fools who believe the thesis of their article.

There is absolutely no benefit to rising consumer prices. Things are even worse if prices rise but wages don't.

The very essence of rising standard of living is more goods at lower prices thanks to innovation and rising productivity. And there is no reason to believe wages will rise (or keep up with prices) if prices do rise.

Challenge to Keynesians

I challenge Strauss and Jones (or anyone else but especially Keynesians and Monetarists) to prove rising prices provide an overall economic benefit.

Sure, those with first access to money benefit (the banks, the already wealthy, and government bodies via taxation). But that is at the expense of everyone else.

The absurd underlying notion behind the battle cry for inflation is that if prices fall people will stop buying things and the economy will collapse.

Reality Check Questions

If price of food drops will people stop eating?
If the price of gasoline drops will people stop driving?
If price of airline tickets drop will people stop flying?
If the handle on your frying pan falls off or your blow-dryer breaks, will you delay making another purchase because you can get it cheaper next month?
If computers, printers, TVs, and other electronic devices will be cheaper next year, then cheaper again the following year, will people delay purchasing electronic devices as long as prices decline?
If your coat is worn out, are you inclined to wait another year if there are discounts now, but you expect even bigger discounts a year from now?
Will people delay medical procedures in expectation of falling prices?
If deflation theory is accurate, why are there huge lines at stores when prices drop the most?

Bonus Question

If falling prices stop people from buying things, how are any computers, flat screen TVs, monitors, etc., ever sold, in light of the fact that quality improves and prices decline every year?

Deflationary Spiral Nonsense

I have discussed this many times before, most recently in Deflationary Spiral Nonsense; Keynesian Theory vs. Practice; Eurozone Policymakers Concerned About Falling Prices

The idea that falling prices are bad for the economy is ridiculous. Taking out insurance against falling prices is even more absurd.

Ask any consumer if he wants lower gas prices, lower food prices, lower hotel prices, lower computer prices, or lower prices on any consumer items and the answer will be yes.

Keynesian Theory vs. Practice

Keynesian theory says consumers will delay purchases if prices are falling. In practice, all things being equal, it's precisely the opposite.

If consumers think prices are too high, they will wait for bargains. It happens every year at Christmas and all year long on discretionary items not in immediate need.

Asset Deflation vs. Consumer Price Deflation

What central bankers should fear is falling asset prices, more specifically, loans made on assets in an asset bubble.

The irony is central banks create asset inflation by fighting something everyone on the planet should welcome.

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

Nonperforming Spanish Loans Near All-Time High as Overall Credit Shrinks

Posted: 19 Oct 2014 09:25 AM PDT

Huky Guru posted a couple of interesting charts on his blog today about shrinking credit but rising percentage of nonperforming Spanish bank loans: NPLs of banks rebounded to 16.59%. Seven points higher than in the 1994 crisis.

Spanish Bank Shrinking Credit

Nonperforming Loans

The "real" numbers are normalized to account for a change in methodology. Today's number is just off the all-Time high of 16.73 percent in January of 2014. The "official" high was 13.62% in December of 2013.

Both sets of numbers are "far above the crisis in 1994, when nonperforming loans peaked at 9.15%."

The above charts provide further evidence the recovery in Spain is imaginary.

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

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Seth's Blog : "Google it!"

"Google it!"

The job is no longer to recite facts, to read the bio out loud, to explain something better found or watched online.

No, the job is to personally and passionately make us care enough to look up the facts for ourselves.

When you introduce a concept, or a speaker, or an opportunity, skip the reading of facts. Instead, make a passionate pitch that drives inquiry. In the audience, in your employees, in your customers...

The only reason people don't look it up is that they don't care, not that they're unable. So, your job is to get them to care enough.

[You can even send them to DuckDuckGo, if you can handle three syllables.]

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sâmbătă, 18 octombrie 2014

Mish's Global Economic Trend Analysis

FBI Director Warns Google and Apple "If You Don't Decrypt Phones, We'll Do It For You"

Posted: 18 Oct 2014 10:45 AM PDT

The Fourth Amendment to the US Constitution is crystal clear in meaning.

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

FBI Director, James Comey, an Obama appointment, does not give a damn what the Constitution says.

In a recent speech, Comey warns If Apple and Google Won't Decrypt Phones, We'll Force Them To

Everyone is stoked that the latest versions of iOS and Android will (finally) encrypt all the information on your smartphone by default. Except, of course, the FBI: Today, its director spent an hour attacking the companies and the very idea of encryption, even suggesting that Congress should pass a law banning the practice of default encryption.

It's of course no secret that James Comey and the FBI hate the prospect of "going dark," the idea that law enforcement simply doesn't have the technical capability to track criminals (and the average person) because of all those goddamn apps, encryption, wifi network switching, and different carriers.

"Encryption isn't just a technical feature; it's a marketing pitch … it's the equivalent of a closet that can't be opened. A safe that can't be cracked. And my question is, at what cost?" Comey said. "Both companies [Apple and Google] are run by good people, responding to what they perceive is a market demand. But the place they are leading us is one we shouldn't go to without careful thought and debate."

Safe That Cannot be Cracked

A safe that cannot be cracked and a door that cannot be opened except by the rightful owner is precisely what everyone should want. It's what the Constitution explicitly states. Instead, Comey wants the right to read your papers and search your effects.

"Perhaps it's time to suggest that the post-Snowden pendulum has swung too far in one direction—in a direction of fear and mistrust," claims Comey.

Excuse me, but what pendulum is Comey talking about?

The privacy pendulum has not budged an inch in the right direction. Not one new privacy law has been passed or even discussed.

To prove how much above the law these law-enforcement jackasses are, one Pentagon official stated "I would love to put a bullet in Snowden's head".

No one threatening to kill Snowden has been censured.

For blatant disrespect of the US Constitution, Comey ought to be fired, but there's nary a peep from Obama.

I suggest we need a cultural change from the top down starting with a president who understands and respects the Constitution.

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

Seth's Blog : Famous to the family

Famous to the family

There is famous and there is famous to the family. Cousin Aaron is famous to my family. Or, to be less literal, the family of people like us might understand that Satya the milliner or perhaps Sarma Melngailis or Peter Olotka are famous.

And famous to the family is precisely the goal of just about all marketing now. You don't need to be Nike or Apple or GE. You need to be famous to the small circle of people you are hoping will admire and trust you. Your shoe store needs to be famous to the 300 shoe shoppers in your town. Your retail consulting practice needs to be famous to 100 people at ten major corporations. Your Wordpress consulting practice needs to be famous to 650 veterinarians or chiropractors. Famous the way George Clooney and George Washington are famous, but to fewer people.

By famous, I means admired, trusted, given the benefit of the doubt. By famous, I mean seen as irreplaceable or best in the world.

Here's how to tell if you're famous: If I ask someone in your community to name the person who is known for X, will they name you? If I ask about which store or freelancer is the best place, hands down, to get Y, will they name you? If we played 20 questions, could I guess you?

Being famous to the family is far more efficient than being famous to everyone. It takes focus, though.

Famous to the family (of boardgame fans) is the key to making my friend Peter's Cosmic Encounter Kickstarter hit its goal. Or Ramon Ray's new magazine getting traction. Famous to the family is what this IndieGogo needs in order to change kids' lives. And failing to be famous to the family is precisely why most Kickstarters fail.

[HT to me, I wrote something about this three and a half years ago, but I forgot, and so did most people I talk about this with, so here it is again.]

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vineri, 17 octombrie 2014

Mish's Global Economic Trend Analysis

Free Market Response to Ebola

Posted: 17 Oct 2014 02:52 PM PDT

In response to Obama's Lame Response to Ebola; No Protocols but Lots of Fearmongering one person responded that I was "over-cooking the Ebola crisis".

Amusingly, another reader accused me of "underplaying the crisis".

A third reader asked "what is the free market response?" A similar question arose in a comment to Acting Man's post The Ebola Outbreak – A Black Swan.

Before tackling the free market issue, let's first review the government's response to date.

Airport restrictions but only at 5 airport, not all of them
Temperature taking procedures initiated
In spite temperature worries, a nurse self-reported to the center for disease control that she had an elevated temperature and ebola patient contact, but was told go ahead and fly

Think about the act of temperature taking. Whoever administered the test would have been in close contact with everyone on or entering the plane. Is that a good idea? Do sneezes and coughs happen?

Enough said.

Free Market Response

It's 100% certain the free market response would not have been the government's response to date.

And what about my proposal of flight bans from epidemic countries?

Government mandated is not free market by definition. But, it's entirely possible my solution is what the free market would have arrived at!

Three Questions I Asked Previously

Is there a chance of spreading the disease by coughing or sneezing? Yes.
Would I want to sit on a plane next to someone who was in contact with an ebola patient? No, and neither would anyone else.
Would I want to sit on a plane next to someone from a country where ebola is viral? No, and neither would anyone else.

Those are common sense questions that airlines may have asked themselves. Airports may have asked similar questions. But airlines do not initiate travel bans in this over-regulated society. Neither do airports.

I read a comment that airlines are being greedy. How so? Airlines are not in position to ban flights from specific countries for medical reasons.

And the last thing airlines need is plane decontamination efforts to fill an extremely tiny number of seats from those arriving from select African countries.

I pinged Pater Tenebrarum at Acting Man with this comment "I believe the free market response is that airlines would have banned travel from certain African countries."

He responded "Absolutely, but there are many other ways in which we could expect an unhampered market economy to respond to such a situation. In fact, I intend to take up the challenge and write a post about it."

Was I correct? We will never know.

I simply proposed what I thought the free market solution would be in absence of protocols from the center for disease control. I look forward to reading Pater's response.

In the meantime, we know with absolute certainty the government's response was pathetic. We also know McCain's Proposal for an Ebola Czar is equally, if not more pathetic.

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

Irony of the Day: Yellen Moans About Income Inequality; Seven Things That Cause Inequality

Posted: 17 Oct 2014 10:30 AM PDT

Those seeking the irony of the day will find it comes straight from the mouth of the Fed Chair. Please consider Janet Yellen Bemoans Rising US Inequality.

Janet Yellen decried rising inequality on Friday in an unusual speech that may lead to accusations of politicising the US Federal Reserve.

Speaking at a conference in Boston, the Fed chairwoman said she was "greatly concerned" by rising income and wealth inequality, and asked whether it is compatible with American values.

Her remarks will delight the Democrats who championed her as Fed chair, but risk a backlash from Republicans, who may feel she is using the platform of the central bank to promote the causes of their political rivals.

It marks a big step in defining Ms Yellen's term at the Fed. She has tried to popularise the role, meeting with unemployed people, and now speaking out on issues beyond monetary policy. Despite recent turmoil in financial markets, Ms Yellen made no reference to economic conditions or Fed policy in her speech.

"The extent of and continuing increase in inequality in the United States greatly concern me," said Ms Yellen. "The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression."

Look Inward Janet!

Instead of bemoaning income inequality as "incompatible with American values", the Chair ought to look at the cause of it.

Seven Things That Cause Inequality

Fed-sponsored bank bailouts
Fed interest rate suppression that punishes savers and those on fixed income
Fed QE to goose financial assets (primarily held by the wealthy)
Fed-sponsored inflation that benefits those with first access to money: banks, the already wealthy, and government (via property and other taxes)
Government deficit spending, war-mongering, and other inflationary policies
Government interference in the free markets, especially housing, health care, and education

Is Inequality Always a Bad Thing?

Notice, I said seven but only listed 6. Here's the bonus 7th: Innovation.

Those who invent better ways of doing things (or simply do things better than anyone else) often succeed wildly.

But the 7th is the way it should be. It is the essence of free-market-capitalism. Looked at properly, income inequality is actually a necessity!

It's the way income inequality is achieved that makes it good or bad.

Of seven major things that cause income inequality, four are Fed-sponsored, two are government-sponsored, and one is as it should be.

Which one does Yellen bitch about? The 7th of course.

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

Damn Cool Pics

20 Puppies Found In A Box In The Woods

Posted: 17 Oct 2014 11:09 AM PDT

Greg Zubiak wasn't expecting to find 20 abandoned puppies in a field, but when he did he gave them the clothes off his back to warm them, took them back to his truck and saved their lives!

via CBC News.

From Cancer Patient To Body Builder

Posted: 17 Oct 2014 09:53 AM PDT

These pictures show the stunning transformation of a teenage cancer patient into a bodybuilder, whose inspiring selfies have earned him a massive online following.

Zach Zeiler, from Ida, Michigan, was diagnosed with Hodgkin's Lymphoma in 2010 at the age of 15 - which saw his weight plummet to just 100lbs.

But as his photos show, Zach went on to beat cancer and now weighs nearly 175lbs.

His impressive physique is the result of working out for two hours each and every day - which he began during treatment.