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Mish's Global Economic Trend Analysis

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• Explosive Video on Ending Fractional Reserve Lending and Bank Corruption at Philadelphia Fed Conference
• Wine Country Conference Speaker Slides and Videos; Hussman: "An Unstable Equilibrium "
• Italy Presidential Election Still Deadlocked; Political Posturing in Perspective
• Excel Spreadsheets, Krugman, and a Question of Logic

Explosive Video on Ending Fractional Reserve Lending and Bank Corruption at Philadelphia Fed Conference Posted: 19 Apr 2013 02:59 PM PDT At an economic conference at the Philadelphia Fed, academics gathered to discuss fixing the banking system, including ending fractional reserve lending. The video is quite entertaining to say the least. Professor Jeffrey Sachs of Columbia University really lays into the banking system a few minutes into the recording. Play it! Link if video does not play SR 76 Wall Street Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Wine Country Conference Speaker Slides and Videos; Hussman: "An Unstable Equilibrium " Posted: 19 Apr 2013 11:02 AM PDT I am pleased to announce that the Wine Country Conference speaker presentations, along with the Yahoo! Finance media interviews and associated articles on Advisor Perspectives are now available online at Wine Country Conference Speaker Slides. Additionally, we are releasing an edited video of each of the speaker presentations. John Hussman's presentation "An Unstable Equilibrium" is now available. Two more video presentations will be available next week and three following week at Wine Country Conference Speaker Presentations. Thanks again for a successful 2013 WCC and we look forward to many more! If you enjoy the videos, please consider making a Donation to the Les Turner ALS Foundation. Specify "Mish Campaign" on the donation to earmark funds for research. All told, we raised nearly $500,000 for ALS research, subject to final audit. $100,000 of that came from a very generous matching donation from the Hussman Foundation. The 2014 conference will raise money for autism research and programs. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Italy Presidential Election Still Deadlocked; Political Posturing in Perspective Posted: 19 Apr 2013 10:24 AM PDT The seven-year term of president Giorgio Napolitano is up in May. The Italian parliament has the task of voting for the next president. However, parliament is so splintered  that no suitable candidate has surfaced. The first three rounds of voting require a two-thirds majority. In the first round of voting, Pier Luigi Bersani, the left party leader struck a deal with Mr Berlusconi to support Franco Marini, an 80-year-old former Christian Democrat trade unionist. However, in a secret ballot vote shocking to Bersani, about 200 center-left politicians voted against the deal as did Beppe Grillo's Five star movement. The second round vote also failed as did the third given no candidate can come to a two-thirds majority. The 4th round of votes only requires a simple majority. For that vote the center-left abandoned Marini in favor of former prime minister Romano Prodi. The rally around Prodi attempt may gather in some center-left votes, but Berlusconi wants nothing to do with Prodi. He was willing to back Marini in belief that Marini would shield him from prosecution, but will not back Prodi. The Financial Times reports ... Mr Berlusconi's People of Liberty attacked Mr Prodi head-on and declared that it would consider backing the candidacy of interior minister Anna Maria Cancellieri, who has been nominated by the small centrist party led by caretaker prime minister Mario Monti. Mr Monti gave a press conference in parliament to make a strong endorsement of Ms Cancellieri, who would become Italy's first female president. "She is not a representative of the old politics, nor of politics in general and is not a member of any party. She is a servant of the state, independent and authoritative," said Mr Monti, who would have been a leading candidate for the presidency himself had it not been for his decision to shed the neutrality of a technocrat and launch his own party, which polled only 8 per cent in February's elections. Mr Monti, a former European commissioner, praised Mr Prodi – his former colleague as European Commission president – but said at this moment Italy needed a figure who would unite not divide the parties. On paper Mr Prodi has 495 votes if the Democrats and the allied Left Ecology and Freedom party remain united. That leaves him needing just nine more to gain the absolute majority he needs in the fourth round, when the requirement of a two-thirds majority expires. Mr Bersani spent several fruitless weeks seeking support for a minority government from the anti-establishment Five Star Movement, the third largest force in parliament, and must now be hoping that he can persuade a handful to help him break the deadlock over the presidency. Beppe Grillo, the activist leader of the movement, has told Mr Bersani to give up, describing him as a "dead man talking". The movement, which stunned the establishment by winning a quarter of the popular vote in February, is backing Stefano Rodota, a leftwing academic and lawyer, as its candidate for president. Grillo's Rise Bloomberg fills in a few more details in Bersani Coalition Fractures Bersani was deserted by allies on the first ballot as Franco Marini, the candidate he backed with Berlusconi forces received 521 of 1,007 possible votes, less than the necessary two-thirds majority. With no path to a Marini victory, both the Democratic Party and Berlusconi's forces cast blank ballots on the second vote. Marini garnered 521 votes in the first vote, more than twice that of Stefano Rodota, the candidate of Beppe Grillo's Five Star Movement. More than 400 lawmakers cast blank ballots in the second vote. The Democratic Party and Berlusconi's People of Liberty, or PDL, were thrown together by the emergence of Grillo, an ex- comic and anti-corruption crusader who won a blocking minority in the February elections. Five Star, which refused to support Bersani's bid for the premiership last month, campaigned against political scandals and says its aim is to sweep established lawmakers from power. Grillo is gaining support from Bersani's group. Rodota, a professor and former lawmaker with a forerunner party of the PD, is getting the votes of Bersani ally Nichi Vendola and some dissenting PD members. Berlusconi is appealing convictions in wire-tapping and tax fraud cases. He is also standing trial accused of paying a minor for sex and abusing the powers of his office. He has denied all the charges. Political Posturing in Perspective The office of power is that of prime minister. The office of president is largely symbolic except perhaps to Berlusconi who seeks to avoid prosecution with a pro-Berlusconi president in place. And even if the parties could agree on a president, and they will eventually, the politics are such that new elections will be held because barring a miracle, no coalition can possibly form now. Bersani failed miserably. He will soon be gone. The center-left will rally around Florence mayor Matteo Renzi. But to what end? It is conceivable that new elections result in yet another deadlock. It is also conceivable Berlusconi's party will be back in power. Whatever the result of the next election, any coalition that forms will not be stable. Support from Grillo's Five-Star Movement may be necessary to form a new government and Grillo seems unwilling to give it. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Excel Spreadsheets, Krugman, and a Question of Logic Posted: 18 Apr 2013 11:59 PM PDT In a 2010 paper Growth in a Time of Debt and again in a book entitled This Time is Different, Harvard economists Ken Rogoff and Carmen Reinhart presented the idea that when a country's ratio of debt to gross domestic product reaches 90% lower economic growth is on the horizon. However, Rogoff and Reinhart made an Excel Spreadsheet Error in their work that has the economic world in a tizzy. A new study by three researchers at the University of Massachusetts finds that Rogoff and Reinhart made several mistakes that invalidate their thesis. They made a spreadsheet error that resulted in their leaving five countries out of an all-important average of countries with higher than 90% debt-to-GDP ratios. By restoring the full average, the UMass authors say, the growth rate for countries in that range becomes 2.2%, not the -0.1% cited by Rogoff and Reinhart. That makes the average growth rate at that ratio "not dramatically different than when debt/GDP ratios are lower." One irony of the finding stems from the fact that the debt-to-GDP ratio always was something of a heffalump. As economist Robert Shiller pointed out in 2011, yoking the two statistics together doesn't necessarily tell you anything useful. Debt is measured in currency, he observed; GDP is measured in currency units per year. But there's "nothing special about using a year.... A year is the time that it takes for the Earth to orbit the sun, which, except for seasonal industries like agriculture, has no particular economic significance." Error Austerity Debate CNBC picked up the story in Reinhart-Rogoff Error Sparks Austerity Debate. Adding fuel to to an already contentious debate over whether tough austerity measures are helpful or harmful to an economy, is a new revelation that there was a mathematical error in an influential economic research study, often cited as having paved the way for fiscal policies pursued by the U.S. and Europe. The charge was raised in a paper, released Tuesday, by an economics doctoral student and two professors at the University of Massachusetts that called into question the findings of Harvard economists Carmen Reinhart and Kenneth Rogoff's 2010 paper "Growth in a Time of Debt," which concluded debt over a certain level was dangerous for countries. Reinhart and Rogoff said they made a bad calculation within an influential economic research paper in 2010, but rebut claims that the errors were made intentionally. They also stand behind the central theme of the paper that too much public debt will slow economic growth. Krugman Chimes In Paul Krugman chimed in with his response Reinhart-Rogoff, Continued. I was going to post something sort of kind of defending Reinhart-Rogoff in the wake of the new revelations — not their results, which I never believed, nor their failure to carefully test their results for robustness, but rather their motives. But their response to the new critique is really, really bad. .... The Obvious Let's step back from the politics of the debate to focus on the obvious. My friend Pater Tenebrarum on the Acting Man Blog sent this common sense analysis of the setup in an email. Empirical studies cannot be used to settle points about economic theory. It should be obvious that deficit spending is nothing but deferred taxation. And obviously, since government spending has no concept of the categories of profit and loss, such spending is typically a mindless waste of scarce resources. No bureaucracy has any inkling of opportunity costs or consumer wishes. The spenders are saying: government bureaucrats know better how to allocate resources than the private sector. Perhaps, but certainly not in this universe. GDP Definition I remind readers that by definition, government spending adds to GDP.  The government can pay people to spit at the moon or dig ditches and fill them back up again and those activities will add to GDP. Does such economic stupidity matter at 90%, 95%, or 130% of GDP? Is it even relevant? What does matter is the obvious. And it should be obvious that wasting money to stimulate the economy is just that: waste. The trigger point as to when such waste matters most likely varies country to country based on factors that no excel spreadsheet can properly discern in advance. Rogoff and Reinhart made an error. So did Krugman. At least Rogoff and Reinhart have the general idea correct: economic stupidity matters at some point, something Krugman cannot seem to grasp. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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