Central Perk

duminică, 25 ianuarie 2015

Mish's Global Economic Trend Analysis

Pact With the Devil? Syriza Projection 150 Seats; Coalition Deal Already; "Indisputable Mandate to Leave Austerity"
Ireland Proposes Debt Restructuring Conference for Spain, Greece, Ireland; A Turnip is a Turnip
Syriza Trounces New Democracy; Greeks Stop Paying Taxes; Run on Greek Banks Escalates; Get Out!

Pact With the Devil? Syriza Projection 150 Seats; Coalition Deal Already; "Indisputable Mandate to Leave Austerity"

Posted: 25 Jan 2015 10:46 PM PST

One Short of Outright Majority

With vote counting nearly over, it appears Syriza captured exactly half of the 300 member Greek parliament.

That is just one vote short of the majority it needs. However, Syriza has already secured an alliance with Independent Greeks, a right-wing party that shares little common ground with Syriza except for its rejection of austerity measures.

The coalition would have at least 162 seats, and that's an allegedly comfortable governing majority.

I do not rule out other alliances. But holding them all may prove difficult. Certainly this was not the alliance most expected.

Can Syriza govern with the Independent Greeks on some issues and another party on others? Or will this all blow up soon? If the latter, before or after Grexit?

For now, it's party time for Syriza, albeit one vote short of an even bigger party. Of course, there is always the chance of a party shift. It only takes one shift.

New Clash for Europe

With that backdrop, please consider Greek Vote Sets Up New Europe Clash.

With nearly all votes counted, opposition party Syriza was on track to win about half the seats in Parliament. In the wee hours of the morning, it clinched a coalition deal with a small right-wing party also opposed to Europe's economic policy to give the two a clear majority.

"Today the Greek people have written history," Syriza's young leader and likely new prime minister, Alexis Tsipras, said in his victory speech late Sunday. "The Greek people have given a clear, indisputable mandate for Greece to leave behind austerity."

A Syriza victory marks an astonishing upset of Europe's political order, which decades ago settled into an orthodox centrism while many in Syriza describe themselves as Marxists. It emboldens the challenges of other radical parties, from the right-wing National Front in France to the newly formed left-wing Podemos party in Spain, and it sets Greece on a collision course with Germany and its other eurozone rescuers.

Tsipras will have a mammoth task at home and abroad.

For one thing, Syriza is a broad coalition of the left that includes factions that believe Greece should leave the eurozone. Those factions would pressure Mr. Tsipras if he moves to compromise with Europe.

The pressure to compromise will be intense. Under the bailout program's rigorous schedule, Greece is required to complete a review of its progress with the so-called troika of bailout inspectors by the end of February. Mr. Tsipras has said he doesn't recognize the troika's authority.

Pact With the Devil?

The Wall Street Journal called the coalition of 162 seats a "comfortable majority". I called it an "allegedly comfortable majority".

Time will tell which version is correct. But other alliances are possible as well. It's interesting this coalition is the one that emerged rather than a coalition with one of the other leftist or centrist parties.

Perhaps there is more in common on the issues that is apparent at first glance. Then again, perhaps so many are so fed up with austerity they would sign a pact with the devil to get rid of it.

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

Ireland Proposes Debt Restructuring Conference for Spain, Greece, Ireland; A Turnip is a Turnip

Posted: 25 Jan 2015 07:00 PM PST

Contagion? Well don't worry about that! German Chancellor Angela Merkel assures us that will not happen. However, a difference of opinion is forming in Greece, Spain, and Ireland.

Via translation from El Confidencial, SYRIZA Extends the Debate, "Ireland Stands Out: Seeks Conference to Restructure Debt, Including Spain."

The Greek elections this Sunday still shaking European foreign ministries. ...

The restructuring of the debt (about 319 billion euros in the case of Greece) scares the markets for contagion effect.

Christine Lagarde was quick to respond in the pages of the Irish Times during a visit to Dublin last Monday. "In principle, collective efforts are welcome, but at the same time a debt is a debt" she said.

Why Ireland Should Support Greek Plan

The above article was based on an Irish Times column Why Ireland Should Support Greek Plan to Write Down Eurozone Public Debt.

Contrary to many reports, Syriza is not threatening a unilateral default but wants Greece's debt burden to be considered within a broader restructuring of sovereign debt in the euro zone. Its leader, Alexis Tsipras, has called for a "European Debt Conference", based on the 1953 London Conference that wrote off half of post-war Germany's debt and extended the repayment period for the rest over a number of decades. As Hans-Werner Sinn, one of Germany's leading economists and president of the Ifo Institute for Economic Research, acknowledged recently, the 1953 conference was, along with the Marshall Plan, a key factor in enabling Germany's post-war economic miracle.

The conference met from February 28th to August 28th, 1952, with the final agreement signed the following year and involved representatives from 20 creditor nations (including Greece, Portugal and Ireland) as well as Germany and the Bank for International Settlements. The United States, Britain and France took the lead, making clear from the outset that one of the aims of the conference was to strengthen the German economy.

The preamble to the agreement said it should help to "remove obstacles to normal economic relations between the Federal Republic of Germany and other countries and thereby to make a contribution to the development of a prosperous community of nations".

Demanding that Germany pay all its debts was seen as incompatible with that aim and with hopes of rebuilding the country's democracy and anchoring it in the West. The creditor countries acknowledged that the burden of repayments should not be so high as to endanger the welfare of the German people and explicitly spared Germany from any "structural adjustment" policy such as budget cuts or tax increases to fund debt repayments.

The final deal wrote off more than half of Germany's debts, stretched out repayments on the remainder for 30 years and agreed that, from 1953 to 1958, Germany would only make interest payments. Finally, it was agreed that repayments in any given year should not exceed 5 per cent of Germany's trade surplus. The agreement was a success – Germany paid off its remaining debts on time and with great ease and its economy rebounded to become the strongest in Europe.

Greece is not Germany and post-war Germany's debt amounted to a much smaller proportion of its gross domestic product than Greece's does today. Germany was, however, regarded internationally as a deadbeat debtor, having welched on various debt repayment deals between the two world wars. And the creditor nations' forbearance in 1953 is all the more remarkable given how recently Germany had led Europe into a catastrophic war that also plunged its antagonists into debt.

Simple Math

I saw Lagarde's nonsensical "A Debt is a Debt" speech in numerous places last week. I nearly responded "A turnip is a turnip and gold is gold, but neither turnips nor gold can default."

And that is the essence of the debate isn't it?

Whether Germany agrees to restructuring or not, what cannot be paid back, won't. Germany either agrees to debt restructuring or Greece will default. Either way, Germany will pay a price.

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

Syriza Trounces New Democracy; Greeks Stop Paying Taxes; Run on Greek Banks Escalates; Get Out!

Posted: 25 Jan 2015 11:57 AM PST

As late as yesterday I read numerous mainstream media reports that Syriza would win by three to five percent and would need to form an unstable coalition to rule.

In contrast, here was my January 19 prediction (and rationale): Expect a Blowout Win by Syriza in Greece.

Syriza Trounces New Democracy

The final votes are not counted, but exit polls show a blowout, with incumbent party New Democracy going down in flames.

The Wall Street Journal reports Greece's Radical Leftist Syriza Party Poised to Win Election, Exit Polls Say.

Syriza appeared set to win between 35.5% and 39.5% of the vote, trouncing the incumbent New Democracy party, which managed to secure just 23% to 27% of the vote, according to the exit polls whose results were issued immediately after voting booths closed.

If Syriza is able to secure more than 150 seats on its own—which the exit polls show is possible—it won't need coalition partners and will have a freer hand in implementing its platform—something that could lead to ruptures with Greece's creditors.

The polls also showed that voters backed a handful of smaller parties—ranging from the extreme-right Golden Dawn party to the centrist To Potami party—making it unclear whether Syriza would win an absolute majority in Greece's 300-seat legislature. According to the polls, Syriza was projected to secure between 146 to 158 seats, depending on the final outcome.

Greece Exit Polls

Note the double-digit (or near double-digit) trouncing of New Democracy leader and current prime minister Antonis Samaras.

Here's an interesting quote from the Journal.

"Europe is self-destructing," said Polyxeni Konstantinou, a 56-year-old public-sector worker voting in central Athens. "I voted for Syriza because I hope that it will help change the tragic circumstances that now govern Europe. Will Syriza be able to achieve everything it says? Probably not. But whatever it does achieve, then that will be good for Europe."

Greeks Stop Paying Taxes

Late last week the Financial Times reported Greeks Stop Paying Taxes in Expectation of Syriza Poll Victory.

A reluctance to pay taxes was much criticised by Greece's creditors as one reason why the country needed a big international bailout. Now many Greeks are again avoiding the taxman as they bet the radical left Syriza party will quickly loosen fiscal policy if it comes to power in Sunday's general election.

A finance ministry official confirmed on Friday that state revenues had collapsed this month. "It's normal for the tax take to decline during an election campaign but this time it's more noticeable," the official said, avoiding any specific figures on the projected shortfall.

However, two private sector economists forecast the shortfall could exceed €1.5bn, or more than 40 per cent of projected revenues for January.

Angeliki Mousouri, a dentist who is paying off more than €20,000 of tax arrears, said she missed a monthly instalment due in December.

"I don't expect to be penalised," she said. "If Syriza is the government they will show leniency to cash-strapped taxpayers."

Syriza is set to win the election even though it may not achieve an outright majority, according to opinion polls. Three polls published on Friday showed Syriza leading the centre-right New Democracy party of Antonis Samaras, the prime minister, by 4-5 percentage points.

As late as last Friday polls expected New Democracy would lose but not get trounced.

Voting by Feet (Bank Accounts)

ZeroHedge reports Greek Deposit Outflows Soar In Run-Up To Syriza Victory.

The monthly Bank of Greece balance sheet data for the month of December revealed a significant increase in Greek bank ECB borrowing which rose by €11bn in December to €57bn (including €1bn of Emergency Liquidity Assistance). This is more than the €3bn deposit outflow reported for December. It is thus likely that Greek banks had to borrow even more in December to offset not only their lost deposits but likely reduced access to private repo markets, as it happened before during Greek crisis.

We argued in recent weeks that one indirect way of gauging the pace of bank deposit outflows in Greece on a high frequency basis is to look at the inflows into offshore money market funds such as those based in Luxemburg. Purchases of offshore money funds, one way for Greeks to invest their withdrawn bank deposits, spiked to very high levels this week. These purchases totaled €206m during Mon-Thu this week vs. €91m over the previous week (between Jan 9th and Jan 16th), €54m in the week before (between Jan 2nd and Jan 9th), and €107m for December as a whole (€24m per week between Dec 1st and Jan 2nd).

So there is a sharp acceleration this week. If the €3bn deposit outflow reported by the press for the month of December is accurate and these offshore money market purchases are a good proxy for deposit flows, we should have seen deposit outflows of around €4bn in the first two weeks of January and a large €8bn deposit outflow this week alone.

The fear factor, New Democracy's biggest weapon, has thus risen sharply this week [and clearly backfired].

The above paragraphs not by ZeroHedge but rather from JPMorgan (no link given).

Run on Greek Banks Will Escalate

I repeat my January 9 warning: Another Run on Greek Banks Begins; Get Out While You Still Can; Buy Gold.

Get Out!

There is no reason to hold money in Greek banks, and every reason not to (even if there is talk of ECB guarantees). At this point, the "Juncker Rule" applies (they will lie when it's serious).

It's serious. Get out!

Get Out Where?

By get out, I do not mean to another European bank. If I were a Greek citizen, I would personally worry that any euro-denominated bank (not just Greek banks) would confiscate my money.

For short-term needs, consider US dollars or euros, in hand, not in Greek bank safe deposit boxes.

For mid- to long-term needs, US treasuries (or US treasury ETFs), German bonds (or German bond funds), and gold look attractive, especially gold.

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

Seth's Blog : Advice or criticism?

Advice or criticism?

It's quite natural to be defensive in the face of criticism. After all, the critic is often someone with an agenda that's different from yours.

But advice, solicited advice from a well-meaning and insightful expert? If you confuse that with criticism, you'll leave a lot of wisdom on the table.

Here's a simple way to process advice: Try it on.

Instead of explaining to yourself and to your advisor why an idea is wrong, impossible or merely difficult, consider acting out what it would mean. Act as if, talk it through, follow the trail. Turn the advice into a new business plan, or a presentation you might give to the board. Turn the advice into three scenarios, try to make the advice even bolder...

When a friend says, "you'd look good in a hat," it's counterproductive to imagine that she just told you that you look lousy without a hat, and that you then have to explain why you never wear hats and take offense at the fact that she thinks you always look terrible.

Nope. Try on the hat. Just try on the hat.

Put on a jacket that goes with the hat. Walk around with the hat on. Take a few pictures of yourself wearing a hat.

Then, if you want to, sure, stop wearing hats.

Advice is not criticism.

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sâmbătă, 24 ianuarie 2015

Mish's Global Economic Trend Analysis

Education Moment: The Man with 26 Million Students
US Special Forces in Mariupol?
Attack on Mariupol Begins; 7,000-8,000 Ukrainian Forces Nearly Encircled in Northern Cauldron; US Sends Army Trainers

Education Moment: The Man with 26 Million Students

Posted: 24 Jan 2015 08:42 PM PST

Zach Sims, a college dropout founded Codecademy, a website which enables users to learn six popular programming languages, via a simple interface, for free. Codecademy is three-years-old now and Sims has 26 million students.

Sims was invited to the World Economic Forum in Davos to talk about online education. He was Codecademy's first student, creating Codecademy to teach himself.

Please consider The Man with 26 Million Students.

One unlikely WEF attendee - a 24-year-old from New York who dropped out of Columbia University before completing his degree - is grabbing the attention of crusty executives gathered in this mountain resort.

Introduced by global leaders as the "man who has 26 million students", Zach Sims runs a three-year-old website called Codecademy, which enables users to learn six popular programming languages, via a simple interface, for free.

Zach is hardly the Davos type - he apologises when using buzzwords such as "intersection" and uses sarcastic air quotes when talking about the WEF's "new digital context" slogan - but he is a vivid example of a "skills gap" victim, albeit a first-world one.

"When I was looking for internships in my junior year, at companies like Goldman Sachs and McKinsey, I realised that nobody I was going to college with had any skills that would be relevant in that context," he says

"We figured if students at Columbia - a top five school in the country, can't find jobs when they graduate, there was probably a problem."

So Zach started to teach himself to code. "We built the first version of Codecademy for me," he explains, and with the help of a friend, Ryan Bubinski, he expanded the site.

Mr Bubinski became co-founder and together they launched Codecademy, in August 2011.

In the first weekend more than 200,000 people used the product - "it gave the ability to send emails to all those people who said the market size was limited," Zach quips, unable to suppress a smile.

The site now reaches almost 26 million students in more than 100 countries, and is helping people from all economic backgrounds to "up-skill", including residents of African refugee camps and single mothers in the US.

"Its crazy that two kids could start something in a one-bedroom apartment in California, and educate more people in a weekend than a formal institution could in years," he says.

"Education is having a moment".

Education Moment

As I have said on many occasions, the future of education is online and inexpensive. In this case, free is the operative word.

December 30, 2012: Online Education and College Degrees at Far Lower Prices is the Future; Virtual Classrooms to Reach 1 Billion People
September 03, 2013: Future of Education is At Hand: Online, Accredited, Affordable, Useful
Mar 29, 2014: Teaching Revolution: Online, Accredited, Free; Start Learning Now

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

US Special Forces in Mariupol?

Posted: 24 Jan 2015 03:46 PM PST

The rebel attack on Mariupol, Ukraine is underway as noted earlier today in Attack on Mariupol Begins; 7,000-8,000 Ukrainian Forces Nearly Encircled in Northern Cauldron; US Sends Army Trainers.

Disinformation regarding the attack is running rampant, even bordering on the outright ridiculous.

For example, a reader sent me a link to Ukraine@War, a UK website that made these claims regarding Mariupol:

"This is done by RUSSIAN rocket launchers, with RUSSIAN rockets, by soldiers speaking RUSSIAN, running RUSSIAN flags on their vehicles and with RUSSIAN emblems on their sleeves..."
Russian Major-General Vyaznikov is relocating his HQ to Soledar, Ukraine.

The reader who sent the link asserted "You wanted photos, satellite images, twitter feed posts, etc....so here you go".

The entire website was nothing but allegations. The site has maps with claims like "this is where Russians launched their attack".

It's preposterous.

I prefer actual evidence of things. For example, please consider this image of a Ukrainian reporter in Mariupol asking a soldier a question.

Mariupol Soldier

Who is this man? Where is he from?

The curious thing about that soldier, hiding is face, is that he responded to a Ukrainian reporter's question, in English with: "Out of my face! Out of my face please!" right at the 2:34 mark in the following video.

Video - Out of My Face

link if video does not play: Mariupol Soldier Responds "Out of My Face"

Background

The rebels have claimed since last June that US special forces were active in Mariupol. They even claimed to have killed one of them by sniper fire. We now have strong evidence, and it doesn't even come from the rebels.

The soldier in the video could be a mercenary, but that's illegal unless approved by the US government.

Out of My Face Discussion

A Discussion headline reads American mercenary/possible US Special Forces filmed in Mariupol, Ukraine today.

"The accent is clearly a Brooklyn or Jersey accent. Possibly Boston but definitely New England based. The cap, uniform and ammo belt is standard US Special Forces or 'Academi' mercenary outfitting. The soldier is Carrying an AKS-74 with folded buttstock and also has a handmade titanium silencer, rubberized grip and magazine with the bracket."

Anyone in the military recognize that equipment?

Targeted Attack

Vehicles destroyed in the early footage suggest a targeted attack on a known location.

Were those vehicles of the Special Forces by any chance?

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

Attack on Mariupol Begins; 7,000-8,000 Ukrainian Forces Nearly Encircled in Northern Cauldron; US Sends Army Trainers

Posted: 24 Jan 2015 11:56 AM PST

Yesterday, DNR (Donetsk People's Republic) president Alexander Zakharchenko issued this statement on a ceasefire:

"There will no longer be any attempts to speak about a ceasefire from our side. We will now see how Kiev reacts. Kiev doesn't currently understand that we can advance in three directions simultaneously".

Jacob Dreizin, a US citizen who speaks Russian and reads Ukrainian provides a DNR perspective that he has seen.

Jacob writes ...

Background for Zakharchenko's "no more ceasefires" statement stems from rebel disappointment back in August when Moscow forced the rebels to the negotiating table in Minsk, Belarus. The rebels gave up some territory around Mariupol at a time when Ukraine army was retreating, and in complete disarray.

This could have been a great opportunity for Kiev to come to its senses and accept a political solution.

However, the Ukraine side openly and repeated stated that the so-called ceasefire was just a tactical move prior to building up the forces and going back on the offensive. Then Kiev announced a 4th wave build-up of 50,000-100,000 troops.

In that context, Zakharchenko is telling the world that the Ukrainians blew their second chance, and there will be no more opportunities because all Kiev has done is move to strengthen its forces. Zakharchenko's patience has run out especially considering nonstop bombardment of rebel-held cities.

Enough is enough.

Attack on Mariupol Begins

Today Zakharchenko announced the battle for Mariupol is underway. Also, to the North the Debaltsevo cauldron is closing and 7,000 to 8,000 Ukrainian forces will be trapped (encircled).

Here are some images and text regarding the attack on Mariupol from Colonel Cassad.

Colonel Cassad writes ... "This morning our forces continued their attempts to sever an exit path for the Debaltsevso-Group of Ukrainian forces. Encirclement failed so far, but according to reports, our artillery began to pound the main road leading from Debaltsevo to Svetlodarsk."

That paragraph is in reference to the about-to-be trapped Ukrainian forces around the city of Debaltsevo (the Debaltsevo cauldron).

Red Alert: Rocket Fire Could Signal New Offensive on Mariupol

From Stratfor: Red Alert: Rocket Fire Could Signal New Offensive on Mariupol.

Reports of heavy rocket artillery firing on the eastern parts of the city of Mariupol, Ukraine, as well as a statement made by a separatist leader, indicate the potential preparation of an offensive on the city. While this would be a significant escalation and an indicator of Russian intent to push further into Ukraine, potentially forming a much-rumored land connection to the northern border of Crimea, there are also several indicators required for such an offensive that are currently still missing.

The attack comes days after the Russian forces secured the Donetsk Airport, important in defending the right flank of any offensive westward. It also comes days after Lt. Gen. Ben Hodges, commander of U.S. Army forces in Europe, came to Ukraine and publicly announced that a small number of U.S. Army trainers would be arriving in Ukraine. While any large-scale offensive would have been considered and planned for much longer, the decision of the United States to send Lt. Gen. Hodges could have affected the dynamic of internal Russian calculations.

In any event, we do not yet know Russia's strategic intentions. This could simply be an attempt to signal the danger Russia could pose to their negotiating partners in the west. It could be an attempt to extend the pocket they hold modestly. It could, finally, be the opening of an offensive toward Crimea.

The Russian position in Crimea is untenable. Crimea is easily isolated should Ukranian forces strengthen or Western forces get involved. Russia holds Crimea only to the extent that the West chooses not to intervene, or to the extent that it extends a relatively wide and robustly defended land bridge from Russia to the Crimea. Crimea and the Sevastapol naval facilities are of strategic importance to Russia and the decision to hold these facilities but not extend their power makes diplomatic sense, though it is not militarily rational. Either Russia can build the geographical structure to support Crimea, or it becomes a permanent weak point in the Russian position. The Russians do not want a massive confrontation with the West at a time of economic dysfunction, yet at the same time, having made the decision to hold Crimea, they will not have a better moment for consolidation.

This is an ongoing conversation in Moscow. It is not clear that it is over. The artillery may simply be a minor probe or it could be the preface to an assault. We know that there has been a significant increase in Russian presence in the pocket, but it does not seem to us that the Russians are logistically ready for a major offensive yet.

Taking Mariupol is a first step to a broader offensive. It is also an end in itself, anchoring the southern flank in the city, though may not even be that. However, the MLRS barrages on Mariupol open the door to multiple avenues of exploitation and have clearly moved the fighting to a new level, not so much in intensity, but in raising serious questions of strategic intention.

Mariupol Video

Link if video does not play: Attack on Mariupol

Major Offensive

In contrast to the analysis from Stratfor, it seems to me the major offensive started yesterday with the warning from DNR president Alexander Zakharchenko "Kiev doesn't currently understand that we can advance in three directions simultaneously."

The intent of Zakharchenko is to take and hold the entire Donetsk region. And it appears he will be able to do just that unless the US intervenes in a major way.

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

Seth's Blog : Two kinds of hustle

Two kinds of hustle

There's the hustle of always asking, of putting yourself out there, of looking for discounts, shortcuts and a faster way. This is the hustle of it it doesn't hurt to ask, of what you don't know won't hurt you, of the ends justifying the means. This hustler propositions, pitches and works at all times to close a sale, right now.

This kind of hustler always wants more for less. This kind of hustler will cut corners if it helps in getting picked.

Then there's the hustle that's actually quite difficult and effective. This is the hustle of being more generous than you need to be, of speaking truthfully even if it delays the ultimate goal in the short run, and most of all, the hustle of being prepared and of doing the work.

It's a shame that one approach is more common (though appropriately disrespected), while the other sits largely unused.

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vineri, 23 ianuarie 2015

Mish's Global Economic Trend Analysis

Prince Michael of Liechtenstein Warns "QE a Sign of Helplessness, Will Not Reach Economy"; Prince Michael vs. Martin Wolf
Rebels Advance Towards Mariupol; 15,000 Ukraine Troops Risk Encirclement in North; Kiev Lies Pile Up; New Maps
"World Running Out of Positive-Yield Bonds"

Prince Michael of Liechtenstein Warns "QE a Sign of Helplessness, Will Not Reach Economy"; Prince Michael vs. Martin Wolf

Posted: 23 Jan 2015 04:03 PM PST

I received an interesting email today from Geopolitical Information Service (GIS) regarding statements made by Prince Michael of Liechtenstein on European QE by the ECB.

Let's compare and contrast what Prince Michael has to say with what economic writer Martin Wolf had to say, also from today.

QE a Sign of Helplessness, Will Not Reach Economy

Please consider European QE Funds Will Not Reach the Economy by Prince Michael of Liechtenstein.

The European Central Bank's decision to introduce a programme of Quantitative Easing (QE) is not a win-win situation but rather an expression of helplessness ... that politicians in European Union countries are not prepared to address the necessary reforms, writes Prince Michael of Liechtenstein.

Necessary basic reforms are crucial in Europe if it is to restore global competitiveness, increase productivity and get the unemployed back to work. This includes reducing the share of national and local government in the economy. This will reduce the overheads of the national economy and reduce the deficit. Deregulation of laws which are too stringent such as labour and competition law, would enhance activities and ease innovation and job creation.

The 2008-2009 banking crisis saw the US focus on re-establishing the equity basis of the banks to a level which allowed the banks to lend to business. Europe instead chose the path of stress tests. In a simplified way we can say that if a bank reduced its loan portfolio to business, instead of increasing its sound equity basis, it could also pass the stress test. It also means that banks are reluctant to lend more money to business. This prevents new money trickling into the economy.

Zero to negative interest rates are also destroying savings and reducing personal retirement provisions. Pensions have been hit hard. This situation has been exacerbated by the fact that government pension schemes are insufficiently financed.

The real problem with the QE programme of buying sovereign bonds is that it takes the pressure for reform off the politicians. The ECB has already helped several European governments buy time so they can carry out reforms. Most of them – and especially France – have failed to use this opportunity.

It seems unlikely that these irresponsible attitudes will change with QE.

It Won't Work, "But It's a Start"

In contrast, Financial Times writer Martin Wolf says "Nobody knows whether ECB's QE will work but it is a start at least."

Actually, I am quite certain it will not work, and is in fact exactly the wrong thing to do. But let's dig deeper into Martin Wolf's thesis as outlined in Draghi's Bold Promise to do What it Takes for as Long as it Takes.

Wolf: Pity Mario Draghi, president of the European Central Bank. He is seeking to lead the eurozone to monetary water. Unfortunately, the beast has many heads: some long for a drink; others insist a drink would be bad for all. Yet the ECB has to try. Letting deflation take hold would be far more dangerous.
Mish: There's that nonsense about price deflation once again. A complete deflation rebuttal is below.

Wolf: So the ECB has decided to purchase €60bn of assets a month until at least September 2016. Above all, the purchases will continue until the bank sees a "sustained adjustment" in the path of inflation consistent with its aim of achieving inflation rates "below, but close to, 2 per cent" over the medium term. ...This is akin to Mr Draghi's 2012 pledge to do "whatever it takes" to save the euro. This time the ECB says it will buy some €1tn of assets, which is 10 per cent of eurozone GDP and a similar proportion of gross public debt. Above all, it will keep going until it hits its target. ... The crucial point is that the ECB has set a benchmark against which cessation of the programme must now be justified.
Mish: The crucial point is the stupidity of it all. Interest rates close to zero% did not fix the problem, or cause inflation. How in hell will interest rates going a few basis point lower fix anything? Here's the deal: The ECB cannot fix eurozone structural problems. And there are numerous problems to be sure. Add Prince Michael of Liechtenstein to the small list of people who realize the complete foolishness of the ECB's action.

Wolf: Failure to achieve the ECB's objective would devastate its credibility.
Mish: Credibility? What credibility? Prepare to be devastated.

Wolf: The eurozone might soon find itself coping with populist governments of the left or right utterly opposed to the policies imposed upon them. That way surely lies a far bigger disaster.
Mish: Populist policies are on the way because political leaders would not make the necessary reforms nor write off debt that cannot possibly be paid back.

Wolf: Nobody knows whether this action will work. But at least it is a start.
Mish: Actually, no one can realistically "know" much of anything about the future except outside of basic mathematical truisms and the fact we will all eventually die. That said, we can be quite certain, the ECB's plan is indeed ridiculous as explained further below. Curiously, not even Wolf claims it will work. Yet, he calls it a "start". A start to what?

Wolf: That is far from a complete solution to the eurozone's woes. But it is a welcome effort to keep the eurozone show on the road.
Mish: What road is that? To Oblivion?
Debate Over

Eurozone Structural Problems

The problems in Europe are insurmountable, and well understood by many, but apparently not Wolf.

No fiscal union
Wildly differing social agendas of member states
Wide variances in productivity
Wage discrepancies
Retirement benefit discrepancies
One size fits all monetary policy
To make treaty changes every eurozone country must agree
Target2 imbalances

What the hell good would even €5 trillion in QE do to fix those?

What good would it do if the ECB bought every bond from every country and pushed rates to zero across the board? How would it fix any structural problem?

Michael Pettis, Steen Jakobsen, Prince Michael, Mervyn King, Mish vs. Wolf

Once again, and with reasonable logic instead of Wolf's unrealistic hope...

Mervyn King: More QE will not help the world.

Steen Jakobsen (Others): "Lower Interest Rates May Reduce Consumption". Michael Pettis at China Financial Markets and Lacy Hunt at Hoisington Management both agreed.

I wrote about Steen's theory in Grand Experiment Failure; Bankers Prefer Bubbles; Europe is not USA; Final Epitaph, a rebuttal to Bloomberg author Barry Ritholtz, also in favor of massive QE.

Deflation Fighting Silliness

Let's once again review my Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit"

I also strongly suggest Wolf consider Deflationary Spiral Nonsense; Keynesian Theory vs. Practice; Eurozone Policymakers Concerned About Falling Prices.

For a third take on the insanity of fighting consumer price deflation, please see Deflation Bonanza! (And the Fool's Mission to Stop It).

Problem is Debt

The problem with the global economy in general is debt. You cannot cure a debt-deflation problem via attempts to force more debt into the system. It is axiomatic the cure cannot be the same as the disease.

I have emailed Wolf before but he does not have the courtesy to respond no matter how politely I express things.

I will email Wolf again but do not expect a reply. At any rate, I am pleased to see the list of people willing to speak out on the ridiculousness of QE is growing in unexpected places.

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

Rebels Advance Towards Mariupol; 15,000 Ukraine Troops Risk Encirclement in North; Kiev Lies Pile Up; New Maps

Posted: 23 Jan 2015 12:57 PM PST

Kiev Lies Pile Up

Major advances were made by rebels in the last couple of weeks. A claim made by Kiev that Ukraine recaptured the airport in Donetsk is a now proven lie.

And the lies pile up. For example, on January 21, the BBC quoted President Petro Poroshenko "Russia has more than 9,000 soldiers and 500 tanks, heavy artillery and armoured personnel carriers in Eastern Ukraine".

How can you hide 500 tanks and heavy artillery from US spy satellites? The answer is you cannot. And if those vehicles were actually in Eastern Ukraine, the US would have complained about it long ago.

On January 19, the Russian Activist reported 382 Russian soldiers killed in Ukraine during last three days.

"Respected Russian human rights activist Elena Vasilieva has announced that 382 Russian soldiers have been killed in Ukraine during the last three days."

There were no pictures or names. The above sentence was the entire article.

Sadly, people believe nonsense like this USA Today report:

There could be as many as 15,000 Russian troops in Ukraine, many of them deployed there without official documents", said Valentina Melnikova, head of the Committee of Soldiers' Mothers.

Reader Jacob Dreizin (a US citizen who speaks Russian and reads Ukrainian) had this to say about Valentina Melnikova:

Mish,

There have been a large number of these "Russian soldiers killed in Ukraine" stories in the Western press since last spring or summer. As a whole, they tend to confuse Russian soldiers with any and all Russians killed in Ukraine.

Yes, there have been a lot of Russians, Cossacks, and Chechens who have crossed the border to join the rebel militia. Several hundred of them have been killed, and in most cases, their bodies have been shipped back, funerals held, etc.

That does not mean that they were serving with the Russian army at the time of death.

What's really confusing to the Western press, is that the Russian groups keeping track of the deaths include all Russian citizens killed in Ukraine in their tallies.

As for actual Russian military deaths in Ukraine, it seems there were maybe several dozen of those, mostly from last August. But it was nowhere near the "thousands of Russians and hundreds of Russians tanks" claimed by Kiev. President Petro Poroshenko's claims are out-of-this-world nonsense.

Valentina Melnikova is totally off her rocker. Her group lost all credibility back in the early 2000s, when it inflated Russian deaths in Chechnya by a factor of three or four.

The allegedly widely respected Elena Vasilieva has claimed that entire Russian brigades have been wiped out in Ukraine. Keep in mind that a brigade is at least 2000 men. Of course, if 2000 bodies came back to one Russian base (or simply disappeared from one base), it would be all over social media in a split second. The western press has broadcast her claims with no questions and no sanity check. It is a disgrace.

Regards,
Jacob

Lies Repeated Often Enough Get Believed

The Telegraph, the Washington Post, the Daily Mail, and even respectable places like The Guardian have all carried such stories.

Lies repeated often enough get believed.

That does not mean I believe everything Putin has to say. I surely don't. Both sides lie. The first casualty of war is the truth.

But the preponderance of easily disputed lies is from Kiev. Yet, few in western media are willing to call President Poroshenko on them.

Ukrainian Dead Understated

Looking for accurate reporting of Ukrainian dead soldiers? Don't expect that out of Kiev either. CounterPunch explains in Ukraine's Lower Class Military.

Recently, there appeared on the Internet an electronic database with photo-documents of Ukrainian military personnel killed in the war in eastern Ukraine. The documents include passports, military IDs, drivers' licenses, personal files and credit cards. Some papers are half-burned, while others are untouched, as if nothing has happened to their owners. The documents were found with the dead bodies of these people in several areas of the Donbass region of eastern Ukraine, near the towns of Saurovka and Illovaisk, close to the cities of Donetsk, Lugansk and Gorlovka. The papers were published at the suggestion of the search teams so that the relatives of those killed could finally find out about their fate of their loved ones. As it happened, the majority were still officially listed as missing. They were also not included in the statistics of losses of the Ukrainian army.

The dead soldiers are from the 30th Mechanized Brigade of the Ukrainian armed forces, which in August was sent by its command into a crazy, suicidal mission.

The brigade was ordered to attempt a breakthrough that could lead to capturing the cities of Lugansk and Donetsk by the time of Independence Day in Ukraine, August 24.

In scanning the scanned papers of the dead soldiers, one can clearly see a social portrait of the soldiers of the Ukrainian army. It is ordinary people who were killed on the soil of Donbass. Soldiers and junior officers were mostly from peasant backgrounds.

We are often told that everyone is equal in death, but as we clearly see in this example, this is not the case. President Poroshenko, who is directly responsible for the catastrophic losses of the Ukrainian army and the death of civilians in Donbass, hypocritically mourns killed journalists in Paris on January 11 while in Donetsk, innocent people continue to die.

Children of Ukrainian politicians and oligarchs are not lying dead in the lands of Donbass. They enjoy a life full of fun and joy. They don't fear forced military conscription. The petty, provincial bourgeoisie can relax and pay a bribe so their sons will not be drafted into the army. The corrupt generals cover for such 'business as usual'.

Ukraine Maps

Let's step through a succession of maps, from August 2014, from September 2014, and one from the last two days.

Military Operations August 10-25

click on any map for sharper image

The above from August 26: Ukraine Offensive in Donetsk and Lugansk Fails

On August 26, I also posted Jane's Defense vs. Colonel Cassad: Someone Seriously Wrong.

Jane's Defense had made the claim Ukrainian Military Moves to Endgame.

My sources accurately challenged that claim.

Military Operations August 25 - September 1

The above from September 3: Ceasefire or Not?

Military Operations January 19-21

Note that many white areas on the previous maps are now pink (totally in rebel control). The hashed pink areas are recent rebel advancements (neither side controls completely). In the South note the march on Mariupol.

NATO Commander Visits Wounded

Here is a video of Ben Hodges, U.S. commanding general of NATO ground forces, visiting wounded/crippled Ukrainian soldiers in the hospital and giving them cheap little trinkets/mementos. Some of it is in English.

Link if video does not play: Ben Hodges Visits Troops.

This is what it boils down to ... Get drafted, lose an arm (or die), get a NATO trinket worth about $2.

Update From Jacob Dreizin

One of the leading rebel sources claims that the operation to close the Debaltsevo "pocket" has begun. If closed from its northern-most edge, this would trap as many as 15,000 Ukrainian soldiers and militia as well as some of Kiev's heaviest artillery.

Also, one or more Ukrainian mortar shells landed next to some kind of bus or trolley in Donetsk this morning. The footage looks pretty bad. At least 8 civilians were killed, 7 of them inside that vehicle, and another 13 are in the hospital. "They are all Charlie", I'm sure.

Massive Ukrainian shelling of Gorlovka continues. Over 100 civilians have been reported killed there since the weekend.

Second Update

Colonel Cassad reports a rare setback for the rebels today. Jacob Dreizin comments ...

"A convoy of rebel towed antitank guns was shelled by Ukranian artillery near the town of Adveevka west of Donetsk airport, with 30-40 estimated dead and wounded. With a figure that high, it means all of the equipment was destroyed as well. Colonel Cassad makes the point that the rebels actually report their losses, whereas the Ukrainians don't."

Mariupol Next?

Dreizin had also reported that supply lines to Mariupol have been cut. A key bridge far west of the city in Ukraine-held territory has been blown up.

Interfax-Ukraine claims Train Movement on Damaged Bridge to Mariupol Restored.

Sad Quest for Symbolism

NATO and the US seriously underestimated the lengths Russia would go to stop the march of NATO eastward.

I have to wonder, how much longer Mariupol will last. Did Ukraine spread itself too thin trying to capture the Donetsk airport? I think so. And for what? Symbolism?

The entire war is nothing but a sad war for symbolism. Ukraine was never really one united country in the first place. Politicians create these messes by failure to take political, cultural, and religious differences into consideration when they draw maps.

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

"World Running Out of Positive-Yield Bonds"

Posted: 23 Jan 2015 10:20 AM PST

In the wake of ECB's €60 billion a month QE madness (see "QE already Working" Says IMF Lagarde; Ho-Hum Details Announced; Gold the Place to Be), one might be wondering what it may do to European bond yields.

German 10-Year Bond Yield

click on chart for sharper image

Since September of 2013, yield on the German 10-year bond has plunged from around 2% to 0.367%.

ECB Risks German Bonds Mismatch Exceeding 100 Billion Euros

With €720 billion annual asset purchases, a huge portion of the bonds the ECB buys will be German.

Bloomberg explains ECB Risks German Bonds Mismatch Exceeding 100 Billion Euros.

[Of the 60 billion monthly asset purchases], about 45 billion euros probably would be sovereign debt, according to a central bank official, equating to more than 100 billion euros of German securities this year, based on purchases being conducted in proportion to euro-zone members' contributions to the ECB's capital. That would shrink the tradable market for German bonds in a year when the debt agency already planned to reduce the amount of conventional bonds outstanding by 8 billion euros.

"It's going to cause a huge shock to the supply-demand balance in the European government-debt market," Anthony Doyle, investment director at M&G Group Plc in London, said before the ECB's decision was announced. "We might not be too far off the German bund market looking like the Swiss one, with a negative yield out to 10 years. It's pretty crazy."

ECB buying will be carried out in line with the capital key, Draghi said, which is a measure roughly in proportion to the size of each nation's economy. Adjusted for non-euro-region central banks, that works out as a 25.6 percent share for Germany, according to calculations based on data on the ECB's website.

If the ECB purchases about 450 billion euros of sovereign bonds over 10 months, about 115 billion euros would be earmarked for German debt. The exact amount has yet to be officially specified because the ECB plans to include debt of agencies and European institutions, as well as asset-backed securities and covered bonds in its purchases. As of Dec. 31, Germany had 1.16 trillion euros of tradable securities.

Finding Sellers

The difficulty for the ECB may be flushing out sellers and getting them to buy other assets instead. Banks and insurers need Germany's AAA securities to bolster their balance sheets and pension funds mop up bunds to match their liabilities. In a low-growth environment with scant inflation, investors are sticking with bonds, particularly when the ECB is levying charges on its overnight deposit facility.

Meanwhile, supply is shrinking. The German debt agency plans to sell 147 billion euros of conventional bonds this year, compared with redemptions of 155 billion euros, according to its outlook published in December. As much as 14 billion euros of inflation-linked bonds, which are also eligible for ECB purchase, will also be issued.

"Global central banks are petrified of deflation," said M&G's Doyle, whose firm oversees the equivalent of about $389 billion. "The real effectiveness of QE is through the portfolio-rebalancing effect. The world is running out of positive-yielding government bonds."

Just Can't Get Enough

In honor of the world running out of government sugar (a preposterous notion to be sure), I offer the following musical tribute.

Link if video does not play: Homer Simpson Cannot Get Enough.

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