Mish's Global Economic Trend Analysis

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• Romney's Lead in South Carolina Shrinks to 4+ Percentage Points; Ron Paul in Surge
• Obama Wants to "Streamline" Government, Adding a New Cabinet-Level Position in the Process; I have a Better Idea
• Merkel Wants Higher Taxes, Deeper Cuts, Faster Reforms; S&P Says Eurozone Policies Fall Short , France at Risk of Further Downgrades

Romney's Lead in South Carolina Shrinks to 4+ Percentage Points; Ron Paul in Surge Posted: 14 Jan 2012 05:50 PM PST Check out the trends in the latest South Carolina Republican Primary Polls as noted on Real Clear Politics. click on chart for sharper image Gingrich has collapsed, and although Mitt Romney and Santorum were the initial beneficiaries, only Ron Paul is on a sustained surge. If Perry and Huntsman dropped out and endorsed Paul (I think Huntsman will do that eventually, but probably not until after South Carolina primary) Ron Paul could conceivably carry the state. Regardless, trends for Ron Paul are extremely favorable. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Obama Wants to "Streamline" Government, Adding a New Cabinet-Level Position in the Process; I have a Better Idea Posted: 14 Jan 2012 02:38 PM PST Hoping to seize the deficit reduction initiative from Republicans (it does not take much because Republicans have no proposals on the plate) President Obama is out to prove he is a genuine deficit fighter. With much fanfare Obama launched his idea to streamline government. The proposal requires Congressional approval. Laughably, out of an enormous annual budget of $3.7 trillion, the president's proposal, assuming it worked (and that is not a safe assumption), would save a mere $300 million a year. To top it off the president wants to create a new cabinet-level position out of the process. Is this the best anyone can do? Republicans are against the idea. If it was a Republican president asking to do the same thing, it's safe to point out that Democrats would be against the idea. The New York Times reports Obama Bid to Cut the Government Tests Congress Mr. Obama called on lawmakers to grant him broad new powers to propose mergers of agencies, which Congress would then have to approve or reject in an up-or-down vote. If granted the authority, he said, he would begin pruning by folding the Small Business Administration and five other trade and business agencies into a single agency that would replace the Commerce Department. The White House estimated that the consolidation would save $3 billion over 10 years and result in reductions of 1,000 to 2,000 jobs. The savings is a mere rounding error in the $3.7 trillion annual budget, but the numbers may be less important than the message that Mr. Obama wants to cut wasteful spending. It is not clear whether Congress, where much of Mr. Obama's legislative agenda has languished, will go along with this initiative. Republicans were immediately skeptical, suggesting that the White House was more interested in honing its re-election message than in reducing the size of government. Even Democratic leaders expressed misgivings about folding the Office of the United States Trade Representative, a stand-alone agency with just 227 employees, into a large bureaucracy, saying it could harm American trade policy. "Making it just another corner of a new bureaucratic behemoth would hurt American exports and hinder American job creation," said Senator Max Baucus, the Montana Democrat who is chairman of the Senate Finance Committee, in a statement with Representative Dave Camp, the Republican chairman of the House Ways and Means Committee. The White House has been working on this plan since the president announced his streamlining goals last January. He recycled a colorful example of duplication from his State of the Union address: the Interior Department has jurisdiction over salmon in freshwater, while Commerce handles them in saltwater. Under the terms of the reorganization, five agencies — the Small Business Administration, the United States Trade Representative, the Export-Import Bank, the Overseas Private Investment Corporation and the Trade and Development Agency, plus the business and trade functions of the Commerce Department — would be consolidated into a single agency focused on helping the private sector. Mr. Obama said he would elevate the director of the Small Business Administration, now Karen Mills, to his cabinet. The United States trade representative would retain cabinet rank, the White House said. Streamlining Perspective  The president's proposal does not eliminate anything. Instead it merges small bureaucracies into even bigger bureaucracies much like banks evolved into what should be known as "too big to succeed". Moreover, Obama's proposal creates a new cabinet-level position in the process. I am confident the president's plan will cost money in spite of what the president says. My rationale is simple: you don't add cabinet-level positions without adding costs. And those costs are sure to escalate over time no matter how well-intentioned initially. I have a better idea, and it comes straight from the lead-in image to the New York Time's article. Please take a look at that chart. I count 17 green dots, 7 red dots, and 32 blue dots in a bureaucratic tangle of interconnected responsibilities. President Obama wants to untangle some of those lines making them more efficient. Pay specific attention to the caption. A Business Looking for Government Resources Starts Here I have a simple question: Why should any business be seeking government (taxpayer) resources? Instead of merging bloated bureaucracies into even bigger bloated bureaucracies, I propose elimination of 17 green bureaucracies, 7 red bureaucracies, and 32 blue bureaucracies. Whereas Obama's plan will do next-to-nothing, my plan would save billions of dollars a year. Don't look for Democrats or Republicans (other than Ron Paul) to support it, because both parties pay lip service to actually reducing government. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Merkel Wants Higher Taxes, Deeper Cuts, Faster Reforms; S&P Says Eurozone Policies Fall Short , France at Risk of Further Downgrades Posted: 14 Jan 2012 11:10 AM PST In the wake of S&P debt downgrades, Merkel vows faster eurozone reforms. European leaders promised on Saturday to speed up plans to strengthen spending rules and get a permanent bailout fund up and running as soon as possible, a day after U.S. agency S&P cut the ratings of several euro zone countries' creditworthiness. It also warned that France, which suffered a downgrade to AA+ from the top-notch AAA, was at risk of further cuts if a recession further inflates its debt and budget deficit. Leaders including Merkel have urged countries to tighten their belts with higher taxes and deep spending cuts to rein in massive budget deficits. But that has heightened market concern about their ability to grow their way back to health, pushing borrowing costs even higher for heavily indebted governments. S&P said it was not working on the assumption of a euro zone break up, although it blamed its leaders for focusing too much on cutting debts and not sufficiently on competititveness. "We think that the diagnosis of policymakers regarding the crisis is only partially recognising the origin of the crisis," said Kraemer, mentioning the focus on budget austerity. "The proper diagnosis would have to give more weight to the rising imbalances in the euro zone in terms of the external funding positions, current account positions, much of it is based in diverging trends of competitiveness," he said. The ratings decision hit some countries harder than others, with France, Austria, Malta, Slovakia and Slovenia suffering single-notch downgrades, but Italy, Portugal, Spain and Cyprus falling two notches. Portugal's debt is now rated junk. ECB policymaker Ewald Nowotny, an Austrian, said Italy in particular would now face problems given large refinancing needs this year in that country and its banks. Asked in an interview broadcast by Austrian radio if Italy - now rated at the same BBB+ level as Kazakhstan - was "problem child number one," Nowotny agreed. "In a certain sense, yes, because we know this year Italy has a very significant refinancing need. Italian banks also need refinancing," he said. European leaders are set to meet at a summit on January 30 to discuss how to boost growth and jobs, and Merkel's words on Saturday suggest she will also be looking for faster progress on tighter common fiscal rules. But now, policymakers at the meeting may have bigger fish to fry. The downgrades threaten the top rating of Europe's current bailout fund -- the European Financial Stability Facility -- as contributors France and Austria are no longer rated AAA. A downgrade of the EFSF could increase its borrowing costs, reducing its ability to protect the currency bloc's weaker members. S&P said it would deliver its view on the impact to the EFSF from the sovereign downgrades "shortly." S&P Says Eurozone Policies Fall Short , France at Risk of Further Downgrades MarketWatch reports Euro-zone policies have fallen short Standard & Poor's credit analysts said Saturday that Euro-zone policy makers have failed to address the "broadening and deepening" financial crisis the region now faces, leading the agency to issue long-term downgrades on nine countries, including Cyprus, Italy, Portugal, Spain, Austria, France, Malta, Slovakia and Slovenia. Perhaps most notably among the cuts late Friday, S&P downgraded France and Austria to AA+ from AAA, leaving only Germany, Netherlands, Finland and Luxembourg left as AAA-rated countries in the currency group. Portugal and Cyprus were downgraded to junk-bond status. During a conference call Saturday morning, S&P credit analyst Moritz Kraemer said policymakers have yet to come up with solutions to the "systemic stresses" that plague Euro-zone nations during its debt crisis. Among these problems, he said, are tightening credit conditions; weakening prospects for economic growth in the region; and continued disagreement among government officials over how the situation should be addressed. Instead of concentrating on work rules and reforms, leaders in France, Germany, and Spain have called for higher taxes. Greece has had higher taxes imposed. Even without tax hikes, the European recession would be deep and lengthy. Higher taxes will make the situation much worse. Expect budget deficits to widen as unemployment soars and revenues collapse. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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