Central Perk

sâmbătă, 9 iunie 2012

Mish's Global Economic Trend Analysis

Spain Blinks: Accepts €100 Billion Bailout Via EFSF/ESM; FROB to Receive the Money

Posted: 09 Jun 2012 03:02 PM PDT

After months of denials, a short Eurogroup Statement shows Spain will submit a formal request to Brussels for a bailout. Here is the statement in full.

The Eurogroup supports the efforts of the Spanish authorities to resolutely address the restructuring of its financial sector and it welcomes their intention to seek financial assistance from euro area Member States to this effect.

The Eurogroup has been informed that the Spanish authorities will present a formal request shortly and is willing to respond favourably to such a request. The financial assistance would be provided by the EFSF/ESM for recapitalisation of financial institutions. The loan will be scaled to provide an effective backstop covering for all possible capital requirements estimated by the diagnostic exercise which the Spanish authorities have commissioned to the external evaluators and the international auditors. The loan amount must cover estimated capital requirements with an additional safety margin, estimated as summing up to EUR 100 billion in total.

Following the formal request, an assessment should be provided by the Commission, in liaison with the ECB, EBA and the IMF, as well as a proposal for the necessary policy conditionality for the financial sector that shall accompany the assistance.

The Eurogroup considers that the Fund for Orderly Bank Restructuring (F.R.O.B.), acting as agent of the Spanish government, could receive the funds and channel them to the financial institutions concerned. The Spanish government will retain the full responsibility of the financial assistance and will sign the MoU.

The Eurogroup notes that Spain has already implemented significant fiscal and labour market reforms and measures to strengthen the capital base of the Spanish banks. The Eurogroup is confident that Spain will honour its commitments under the excessive deficit procedure and with regard to structural reforms, with a view to correcting macroeconomic imbalances in the framework of the European semester. Progress in these areas will be closely and regularly reviewed also in parallel with the financial assistance. Beyond the determined implementation of these commitments, the Eurogroup considers that the policy conditionality of the financial assistance should be focused on specific reforms targeting the financial sector, including restructuring plans in line with EU state-aid rules and horizontal structural reforms of the domestic financial sector.

We invite the IMF to support the implementation and monitoring of the financial assistance with regular reporting.

Treasury Secretary Tim Geithner issued this meaningless statement on Spain following the Eurogroup announcement.

We welcome Spain's action to recapitalize its banking system and the commitment by its European partners to provide support. These are important for the health of Spain's economy and as concrete steps on the path to financial union, which is vital to the resilience of the euro area.

Lip Service to Reforms

In the Eurogroup statement, notice the lip service to Spain's "significant fiscal and labour market reforms and measures to strengthen the capital base of the Spanish banks".

It will be interesting to see the final terms but this bailout surely will not be the no-strings-attached request Spain had sought.

Once again, this is the wrong approach. Bondholders should have been wiped out. Instead, Spanish taxpayers will be put on the hook for another hundred billion euros.

If another hundred billion euros is all it takes, I will be amazed.

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

Bailout Lite? There's Really No Such Thing; €30 Billion Needed? It's Now €100 Billion; Contagion of Economic Idiocy

Posted: 09 Jun 2012 10:22 AM PDT

A few days ago Spain was purportedly going to need another €30 billion to €70 billion to recapitalize Spanish banks. I suggested the amount would be at least triple that and it did not take long to do so.

Yahoo! Finance reports Spanish bailout could reach 100 billion euros

A bailout for Spain's teetering banks, once requested by Madrid, could amount to as much as 100 billion euros, two senior EU sources told Reuters on Saturday.

Spain has not yet made a formal request for European aid but it could come during a conference call of euro zone finance ministers, the sources, who were both on an earlier call to discuss the technicalities of a rescue, said.

"A decision on Spain will only be taken ... by the ministers (in a second call). Madrid has not officially asked for help yet," one of the officials said. "The statement will mention 100 billion euros as an upper limit."

€100 Billion Upper Limit? Until When?

When I said triple the reported amount, I meant triple the upper end of the reported amount. Bear in mind I am just guessing. However, history shows that I am more likely to be on the low end than the high end.

As with Greece, every economic number from Spain is revised to the downside, month in and month out.

For now, the EU economic wizards will likely concoct a number just under that alleged "upper limit". My best guess is €90 billion. Then within six months, possibly as soon as the money is handed over, more problems will surface, more meetings will take place, and still more money will be stolen from Spanish taxpayers and handed over to the banks and bondholders.

Bailout Lite?

There is no such thing as a "bailout lite". Sure, they can ease conditions on Spain, but what kind of message does that send Greece with elections coming up on June 17.

Moreover, the odds the Spanish economy starts recovering later this year as forecast are virtually zero percent. Then what? Then Spain will need another "bailout lite" and still more extensions.

In the meantime, the odds France and Italy hit their budget deficit targets are also close to zero.

Contagion of Economic Idiocy

Combine the above ideas with the worst economic plan in history to combat high unemployment (please see Hollande About to Wreck France With Economically Insane Proposal: "Make Layoffs So Expensive For Companies That It's Not Worth It") and an economic disaster awaits the eurozone.

My conclusion is that Europe is about to suffer from contagion of the worst kind: contagion of economic idiocy on bailouts, on employment, and nannycrat nonsense.

The humorous quote of the day comes from "FamilyMan" who offers these thoughts on France's proposals to stem unemployment:

As a US citizen, I applaud the French strategy. Since we can't fix America, we need other countries to be even more insane than we are! Can we get France to implement a $500 euro an hour minimum wage to "wipe out poverty"?

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

Damn Cool Pics

Super Creepy Creepy Justin Bieber Fan Video

Posted: 08 Jun 2012 09:49 PM PDT

Justin Bieber has a new fragrance called Girlfriend and has launched a contest for his fans where you rewrite his song 'Boyfriend' and turn it into your own 'Girlfriend' version. One girl's fanvideo really stands out from the crowd. This entry definitely deserves to be the winner of the Justin Bieber 'Girlfriend' Sing-Off Contest.

Jobs That Could Kill You [Infographic]

Posted: 08 Jun 2012 09:39 PM PDT

Risky jobs are worth it for those paychecks, right? Actually, a lot of them pay less than you'd think. Check out some of the deadliest jobs with the least monetary reward for your risk, and get a glimpse of some of the best-paying ones, too!

There were 4,547 fatal workplace injuries in the United States in 2010. 9% were caused by exposure to harmful substances or environments. 16% were caused by contact with objects and equipment. 18% were caused by assaults and violent acts. 39% were caused by transportation incidents. 4% were caused by fires and explosions. 14% were caused by falls.

Click image to see a larger version.

Via Becomecareer

A "State Dinner" just for kids

Saturday, June 9, 2012

A "State Dinner" just for kids

Calling all kid chefs: Here's your chance to share your favorite delicious and nutritious lunch recipe with First Lady Michelle Obama.

Let's Move!, the First Lady's initiative to solve the problem of childhood obesity within a generation, is looking for parents or legal guardians of creative kid chefs from all over the country to submit their child’s recipe for a healthy and nutritious lunch.

So if your kids have some skills in the kitchen, we hope you'll take the time to share their recipes. We'll invite a winning child and their parent or legal guardian from each state and territory to join us for a Kid's "State Dinner."

The rules are simple: All entrants (parents or legal guardians of kids ages 8-12) are encouraged to reference the MyPlate nutritional guidelines to ensure recipes meet healthy standards. Recipes should include each of the food groups, either in one dish or as parts of a lunch meal, including fruit, veggies, whole grains, protein and low-fat dairy foods.

Then in August, Let's Move! will team up with the Department of Education, USDA, and Epicurious for a Kid's "State Dinner." Winning recipes will be published in an online book to help share these new, healthy lunch time ideas.

You have until June 17 to submit your recipe, so get cooking and share what you think we should serve for lunch at the White House:

http://www.letsmove.gov/kids-state-dinner

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Weekly Address: Congress Must Act to Keep Our Teachers on the Job

Your Daily Snapshot for
Saturday, June 9, 2012

Weekly Address: Congress Must Act to Keep Our Teachers on the Job

President Obama urges Congress to take action now to put our teachers back to work in classrooms, because the best predictor of individual and American success in this economy is a good education.

Watch the President's weekly address:

President Barack Obama tapes the Weekly Address in the Cross Hall of the White House, June 8, 2012. (Official White House Photo by Chuck Kennedy)

Weekly Wrap Up

Your quick look at this week on Whitehouse.gov:

Serving Those Who Served Us: Last Friday, President Obama made his way to Honeywell International in Minnesota. There he addressed the issue of veteran unemployment and how it doesn’t make any sense that the nation is leaving these brave volunteers behind. “Our government needs their patriotism and their sense of duty. That’s why I ordered the hiring of more veterans by the federal government; we’ve hired more than 200,000 so far.”

Equal Opportunities: This past week, the administration worked hard to try and raise awareness of the Paycheck Fairness Act, which would have worked to close the paygap between men and women in the workforce.

Don't Double My Rate: In less than a month, interest rates on Stafford loans are set to double. Congress needs to act fast or else students will be facing on average an extra $1000 in debt. That’s why President Obama visited UNLV to continue his “To-Do-List” for Congress campaign, specifically pushing the extension of the student loan interest rate cut.

The State of the Economy: Today the President held a press conference to address the state of the American economy. He began by addressing the ongoing crisis in Europe -- America's largest trading partner -- and why it's an area of focus for his administration. The President also said that the continued instability of the international economy is another reason why lawmakers need to do more to create jobs here at home: “We could be putting a lot of people back to work rebuilding our roads, our bridges, some of our schools. There's work to be done; there are workers to do it. Let’s put them back to work right now.”

West Wing Week: Your video guide to everything that's happened this week at 1600 Pennsylvania Avenue: Watch here.

Stay Connected

Seth's Blog : Silencing the bell doesn't put out the fire

Silencing the bell doesn't put out the fire

Many big organizations have full-time employees who scan the social media, looking for people with a complaint. They swoop in and grease the squeaky wheel, solving the problem of the person who spoke up.

The theory is that these loud complainers are a problem, and the easiest solution is to give them something to make them happy.

Of course, that doesn't do anything for the 95% of the population that has the very same problem but isn't speaking up, right?

When Jeff Jarvis blogged about Dell Hell, he hurt the company very badly. Mollifying Jeff (and those like him) did the company no good in the long run, though, because they didn't deal with the underlying cause, they merely gave the loud ones an excuse to be quiet.

The purpose of the bell is to point to a fire somewhere else. Worry about that instead.

• Email to a friend •

vineri, 8 iunie 2012

Mish's Global Economic Trend Analysis

Bank of Spain inspectors question the viability of BMN Bank Group
Hollande About to Wreck France With Economically Insane Proposal: "Make Layoffs So Expensive For Companies That It's Not Worth It"
Monopoly Money vs. Bernanke Money, is there a Difference?

Bank of Spain inspectors question the viability of BMN Bank Group

Posted: 08 Jun 2012 12:19 PM PDT

Courtesy of Google Translate please consider Bank of Spain inspectors question the viability of BMN

The latest monitoring report prepared by the inspectors of the Bank of Spain on the integration process of the Banco Mare Nostrum (BMN) group casts doubt on its viability and even states that it "virtually impossible" to "return the financial support of the FROB."

The supervisor reports that BMN has spiraled out of control.

The report, which was completed on 8 May (three days before the announcement of the second reform of De Guindos) warns that deviations are "very significant".

But the failure to meet targets set in the plan, is not the only thing that is highlighted in the report. Inspectors also note changes in accounting principles, "inflated margins," inadequate risk rating and, an incorrect adjustment to reserves that would have rid the institution of record losses in 2011.

The BMN group, born from the union of Caja Murcia, Caixa Penedes, Sa Nostra and Caja Granada, received in June 2010 915 million preference shares FROB.

Quick Translation

The BMN group is bankrupt and it is "virtually impossible" to pay back money to the Fund for Orderly Bank Restructuring (FROB).

Clearly the alleged orderly restructuring process is not so orderly.

For more on the FROB, please see Lending to Peter so Peter Can Lend to Paul

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

Hollande About to Wreck France With Economically Insane Proposal: "Make Layoffs So Expensive For Companies That It's Not Worth It"

Posted: 08 Jun 2012 09:35 AM PDT

Unemployment in France touched 10.2% in April, a number last seen in 1999 according to data from Eurostat.

click on chart for sharper image

The question on newly-elected President Francois Hollande's mind is what to do about it.

Economic Insanity

Hollande's layoff clampdown solution according to Labour Minister Michel Sapin is to "make layoffs so expensive for companies that it's not worth it."

France's new Socialist government is planning to ramp up the cost of laying off workers for companies in the coming months, its labour minister said on Thursday after data showed the jobless rate hit the highest level this century at 10 percent.

"The main idea is to make layoffs so expensive for companies that it's not worth it," Sapin said in an interview with France Info radio.

"It's not a question of sanctions, but workers have to have compensation at the right level," he said.

Industry Minister Arnaud Montebourg is also planning legislation that would force companies to sell plants they want to get rid of at market prices to avoid closures and job losses.

Four Things, All of Them Bad

Mass layoffs will occur before the law passes.
Companies will move any jobs they can overseas.
Ongoing, if it's difficult to fire people, companies will not hire them in the first place.
Corporate profits will collapse along with the stock market should the need to fire people arise.

The proposal to force companies to sell plants rather than fire workers as outlined by Industry Minister Arnaud Montebourg and Labour Minister Michel Sapin is nothing short of economic insanity.

Nannycrat Dilemma

Think the Nannycrats in Brussels will go for this idea? If they do, they will wreck all of Europe. If they don't, then how are they going to "harmonize" everything?

For more on nannycrats and the nannyzone please see ...

Also see my original post on the "nannyzone" written June 2, 2011, nearly one year ago today: Trichet Calls for Creation of European "Nanny-State" and Fiscal "Nanny-Zone"

Addendum:

Reader "Bob" writes ....

Point 3 is the biggest but it gets even more insidious. The companies that have enough employees now are generally larger companies with a political voice. The companies that will need employees later are generally smaller, entrepreneurial companies with no political voice.

Since most job creation happens at the entrepreneurial level, the proposed policy will subsidize corporate stagnation while stemming the flow of entrepreneurial companies entering the market.

Over the long haul, this will kill France's economic competitiveness while increasing unemployment.

Recall government enforced jobs in the former USSR in the 1980's. How well did that go? Things got got so bad the USSR had to dissolve.

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

Monopoly Money vs. Bernanke Money, is there a Difference?

Posted: 08 Jun 2012 02:18 AM PDT

Occasionally I get an email from a reader that makes me pause and think. This is one of those times.

Reader Janet Dight writes ...

Hello Mish

As per ~~Ben Bernanke~~ Monopoly Official Rules "The bank never goes broke. If the bank runs out of money, the banker may issue as much as may be needed by writing on any ordinary paper."

Janet Dight
Clinical Psychologist

Monopoly Money vs. Bernanke Money

So what's the difference between "Monopoly Money" and "Bernanke Money"?

The difference is theory vs. practice.

In Monopoly, there is no difference between theory and practice. The rules are the rules and they will be honored and enforced by the players in the game. Money is printed and handed out without any regard as to whether it might be paid back. There is no such thing as excess reserves. Players are always willing to put money to use. If players don't put money to use, they will be bled to death by other players.

In the Bernanke's world, the Fed can print as much or as little as it wants. What the Fed does print is a loan. That money must be paid back. Collateral (even if speculative) is required and discounts are applied. In Bernanke's world, money is parked as excess reserves at the Fed if banks do not find good credit risks.

At times, it seems there is little difference between "Monopoly Money" and "Bernanke Money". It all depends on the willingness of banks to lend and consumers and businesses to borrow.

However, even when it seems there is little difference, there is a major difference between a bank giving money to players to spend and loans that must be paid back.

Constraints are Key

Flashback November 23, 2010: Austrian economist Robert Murphy predicts "high inflation" and and writes a post Has Mish Deflated the "Inflationistas"?

My response which in retrospect has clearly carried the day was Failure to Consider Constraints - My Response to "Has Mish Deflated the Inflationistas?"

I invite you to read my detailed response to someone who was clearly wrong but here is the key snip.

Monetary Printing vs. Debt Deflation

There is $35 trillion in credit on the balance sheets of banks, little of it marked to market. Yet, printing $600 Billion is supposedly going to cause serious inflation.
Given the Money Multiplier Theory is totally bogus, The odds sure don't look very good to me

Practical Constraint Recap

Ability of consumers/corporations to take on more debt

Willingness of consumers/corporations to take on more debt

Willingness of banks/credit companies to extend more credit

Ability of banks/credit companies to extend more credit

Unwillingness of the federal reserve to print themselves out of power

Actions of other Central Banks

Actions of Congress

Demographics

Global wage arbitrage

Fed cannot create jobs

Fed cannot give money away

Fed is beholden to banks

In theory the Fed can cause inflation rather easily. In practice the Fed has to deal with many practical constraints.

Theory and Practice

Murphy claims "Bernanke has the power to raise prices if he so chooses". Can he? With whose help? At cost constraints Bernanke can ignore?

In theory, the Fed can cause massive inflation at will. In practice, they can't. As Yogi Berra once quipped "In theory there is no difference between theory and practice. In practice, there is."

You can lead a horse to money, you can't make him eat it. That's the very important difference. It's a question of attitudes.

The Fed can certainly encourage inflation by offering money at seemingly attractive rates, but it cannot force the issue.

Right now, neither consumers nor businesses want the risk. They are too loaded up with debt already, no matter how attractive the Fed wants debt to appear. It's like trying to give a kid one piece of cake too many. At some point, extra frosting makes the cake look less attractive, not more. At that point the kid will not take another bite.

That is the point we are at now. The Fed is hoping Congress will eat more cake. It's up to Congress, not the Fed, and I doubt Congress want to eat as much cake as the Fed needs.

Bernanke's Deflation Prevention Scorecard

In case no one is keeping track, Bernanke has now fired every bullet from his 2002 "helicopter drop" speech Deflation: Making Sure "It" Doesn't Happen Here.

Bernanke's Scorecard

Here is Bernanke's roadmap, and a "point-by-point" list from that speech.

1. Reduce nominal interest rate to zero. Check. That didn't work...
2. Increase the number of dollars in circulation, or credibly threaten to do so. Check. That didn't work...
3. Expand the scale of asset purchases or, possibly, expand the menu of assets it buys. Check & check. That didn't work...
4. Make low-interest-rate loans to banks. Check. That didn't work...
5. Cooperate with fiscal authorities to inject more money. Check. That didn't work...
6. Lower rates further out along the Treasury term structure. Check. That didn't work...
7. Commit to holding the overnight rate at zero for some specified period. Check. That didn't work...
8. Begin announcing explicit ceilings for yields on longer-maturity Treasury debt (bonds maturing within the next two years); enforce interest-rate ceilings by committing to make unlimited purchases of securities at prices consistent with the targeted yields. Check, and check. That didn't work...
9. If that proves insufficient, cap yields of Treasury securities at still longer maturities, say three to six years. Check (they're buying out to 7 years right now.) That didn't work...
10. Use its existing authority to operate in the markets for agency debt. Check (in fact, they "own" the agency debt market!) That didn't work...
11. Influence yields on privately issued securities. (Note: the Fed used to be restricted in doing that, but not anymore.) Check. That didn't work...
12. Offer fixed-term loans to banks at low or zero interest, with a wide range of private assets deemed eligible as collateral (…Well, I'm still waiting for them to accept bellybutton lint & Beanie Babies, but I'm sure my patience will be rewarded. Besides their "mark-to-maturity" offers will be more than enticing!) Anyway… Check. That didn't work...
13. Buy foreign government debt (and although Ben didn't specifically mention it, let's not forget those dollar swaps with foreign nations.) Check. That didn't work...

Now What?

I wrote about Bernanke's Deflation Prevention Scorecard in April 2009.

Now, Bernanke is squealing like a stuck pig, begging Congress and China to help him produce price inflation in the US while still chastising Congress about a "fiscal cliff".

For details on the upcoming fiscal cliff please see Key Words of the Day: "Nothing", "Fiscal Cliff", "Later"; Bernanke Speech Template; U.S. Fiscal Cliff and What to Do About It

Regarding points 8 and 9 above: the Fed did purchase treasuries and agencies, but admittedly without an explicit ceiling.

Question of Timeframe

The point of this post is not to lay into Robert Murphy or any other misguided Austrian economists. I had forgotten about the above debate and found it searching my blog for "constraints".

Also bear in mind that I happen to agree with the Austrian economists on most points of view except timeframe.

Their timeframe is way off because ...

They view inflation as an exercise in printing, completely ignoring the role of credit
They ignore the changing attitudes towards lending by banks
They ignore demographics and the changing attitudes of aging boomers headed towards retirement
They ignore constraints on the Fed and constraints on banks
They ignore the destruction of credit on the balance sheets of consumers and its effects on prices

Record Low Treasury Yields a Sign of What?

If massive inflation was coming 10-year treasury rates would not be yielding a record low 1.60% and consumers would certainly not be deleveraging!

Might massive inflation be coming down the road?

Certainly, but it will take a change in attitude by consumers and banks or massively reckless policies by Congress.

Interestingly, Congressional policies are indeed "massively reckless" just not reckless enough yet. The emphasis is on "yet". I will not be a deflationista forever, but I remain one for now.

Looking Ahead

I remain extremely amused by countless emails from people who tell me about how wrong I am going to be.

They all miss my ability and willingness to change my mind! At some point I am going to change my tune. History suggests I will be far too early rather than late. Time will tell.

For now (and as I have been saying for as long as I have been blogging), hyperinflation or even "big inflation" is nonsense.

Constraints and Attitudes are Key

For now, attitudes, deleveraging, demographics, and the destruction of the value of credit on the balance sheets of banks absolutely and without a doubt overwhelm Bernanke's ability to do anything meaningful about it.

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

sâmbătă, 9 iunie 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Damn Cool Pics

Damn Cool Pics

A "State Dinner" just for kids

Weekly Address: Congress Must Act to Keep Our Teachers on the Job

Seth's Blog : Silencing the bell doesn't put out the fire

Silencing the bell doesn't put out the fire

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Mish's Global Economic Trend Analysis

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