Central Perk

duminică, 21 noiembrie 2010

Mish's Global Economic Trend Analysis

6 New Governors Seek to Kill Defined Benefit Plans; 8 of 9 CA Cities Vote to Reduce Benefits; Fraudulent Promises (and what to do about them)
Irish Citizens Sold Down the River in "Firepower of Stupidity"
Following the Path of Japan and the Madness of Bernanke Fighting Just That

6 New Governors Seek to Kill Defined Benefit Plans; 8 of 9 CA Cities Vote to Reduce Benefits; Fraudulent Promises (and what to do about them)

Posted: 21 Nov 2010 07:10 PM PST

Defined benefit pension plans are in trouble across the country, but politicians in states like Arizona and Illinois are reluctant to tackle the problem. Voters across the country however, have taken matters into their own hands by refusing to agree to tax hikes and by voting to reduce benefits.

In California, voters in eight of nine cities or counties approved measures to reduce public-pension benefits. Moreover, six new governor-elects want to kill defined benefit plans.

Finally, the speaker of the House in Arizona wants a constitutional amendment to lower pension benefits.

Arizona Central covers these issues and more in a pair of articles. Let's start with a look at Pension reform a difficult task.

The Arizona Legislature's incoming House speaker and Senate president said lawmakers can go only so far to slow the rate of growth for the state's pension systems, which an Arizona Republic analysis found cost taxpayers $1.39 billion last year, a 448 percent increase from a decade ago.

These rising taxpayer costs, coming at a time when state and local governments have cut services to balance their budgets, have been driven in part by the pension trusts' investment losses during the market downturn but also by ongoing pension-benefit improvements and efforts to hold down costs for employees themselves.

"It's time we get serious about reforming the public-pension systems," said House Speaker Kirk Adams, R-Mesa. "But if we are going to have any fundamental change, the voters will have to get involved."

Adams said he would work to get the Legislature to have voters in 2012 change the state Constitution, which prohibits benefits from being diminished for those in the public-pension systems. Adams said he has yet to get support from the Republican-controlled Senate or Gov. Jan Brewer, a fellow Republican.

In 1998, the intent of the measure was to protect public-pension trust funds, which had surpluses at the time, from being raided by lawmakers in the event of lean budget times. Since then, the pensions have not been touched by lawmakers.

In a significant indication of change, six newly elected governors in Alabama, Nevada, Pennsylvania, Tennessee, Wisconsin and Rhode Island have suggested that they want to amend their states' pension systems to 401(k) plans similar to the private sector's, said Stephen Fehr, a pension expert for the Pew Center on the States. The center is a non-profit policy-advocating group.

"They want to shift away from guaranteed pensions," Fehr said.

Even in states with strong labor unions, such as California and Illinois, action has been taken, Fehr noted.

Voters in eight of nine California cities and counties approved measures during the recent election to cut public-pension benefits. In addition, Fehr said, more than 40 suburban communities in Chicago approved a ballot question that called on the Illinois Legislature to reduce benefits for future state workers.

Arizona House Speaker Kirk Adams Proposes Constitutional Amendment

There is much more in the article, please give it a look. Also consider House speaker unveils sweeping plans

Adams plans next session to ask lawmakers to:

- Eliminate the Deferred Retirement Option Plan for public-safety officers. This program costs tens of millions of dollars, providing lump-sum payments to police and firefighters who agree to defer retirement for up to five years and stay on the job.

- Prohibit public employees from retiring and returning to work. The practice of "double-dipping" reduces contributions to the pension systems by millions of dollars.

- Prohibit public officials convicted of crimes related to official duties from receiving pensions.

- Eliminate the pension system for elected officials and move judges who are in that plan into the larger Arizona State Retirement System. Pensions for elected officials are the best in the state.

- Change the state's pension plans, which have guaranteed payouts, to 401(k)-type systems.

- Refer a constitutional amendment to voters in 2012 to allow pension benefits to be reduced. A provision in the Arizona Constitution prohibits benefits from being diminished.

Fraudulent Promises Need Not Be Kept

Many will say we cannot renege on promises. The reality is those promises are invalid because they came about as a result of fraud. Politicians got into bed with public unions by making promises they knew they could not keep, in return for endorsements from unions to get elected.

The entire vote-buying process by unions is fraudulent. No one represented taxpayers, even though public workers are supposed to be public servants.

It is not at all wrong to take away promises made via fraudulent vote buying, influence peddling, and bribes. The same applies to public union wages as well.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Irish Citizens Sold Down the River in "Firepower of Stupidity"

Posted: 21 Nov 2010 04:32 PM PST

Today the Irish Government sold its citizens into debt slavery by agreeing to guarantee stupid loans made by German, British, and US banks. Those loans fueled one of the biggest property bubbles in the world. Ireland has since crashed.

Ireland Agree To Bailout

Please consider Ireland Seeks Bailout as 'Outsized' Problem Overwhelms Nation

Ireland applied for a bailout to help fund itself and save its banks, becoming the second euro member to seek a rescue from the European Union and the International Monetary Fund.

Irish Prime Minister Brian Cowen said he expects talks on the package to be completed in the "next few weeks." Finance Minister Brian Lenihan said the loan will be less than 100 billion euros ($137 billion), though he refused to give any further details at a press conference in Dublin today.

"A small sovereign like Ireland faced with an outsized problem that we have in our banking sector, cannot on its own address all those problems," Lenihan said. Ireland may not draw down on the entire loan, he said.

While Ireland may not fully use any cash it gets from the EU and IMF, Lenihan said the size of the package "is important to demonstrate" the "firepower that stands behind the banking system."

The Irish turmoil has also reopened tensions about the governance of the euro region after German Chancellor Angela Merkel last month called for bondholders to foot more of the bill of European bailouts. Her stance, criticized European Central Bank President Jean-Claude Trichet, sparked a bond market selloff.

Bondholders Should Foot Entire Bill

Trichet is pissed about common sense statement by German Chancellor Angela Merkel about who should foot the bill. Actually, Merkel did not go far enough. When you make stupid loans you pay the price. Or at least you should.

But no! Trichet as well as the Irish Prime Minister seem to think that Irish taxpayers should bail out the Irish banks (which is in reality a bailout of German, and UK banks that made piss poor loans to Ireland).

Why the average Irish citizen should have to bail out foreign bondholders is beyond me, but I do note that the same happened in the US with taxpayers footing an enormous bill for Fannie Mae, Freddie Mac, and AIG.

No matter what stupid thing banks do, prime ministers and presidents are all too willing to make the average taxpayer foot the bill for the mess. That by the way,is one reason why we get into these messes in the first place.

For a full text of the actual bailout agreement, please see Government statement on request for support. I must say it is pretty boring lacking in details.

Firepower of Stupidity

Finance Minister Brian Lenihan bragged about the "firepower that stands behind the banking system." Yes there is firepower alright, a firepower of stupidity.

Wikipedia notes the population of Ireland is approximately 4.35 million. Going into debt to the tune of $137 billion would saddle the average Irish citizen with $31,494.

How long will it take to pay that back? For whose benefit? Perhaps a better question is will it be paid back?

By agreeing to take on that debt, and sticking it to the Irish taxpayers who will be forced to accept various austerity measures to pay back that debt, Irish Prime Minister Brian Cowen and Finance Minister Brian Lenihan just sold Ireland down the river.

For additional insight on how the crash affects Ireland, please see Ghost Estates and Broken Lives: the Human Cost of the Irish Crash

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

Following the Path of Japan and the Madness of Bernanke Fighting Just That

Posted: 21 Nov 2010 01:13 AM PST

I have been saying for 5 years the US would follow the path of Japan. An interesting chart in the New York Times shows this is indeed what has happened.

click on chart for sharper image

Following Japan's Path, So Far

In the United States, the core consumer price index, which excludes food and energy prices, rose 0.6 percent in the 12 months through October. That was the smallest 12-month gain since government calculating the figure in the 1950's. The chart shows the 12-month changes in core CPI for the US and Japan, in the years before and after housing prices peaked in each country.

The above chart and commentary is from After the Fed's Action, Watching Inflation's Trajectory

Since the collapse of the housing market in the United States and the beginning of the global financial crisis, the Federal Reserve has made avoiding deflation a major priority, recalling the experience of Japan after its bubble burst in the early 1990s. The Fed has set an annual inflation target of 2 percent or a little lower, but is not getting it.

The latest figures, released this week, showed that overall inflation in consumer prices was 1.2 percent in the 12 months through October, while the core inflation rate — excluding food and energy — rose just 0.6 percent. The previous low for that index, of 0.7 percent, came in the 12 months through February 1961, when the economy was in recession.

As the accompanying chart indicates, the core inflation figures are charting a path roughly similar to one shown in Japan 15 years earlier. That has been true despite a much stronger reaction by the American central bank, which was determined not to make the same mistakes the Japanese made.

This week, a group of Republicans proposed to change the Fed's dual legal mandate, which calls on it both to keep inflation tame and to fight unemployment. "It's time to return the Federal Reserve to the singular mission of protecting the fundamental strength and integrity of the dollar," said Representative Mike Pence of Indiana, a Republican and chief sponsor of the proposal.

There are times when the dual mandate seems contradictory, but this is not one of them, and it is unlikely the Fed would change course if it had a single mandate.

Major Disagreements With Times Article

Although I agree with the premise "we have been following the path of Japan", I sure disagree with the undertones that the Fed can or should do something about it.

Japan is now in debt to the tune of 200%+ of GDP. It build bridges to nowhere hoping to cure deflation. It is madness. All Japan has to show for massive fiscal stimulus is debt.

Moreover, as soon as Japanese interest rates spike to 3% or so (Something guaranteed to happen, we just don't know when), Japan's interest on its national debt will exceed all income.

This is the path the US is heading down unless we change course. Yes it will be painful, but after a world record housing party it is the height of foolishness to think there will not be a massive hangover as a huge price to pay.

It is startling that Paul Krugman and other Nobel prize winning economists cannot see the foolishness of proposing we can spend our way to prosperity. Ironically, the average 12th grader can see the foolishness of it, but the average academic professor cannot.

Unfortunately Congress (both Republicans and Democrats) have been unwilling to deal with the issue as well.

Republicans Need to Admit US Cannot Afford to be World's Policeman

Regardless of what Republicans may think, we can no longer afford to be the world's policeman.

For details please see Cost of War Since 2001; Federal outlays and revenues, 1940-2015.

Democrats Need to Admit Problem with Public Unions

States are bankrupt because of pension promises that cannot and will not be met. Public unions have destroyed states and municipalities.

State pension plans are $3 trillion in the hole. For more details, please see Interactive Map of Public Pension Plans; How Badly Underfunded are the Plans in Your State?

Thus, no matter what Democrats think, we cannot afford our love affair with public unions, union wages, and most importantly, union benefits.

Both parties need to rework the healthcare bill so that it contains provisions that will actually encourage lower costs and not damage small businesses. The bill as it sits made matters worse.

Search for Scapegoats Avoids the Truth

Somehow, some way, if you listen to Treasury Secretary Geithner and economist Paul Krugman, all of these problems are supposed to go away if only China would float the Yuan.

Well none of this will go away as long as the US looks for scapegoats instead of admitting reality. That reality is we are on the road to bankruptcy and neither Keynesian nor Monetarist stimulus will help.

Our problems are structural in nature and everyone needs to admit there will be no quick solutions and we cannot spend our way out of this mess. The only thing that can put the US back on track is fiscal prudence and sound monetary policy. Unfortunately, no one wants to hear the truth.

Madness of Bernanke

Bernanke wants prices to rise 2% a year. One problem is he does not count food, energy, or housing. Although OER (Owners Equivalent Rent) is the largest component of housing, rent and housing prices are two different things. Property taxes and sales taxes are yet another thing, and those are not factored into the CPI either.

We are clearly following the path of Japan, especially if we include an analysis of housing and equity prices including the Nasdaq. Yet to the pocketbook of the average US citizen, costs are going up, wages and benefits are going down (except of course for Wall Street and public employees).

Bernanke Doubly Wrong

Regardless of what your position is regarding measuring inflation (prices or credit-based), Bernanke is horrendously wrong.

It is sheer madness in a world of global wage arbitrage, where 14 million are unemployed, where the unemployment rate is close to 10%, to pursue a policy of attempting to force prices up, to meet some asinine idea that prices need to rise 2% a year, when to the perspective of the average consumer prices are going up much more than that, via taxes alone, let alone the grocery store and gasoline pump.

Berkanke's policies are just as mad from the perspective credit. In a fiat credit-based regime, there will be no significant sustainable hiring or economic growth when consumer and business credit is collapsing. Net credit creation has been negative for 10 quarters. Bernanke is attempting to stimulate lending, and the Fed can print all the money it wants. However, the Fed cannot force banks to lend or consumers to borrow.

For now, Bernanke's efforts have caused rising commodity prices, which is hurting small businesses that cannot pass on those price increases because consumers are tapped out. The net effect of the policies of this Fed and this administration is small businesses are getting crucified in a price squeeze.

Thus, whether you view inflation from a price perspective, or from the proper perspective of credit expansion, Bernanke is simply wrong. His policies have failed.

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

Seth's Blog : The market has no taste

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The market has no taste

When it comes to art, to human work that changes people, the mass market is a fool. A dolt. Stupid.

If you wait for the market to tell you that you're great, you'll merely end up wasting time. Or perhaps instead you will persuade yourself to ship the merely good, and settle for the tepid embrace of the uninvolved.

Great work is always shunned at first.

Would we (the market) benefit from more pandering by marketers churning out average stuff that gets a quick glance, or would we all be better off with passionate renegades on a mission to fulfill their vision?

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sâmbătă, 20 noiembrie 2010

Mish's Global Economic Trend Analysis

Sunday Funnies 2010-11-21 Dual Mandate
San Diego Mayor Proposes Eliminating City Pensions; Public Union Concessions a New Trend
China Renews Attack on Bernanke for Asset Bubbles, Imported Inflation, Excessive Printing; US$ About to Lose Reserve Currency Status?

Sunday Funnies 2010-11-21 Dual Mandate

Posted: 20 Nov 2010 10:23 PM PST

Honey about your dual mandate ...

The above is in response to the dual mandate of the Fed to produce price stability and maximum employment. The Fed has failed at both.

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

San Diego Mayor Proposes Eliminating City Pensions; Public Union Concessions a New Trend

Posted: 20 Nov 2010 03:03 PM PST

After citizens of San Diego voted overwhelmingly against raising taxes to cover deficits, the Voice of San Diego reports Mayor Proposes Eliminating City Pensions

As time runs down in San Diego Mayor Jerry Sanders' tenure, his proposals to solve the city's financial crisis are becoming more drastic. This summer, he embraced a tax hike. Friday, he proposed 401(k)-style retirement accounts for most new city employees, and in turn, eliminating their pensions.

Staring him and everyone else in the face is a $70 million-plus ongoing deficit, one that neither a tax increase or a pension elimination will fix. The tax hike won't work because voters said no. The pension elimination, which also needs voter approval, won't save any money for years and wouldn't go on a ballot until next year at the earliest.

Sanders has two more years to solve the financial problem he was elected to fix. Friday, he recommitted to the task.

"I won't pass the structural deficit on to the next mayor," Sanders said.

Details of how the new 401(k) plan would work are sparse. Sanders said it would exempt police officers and firefighters. He didn't say how much it would save, just millions.

While I wholeheartedly endorse the idea of eliminating defined benefit pension plans for public employees, the mayor simply refuses to admit the truth. You cannot balance the budget responsibly unless and until police and fire unions aid in the effort.

Politicians Padding Their Own Pensions

Please consider Reform to Politicians' Pensions Could Go Further

The U-T ran the numbers last week. To fund council members' pensions, $29,700 must be paid into the retirement fund annually. Now, they contribute $2,400 toward that amount and taxpayers pay the rest. With the Prop. D reform, the amount would increase to $6,800. If the cap is eliminated, which the council can do, the council members would be paying nearly $15,000 each year.

Politicians own pension contributions rarely reached the radar until Prop. D came along over the summer. Since then, it's become an example of the effectiveness of Councilman Carl DeMaio, the most outspoken Prop. D opponent, in hammering on an issue. He has been discussing the politician pension cap for months, and it has gained traction.

No One Speaks for the Taxpayer

The biggest problems with public pensions is no one speaks for the taxpayer. The sad state of affairs is that mayors buy votes of the teachers, police, and fire unions to get reelected. Then they create outlandish pension plans for themselves, funded by taxpayers.

Voters in San Diego finally had enough. Citizens Rejected Proposition D by a margin of 63-37.

San Diego voters gave a stiff rebuke to city leaders Tuesday by roundly rejecting a proposed sales tax increase, setting up a difficult choice for Mayor Jerry Sanders on whether to follow through on his threat of devastating cuts to public safety if Proposition D failed.

The ballot measure would have increased the city's sales tax by a half-cent on the dollar for the next five years, but it fell well short of topping the 50 percent threshold for passage. The measure was receiving 37 percent support with nearly two-thirds of the returns in at 12:30 a.m.

Amid sweeping anti-tax sentiment that propelled Republicans into office across the nation, local voters also rejected a property tax for San Diego city schools, a utility tax in Chula Vista and a fee for state parks.

Public Union Concessions a New Trend

Meanwhile please note the start of a trend. City after city is starting to address these issues. They have to. The economy finally forced it. Expect to see major concessions by public unions in big and small cities alike as taxpayers and voters everywhere have had enough. Voters are fed up with a national unemployment rate close to 10%, with 14 million unemployed, with seeing their property taxes go up, even as the value of their homes collapse, topped by public union pension guarantees the average person can only begin to dream about.

It is high time mayors of cities big and small stand up for taxpayers and not for unions who contribute to their election campaigns. The inequities must stop, and they will. Mayors who do not understand the economics and the anger of voters will soon be out of office.

Although I applaud the mayor's move in the right direction (finally), there is much more to this story that shows how disingenuous mayor Jerry Sanders is. I will do a followup post shortly that will prove it.

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

China Renews Attack on Bernanke for Asset Bubbles, Imported Inflation, Excessive Printing; US$ About to Lose Reserve Currency Status?

Posted: 20 Nov 2010 09:38 AM PST

G-20 is over but the acrimony is not. Bloomberg reports China Assails Monetary Easing, Citing Inflation, Bubble Risks

China renewed an attack on quantitative easing, citing the risk of increased prices in emerging economies, a day after the Group of 20 nations said the markets can adopt regulatory steps to cope.

China "doesn't support" the monetary easing that causes "imported" inflation in developing countries, Commerce Minister Chen Deming told a forum today in Macau, a Chinese special autonomous region. The capital inflows increase the risk of "asset bubbles," Jin Zhongxia, deputy director general of the international department at the People's Bank of China, said at the same forum.

"Major reserve-currency issuing countries excessively print money to get out of their own economic difficulties, posing a policy dilemma for emerging economies," Jin said in Macau today, without naming any countries. "That will impose greater pressure on capital inflows, bigger bubbles in asset markets and inflationary pressure."

Capital flows into emerging markets are running at $575 billion a year, 20 percent higher than before the world financial crisis, Goldman Sachs Group Inc. said in September. The U.S. dollar has weakened over the past three months against all 16 major market currencies tracked by Bloomberg.

Steps to impose restrictions on capital have increased as emerging-market currencies strengthened, with Brazil's real climbing 21 percent against the dollar in the past 18 months, Chile's peso up 18 percent, Thailand's baht rising 16 percent and South Korea's won appreciating 10 percent.

China plans to boost cross-border yuan-denominated trade with other countries 10-fold to 20 percent of total trade, or more than 2.5 trillion yuan, to reduce reliance on a few reserve currencies, Jin said, without specifying a target date.

More Regional Yuan Trading Proposed

Echoing the sentiment of Jin Zhongxia, Thailand calls on Asia to use yuan in trade.

Prime Minister Abhisit Vejjajiva, fearful of the effects of the soaring baht due to massive capital inflows, has proposed the use of the Chinese yuan as a major regional trading currency.

"The G20 did not make any progress on the matter and it is difficult to get the United States and China to express their clear stances on the issue. But what we can do is try to cooperate in the region and reduce the impact from currency volatility," Mr Abhisit said before leaving for the Asian Games in China and an Asia-Pacific Economic Cooperation (Apec) leaders' meeting in Yokohama, Japan, this weekend.

Only vague "indicative guidelines" were set for measuring imbalances between their multi-speed economies. Leaders called a timeout to let tempers cool and left details to be discussed in the first half of next year.

Mr Abhisit echoed a call made by the Asian Development Bank (ADB) to use China's yuan as a major trading currency in the region to reduce the impact of currency volatility, especially linked to the weakening of the US dollar. He said he was the one who proposed the idea to the ADB.

Donald Tsang, chief executive of the Hong Kong Special Administrative Region, said the regional private sector should brace for high volatility in the currency and securities markets as economies were increasingly linked.

The most pronounced problem to result from capital inflows, stemming from US funds seeking returns in Asia, would be an unsustainable rise in asset prices, Mr Tsang said.

"The imbalance is unique. I have never seen it in my working life," he said.

An Attack on US$ Hegemony?

Is this the start of a the Yuan as a reserve currency? China may want that, but it hard to take China serious unless and until it is willing to float the Yuan.

The irony in the proposal by Jin and Abhisit is they are proposing a reserve currency that is still tied to the dollar.

Moreover, there are other several constraints, but first consider this UN proposal.

UN Proposes to Scrap Dollar as Sole Reserve Currency

A UN Report says Scrap dollar as sole reserve currency.

A new United Nations report released on Tuesday calls for abandoning the U.S. dollar as the main global reserve currency, saying it has been unable to safeguard value.

But several European officials attending a high-level meeting of the U.N. Economic and Social Council countered by saying that the market, not politicians, would determine what currencies countries would keep on hand for reserves.

"The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency," the U.N. World Economic and Social Survey 2010 said.

The report says that developing countries have been hit by the U.S. dollar's loss of value in recent years.

"Motivated in part by needs for self-insurance against volatility in commodity markets and capital flows, many developing countries accumulated vast amounts of such (U.S. dollar) reserves during the 2000s," it said.

The report supports replacing the dollar with the International Monetary Fund's special drawing rights (SDRs), an international reserve asset that is used as a unit of payment on IMF loans and is made up of a basket of currencies.

"A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency," the U.N. report said.

Russia and China have also supported the idea.

But Paavo Vayrynen, Finland's Foreign Trade and Development Minister, told reporters that he doubted it was possible "to make any political or administrative decisions how to formulate the currency system in the world."

The Market Dictates Reserve Currencies

Short of reestablishing gold as a mechanism for forcing trade balances to be kept in sync, the whole idea of establishing new reserve currencies by decree or agreement is potty.

How can you dictate what currencies a country should hold, or if they hold any at all? Does one size fit all? Look at the acrimony out of G-20. Think there is going to be an agreement on using SDRs?

Reserve currencies cannot be set by decree or even by agreement. There are market constraints and mathematical constraints.

Function of Math

Some maintain that commodities are priced in dollars so dollars must be held.

Nonsense. To the extent that countries trade with each other and not the US, there is no need to hold dollars at all. The Yen is freely convertible to dollars so is the Euro. One does not need dollars to buy oil or copper. Currencies are fungible.

With a couple mathematical caveats, any country is free to hold whatever it wants.

One mathematical constraint is there are not enough New Zealand dollars (or Australian dollars or Canadian dollars, etc) to go around for everyone to expect to buy oil in any of those currencies.

However, there are enough New Zealand dollars to go around to support all existing trade with New Zealand.

Why Are Countries Piling Up US$?

The second mathematical constraint relates to trade imbalances. The US runs a trade deficit as well as a budget deficit partially financed by foreigners. Our dollars go overseas, month after month, year after year. The reserves pile up over time as a function of basic math.

To the extent Asian countries trade with China, then sure, a buildup of Yuan reserves is possible. However, given the US trade deficit dwarfs the trade deficit of every other country, it will be tough mathematically to make a dent in the buildup of US dollar reserves relative to other reserves.

Sure there will be periods of fluctuations in reserves are there are now, but the trend towards higher reserve levels is essentially mathematically forced by trade imbalances.

In addition to trade imbalances, one must also factor in hot money inflows of US$ into China, Brazil, and other places. Those countries hold reserves to accommodate an eventual exodus of hot dollar inflows. That is the third constraint.

Note that Bernanke's QE has had such an impact that countries are resorting to capital constraints to stop the inflight of dollars.

Mathematically, whoever has the biggest trade deficit and hot money outflows on a sustained basis will see the biggest amount of reserves pile up elsewhere. It's as simple as that. Thus, all this talk about SDRs and using the Yuan or the Yen as major reserve currencies is complete silliness.

As it stands now, any reserve currency changes will be dictated by math, not decree.

Want to cure global trade imbalances? It's quite easy. Go back to the gold standard and have the political will to balance the budget. Nothing else will work.

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

Seth's Blog : Groping for a marketing solution: TSA and security theater

[You're getting this note because you subscribed to Seth Godin's blog.]

Groping for a marketing solution: TSA and security theater

There's plenty of controversy about the new full body scanners that the TSA is installing at airports, and plenty more about the way some TSA agents are handling those that choose to opt out.

The heart of the matter comes from the fact that the TSA often doesn't understand that it is in show business, not security business. A rational look at the threats facing travelers would indicate that intense scrutiny of a four ounce jar of mouthwash or aggressive frisking of a child is a misplaced use of resources. If the goal is to find dangerous items in cargo or track down Stinger missiles, this isn't going to help.

Instead, the mission appears to be twofold:

1. Reassure the public that the government is really trying and

2. Keep random bad actors off guard by frequently raising the bar on getting caught

The challenge with #1 is that if people believe they're going to get groped, or get cancer, or have to wait in line even longer on Thanksgiving, they cease to be on your side. Particularly once they realize how irrational it is to try to stop a threat after it's already been perpetrated. (Imagine the havoc if someone had a brassiere-based weapon...)

And the challenge of #2 is that the cost of raising the bar gets higher and higher.

Smart marketers know how to pivot. I think it's time to do that. Start marketing the idea that flying is safe, like driving, but it's not perfect, like driving. If someone is crazy enough to hurt themselves or spend their life in jail, we're not going to stop them, and even if we did, they'd just cause havoc somewhere else. So instead of spending billions of dollars a year in time and money pretending, let's just get back to work.

The current model doesn't scale.

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Your Weekly Address: New START Treaty "Fundamental" to Security

Your Daily Snapshot for
Saturday Nov. 20, 2010

Your Weekly Address: New START Treaty "Fundamental" to Security

The President says ratifying the New START, a pivotal treaty with Russia on nuclear weapons, must happen this year. He explains that failure to ratify the treaty this year would not only mean losing our nuclear inspectors in Russia, but also undermine the international coalition pressuring Iran, put at risk the transit routes used to equip our troops in Afghanistan, and undo decades American leadership and bipartisanship on nuclear security.

Watch the video.

Weekly Wrap-Up

A quick look at the week of November 15, 2010:

Quote: “It is in these labs -- often late at night, often fueled by a dangerous combination of coffee and obsession -- that our future is being won,” said President Obama during the presentation of the National Medals of Science, Technology and Innovation, “For in a global economy, the key to our prosperity will never be to compete by paying our workers less or building cheaper, lower-quality products. That's not our advantage. The key to our success -- as it has always been -- will be to compete by developing new products, by generating new industries, by maintaining our role as the world’s engine of scientific discovery and technological innovation. It’s absolutely essential to our future.” VIDEO: http://wh.gov/OrI

Your West Wing Week: “I Really Like this Guy.” VIDEO: http://wh.gov/OaI

On the White Board: In the newest installment of the White House White Board series, Austan Goolsbee discusses the American Auto industry’s comeback. VIDEO: http://wh.gov/Oav

Behind-the-Scenes Pictures: The White House photo office and Pete Souza bring you October in photos. SLIDESHOW: http://wh.gov/Or8

Success Story: President Obama on GM. VIDEO: http://wh.gov/OaK

Official Arrival Ceremony: The President visits Lisbon, Portugal to meet with NATO allies. http://wh.gov/OrY

Vice President Biden: It Gets Better: Vice President Biden’s message to young people that are bullied because of their actual or perceived sexual orientation. VIDEO: http://wh.gov/Oxk

Equal Rights: New rules require equal visitation rights for all patients, including same-sex domestic partners. http://wh.gov/OOs

Must Have Apps: Our top ten picks for government mobile apps. http://wh.gov/OC9

National Entrepreneurs’ Day: The first-ever, part of a full-blown National Entrepreneurship Week. http://wh.gov/O1j

And the Medal of Freedom Goes To…:President George H.W. Bush, Warren Buffett and Maya Angelou, just to name a few. http://wh.gov/OOS

Ask Interior: The Department of the Interior launches a new online Q&A to answer your questions. http://bit.ly/bmsFAM

An American Hero: President Obama presents the Medal of Honor to Staff Sergeant Salvatore Giunta. VIDEO: http://wh.gov/O3n

It’s About National Security: The President and Vice President meet with nation security experts to discuss the New START treaty. http://wh.gov/OrW

6,200 Farmers Markets and Counting: Find your local farmers market, even design an app. http://bit.ly/9D8XU5

Equal Pay For Women: Lilly Ledbetter and leading advocates for women and girls discuss the Paycheck Fairness Act with President Obama. VIDEO: http://wh.gov/OrZ

Tuesday Talks: Talk to Nancy-Ann DeParle, Director of the White House Office of Health Reform, about health reform implementation on Tuesday, November 23rd. http://wh.gov/O15 And check out what you missed last week with the inventor of the digital camera and other recipients of the National Medals of Science, Technology and Innovation. VIDEO: http://wh.gov/OrR

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Seth's Blog : It's one thing to hear it...

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It's one thing to hear it...

It's another to do something about it.

Is there anything at all for which this isn't true?

Knowing the facts, the opportunity or even the process is merely a first step.

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vineri, 19 noiembrie 2010

Mish's Global Economic Trend Analysis

China Builds 15 Story Hotel in 6 Days
Michigan Forbids City of Hamtramck to Seek Bankruptcy; My Advice to Hamtramck: "Default"
Run on Allied Irish Banks, Customers Pull 17% of Deposits; Ghost Estates and Broken Lives: the Human Cost of the Irish Crash

China Builds 15 Story Hotel in 6 Days

Posted: 19 Nov 2010 05:00 PM PST

Inquiring minds should be interested in the deflationary aspects of the following video.

In terms of jobs, is that entertaining or frightening?

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

Michigan Forbids City of Hamtramck to Seek Bankruptcy; My Advice to Hamtramck: "Default"

Posted: 19 Nov 2010 12:02 PM PST

A few days ago I noted Hamtramck, Michigan Seeks Bankruptcy.

That Hamtramck is clearly bankrupt, unable to bay bills, saddled with unions salaries, pension promises that cannot be met, as well as other problems it desperately needs to get rid of without burdening taxpayers even more, is of no concern to the current governor of the state.

Please consider this updated report Michigan Forbids City To Seek Municipal Bankruptcy.

A spokesman for the Michigan state treasury said Thursday that municipal bankruptcy isn't an option for Hamtramck, the small city near Detroit that earlier this month asked the state for permission to file for the process.

No Michigan local government has ever filed for municipal bankruptcy, Stanton said, a rarely used tool that allows cities and other local governments to deal with creditors and extract concessions from its unions.

Instead, Michigan has offered Hamtramck, a city of 23,000 residents, three options.

One is a low-interest loan from the state for a maximum of $3 million, to be paid back over 20 years.

The second is a tax-anticipation note, or TAN, which would allow Hamtramck to borrow up to half of whatever it collects in property-tax assessments in a given year; it would have to be repaid in 12 months.

The third is a fiscal stabilization bond, which would let the city borrow up to 3% of its assessed value.

Bill Cooper, the city's manager, said that Hamtramck is currently evaluating the options the state gave it, but he is "not very optimistic these options will work for us" because "we don't need to take on any more debt."

"We have a survival deadline here," Cooper said, noting that, if things continue on the current course, Hamtramck could run out of money by Jan. 31 and be unable to make payroll or pay bills.

Cooper said the state's options essentially require Hamtramck to borrow more money, and much hinges on the city's ability to win its lawsuit against Detroit.

"It pushes the problem down the road," he said.

Meanwhile, getting the city's unions to negotiate has been a problem, as Hamtramck officials have already tried to work with them three times. Municipal bankruptcy could be a way to force concessions, Cooper said.

"It should allow us in essence to restructure," said Cooper, who added the city wouldn't want to be in bankruptcy a long time. "If major corporations can do it, why can't we give it a shot?"

Uncommonly Good Sense

I commend city manager, Bill Cooper, for a masterful display of common sense. Moreover, I point out the well-deserved election shellacking of Democrats as noted by the Lansing State Journal.

The national mood of voter unrest that swept through many states Tuesday played a large part in the shellacking Democratic candidates took in Michigan, when Republicans swept the governor, secretary of state, attorney general and state education board seats while winning control of the state House and a majority on the Michigan Supreme Court.

Advice for Hamtramck City Manager, Bill Cooper

My advice consists of one word "default". Who can stop you? The answer is no one. Let the incoming governor know that is how you intend to proceed.

Send the public unions a message that you will not be intimidated by the state. Explain to the taxpayers you are doing this for them. Let the city residents know if you take the Treasurer's options you would have to hike taxes and burden them with debt for decades to come.

That is all it will take to win their overwhelming support.

I am confident the new governor will be more sympathetic to your cause than the current clowns running the state. The good news is you only have a couple months to wait.

Finally, tell the current treasurer "No Deal", bargaining is over and you will deal with the new administration.

That's all it takes. Stand to your guns Bill Cooper. You have the upper hand as well as the high moral ground.

For the record, I have no financial interest related to my advice. My wife is from Livonia and I know first hand the problems of the state and of Detroit. I send the Citizens of Hamtramck best wishes.

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

Run on Allied Irish Banks, Customers Pull 17% of Deposits; Ghost Estates and Broken Lives: the Human Cost of the Irish Crash

Posted: 19 Nov 2010 09:51 AM PST

A slow steady bleed has turned into a mad dash for cash at Allied Irish Banks. Allied Irish Banks has had to rely on Central Bank funding as customers withdraw $18 billion, a stunning 17 percent of its deposit base. Without Central Bank funding, there would indeed be outright panic.

Forbes reports Allied Irish says it's lost 17 percent of deposits

Allied Irish Banks announced Friday it has lost a staggering euro13 billion ($18 billion), or 17 percent, of its total deposit base since June in the latest evidence of cash flight from Ireland's debt-crippled banking sector.

Earlier this month two other banks, Bank of Ireland and Irish Life & Permament, reported suffering losses of more than 10 percent of deposits in recent months.

The cash flight from Irish banks has accelerated since September, when the government raised its estimated bill for bailing out five banks to at least euro45 billion ($62 billion), a figure that many analysts said was still too low.

Officials at Allied Irish said the bank had euro74 billion in customer deposits at the end of June but just euro61 billion today.

Allied Irish was once Ireland's largest business, but it has suffered a spectacular fall since 2008 in line with the collapse of a construction-dependent economy.

Property Boon Gone Bust Sinks Ireland

Read that last paragraph above once again. Note that unlike Greece which was destroyed by public unions, it was a property bubble and irresponsible bank lending that sunk Irish banks.

Ghost Estates and Broken Lives

Inquiring minds are reading Ghost estates and broken lives: the human cost of the Irish crash

They stand empty across Ireland: 300,000 unoccupied homes, a silent reproach to those who built them believing that the country's economic boom would never end. As Europe's finance ministers laboured in vain to reach an agreement on how to ease Ireland's economic misery last night, the so-called ghost estates were an awful reminder that the "survival crisis" the politicians were warning was under way had already hit ordinary people.

Dave O'Hara was one of those who bought into the "Celtic Tiger" at the beginning of the decade, eschewing a seven-generation family tradition of carving headstones in favour of a piece of the country's building boom. He founded a firm that constructed bespoke windows and doors for the thousands of upscale homes being built. The firm grew into a multimillion-euro enterprise, until the recession – and the collapse of the building industry – hit in September 2008.

Now his company is in liquidation, and Mr O'Hara, 41, who has one child, is on the dole. He owes the Bank of Scotland more than 1m Euros (£850,000).

Not far from Mr O'Hara's home, the "ghost estates" are well-known eyesores along the rugged landscape. And the crisis that created them has hit not just the people who built them, but those who might once have expected to move in, as well. Hundreds of thousands of homeowners have already found themselves saddled with negative equity as a result of the crash, economists estimate, with as many as one in seven families affected.

Personal indebtedness is also an issue, as are redundancy and the end of easy loans, meaning around 100,000 households are struggling to make regular repayments on the money they owe. And yet, house prices continue to fall precipitously. Together with slumping disposable incomes due to frozen wages and stubbornly high unemployment, still running at more than one in every eight adults of working age, many fear a social disaster is unfolding.

Operating Profits Down

For a bank that is clearly bankrupt and exists only because of life support from the central bank, it is interesting to see the headline Allied Irish Banks says operating profits down

Allied Irish Banks (AIB) said today that challenging economic and market conditions are reducing operating profits overall, and in each of the divisions, relative to the same period in 2009. There has been an outflow of €13bn worth of of deposits in 2010.

Excluding Poland, the loan to deposit ratio at 30th September was 159% compared to 151% at 30th June.

The bank said customer accounts have been affected by current adverse international sentiment towards the Irish sovereign and banking sector and are down by c.€13bn from the beginning of 2010 to the close of business on 16 November. This reduction was primarily due to lower institutional and corporate balances.

Operating income has declined year on year to 30th September 2010, mainly due to lower business volumes, an increase in Government guarantee costs of c.€190m and a lower net interest margin. The bank said factors reducing its net interest margin this year include lower capital income, lower treasury income, lower income on loans pending transfer to NAMA and higher wholesale funding costs. AIB said it is continuing to improve margins across non-NAMA loan portfolios and deposit margins, particularly in the Irish market, have stabilised in recent months.

Irish Taxpayers "Namatized"

For more on the situation in Ireland please see Hooray,ECB Saves Eurozone 2nd Time;Allied Irish Bonds Bid at 45% of Face Value, Anglo Irish SubDebt has 99.99% Default Odds;Irish Citizens "Namatized"

Allied Irish Banks Weekly Chart

That's quite the trip from $45 to 72 cents to $10.42 then back down to 76 cents. Shares have rallied in recent days on rumors of a bailout of Irish banks by the ECB and IMF. See the previous link for details too numerous to repeat.

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

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