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miercuri, 25 ianuarie 2012

Comparing the Top 4 Retargeting Companies

Posted: 24 Jan 2012 01:23 PM PST

For the past year retargeting has been getting some serious attention. I've been fortunate enough to speak on it at a variety of shows, brainstorm over coffee with some cool companies and even blog about how to use it and how to leverage it for SEO. No matter who I am talking with or what the venue the number one question asked is "Who should I use for retargeting?"

Over the past two years some retargeting companies have really emerged as leaders. While we haven't used them all personally here at Moz, I thought it would be valuable to compare the companies in case any of our readers are considering retargeting. I really wanted to focus on what services each offer, what separates them from the pack and what they have planned for 2012. Luckily for us quite a few worked with us so we could really jump in with some great screenshots and specifics. For those that didn't reply to my tweet (ahem) or my email (double ahem) ... I tried to fill in best as I could based on my "research via the Web" skillz.

Okay let's get on with it. Below I compared the following companies;

AdRoll
Retargeter
Fetchback
Chango

If there is anyone you'd like to give feedback on that isn't on the list (or is for that matter) feel free to leave your thoughts in the comments!

Who are they?
Adroll has been around since 2007 rocking the display advertising world and pushing the limits on targeting capabilities. They have a hot shot team with decades of experience in optimization and creative strategy. They are based out of San Francisco, and have been making some serious waves in the retargeting space.

What do they offer?
On their basic plan they offer site retargeting with both contextual and behavioral targeting built in. They have a complete self-service interface, transparent conversion tracking, and excellent customer service.

How much do they cost?
Their Starter package has no minimum spend, if you are going to go with Plus (which gets you a dedicated account manager) you have to spend around 10k, and if you are going Pro with them (you get creatives, an engineer, and product development help) you need to be spending around 20k.

What's their secret sauce?
They are best known for their dashboard offerings and experienced team. They are truly focused on providing complete transparency into your campaigns (which a lot of other vendors are missing the mark on) and coupling it with lots of controls and options. Last year and the year before when many companies were still trying to make their platforms easy to use, AdRoll raised the bar by launching a platform chock-full of metrics and top-notch reporting options. AdRoll gets a lot of buzz because they are founded by targeting junkies who are striving to bring complex, sequence targeting capabilities to the masses. Impressive to say the least.

What's the downfall?
For those that are looking to do site retargeting this isn't really their bag. They focus mainly on retargeting and contextual targeting (which is targeting based on category of your site and similar sites rather than search query). I also think it's worth noting unless you are spending at least 5k a month in media spend you don't get a dedicated account manager, much creative guidance, or A/B testing capabilities. All of these are available at the Plus and PRO levels, but those come with higher spends. For those just starting out if you go with AdRoll you'll need to do a lot of those things yourself.

What's up for 2012?
When I asked AdRoll what they were working on they sent over a laundry list of specific action items they have set their sights on. I really appreciate the transparency. These include - focusing on making their UI even more friendly, making the dynamic creative opportunities easier to use, adding more reports to keep up their high bar of transparency, and continuing to grow the team so each advertiser has the attention they deserve.

Some screenshots for the curious cats out there...

AdRoll Campaign Manager
Excellent visibility into each ad's performance, and the data you need to succeed.

AdRoll User Tracking
Tons of options to help you intelligently build out audiences you can sequence.

You can tell from the screenshots that AdRoll has done a great job of making the data the heart of the platform. As they continue to add features it will be interesting to see how they keep the platform uncluttered and streamlined. I think it could prove challenging.

With that said, we currently use AdRoll and are loving the product and team. I think for the moderate to advanced paid marketer, AdRoll is a great option for retargeting. You have a robust product with an innovative team of minds behind it. Exciting to say the least.

Disclaimer: SEOmoz does currently use AdRoll for our search retargeting efforts.

Who are they?
ReTargeter was founded in 2009 by Arjun Dev Arora, and in three short years they have really made a name for themselves. While their roots are in site retargeting they spent the last year really branching out and now offer services around social retargeting and email marketing. They also have chosen to integrate closely with a number of other big-name products out there like KISSmetrics, and SlideShare. Also based in San Francisco, the ReTargeter team has big hopes for 2012.

What do they offer?
They have two main packages -- one for site retargeting and one that is mostly display focused for visitors that are targeted via demographics, location, or content verticals.

How much do they cost?
Both packages start at $500, and scale up from there based on the number of visitors you target and impressions you serve up.

What's their secret sauce?
Time and time again when you hear their name come up you hear they have amazing customer service. Arjun and his team are best known for being available and willing to help you out every step of the way. In fact, every client, regardless of their spend level, will have access to a dedicated Account Manager. They have taken leaps and bounds this past year in product, but their bread and butter is their dedication to account management. You can see this reflected in this awesome Thank You Letter their CEO issued at the end of 2011.

What's the downfall?
I've actually used ReTargeter in the past and enjoyed working with the team, however I did have pain points with the platform. They lacked transparency into the revenue model on their side which left me leery. I know they've worked hard over the past year to build transparency into the platform, but they still have a little ways to go here. I should also mention their pricing is a bit off-putting. While they only start at $500 (which is great) they scale up very aggressively. For a site that has 50k visits a month you are at the $2,500 range. For bigger sites, you better be ready to spend some serious coin to be working with ReTargeter.

What's up for 2012?
I asked ReTargeter what they will be focusing on and was happy to hear they are hoping to streamline their display and retargeting services into one platform, for targeting multiple devices. Companies have told them how exasperated they are working with multiple online partners, dashboards, etc. and they are planning to give that issue some serious time this year. I, for one, and super excited to hear this. I know we see this quite a bit internally and we are always look for ways to be more efficient in our channel management.

Okay here is some dashboard eye candy for you (please note this is there "soon-to-be" released dashboard):

ReTargeter Campaigns Manager
This is a great summary view, I wish there was some more cost data in there though.

Retargeter Campaign Insights
It's nice to see the different reporting and view options.

Who are they?
The Fetchback guys have been around since 2007 under the direction of Chad Little. They've been growing the brand steadily with lots of great content and conference appearances ever since. One of my favorite things from their site is this little nugget of gold: "Let's be honest -- you don't put dogs all over your Website if you take yourself too seriously." I think that very much embodies their culture, and it's refreshing to see. They also pride themselves in working under seven pretty great core values, we of course can relate with out TAGFEE tenets here at Moz. *Highfive* FetchBack.

What do they offer?
They are all about site retargeting. They even have a patented technology named FIDO, which promises to analyze information on your visitors sent by smart pixels. Ohhh fancy.

How much do they cost?
You have to contact them to get a quote. I contacted them to get a ballpark range but they said they are so customized to the advertiser that would be a challenge. I have my doubts but they did say they have a variety of pricing models available, and they even work on rev-share if it makes sense. Sounds pretty flexible over there.

What's their secret sauce?
They are often praised for their full-funnel approach to campaign management. They take a pretty aggressive stance that retargeting works best when integrated with site behavior and full-picture strategy rather than just serving ads at the end of the sales cycle. They call this "1 to 1 creative," which I can only assume means each creative is tailored for that specific visitor based on their behavior, location, etc. FetchBack is hyper focused on this detailed approach to management, which for more experienced marketers is a really exciting selling point.

What's the downfall?
First off, no pricing on their site. <rant> Man that gets under my skin. If you are going to sell a solution on the Web, you should allow me to research you in my discovery phase, instead of force me to call you guys or fill out a form. </rant> Other than that the only thing worth noting is they really have positioned themselves as an enterprise solution. For those just getting started or for those that never plan to invest too heavily into retargeting, Fetchback probably isn't for you.

What's up for 2012?
I reached out to hear what was on their 2012 horizons. I was a bit surprised to hear they will be focusing on "As display grows from a direct response mechanism to include branding, we are focused on being able to provide solutions for not just conversion based campaigns, but also branding ones as well." Uhmm. Sounds a bit odd to me. In my experience display advertisers are too caught up in branding buys and maximizing impression share, while not focusing on conversions enough. It will be interesting to see how this strategy plays out in their services, and platforms. It could be useful for the ever growing social retargeting applications.

I couldn't get you a screenshot but you can click here to watch a live demo.

Who are they?
Chango is a media buying platform that speclializes in Search Retargeting (rather than Site Retargeting like the above vendors). Want to know more about Search Retargeting? Here you go. Basically rather than target those who have come to your site already you are targeting visitors that have performed recent searches on Google, Yahoo, and Bing. They are based out of Toronto (eh?) with offices in NYC and San Francisco.

What do they offer?
Full-service search retargeting options, with limited site retargeting and engagement retargeting capabilities as well.

How much do they cost?
Unfortunately, you have to contact them for a quote as well. I did find out they minimum IO (including media costs) is 10k, and they have some clients spending up to 500k a month. Wowzers.

What's their secret sauce?
Well they really are the only end to end solution for search retargeting available right now. So there is that. At least I had a hard time finding one out there, let me know in the comments if I missed someone. They collect data, optimize, and bid on media at the keyword level which could make a strong argument for some really awesome targeting options. They also claim to have a 90% renewal rate on clients, with over 30 of the top 500 retailers out there. I'm gonna go ahead and give them a high five for that...speaks volumes about their product and service. When you ask the Chango what makes them special they all say "the people working there." They've staffed the team with agency types with a passion for innovation.

What's the downfall?
Honestly for those considering search retargeting it sounds like Chango is one of the first places you should look. With that said, I often tell advertisers they should play in site retargeting before they jump into search retargeting. With site retargeting you get self-service platforms, data visibility, and the controls to test creatives and messages so much easier. Chango is a full-service option. There is no platform you log into, and you are putting a lot of trust in them. Before you commit your budget there I'd get more familiar with what works for audiences through site retargeting and walk into search retargeting with a better understanding of the landscape.

What's up for 2012?
While they do offer some site retargeting, Chango is committed to pushing the innovative limits on search retargeting options. They believe "Search Retargeting 3.0" is already here and their 2012 plans revolve around pushing targeting options, data reporting, and more. Also something cool they will be expanding is called "Instant Search" for Search Retargeting, which allows you to target individuals immediately after arriving from Google, Yahoo or Bing based on the search they just performed. Cool stuff huh? Me thinks so too.

Since I couldn't get you a screenshot I thought I would get you something just as fancy--Chango's infographic on the Seven Types of Retargeting. They have advertising options for all of them, but focus mainly on (1) Search.

Chango Seven Types of Search Retargeting
How many of these are you trying? #getafterit

So Let's Wrap It Up

When it comes to picking the right retargeting solution for you there are a lot of great options out there. There are a number of questions you should be asking yourself. In fact there are so many, I have compiled a list of "Interview Questions You Should Ask When Picking a Retargeting Agency/Vendor." This list can be your nudge to really investigate who is best for you. I cover topics like reputation, services, set-up, pricing, innovation, and resources. Hope you find it useful!

Whatever your needs are around retargeting, there is an option out there for you. The industry has matured and its time to expect more from both the tools and the services. The four companies above are just a few of the companies out there, but they are great starts. If you have other questions about these companies feel free to leave them below. Also if I left out your favorite company, please add those too! I'm excited to hear what you are using and what is working for you.

* It's worth mentioning I didn't run through Google Remarketing because we just launched this internally for a test and we are going to be posting some juicy good stuff soon enough. So sit tight!

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Video Sitemap Guide for Vimeo and YouTube

Posted: 24 Jan 2012 02:26 AM PST

Posted by jhammack

This post was originally in YouMoz, and was promoted to the main blog because it provides great value and interest to our community. The author's views are entirely his or her own and may not reflect the views of SEOmoz, Inc.

Videos Indexed in the SERP

Did you know that major search engines want you to make video sitemaps for all of your embeds, even if you're hosting on Vimeo or Youtube?

Not only does it help them spider your website by giving the search engines clues as to where to look for video embeds, it may also earn your site a click through boost by giving you a picture in the SERP. Below I'll show you how I managed to index my Vimeo video embeds to include a thumbnail. Don't worry, the same steps should work for Youtube as well.

Example Video in SERP

Benefits of a Video Sitemap

There are several reasons why you'll want to add a video sitemap.

It makes it clear to Google what your content is.
You have the opportunity to provide a range of details through schema.
Additional presence on video.google.com search.
RAD picture thumbnail, which is a pretty great call to action.

Video Embed Code

It's important to pay special attention during this part. Video embedding is largely done using iFrames these days and that poses a problem if you want the search engines to index your videos. For whatever reason Google doesn't currently spider iFrames. This is frustrating as iFrames are great for playback compatibility on mobile devices, iPads, and the like. There is a workaround, but first, let's discuss how a video sitemap works.

A video sitemap is simple guide for the search engine bot. Think of it as a map to treasure, it just makes it easier for the bot to find the treasure. If you use an iFrame, the bot can't find the video making the video sitemap useless. However, Google can find and spider standard object embeds, AKA the old fashioned way of doing things. With this in mind, I'm going to describe the safest way to get your videos indexed by using old embed code still available on Vimeo and Youtube. Here is a picture to help you find it:

Vimeo and Youtube Old Video Embed

Embed Code

If you found it correctly your embed code should look something like this. (vimeo example)

Example Video Embed Code

You don't have to cleanup your code like I did above, I only did it so we could easily see what's happening. Pay special attention to the embed src line, the URL inside looks like this..

vimeo: http://vimeo.com/moogaloop.swf?clip_id=35117351

youtube: http://www.youtube.com/v/VMeXGE_a8Gg

This is the RAW video player link, it tells google/bing where to find the original video file. We'll need this information later when building the video sitemap.

Nested iFrame/Embed OPTIONAL

There is one thing worth mentioning. Some people have developed a technique to trick google and still use an iFrame. I haven't actually tried it myself as I'm happy playing it safe with the old method and showing up in the SERP.

Anyhow, the idea is that you use the new iFrame code and the old embed code at the same time with the noframes tag. This essentially nests the two videos, such that end users will see the new html5 iFrame version and google is served the old embedded version.

A couple drawbacks worth mentioning.. First, this is technically cloaking content as you're serving one thing to the user and giving google something else. Second, your page will take longer to load as the original embed starts to fire up before the iFrame gets control. Lastly, noframes wasn't designed to work like this, it's a hack. With that in mind here is what it'd look like:

Noframes nested in iFrame

Video Sitemap Requirements

Now that you have your embed code all sorted out, it's time to start working on the video sitemap. Google requires that your video sitemap MUST contain the following information and that it should MATCH what is on your webpage.

Title - This should be the same as the title of the page your video appears.
Description - Make this exactly match the meta description of your page.
Play page URL - The canonical URL of the page your video appears.
Thumbnail URL - By thumbnail they mean a high resolution image up to 1920x1080.
Raw video location - This is the embed src link noted from above pointing at the clip.
More Details: Google: Creating a Video Sitemap

Example Video Sitemap

The best way to learn how a video sitemap works is to see one. First start by creating a new file, name it something like: video-sitemap.xml

Then fill it in so that it looks like the example sitemap below, except replace the white text with your own information. For every video you have copy/paste the <url></url> block. In the example below there are two video URL blocks, the top block has descriptors for the fields, the bottom block is exactly what my video sitemap looks like. I prefer to keep mine in chronological order with the newest video on top. Once you're done you'll upload it to the root of your website ex. http://yourdomain.com/video-sitemap.xml

Tweak Robots.txt

This isn't absolutely necessary, but it doesn't hurt. Add your sitemap to your robots.txt file. Don't worry about being redundant, you can have a video sitemap describe the same page as a standard article sitemap. To add your sitemap to robots.txt place the following line at the top:

Sitemap: http://yourdomain.com/video-sitemap.xml

Update Google Webmaster

Once you're ready with your sitemap head over to Google Webmaster Tools and submit it under site configuration. Google will crawl it and report if there are any errors. If everything looks good the videos will be queued to be spidered and you should see them online after about a week.

Conclusion

This is actually the bare minimum to get you started. There is a lot of depth to the schema and you can include a range of details in your video sitemap including tags, categories, and author just to name a few. Hopefully with the above information you can get your embedded vimeo/youtube videos indexed with a picture. Feel free to contact me if you get stuck or check out my video sitemap at http://winefolly.com/video-sitemap.xml

What Brands Need To Know About Google+ Pages

What Brands Need To Know About Google+ Pages

Posted: 24 Jan 2012 06:25 AM PST

The recent integration of social and search at Google marks a huge change in how information on the internet will be presented to us. When a logged in user now performs a search, they will be given two types of search results: the anonymous search results that we are all used to and personal search results, which are generated from information shared within that user's network of Google+ circles. This new platform presents a major marketing opportunity for brands and it requires a developed strategy just like other social media platforms. It would be daft for brands to consider Google+ as just another fad, and, in the same breadth that brands define strategies for Facebook and Twitter, the same now needs to be done for Google+.

While it is apparent that Google+ is not yet fully developed, it would appear a good time for brands to set up their Google+ page, start uploading regular content and playing about with the different features on Google+. What should you as a brand be doing now?

1. Grow Your Circles

As we have seen, Google are placing more emphasis on people. People are going to share your content; they are your audience, so make sure they are interested in your market offering and develop trust with them. What can be done to grow circles? First and most importantly, the Google+1 button must be displayed on your site. This not only helps build contacts, it helps verify your site to your page. Ask employees and partners of the organisation to share the page within their circles. In the same way a brand would develop Twitter and Facebook campaigns, the same should be done on Google+. This could include giveaways, deals, offers – anything that is exclusive to Google+ will help you gain more followers. People's pages at the moment have a higher weighting than brand pages. People need to add a page before the page can add them, so if a celebrity like Lady Gaga was to pick up your page, it could essentially drive a lot of people to your page. There is also a What's Hot feature on Google+, so featuring on this would also increase the visibility of your page.

2. Segment Their Audience

Like in Google+ for personal pages, you can divide up your contacts into 'friends', 'family', 'colleagues' etc, the same can be done with your Google+ Page contacts. At the moment, a Google+ page's circles are defined as 'following', 'customers', 'VIPs', and 'team members'. This is a good place to start, and more circles can be added to further segment your audience. This provides brands with a wonderful marketing opportunity where they can target each segment with unique and specific messages. This is important, as it allows brands to develop trust with their audience… a key factor which will encourage users to share their content.

3.Develop A Content Strategy

Content creation will become more important for brands than ever before. A content strategy should take into consideration the latest Google algorithm updates, including Panda, which favours unique content that is relevant and fresh. A regular flow of high quality content will raise your brand awareness and potentially drive traffic to your site through your Google+ page. However, the value of that content will drop if it is not 'shareable'. Making content easy to share and to +1 will widen its reach across the internet, essentially helping that content appear in more personalised results. Having said that, creating shareable content is not always an easy task and brands will need to analyse their content and adapt it. 'Ripples' is a feature that will allow them to do so. It provides visual information on how content has rippled through the web. This insight could be invaluable to brands, as they are able to see who is sharing their content.

Now that Google+ allows multiple managers to log into a brand's Google+ page, there is even more incentive for a brand to use this platform. Excluding the owner, a page can have up to 50 managers who can act on behalf of the organisation. While taking on another social platform may seem a lot of work, I believe that brands that implement and integrate their Google+ page well could really reap big rewards, not just in terms of brand awareness but also SEO. However, until the platform further develops, it will be hard to say exactly how SEO and Google+ pages will be intertwined. Google+ is about 'connections, interactions and activity' …people, essentially. Surely Google will reward in some way, brands that can prove they have quality, shareable content that has been publically approved (+1ed) by numerous people in their circles?

[Fast Blog Finder] Video: Discover hidden treasures of Fast Blog Finder

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My 2 Cents, George"

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Seth's Blog : Solving problems (vs. identifying them)

Solving problems (vs. identifying them)

Often, we're hesitant to identify a problem out of fear we can't solve it. Knowing that we have to live with something that we're unable to alter gives us a good reason to avoid verbalizing it--highlighting it just makes it worse.

While this sort of denial might be okay for individuals (emphasis on might), it's a lousy approach for organizations of any size. That's because there are almost certainly resources available that can solve a problem if you decide it's truly worth solving.

Put yourself and your people on a path to finding problems without regard for whether or not they are capable of solving them. Queue them up, prioritize them and then go find the help your organization needs to solve them.

Just because you don't know what to do about it doesn't make it less of a problem.

• Email to a friend •

marți, 24 ianuarie 2012

Mish's Global Economic Trend Analysis

CalPERS Earned 1.1% on Investments in 2011, Plan Assumptions are 7.75%
Japan Faces Moment of Truth: First Annual Trade Deficit Since 1980; New Trend or Simply the Tsunami Effect?
Economic Insanity from Gingrich on Marijuana Use: Life imprisonment With No Parole; Who Benefits from War on Drugs? Big-Brother Expansionist Ideas: Gingrich Proposes "Free Radios" for Everyone in Cuba!
Premature Dollar Obituaries and Mainstream Economists' Monetary Insanity; Keynes-Inspired Great Depression; Lessons Not Learned
Greek Bondholders Reject Deal; History Lesson on Defaults; The ECB's Dilemma; Deadline Laugh of the Day

CalPERS Earned 1.1% on Investments in 2011, Plan Assumptions are 7.75%

Posted: 24 Jan 2012 09:25 PM PST

Pension plans rebounded sharply in 2009 and 2010 from the devastating losses in 2008. However they never got back to even. 2011 was another poor year, and in spite of the start to 2012 I expect this year and/or next year to suffer more losses, or alternatively the market to limp along with no gains for a number of years.

In other words, pension plans are already in trouble and things are about to get worse. For example, the LA Times reports CalPERS earns 1.1% on investments in 2011

The nation's largest public pension fund, the California Public Employees' Retirement System, posted a 1.1% return on its investment portfolio in 2011, Chief Investment Officer Joseph Dear told his board.

The 2011 performance was well below the estimated average annual return of 7.75% that the fund's actuaries say is needed to meet current and future obligations to its members.

The $229.5-billion CalPERS provides retirement and other benefits for 1.6 million state and local government employees and their families.

CalPERS' annual investment results, whose volatility has echoed that of the overall markets, have become the focal point in an ongoing debate about looming pension fund liabilities and the ability of future generations of taxpayers to continue financing them. Gov. Jerry Brown has said he wants to overhaul state and local government pension programs, but whether he and the Legislature have the political wherewithal to do so in an election year remains unclear.

During the 2011 calendar year, CalPERS lost 7.95% on its public equity investments, lost 2.29% on its hedge fund investments, earned 12.38% on bonds and earned 9.92% on real estate.

CalPERS had a return of 11.6% for fiscal 2010 and a massive recession-related loss of 23.4% for fiscal 2009.

Note those first set of numbers are for the calendar year, the latter set for the fiscal year. Fiscal year returns post on June 30.

I have been saying for years that it is going to be next to impossible for pension plans to make their plan assumptions. Even 5% annualized for the next decade will be very hard to get in a stocks and bonds portfolio with bond yields so low.

A move to equities risks another 2008-style plunge.

Pension benefits and plan assumptions are simply too high. A taxpayer revolt in California over those promises is inevitable.

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

Japan Faces Moment of Truth: First Annual Trade Deficit Since 1980; New Trend or Simply the Tsunami Effect?

Posted: 24 Jan 2012 05:49 PM PST

Japan is in deep serious trouble the moment it enters a sustainable period of negative or neutral current account balances. If Japan becomes dependent on foreigners to finance rollovers on its debt either the Yen sinks or interest rates rise. Interest rates at a mere 3% would currently consume all of Japan's tax revenue.

Japan's Fiscal Pressure Intensifies

Bloomberg reports Japan's Fiscal Pressure Intensifies as Tax-Boost Plan Insufficient

Japan's government said it will probably miss its goal of balancing the budget by 2020 even with its proposed doubling of the sales tax, underscoring the scale of the nation's fiscal challenges.

The primary budget deficit, which excludes the cost of servicing debt, will be the equivalent of 3.1 percent of gross domestic product for the year through March 2021, the Cabinet Office said in Tokyo today. Hours after the release, Prime Minister Yoshihiko Noda reiterated his call for opposition lawmakers to engage in talks on boosting the sales levy.

"To balance the budget, the rate needs to rise further," said Takuji Okubo, chief Japan economist at Societe Generale SA in Tokyo, referring to the sales-tax level. "We've passed the point where we can soft-land the fiscal situation. The question is how hard the landing is going to be."

Japanese PM Reshuffles Cabinet to Push Tax Hike

Please consider Japanese PM reshuffles cabinet to push tax hike

Japanese Prime Minister Yoshihiko Noda carried out an anticipated cabinet reshuffle last Friday in a bid to consolidate his grip on power amid continued infighting within the ruling Democratic Party of Japan (DPJ).

Noda dumped Defence Minister Yasuo Ichikawa and Consumer Affairs Minister Kenji Yamaoka, both of whom are prominent supporters of the powerful DPJ faction headed by Ichiro Ozawa. At the same time, he promoted former DPJ president and foreign minister Katsuya Okada to deputy prime minister.

Okada has been given the task of implementing Noda's highly unpopular plan to double Japan's sales tax. Noda described the new lineup as "the best and strongest to push ahead with the inevitable topic of administrative, political and tax reforms," adding, "Mr Okada will not waver or run away from a major task. He is a politician who will produce results."

The government only announced its draft proposals for tax and social security reform on January 6. The plan involves a hike in the consumption tax rate from the present 5 percent to 8 percent in 2014 and to 10 percent in 2015. The government's ambiguous language implies further increases in the future, with some in business circles pressing for a rate as high as 25 percent, according to the Yomiuri Shimbun.

Quite the Hike

To go from 5% sales tax to 25% would be quite the hike.

How long will this Prime Minister last? What happens if tax hikes do not go through or they raise insufficient revenue?

First Trade Deficit Since 1980

While pondering the above questions, please consider Japan logs first trade deficit since 1980

Japan logged its first annual trade deficit in 2011 for over 30 years as the aftermath of the March earthquake raised fuel import costs even as slowing global growth and the yen's strength hit exports, threatening to erode the country's ability to fund its huge public debt with domestic savings.

Few market players expect Japan to immediately run a deficit in the current account, which includes trade and returns on the country's huge past investments abroad, as a steady inflow of profits and capital gains from overseas outweigh the trade deficit.

But the trade data underscores a broader trend in which Japan's competitive edge in the global market is eroding and it is increasingly reliant on fuel imports due to the loss of nuclear power, with reactors staying closed after routine checks due to public safety fears following the March disaster.

"What it means is that the time when Japan runs out of savings -- 'Sayonara net creditor country' -- that point is coming closer," said Jesper Koll, head of equities research at JPMorgan in Japan.

"It means Japan becomes dependent on global savings to fund its deficit and either the currency weakens or interest rates rise."

Japan logged a trade deficit of 2.49 trillion yen ($32 billion) for 2011, Ministry of Finance data showed on Wednesday, the first annual deficit since 1980.

Total exports shrank 2.7 percent last year while imports surged 12.0 percent, reflecting reduced earnings from goods and services and higher spending on crude and fuel oil.

In a sign of the continuing pain from slowing global growth, exports fell 8.0 percent in December from a year earlier, roughly matching a median market forecast for a 7.9 percent drop, due partly to weak shipments of electronics parts.

Imports rose 8.1 percent in December from a year earlier, in line with a 8.0 percent annual gain expected, bringing the trade balance to a deficit of 205.1 billion yen, against 139.7 billion yen expected. It marked the third straight month of deficits.

Bank of Japan Governor Masaaki Shirakawa said on Tuesday he did not expect Japan to continue logging a trade deficit as a trend and did not foresee the country's current account balance tipping into the red in the near future.

But Japan's days of logging huge trade surpluses may be over as it relies more on fuel imports, which may weaken the yen in the longer term.

Running a current account deficit would spell trouble for Japan as it means it cannot pay the cost of financing its huge public debt without overseas funds, although few analysts expect this to happen in the foreseeable future.

Japan Faces Moment of Truth

This is a moment of truth for Japan, perhaps the first of many. The question at hand is critical: Is the trade deficit a new trend or simply the long-lasting spillover from the tsunami?

Today's answer may be different than tomorrow's.

A prolonged European recession coupled with stubbornly high oil prices and a slowdown in China is the disaster scenario for Japan.

That scenario is not at all unlikely. A deep European recession is a given and I believe a serious slowdown in China is a given as well. By pressing for tax hikes, it seems Japan's prime minister feels the same way, regardless of what the Bank of Japan says for public consumption.

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

Economic Insanity from Gingrich on Marijuana Use: Life imprisonment With No Parole; Who Benefits from War on Drugs? Big-Brother Expansionist Ideas: Gingrich Proposes "Free Radios" for Everyone in Cuba!

Posted: 24 Jan 2012 10:25 AM PST

Anyone wondering what kind of economically-illiterate, big-brother expansionist ideas Newt Gingrich might embrace as president can find the answer in several recent articles regarding his positions on marijuana usage, food stamps, drug testing, and surprisingly even "free radios".

Please consider Gary Johnson hammers Newt for 'hypocrisy' on executing marijuana users

Former New Mexico Gov. Gary Johnson went on offense against Newt Gingrich Monday, attacking the former House speaker's proposal to execute marijuana users as hypocritical, considering the GOP contender has himself admitted to smoking pot.

Johnson is currently seeking the Libertarian Party nomination for president, and is a proponent of legalizing the drug.

"Ideas are important, especially in a presidential campaign," said Johnson. "But some of Speaker Gingrich's ideas over the years are nothing short of scary. Under his legislation, anyone coming home to the U.S. and caught carrying enough marijuana (2 oz.) to distribute would be sentenced to life imprisonment with no parole — or if caught twice, would be sentenced to death."

Gingrich defended the legislation, the Drug Importer Death Penalty Act of 1996, in November as a way to get tough on Mexican drug cartels.

Newt: Give the death penalty to drug cartel leaders

Next up, please consider Newt: Give the death penalty to drug cartel leaders

Republican presidential candidate Newt Gingrich says he supports using the death penalty as punishment for leaders of drug cartels who bring drugs into America.

Gingrich made the comments when asked in an interview with Yahoo! News if he still stands by a bill he introduced in Congress in 1996 allowing those convicted of smuggling drugs to be put to death.

"I think if you are, for example, the leader of a cartel, sure," Gingrich told reporter Chris Moody. "Look at the level of violence and the level of violence that they've done to society."

Elaborating, he said: "You can either be in the Ron Paul tradition and say there's nothing wrong with heroine and cocaine or you can be in the tradition that says, 'These kind of addictive drugs are terrible, they deprive you of full citizenship and they lead you to a dependency which is antithetical to being an American.'"

Gingrich Lies About Paul's Position on Drug Usage

For starters Gingrich purposely lied about Paul's position. Ron Paul never said "there's nothing wrong with drug usage". Indeed he has stated over and over he does not favor their use.

What Paul has said, is he does not believe government should prosecute those who take drugs. I don't either. Legalizing drugs would take the profit out of them, stop countless robberies by addicts seeking to get drugs, and lower their overall usage.

Primary and Secondary Beneficiaries of Gingrich's Expanded War on Drugs

The primary beneficiaries of Gingrich's expanded war on drugs would be the gang-bangers, drug lords, and smugglers from Mexico. Higher costs and reduced supplies mean more profits for those who succeed at smuggling.

The war on drugs can never succeed here. Unlike Singapore, the US is not going to put to death everyone who sells marijuana. Nor should we in the first place. It is not the government's role to interfere in the personal lives of citizens.

The secondary beneficiary of Gingrich's proposal would be prison guards and union leaders.

Indeed it is the unions who were behind California's inane strike-three law. Californian's pay out the nose and unions have benefited massively by the economically inept and morally corrupt ideas Gingrich espouses for the entire nation.

Yahoo News Interview with Gingrich

Finally please consider Newt Gingrich on drug laws, entitlements and campaigning: The Yahoo News interview

Three Republican presidential candidates have shown an openness to handing over control of drugs and medical marijuana to the states. Would you continue the current federal policy making marijuana illegal in all cases or give the states more control?
I would continue current federal policy, largely because of the confusing signal that steps towards legalization sends to harder drugs.

I think the California experience is that medical marijuana becomes a joke. It becomes marijuana for any use. You find local doctors who will prescribe it for anybody that walks in.

Why shouldn't the states have control over this? Why should this be a federal issue?
Because I think you guarantee that people will cross state lines if it becomes a state-by-state exemption.

I don't have a comprehensive view. My general belief is that we ought to be much more aggressive about drug policy. And that we should recognize that the Mexican cartels are funded by Americans.

Expand on what you mean by "aggressive."
In my mind it means having steeper economic penalties and it means having a willingness to do more drug testing.

In 1996, you introduced a bill that would have given the death penalty to drug smugglers. Do you still stand by that?
I think if you are, for example, the leader of a cartel, sure. Look at the level of violence they've done to society. You can either be in the Ron Paul tradition and say there's nothing wrong with heroin and cocaine or you can be in the tradition that says, 'These kind of addictive drugs are terrible, they deprive you of full citizenship and they lead you to a dependency which is antithetical to being an American.' If you're serious about the latter view, then we need to think through a strategy that makes it radically less likely that we're going to have drugs in this country.

Places like Singapore have been the most successful at doing that. They've been very draconian. And they have communicated with great intention that they intend to stop drugs from coming into their country.

In 1981, you introduced a bill that would allow marijuana to be used for medical purposes. What has changed?
What has changed was the number of parents I met with who said they did not want their children to get the signal from the government that it was acceptable behavior and that they were prepared to say as a matter of value that it was better to send a clear signal on no drug use at the risk of inconveniencing some people, than it was to be compassionate toward a small group at the risk of telling a much larger group that it was okay to use the drug.

It's a change of information. Within a year of my original support of that bill I withdrew it.

Ron Paul and Barney Frank have introduced a similar bill almost every year since.
You have to admit, Ron Paul has a coherent position. It's not mine, but it's internally logical.

Speaking of Ron Paul, at the last debate, he said that the war on drugs has been an utter failure. We've spent billions of dollars since President Nixon and we still have rising levels of drug use. Should we continue down the same path given the amount of money we've spent? How can we reform our approach?

I think that we need to consider taking more explicit steps to make it expensive to be a drug user. It could be through testing before you get any kind of federal aid. Unemployment compensation, food stamps, you name it.

It has always struck me that if you're serious about trying to stop drug use, then you need to find a way to have a fairly easy approach to it and you need to find a way to be pretty aggressive about insisting--I don't think actually locking up users is a very good thing. I think finding ways to sanction them and to give them medical help and to get them to detox is a more logical long-term policy.
Sometime in the next year we'll have a comprehensive proposal on drugs and it will be designed to say that we want to minimize drug use in America and we're very serious about it.

Since we are in Florida, can you provide an idea of how your administration would handle relations with Cuba?
I think we need a very aggressive model. I describe it as a Cuban Spring. If you have a U.S. government that says Assad should go, why aren't they aggressively saying Castro should go?

Would you open up trade relations with Cuba as president?
It's probably not part of it, but I think you would look at under what circumstance would you change and could you offer the Cuban people. For example, immediately after a free election, all the embargoes would drop as of that day. You could have the carrot of saying, the second there's a free election, we should do everything we can to help the Cuban economy flourish.

President Obama has opened more air travel to the island. Would you shut down those flights?
No, but I would very aggressively move towards maximizing dissent inside Cuba. Mostly covert, and also just subsidies. Go back and look what we did in Poland for example when we aggressively supported Solidarity.

What kinds of items would you subsidize?
You might try to find a way to give virtually every Cuban a free radio. You might want to try to find a way to maximize your ability to broadcast into Cuba so that you have a continuous alternative model of information.

Free Radio Insanity

I do not care whether Gingrich is speaking figuratively or literally, the idea of free radios is complete nonsense.

Exactly would the founders of the constitution think about giving free radios to everyone in another nation?

I will tell you what they would think. They would think just as I do, that the proposal is economic insanity as well as foolish intervention into the affairs of other nations.

Icing on the Nutcake

If you are seeking icing on the nutcake then check out Gingrich's statement on Ron Paul regarding drug usage: "You have to admit, Ron Paul has a coherent position. It's not mine, but it's internally logical."

Ron Paul has a logical position. Gingrich doesn't. The war on drugs has been a miserable failure. Gingrich wants to make it an even bigger failure, and a very costly one at that too.

Has Gingrich figured out the cost of arresting and imprisoning everyone who sells drugs? The answer is obviously not.

Three Questions for Gingrich

How much will it cost to administer drug tests to everyone getting a government subsidy?
How much more chipping away at states' rights does Gingrich want?
How can this proponent of big government even call himself a Republican?

Mish Food Stamp Proposal

When it comes to food stamps I have a far better set of ideas than drug testing.

Do not let those on food stamps buy frozen pizza, potato chips, snacks of any kind, soft drinks, etc.
Explicitly limit food stamp users to generic (store brand vs. name brand) dried beans, rice, peanut butter, pasta, canned vegetables, canned soup, soda crackers, fresh vegetables, fresh fruit, frozen (not bottled) juice, poultry, ground beef, chuck steak, bread, cheese, powdered milk, eggs, margarine, and general baking goods (flour, sugar, spices).
Calculate a healthy diet based on current prices, number in the family, ages of recipients, and base food stamps allotments on that diet.

My proposal will not only lower the cost of the food stamp program, healthy diets would lower Medicaid and Medicare costs as well. Moreover my proposal would give people a strong incentive to get off the food stamp program without intrusive, costly big-brother ideas like drug testing which cannot possibly work for the simple reason that anyone who fails will steal to get food rather than starve. Also note that Gingrich's proposal would harm innocent kids on the program. My idea would help them nutritionally.

Given that Gingrich himself admits "Ron Paul has a coherent, logical position" pray tell why can't we try it?

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

Premature Dollar Obituaries and Mainstream Economists' Monetary Insanity; Keynes-Inspired Great Depression; Lessons Not Learned

Posted: 24 Jan 2012 05:02 AM PST

A pair of articles by Austrian economist professor Antal E. Fekete just might have one wondering who is more in the loony bin, mainstream economists like Krugman or those consistently chanting about the death of the dollar coupled with hyperinflation.

Premature Obituaries

Please consider Premature Obituaries

It is open season for wild monetary prognostications. More premature obituaries on the dollar have been posted on the Internet. For example, see Jim Willie's The US Dollar Paper Tiger (Gold-Eagle, January 11) with epitaphs like "the U.S. dollar rising to the cemetery", or "dollar death dance". Or see another article, Jeff Nielsen's entitled Maximum Fraud in U.S. Treasurys (Gold-Eagle, January 3). It betrays maximum misunderstanding about keeping the dollar on a life-support system. It assumes that the Fed and the U.S. Treasury are fighting tooth and nail to keep the value of government debt high lest it collapse in want of support from Japan, China, and other countries.

These views hang the picture upside down. In actual fact, the Fed and the U.S. Treasury desperately want to beat down the value of the dollar. The greatest obstacle frustrating their effort is the stubbornly high and still increasing value of U.S. Treasurys. Captains of the world's monetary system are yanking levers and twisting throttles which are no longer connected to anything. The captains are no longer in control. Yet they continue to wave their batons feverishly and pretend that the orchestra is paying attention. They want Jim Willie, Jeff Nielsen and everyone else to believe that the falling interest-rate structure is the outcome of their deliberate monetary policy. In fact, the Fed and the U.S. Treasury are trying to stop the rate of interest from falling further. They instinctively realize the threat of falling interest rates brings deflation and depression in its train. The dollar is much too strong, contrary to the wishes of policy-makers.

It is not so easy to beat down the value of the dollar as suggested by Keynesian textbooks, even if you have the key to print shop where the presses are running. The dollar's strength prevails in spite of the withdrawal of Chinese and Japanese support of the U.S. bond market, and in spite of the destructive monetary policies of the American guardians of the dollar.

This observation reveals the prevailing profound misunderstanding about the nature of this financial crisis. To set the matter right, in this article I shall recapitulate the argument that I have been presenting on the Internet for the past ten years. ....

Like Mises, I also object to the use of the word hyperinflation, albeit for a different reason. It suggests that the phenomenon is linear and follows the laws of the Quantity Theory of Money. The more money is printed, the higher do prices go.

However, we are here facing highly non-linear phenomena. Our economy is torn to pieces by runaway vibration. We are victimized by the self-destruction of the monetary system subjected to oscillating money-flows boosted by the resonance of fluctuating interest rates resonating with fluctuating prices.

The vampire of risk free bond speculation

When the central bank intervenes in the market to control the rise of interest rates, it inadvertently makes prices fall; and when it intervenes to stop prices from falling, it inadvertently makes interest rates rise. The upshot is that the central bank intervention, rather than tempering movements, aggravates them.

At the present junction the Fed is buying bonds to combat deflation. Bond speculators know this, will buy the bonds first, driving down interest rates in the process. The result is more deflation, not less.

The Keynes-inspired central bank action is counterproductive. Policy-makers are blind and don't see this. They stick to their selfdefeating monetary policy. They actually become the quartermaster general of the depression they are trying to avoid. As if cursed by a particular kind of madness, policy makers saddle society with the vampire of risk-free speculation.

The problem cannot be cured because bond speculation cannot be eliminated. It should be clear that as long as the world does not succumb to a military conflagration such as a world war destroying supplies of goods and production facilities, the danger is not inflation as predicted by the Quantity Theory of Money. The danger is deflation due to risk free-profits with which Keynesian economics inadvertently tickles speculators.

The majority of hard-money analysts call for a hyperinflationary collapse of the dollar. Their analysis is faulty. Like a cornered rat, the dollar is capable of putting up a vicious fight for survival. In the words of Mark Twain, all the obituaries on the dollar are premature. The dollar is not a push-over. A yen-yuan coalition (or any other combination of existing or yet to-be-invented fiat currencies) cannot send it into oblivion.

Cheerleaders for fiat money in academic circles, in the media, and in financial journalism will not be able to live down the shame that will be their lot when the world economy collapses. The excruciating economic pain that people will suffer as a consequence will be their responsibility. The break-down in law and order will be their fault. As history and logic conclusively prove, fiat money is not a viable monetary system. It is prone to succumb to the sudden death syndrome. Whether caused by inflation or whether caused by deflation, sudden death is assured.

It should not be beyond the wit of human intelligence to see this coming and fend off the disaster by making a timely return to sound money, based on a monetary unit of a positive value as mandated by the American Constitution.

Essential Agreement

I am in general agreement with Fekete's analysis but would debate one essential point. The central bank does not want banks to "buy commodities to prevent prices from falling" as Fekete suggests, rather the central bank wants banks to lend.

After all, I rather doubt the Fed wants to see oil at $150 or gold at $3000. Instead, the Fed wants banks to lend, businesses to borrow, businesses to hire, and for that cycle to feed on itself.

Three Key Points Regarding the US Economy

The US is a credit-based economy.
Fractional reserve banking is the enabler for unlimited credit expansion.
In a credit-based economy it is extremely difficult to generate much inflation without an expansion of credit.

Three Conditions Necessary for Credit Expansion.

Banks must not be capital impaired
Credit-worthy borrowers must want to borrow
Banks must feel (rightly or wrongly) they have credit-worthy borrowers to lend to

Money Multiplier Theory Fatally Flawed

The money multiplier theory to which most if not all hyperinflationists subscribe is horrendously flawed. It assumes just because money is available it will be lent (not only that, but lent 10 times over).

Credit-based fiat-systems just do not work that way ever, and it's especially apparent in a debt-deleveraging cycle.

Businesses do not want to expand and falling interest rates clobber those on fixed incomes. The rational thing for consumers to do is cut debt. The rational thing for banks to do is buy treasuries.

I have been saying this for years to no avail. A recent post Graphical Representations of Bernanke's Effort to Stimulate Bank Lending shows just how hard Bernanke is spinning his wheels.

Bernanke tripled money supply in three years and nearly all of it is parked as excess reserves at the Fed.

I talked about this recently in an interview on Capital Accounts: Mish on Capital Account Live TV: Discussion of Money Supply, Inflation, the Fed, and SOPA

I certainly do not agree with the approach Bernanke is taking, but it is certainly not going to cause hyperinflation. The fact remains that hyperinflation is a political event, not a monetary event.

For a discussion of the politics of hyperinflation and some amusing hyperinflation predictions that have failed already please see Hyperinflation Nonsense in Multiple Places

Mainstream Economists' Monetary Insanity

With that discussion on hyperinflation looniness out of the way, let's turn our attention to Mainstream Economists' Monetary Insanity also by professor Antal E. Fekete.

According to Krugman, in spite of the 'false alarm' sounded by the Austrian economists over the debasement of the dollar, inflation is still only 1.5 percent. 'Who could have predicted that so much money printing would cause so little inflation?' he asks rethorically. 'Well, I could, and I did', he boasts, 'because I understand Keynesian economics that Mr. Paul reviles.'

In the event, unknown to Krugman, I also predicted the same thing. Unlike Krugman I did more than simply predicting that inflation was not the danger. I warned that Keynesianism would lead to deflation and depression. Money-printing has become counterproductive. Krugman doesn't understand that it will boomerang. I stated that, unwittingly, Bernanke is the Quartermaster General of the Great Depression II (see: Front-Running the Fed, www.professorfekete.com, February 9, 2010). He doesn't understand the monstrous mistakes prophet Keynes made concerning the role of speculation in the money-creation magic. The fact is that central bank buying makes speculation risk free in the bond market. In comparison, speculative risks in the commodity market appear forbidding. All the speculator has to do in order to reap risk-free profits is to preempt the Fed. He buys the bonds before the Fed has a chance. Then he turns around and dumps them into the lap of the Fed at a profit. The Fed is helpless: it must buy at the higher price. Keynes completely misrepresented the ability of the central bank to stay in charge, given its compulsive drive to suppress interest rates when confronted with a profit hungry pack of bond speculators.

Friedman's analysis of the Great Depression couldn't be more wrong. In 1933 deflation was brought about not by the gold standard but, au contraire, by abolishing it. Here is what actually happened. Roosevelt has removed the only competition government bonds have, gold. The most conservative investors saw their gold confiscated and, willy-nilly, they were forced into the next most conservative instrument, Treasury bonds. Speculators became emboldened and bid bond prices sky high for risk free profits. Had gold been still available, bondholders would have severely punished the speculators for their daredevilry. They would have sold the overpriced bond and stayed invested in gold until bond prices came back to earth from outer space. Then they would have bought their bonds back at a profit.

The same thing is happening all over again. When a central bank increases the monetary base three-fold in three years, this is a clear invitation for bond speculators to move in and make a killing. But what the central bank utterly fails to understand is that, contrary to its hopes, new money is not going to the commodity market. Speculative risks there are far too great. Instead, new money is going to the bond market where the fun is. Bond speculation is risk-free. Speculators know which side the bread is buttered. Krugman doesn't.

Krugman's joy over the supposed defeat of Austrian economics is premature. Bernanke's Fed in blissful ignorance is still putting money in the hands of speculators which they use to place bets on the further fall of interest rates and commodity prices. The day of reckoning comes when falling interest rates destroy capital and, together with it, destroy budding job opportunities. The lethargy of businessmen will continue. They will not start hiring as long as the interest-rate structure is in falling mode.

Welcome to the world of Keynes-inspired Great Depression.

I nearly responded to that article by Krugman as well. I too called for record low rates across the entire yield curve and at a time when oil was $140 to boot.

Not every Austrian-minded person (I am not an economist) saw things the way Krugman did.

However, it is sad to say, most did. In 2010 I feared Krugman would take up Robert Murphy's Debate Challenge and that Murphy would make an inflation is coming soon claim and get blown out of the water. The debate never happened.

Recently, Ambrose Evans-Pritchard proclaimed "America Overcomes Debt Crisis". I took Pritchard to task in Debt and Deleveraging: Did the U.S. Overcome the Debt Crisis? Light at the End of the Tunnel Anywhere? Five-Pronged Solution

Click on the link for some interesting charts on the global debt problem. Here is my solution presented in the article.

Five-Pronged Solution

US monetary policy and ECB monetary policy is partially to blame for these crises as Pritchard says. Reckless fiscal policies by governments everywhere is another part of the problem. The five-pronged solution which Pritchard does not mention is ...

Get rid of the central banks
Get rid of fractional reserve lending
Return to a gold standard.
Minimize governments
Embrace free market policies

Please see Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold's Honest Discipline Revisited for a discussion of how a gold standard can fix trade imbalances.

That solution prompted "halfacunk" to taunt ... "Remember how you said the money-multiplier is a myth? Well, if it is, then we're not using a fractional-reserve system! Please be consistent."

My reply was ...

FR Lending was the enabler of the debt bubble. It fueled the housing bubble. Lending does not expand because money is available. However, FR allows it to expand without limit when banks want to lend. I am consistent.

Once again I see things from the standpoint of credit and Bernanke's failure to get banks to expand credit. Professor Fekete frames the debate a bit differently, but we both came to the same conclusions on front-running bonds, falling yields, and premature obituaries for the dollar.

Few in the Austrian camp got this right. The monetarists certainly got things flat out wrong. And as far as Krugman and the Keynesians go, all one can say is the day of reckoning will arrive, yet the exact timing and nature of the ensuing credit crisis is unknown.

Lessons Not Learned

One might have thought the Monetarists and Keynesians would have learned something from Japan. Instead, and in spite of debt to the tune of 230% of GDP, they came to the amazing conclusion "Japan did not do enough".

Two Rules

There is never enough debt to satisfy Keynesians.
There is never enough fiat currency to satisfy Monetarists.

I confidently predict Japan will have a currency crisis before the US and when it happens I am equally confident Krugman and the Keynesians will make an excuse for it rather than admitting they were dead wrong.

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

Greek Bondholders Reject Deal; History Lesson on Defaults; The ECB's Dilemma; Deadline Laugh of the Day

Posted: 24 Jan 2012 01:37 AM PST

Reuters reports Euro zone ministers reject private bondholders' Greece offer

Euro zone finance ministers Monday rejected as insufficient an offer made by private bondholders to help restructure Greece's debts, sending negotiators back to the drawing board and raising the threat of Greek default.

At a meeting in Brussels, ministers said they could not accept bondholders' demands for a coupon of four percent on new, longer-dated bonds that are expected be issued in exchange for their existing Greek holdings.

Greece says it is not prepared to pay a coupon of more than 3.5 percent, and euro zone finance ministers effectively backed the Greek government's position at Monday's meeting, a position that the International Monetary Fund also supports.

The aim of the restructuring is to reduce Greece's debts by around 100 billion euros ($129 billion), cutting them from 160 percent of GDP to 120 percent by 2020, a level EU and IMF officials think will be more manageable for the growth-less Greek economy.

Negotiations over what's called 'private sector involvement' (PSI) have been going on for nearly seven months without a concrete breakthrough. Failure to reach a deal by March, when Athens must repay 14.5 billion euros of maturing debt, could result in a disorderly default.

World Will Not End

There is so much concern over a disorderly default that I am wondering if the market would rally following news the world did not end (just as it hasn't dozens of times before on defaults). Spain has defaulted 15 times before, France 9 times, Brazil 10 times in the last 115 years, Russia 7 times, and the UK 3 times, China 3 times, and India 3 times.

The world did not end then and it will not end now. For discussion, dates, and frog tales, please see Princess Merkozy Kisses Frog, Turns into Hopelessly Indebted Club Med Prince; Berlin Ready to See Stronger 'Firewall'

History Lesson on Defaults

The history lesson ought to be clear by now: If you are going to default (and Greece will - actually it already has - just not in a manner that will trigger a credit event), then do it sooner rather than later.

Look at all this needless bickering for years starting with former ECB president Jean-Claude Trichet's insistence "there will be no haircuts".

Greece is now on its third haircut. What could have and should have been a 50 billion euro problem in total is now a 200 billion euro problem with another 100 billion euros waiting on deck. Worse yet, the ECB itself is sitting on 40 billion euros of junk (in a self-inflicted wound) wondering what to do about it.

The ECB's Dilemma

Courtesy of Google Translate and Zeit Online, please consider The ECB's Dilemma

Greece in the negotiations to take on debt rescheduling - and even if a voluntary agreement has been reached, the question remains whether enough investors participate in the end, to establish debt sustainability (and only then the IMF will continue to pay money). This raises the question of what to do with their stocks, the European Central Bank in the amount of about 40 billion €.

The answer is: There is no simple solution.

Let us assume that the ECB is involved in a debt restructuring. That would - through reduced distributions from the central bank profits - a burden to taxpayers. And it would ultimately be a form of state funding: The Federal Reserve would have the money made available to Greece. This can be very difficult to reconcile the official justification, that the intervention served only to keep open the monetary transmission channel. Would immediately begin a debate on the risks arising from the purchases of Italian or Spanish bonds. Anyway, it would be difficult for the central bank to defend its bond program arguments.

Let us assume that the ECB is not involved in a debt restructuring. Then you continue the public debate on the program spared - that this program would be less effective. Because de facto central bank would receive the status of preferential creditors, which have fewer resources in the countries concerned for the operation of non-public liabilities. Private investors have to fear that at first the ECB will be served before they have their turn - go on as in the case of Greece the debt section logically deeper in order to achieve a desired debt ratio, if the ECB will cut out. In this case, affect bond purchases by the Fed might not reassuring to investors, but discourages this: Each bond, which the ECB purchases, means greater potential losses for banks and investment companies.

The ECB has a choice: Either your program is not credible - or ineffective.

Door Number Three

The third option and most likely one is the ECB will get Greece to buy those bonds back at the discount price the ECB paid, making Greece's problem bigger as noted in Limits of Voluntary Deal Hit as Greek Bondholders Draw Line in the Sand; Separating Fact from Fiction in Selective Reporting.

Separating Fact from Fiction in Selective Reporting

The proposal is for the ECB to sell its bonds back to Greece so that Greece will then take a hit.

With that in mind, look at this preposterous claim by a senior official "The bonds' rate "is the only issue," said a senior official directly involved in the negotiations. "We have to accommodate the needs of the Greek economy."

I see two sentences and two lies. Indeed the entire article is crammed pack with lies made by various IIF and EMU officials.

Haircut Calculator Revisited

Let's go over that Haircut Calculator again.

30 Year Greek Bonds yield 22.5%. Since the calculator tops out at 20% let's assume a discount rate of 20%.

Greece and the IMF insist on something under 4%. Let's assume 3.6%. This is what the losses look like.

At 4% with a 15% discount rate, bondholder losses only drop from 79% to 75%.

Are the finance ministers really bickering over that feeble percentage difference or are the finance ministers fearing still more losses down the road and would just assume take the total hit now and get it over with?

While pondering that question, here is another one to think about.

Is Debt to GDP of 120% Sustainable?

Reader Andrea from Italy pinged me with this perspective...

Hi Mish,

Reading that "The IMF wants to put Greece on a path for a debt-to-GDP ratio of 120 percent by 2020." I could not avoid to think this:

For the sake of comparison, Italy is currently at 120% debt-to GDP ratio, with a much stronger economy than Greece, a better capacity to tackle fiscal evasion (there are huge margins for improvement), a deficit below 3% now and targeted to be 0 by 2013 (let's see if they get there, anyway they will not get extremely far from this), and despite all of this, Italy is a big mess and it is almost impossible for them to get decent rates on the bond market.

So, what they can expect with Greece at 120% debt-to-GDP by 2020? Even a kid can understand that it will never work!

Best regards,

Andrea

The IMF and Germany desperately want a deal that will take Greece to a projected debt-to-GDP ratio of 120% by 2020. Why? Even if the plan worked (which it won't) what good would it do?

Would someone please put Greece out of its misery? The best chance is a total and complete 100% writeoff right now.

Deadline Laugh of the Day

Those looking for the laugh of the day can find it in this Bloomberg headline EU to Have No Deadline for End of Greek Talks.

For two weeks we heard that a deal had to be reached by Monday (yesterday) or Greece would default. Monday came with no deal, and suddenly there is no need for another deadline.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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miercuri, 25 ianuarie 2012

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