Central Perk: 4 iun. 2015

joi, 4 iunie 2015

Mish's Global Economic Trend Analysis

Lessons from Carolina: Paying People to Not Work is Losing Policy, Tax Cuts and Reforms do Work
Athens to Delay IMF Repayment; Greece Close to Approving Extended Servitude; Will Tsipras Survive?
Nonfarm Productivity Collapses Greater Than Expected 3.1%, Unit Labor Costs Rise 6.7%; Transitory Weakness?
Obama to Ask Secret Court to Revive Bulk Phone Collections; Illegal Dragnet Revived

Lessons from Carolina: Paying People to Not Work is Losing Policy, Tax Cuts and Reforms do Work

Posted: 04 Jun 2015 02:09 PM PDT

In 2013, North Carolina figured out paying people to not work is a losing policy.

N.C became the first state to reject "free" federal payments for extended unemployment benefits and reduce the weeks of benefits to 20 from 26. It also passed big tax cuts.

Huge Payoff

The result was phenomenal as reported by Stephen Moore, senior fellow at the Heritage Foundation in the Wall Street Journal article: The Tax-Cut Payoff in Carolina.

Four years ago North Carolina's unemployment rate was above 10% and the state still bore the effects of its battering in the recession. Many rural towns faced jobless rates of more than 20%. But in 2013 a combination of the biggest tax-rate reductions in the state's history and a gutsy but controversial unemployment-insurance reform supercharged the state's economy and has even helped finance budget surpluses.

The tax cut slashed the state's top personal income-tax rate to 5.75%, near the regional average, from 7.75%, which had been the highest in the South. The corporate tax rate was cut to 5% from 6.9%. The estate tax was eliminated.

Next came the novel tough-love unemployment-insurance reforms. The state became the first in the nation to reject "free" federal payments for extended unemployment benefits and reduce the weeks of benefits to 20 from 26. The maximum weekly dollar amount of payments, $535, which had been among the highest in the nation, was trimmed to a maximum of $350 a week. As a result, tens of thousands of Carolinians left the unemployment rolls.

While these measures were passing the legislature, the state capital boiled over with rancorous political rallies, called Moral Mondays, designed to block the "cruel" GOP agenda. Rev. William Barber II, one of the protest organizers, lambasted Republicans for making the Tar Heel State a "crucible of extremism and injustice." The national media piled on with claims that the Republican agenda cut taxes for the rich while slashing benefits for the poor.

Then a funny thing happened. After a few months, the unemployment rate started to decline rapidly and job growth climbed. Not just a little. Nearly 200,000 jobs have been added since 2013 and the unemployment rate has fallen to 5.5% from 7.9%.

On the Tax Foundation index of business conditions, North Carolina has been catapulted to 16th from a dismal 44th since 2013.

The most recent news will make many other governors jealous. The state didn't take the extra federal benefits—which require repayments later to the feds—and it cut the weekly benefits. So the state government has been able to pay back $2.8 billion in unemployment-insurance money owed to the feds, and it now has a trust-fund surplus. This means it will be able to provide employers with at least $500 million in cuts from the state and federal unemployment tax on payroll over 18 months.

This comes at a time when other states are having to raise payroll taxes to pay off the loans for the rich benefits they doled out in the recession and its aftermath. The lesson: Handouts from the feds are never free.

An even bigger surprise—even to supporters—is the tax cut's impact on revenue. Even with lower rates, tax revenues are up about 6% this year according to the state budget office. On May 6, Gov. McCrory announced that the state has a budget surplus of $400 million while many other states are scrambling to fill gaps.

The story gets better. Because North Carolina built in a trigger mechanism that applies excess revenues to corporate-rate cuts, the business tax has fallen to 5% from 6.9%, and next year it drops to 4%.

Lesson for Illinois

Tax cuts, workers' comp reform, and other business-friendly measures are the way to growth.

Instead, Illinoisans suffer from high taxes, untenable pension promises, inane union work rules, and workers' comp rules that collectively drive businesses away.

Worker's Comp Reform Dies in Illinois Senate

Let's put a spotlight on the need for workers' comp reform and why it's important for businesses in Illinois.

On May 29 Workers' Comp Reform Defeated in Illinois Senate.

An amendment to SB 997 filed by Senate GOP Leader Christine Radogno would finally address Illinois' causation standard under our worker's compensation law. Currently, the workplace could be less than 1% the cause of a worker's injury yet the employer is on the hook for all costs. Under Governor Rauner's plan, the workplace would have to be the primary cause, or 50% at fault, for the employees' injury.

The owner of a trucking firm located near the Indiana border testified that his work comp costs are $325,000 higher in Illinois than Indiana. The owner of a steel fabricator said he would save $106,000 in work comp costs if he moved to Indiana. A site selector, who works with businesses who want to either move or expand, said due to our work comp costs Illinois is always being cut from the short list of places to look at.

Despite these compelling arguments, Democrat members of the Judiciary committee vote against the bill mostly citing their concerns about the process and lack of vetting of the legislation.

Why Illinois Job Growth Lags

High taxes, demand for still more taxes, and inane work rules cause Illinois businesses to flee the state when they can.

Job growth lags precisely because Illinois is a poor state in which to conduct business.

The Illinois Policy Institute, Governor Rauner, and the National Federation of Independent Business (NFIB) want to address these issues.

Unfortunately, all reforms die in the same place: an Illinois legislature controlled by House leader Mike Madigan and Senate President John Cullerton.

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

Athens to Delay IMF Repayment; Greece Close to Approving Extended Servitude; Will Tsipras Survive?

Posted: 04 Jun 2015 11:03 AM PDT

Lesson in How to Answer a Question

Christine Lagarde said earlier today that she was "confident" Greece would make tomorrow's payment to the IMF.

Also today, when Alexis Tsipras was asked by reporters whether the installment would be made, the Greek prime minister replied: "Don't worry about that."

That was not a "yes" he simply said "don't worry about that", a technical non-answer.

Athens to Delay Payment

Yet moments ago, the Financial Times reported Greece to Delay IMF Repayment as Tsipras Faces Backlash.

Greece has notified the International Monetary Fund that it will not make a scheduled €300m loan repayment on Friday after opposition to a bailout compromise with creditors erupted inside the governing party.

Following a rarely used procedure permitted under IMF rules, the Greek government intends to bundle all the payments it owes in June totalling €1.5bn and transfer it at the end of the month.

"This move is almost unprecedented and based on Tsipras's comments yesterday unexpected," said Mujtaba Rahman, head of European analysis at the Eurasia Group risk consultancy. "It unnecessarily raises the stakes and will further undermine the goodwill of Greece's creditors."

Ever since an emergency summit meeting of EU leaders hosted Monday in Berlin by Angela Merkel, the German chancellor, eurozone officials have been concerned that many of the terms in a compromise plan hammered out by Greece's warring creditors would be unacceptable to Syriza.

Some eurozone officials believe Mr Tsipras will be forced to move to elections if he accepts creditors terms, which includes demands that Athens make public-sector pension cuts of 1 per cent annually starting next year. The pension measures, demanded by the IMF but resisted by the European Commission, were one of Athens' most important "red lines" in negotiations.

In a sign of how fraught the political situation had become for Mr Tsipras, he was forced to put off an expected second round of talks in Brussels with Mr Juncker to address his parliament on Friday night.

Tsipras Cave-In

In spite of all rants by Alexis Tsipras about dignity and unreasonable demands, it now appears the Greek prime minister is willing to extend Greek servitude to the despised Troika.

In the wake of the reported cave-in, Greek Left Vents Fury at Creditors.

Leftists in Prime Minister Alexis Tsipras' party vented fury on Thursday at terms proposed by Greece's creditors for a last-ditch deal to stave off bankruptcy and European officials acknowledged that large gaps remain to be bridged.

Tsipras emerged from late-night talks with senior EU officials in Brussels saying a deal with international lenders was "within sight" and that Athens would make a crucial payment due to the International Monetary Fund on Friday.

But he rejected pension cuts and a tax rise on electricity that he said European and IMF creditors were demanding along with other conditions to win the release frozen loans and avert a default that could hit euro zone and world markets.

The lenders were demanding that Greece reduce spending on pensions by 1 percentage point of gross domestic product and raise a further 1 percent or 1.8 billion euros ($2 billion) by increasing value-added tax on products ranging from drugs to electricity, the sources told Reuters.

Dijsselbloem said the meeting that ended after midnight had narrowed down the remaining issues but differences were "still quite large" and Athens was expected to present alternatives to some of the lenders' proposals within days.

An EU source said Tsipras could return to Brussels for further talks as soon as late Friday night, possibly along with top IMF and ECB officials.

A Greek official said Tsipras would brief parliament on the state of the negotiations in Athens at 1500 GMT on Friday.

In one concession, the lenders were offering to unlock 10.9 billion euros in unused bank bailout funds that would enable Greece to cover its financial needs through July and August - more than the 7.2 billion euros left in the expiring bailout.

Key to the Deal

Assuming there is a deal, the last paragraph likely explains why. Unlocking €10.9 billion is actually a very huge concession by the creditors.

Of course, all it really does is give Greece enough money to pay them back. Add it to Greece's debt burden that it will need to pay back.

Even so, Greece will still need a third bailout package of at least €50 billion (See Third Greek Bailout? Another €53.8 Billion Needed?)

Greece already has an unsustainable overall debt load of €323 billion. But hey, let's go deeper in servitude to the tune of another €50-60 billion.

I really did not think it would play out with a third bailout, and it still might not.

A fresh deal means more debt servitude coupled with economic depression and higher taxes.

If such a deal is worked out, misery and despair in Greece still is not high enough. It will get there eventually, even if now is not the time. What can't be paid back, won't. The only question is timing.

Will Tsipras Survive?

Questions still abound. Will Tsipras call a vote of confidence? If So, will he survive the vote?

Pin the Blame

Is it possible this is nothing but a negotiating tactic by Tsipras hoping Syriza will turn down the deal, taking blame off him personally.

And should it play out that way, it's likely that was his "pin the blame" game all along.

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

Nonfarm Productivity Collapses Greater Than Expected 3.1%, Unit Labor Costs Rise 6.7%; Transitory Weakness?

Posted: 04 Jun 2015 09:42 AM PDT

Economists overestimated Q1 productivity and underestimated Q1 unit labor costs in spite of blaming the weather and the port strike as transitory weakness.

Let's take a look at Bloomberg Consensus Estimates for Productivity and Costs.

The grinding halt that the economy came to the first quarter pulled nonfarm productivity down by 3.1 percent and inflated unit labor costs by 6.7 percent. These are more severe than the initial data released a month ago where productivity was pegged at minus 1.9 percent and unit labor costs at plus 5.0 percent. Output as measured in this report fell 1.6 percent in the quarter at the same time that hours worked rose 1.6 percent. Adding to labor costs was a sharp 3.3 percent rise in compensation.

Looking year-on-year, productivity is on the plus side, though just barely, at 0.3 percent with labor costs more tame, at plus 1.8 percent. Should the second-quarter see the bounce as many suspect, productivity, compared to the first quarter, should improve and labor costs cool.

Productivity and Costs

Let's now turn our attention to the BLS Report on Productivity and Costs for Q1.

Nonfarm Productivity

Nonfarm business sector labor productivity decreased at a 3.1 percent annual rate during the first quarter of 2015, the U.S. Bureau of Labor Statistics reported today, as output declined 1.6 percent and hours worked increased 1.6 percent. (All quarterly percent changes in this release are seasonally adjusted annual rates.)
Unit labor costs in the nonfarm business sector increased 6.7 percent in the first quarter of 2 015, reflecting a 3.3 percent increase in hourly compensation and a 3.1 percent decline in productivity.

Manufacturing Productivity

Manufacturing sector labor productivity decreased 1.0 percent in the first quarter of 2015, as output decreased 1.1 percent and hours worked edged down 0.1 percent.
Productivity decreased 3.3 percent in the durable manufacturing sector and increased 1.5 percent in the nondurable goods sector.

Revisions

In the first quarter of 2015, nonfarm business productivity fell 3.1 percent, a greater decline than was reported in the preliminary estimate. The revised estimate reflects a 1.4 percentage point downward revision to output and a small downward revision to hours.
Unit labor costs were revised up as the result of a 1.2 percentage point downward revision to productivity and a 0.2 percentage point upward revision to hourly compensation.
In the manufacturing sector, productivity in the first quarter declined 1.0 percent, slightly less than the preliminary estimate. Unit labor costs increased 3.4 percent, rather than 2.7 percent as previously reported, due to a 0.9 percentage point upward revision to hourly compensation.

Transitory Weakness?

Output is lower, costs higher. This will hit bottom line profit margins.

Ben Bernanke says it's transitory. Christine Lagarde at the IMF sang the same tune today, likely confirming that it's not transitory.

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

Obama to Ask Secret Court to Revive Bulk Phone Collections; Illegal Dragnet Revived

Posted: 04 Jun 2015 12:21 AM PDT

Ink on the alleged Freedom Act is hardly dry, and the Obama Administration Will Ask Secret Court to Revive NSA Surveillance.

The Obama administration intends to use part of a law banning the bulk collection of US phone records to temporarily restart the bulk collection of US phone records.

US officials confirmed to the Guardian that in the coming days they will ask a secret surveillance court to revive the program – deemed illegal by a federal appeals court – all in the name of "transitioning" the domestic surveillance effort to the telephone companies that generate the so-called "call detail records" the government seeks to access.

The NSA stopped its 14-year-old collection of US phone records at 8pm ET on Sunday, when provisions of the Patriot Act that authorized it until that point lapsed. The government will argue it needs to restart the program in order to end it.

US officials did not say if the secret Fisa court will hear arguments from the newly established "amicus", who will be empowered by the Freedom Act to contest the government's contentions before the previously non-adversarial court. The Freedom Act permits the amicus to argue before the court in novel circumstances.

One of the leading congressional advocates for surveillance reform, Senator Ron Wyden, warned the Obama administration not to restart a program now roundly rejected by Congress and repudiated by a federal appeals court as illegal.

"I see no reason for the executive branch to restart bulk collection, even for a few months, and I urge them not to attempt to do so. This illegal dragnet surveillance violated Americans' rights for 14 years without making our country any safer, and the administration should leave it on the ash heap of history," Wyden, an Oregon Democrat and member of the Senate intelligence committee, told the Guardian on Wednesday.

Freedom Act Makes Snooping Worse

Wyden is correct about the illegal dragnet, so why did he foolishly revive the patriot act in any form? Is he as dumb as he now sounds, or is this an act?

Ron Paul has the right idea. He says Freedom Act Will Make Snooping Worse.

Passing the Freedom Act did not reform government snooping, so much as it made it legitimate, according to three-time presidential candidate Ron Paul. He asserts that Democrats and Republicans alike seek to reduce liberty for a promise of security.

"One thing in Washington, when they have the 'reform' of something, you cannot trust them, because reform usually means they're making things a lot worse," Ron Paul told Larry King on Politicking, Tuesday evening. "I think the reform act is a very, very dangerous thing. It's not a slight improvement, as some people argue."

A federal court ruled that Section 215 of the Patriot Act did not authorize bulk data collection, whereas the Freedom Act contains provisions to actually give the government that authority.

King brought up that in 1937, Nazi Germany abolished warrants, with Hitler saying that innocent people had nothing to hide. Many Germans found this position appealing.

"It appeals to a lot of Americans right now," said Paul. "I hear it all the time. It's scary."

Phony Reforms

Simon Black on the Sovereign Man Blog chimes in with It's Official: The USA Freedom Act Is Just As Destructive As The USA Patriot Act

U-S-A-F-R-E-E-D-O-M. Hooray!

And without fail, the media has bought in to the myth, praising the government for heralding in a new era of liberty with headlines like "Congress Reins In NSA's Spying Powers" and "NSA phone program doomed as Senate passes USA Freedom Act".

Unfortunately this is simply not the case. And shame on the mainstream media for making such thinly-researched, fallacious assertions.

If anyone had actually taken the time to read the legislation, they'd see that most of the 'concessions' made by the government are entirely hollow.

For example, the Inspector General (IG) of the United States is required to issue a report discussing what civil liberty violations may have occurred over the last few years.

Great. Except that IG reports are just that– reports. They have no teeth. And Congress can do with this one precisely what they do with every other IG report that gets issued: nothing.

Fake Patriots

Each and every day the government chips away at our freedom. Media parrots as well as fake patriots slurp it down like a cold brew on a hot summer day.

The sheep don't even realize they were fleeced.

There was not a damn thing patriotic about the Patriot Act, and the Freedom Act is 100% guaranteed to make us less free.

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