Yesterday afternoon, my wife, Joanne went on to a better place. For those still on this planet, please remember to stop and smell the lilacs.



That picture is from our honeymoon on Mackinac Island, Michigan, about 27 years ago. Lilacs were her favorite flower.

In lieu of flowers or food, I ask the living to consider a donation in here name to support ALS research, the disease that took her life.

I wrote about the disease and an ALS fundraiser I sponsored twice previously.

1. April 2, 2012: My Wife Joanne Has ALS, Lou Gehrig's Disease
2. May 15, 2012: ALS Update; I Still Need Your Help; Money Contributions From 22 Countries!

Results as of Thursday 5-17-2012 

• Donations $14,931
• Tickets $236,800
• Corporate Sponsorships $20,000

Les Turner gets half of ticket sales so the direct benefit to Les Turner so far is $154,331.

Donations From 23 Countries

Donations have come in from 23 countries now. Click the second link above to see.

Over the years many people have asked me to put up a tip jar. I refused. I have always thought the best information is free. That philosophy has served me well. I have never asked for anything, but I am asking now.

If information from this blog, for free, 4-5 posts a day (for 7 years!) has made you money or kept you out of trouble, then please consider purchasing a raffle ticket or making a donation.

If times are tough, and they may very well be, then please consider a cash donation of $10 or more. Every bit helps.

Checks

To make a cash donation by check or money order, please send a check or money order to
Lacey Wood 
Mish Campaign
Les Turner ALS Foundation
5550 W. Touhy Avenue, Suite 302 Skokie, IL 60077
847.679.3311 (Main)
Any questions, please call the above number.

Credit Card

You can make a donation or purchase raffle tickets by credit card on the raffle site.

Some people did not like entering the information fields required, however, the purpose is only to ensure the foundation knows how to get in touch with raffle winners.

People move, phone numbers change, and email addresses change. It's as simple as that.

Those who do not like disclosing personal information on a form (the site is secure) can send a check or money order for tickets or to make a donation.

Philosophic Point of View

Whether you make a donation or not, please stop and smell the lilacs. Joanne did, at every opportunity.

Goodbye Joanne we love you and miss you already.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.

Courtesy of Google translate, please consider the following bleak reports from Spain.

Spanish Bank Debt With ECB Up 15.7% in April

El Confidencial reports The Spanish bank debt with the ECB increased by 15.7% in April
The debt of Spanish banks with the ECB shot up to 263.535 billion euros in April, that is 15.7% compared to 227.6 billion recorded in March, a new record, according to the Bank of Spain. This amount is outstanding entities resident in Spain still have yet to return to the European Central Bank as a result of the funding the agency has been granted previously.

The net financing granted in April by the Eurosystem to Spanish banks accounted for 68.8% of total Eurozone, which amounted to 382.712 billion euros. However, the gross amount of appeal does not collect the money that Spanish banks have borrowed from the ECB and have been redeposited in the body to receive a return of 0.25% a day.

The increasing difficulties of Spanish institutions to borrow from the interbank appreciate finding that the credit requested by Spanish banks headed by Mario Draghi school increased sixfold compared to that recorded in April 2011 (42.227 billion). Surprise Vat Hike?

Hiking taxes in the middle of a recession is horrendous policy. Yet one should never underestimate the potential stupidity of bureaucrats.

El Economista reports The Government is preparing a surprise rise in VAT for up to three points by 2013
Mariano Rajoy's government is determined to adhere strictly and without delay the requirements of Brussels to get the unequivocal support of the European Union to reform measures taken and to try to appease the markets. This is the VAT in the rest of Europe: average at 20.9%.

So, on Monday, the minister Luis de Guindos, acceded to the wishes of Merkel and European Commission to be the European Central Bank (ECB) who audit the Spanish banks. And now, the chief of government has already committed to some partners of his confidence that the government might have to climb two or three points in the VAT, by surprise, without waiting for 2013, as planned.

Specifically, Rajoy met last weekend privately with the president of the CEOE, Juan Rosell. A meeting that was held at the Moncloa Palace and that was unveiled yesterday at the meeting of the Board of the Spanish employers that some attendees described as "a funeral" to the bleak picture of the business leaders to draw on our economy.

And the funeral was the scenario that Juan Rosell took the opportunity to ask business leaders support unreservedly to government reforms, despite the critical position CEOE has kept tax increases approved for the Income Tax and Companies.

And it was at that funeral in which some of the attendees told that during his speech, the president of the employers said that while Rajoy is not in favor of raising the VAT, may be forced to do it, and surprise. Moody's downgrades 16 Spanish banks

Reuters reports Moody's downgrades 16 Spanish banks
Moody's Investor Service carried out a sweeping downgrade of 16 Spanish banks on Thursday, including Banco Santander, the euro zone's largest bank, citing a weak economy and the government's reduced ability to support troubled lenders.

All the banks' long-term debt ratings were downgraded by at least one notch, and some suffered three-notch cuts.

Thursday's move came after Moody's downgraded 26 Italian banks on Monday and followed a press report about a run at troubled lender Bankia, Spain's fourth largest bank. The Spanish government, which took over Bankia last week, denied the report.

Santander suffered a three-notch cut to its long-term rating to A3 from Aa3.

Moody's also cut BBVA's long-term rating by three notches to A3 from Aa3 and put the credit on a negative outlook. BBVA is Spain's second largest lender.

The government's borrowing costs shot higher on Thursday after data confirmed the economy was back in recession.

Prime Minister Mariano Rajoy said Wednesday his government, which is struggling to reduce the budget deficit, could soon have trouble financing itself in the bond market unless the pressure eases.

The government's strained finances are another risk for banks, since many have used cheap loans from the European Central Bank to buy three-year and five-year government bonds.

Through March, Spanish banks held almost 150 billion euros of Spanish government bonds, up from about 76 billion at the end of November. Capital Flight at Bankia

Please consider Bankia have lost 1,000 million in deposits in one week
Bankia customers have withdrawn deposits worth over 1,000 million euros since the government announced its intervention last week, according to data presented suggest the board meeting yesterday.

On Wednesday, Bankia not respond to Reuters requests asking whether there were bank runs Thursday and no one has commented on the information published by the newspaper El Mundo in its paper edition.

According to this method, was at the meeting yesterday with senior management where the CEO, Francisco Verdú, brought the fact of multi withdrawal of funds: Bankia days would have lost a similar amount to 1,160 million withdrawn in the first quarter.

The withdrawal of money from customers Bankia is due to the mismanagement of the departure of Rodrigo Rato for the entity and the subsequent nationalization. Scramble for Deposits Leads to System-Wide Cannibalization
Here are the key paragraphs from the above article.

The competition from the big banks is a point of concern to the entity. In fact Santander is showing particularly aggressive in trying to attract customers disenchanted with Bankia have decided to withdraw their savings from the entity.

For his part, Jose Ignacio Goirigolzarri, has not made ​​any statement on these data and harangued their managers to work hard to retain customers. The new president of the organization claimed that "Bankia is a solvent entity, which continues to function quite normally and that offers total security." Spain goes deeper in trouble every day. No one can possibly believe "Bankia is a solvent entity". In fact, the entire Spanish banking system is clearly insolvent.

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

In the truth is stranger than fiction category, German Finance Minister Wolfgang Schäuble is calling for a political union "now" with a directly elected EU president (and of course he is the unstated logical candidate).

Translation: Schäuble is running for "Grand Keiser of All Europe".

Please consider Schäuble calls for closer EU integration
Wolfgang Schäuble, Germany’s finance minister, called on Thursday for the EU to move decisively towards a political union in the face of the eurozone crisis, with a directly elected president in Brussels.

In a passionately pro-European speech delivered in Aachen, where he was awarded the annual Charlemagne prize, Mr Schäuble said the economic and financial crisis made it clear that closer European integration was needed.

“We must create a political union now,” he said. But he said that would not mean the creation of a European superstate, or a “United States of Europe”.

A debate was needed on precisely what responsibilities should be transferred to European level, on the principle that whatever tasks could best be done locally, regionally or nationally should not be changed.

One answer would be to give a face to European political union with a directly elected EU president in Brussels.

Mr Schäuble, who is regarded as the most pro-European member of the German government, said the EU urgently needed to improve its negotiating capacity on the world stage, with a more effective common foreign policy, and international treaties signed by all member states together.

“We must have the ambition to do more than simply protect the status quo,” he said. Wolfgang Schäuble (centre) receives the Charlemagne prize on Thursday



Today the Charlemagne prize, tomorrow the crown of the "Grand Keisership"

Addendum:
I am aware of the correct spelling of Kaiser. Keiser is a joke spelling that has a personal meaning but also seems appropriate for the job.

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

Via email I received an interesting set of facts from Barclays regarding banking exposures to Greece. Greece: Euro area official sector exposures in excess of EUR290bn
Euro area official sector exposure

According to the French Finance Minister, F. Baroin, Greece's exit from the euro area "would cost France EUR50bn net, in addition to the securities held by banks and insurers in their portfolios." In the German press, it is reported that a Greek exit would cost approximately EUR80bn (EUR16bn from bilateral KfW loans, EUR20bn from the EFSF, EUR12bn from the SMP and EUR30bn from Target 2, based on December 2012 data, source: FAZ).

Here, we estimate the euro area's official sector exposure to Greece (bilateral loans, EFSF guarantees and Eurosystem) and show that the cost estimations mentioned in the press match the exposure if you consider a 20% recovery rate on Greek holdings. 20% is rather low, but not unrealistic given the outcome of the PSI and devaluation of the new Greek currency in the event of an exit. However, because of the accounting treatment of the different exposures and the presence of some financial buffers within the Eurosystem, the one-off, year-end shock on public accounts will be much smaller, probably around EUR100bn (1% of GDP).

Euro area exposure via bilateral loans and EFSF guarantees:

As part of the first Greek bailout package (May 2010), EUR53bn has been disbursed by member states out of the EUR80bn committed over a three-year period. These disbursements are in the form of bilateral loans between Greece and the other member states. In February 2012, a second bailout package was signed, but this time funds would be transferred to Greece by the EFSF and the guarantees passed on to member states according to (adjusted) ECB capital key allocation. This second package has taken over the unused funds from the first package and no further bilateral loans have been made since then. To date, the EFSF has issued EUR73bn out of the EUR145bn committed by member states. Altogether, the euro area states currently have a total exposure of EUR126bn, representing 1.3% of GDP.

Euro area exposure via the Eurosystem's refinancing operations and interventions:

In a Greek exit scenario, the Eurosystem faces losses stemming from either direct holdings of Greek bonds in the SMP portfolio1 or from Target 2 claims on the Greek central bank. Based on anecdotal evidence and central banks' balance sheet movements, we estimate that the Greek SMP exposure is approximately EUR35bn and that Target 2 claims on the Greek central bank are around EUR130bn.

Indirect exposure via the IMF:

Even though the IMF prides itself on never having made any losses on a programme, a Greek exit would certainly challenge this record. Potential losses would be redistributed to IMF members according to their quota. With 20% of the quota (link) the euro area would be exposed to a further EUR4.4bn.

Altogether, we estimate that the total official sector exposure to Greece is somewhere in excess of EUR290bn (see table below), representing 3.1% of (nominal) GDP. Because ECB capital keys do not exactly match GDP weights, the exposure in GDP terms varies from one country to the other, between 1.8% (Luxemburg, excluding programme countries) up to 4.5% (Malta, Estonia, see table and chart below).

Total Exposures to Greece



click on chart for sharper image Looking for a reason for all the pressure on Greece to stay in the Eurozone? There it is. Pray tell where is Spain going to come up with 37 billion euros?

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

Brain Drain

Courtesy of Google Translate, this time from Italy, please consider From the North-East and abroad, fleeing already 720 companies
Farewell, ungrateful Italy. In addition to brain drain, we'll get used to the migration of entrepreneurs. The news coming from the North-East lab are not at all encouraging.

Until 2010 no employer has had the courage to leave Italian soil. A sort of waiting anxiety that charge went through the last part of 2008 and the two following years.

Explains Daniele Marini, a sociologist at the University of Padua and the Director of the North East: "Entrepreneurs have felt a great loneliness. And 720 of them already internationalized and holding sizes above the threshold of 10 employees, in 2011 the companies have decided to move abroad.

It remains to be seen how many entrepreneurs make the same choice in 2012.

Marini argues that choice in the book "Innovator of the Border", just published by Marsilio, "In the face of an institutional environment essentially static, ie where no desired reforms take shape, the government is not modernization, the level of taxation remains unchanged, the preconditions favorable to business life are reduced to such an extent as to suggest some to place in other countries where the fiscal and administrative environment allows them to remain competitive."

It is as if suddenly the toy was broken, cracks in the same constituent elements Venetian economy: the capital first of all, based on the triad family, capital, labor. Marini explains: "The crisis has changed the DNA of the North-East. A society that puts its identity in the work today is to consider it as a hassle. The families, however thrifty and highly oriented economy, fear of not having resources available to address such a long period of recession."

The summation of all these elements outline the framework that has led entrepreneurs "secessionists" to set sail. Credit Crunch Italian Style

Also courtesy of Google Translate, please consider The credit crunch? Ask the EBA
The solution to the crisis is growing. Virtually all agree on this. Even the Germans. The problem is that funding needed to grow. Especially businesses. But the credit supply to companies in Italy continues to be weak.

"They closed the taps, the banks have stopped doing," complained some time ago with emphasis Fancelli Mauro, president of the National Confederation of Craft Small and Medium Business in Florence.

The same bankers recognize the problem. "Not only have we reduced the new credits. But we're doing it furiously, "admits a senior executive at one of the five largest Italian banking groups.

The data reported by Mauro Fancelli for your region are dramatic: "In the first quarter of 2012 the bank has paid to Tuscan businesses for 33.5% less than the same period of 2011. The Monte dei Paschi di Siena, a leading institute in the region, has even been a decline of 70 percent."

"The worst of the credit crunch we have yet to see it," warns a second top manager at another establishment of the five largest in Italy.

With this investigation, Il Sole 24 Ore has wanted to find the reason for this phenomenon often referred to with two little words that English, along with spreads, are now common even in the chat at the bar: credit crunch - or credit crunch. Anecdotes From Italy

My friend Francesco writes ...
Hello Mish

The banks in distress list gets longer.

Two banks on chapter 11 by Bank of Italy in a few days. Last Saturday it was the turn to the Bank Credit Cooperative Monastier and Sile suffer to be placed under protection by the Financial Regulator. Last Friday was the turn instead of Tercas bank, savings bank in the province of Teramo in the meshes of the extraordinary finish.

A customer of mine have been required to close his position with that bank, he will never be able to repay its loans to 1.5 million eur in 4 months.

I expect a very difficult summer and in September, many businesses do not reopen. German firms will detect the best companies in the north east, at a very cheap cost, the other will close in a year.

In Italy we have two realities, Germany and Greece, in the same borders. The North, particularly the North East, has a GDP per capita equal to or higher than Germany, the South is in a worse condition than Greece. Obviously you cannot find the solution without reexamining borders. Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "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.

Inquiring minds are reading an excellent report China Real Estate Unravels by Patrick Chovanec, a professor at Tsinghua University's School of Economics and Management in Beijing, China.

The report confirms many of the things I said would happen in regards to the Chinese real estate bubble and GDP.

Here are a few items of note.

Developers, burdened by 70% leverage ratios and loans threatening to come due, rushed to complete projects already in their pipeline, to put those units onto the market and raise cash.

That rush to complete inflated real estate investments, allegedly up 23.5% in the first quarter. Other statistics from the report tell the real story.

• Year-on-year sales in Q1, for all real estate, was down 14.6%.
• Residential property sales were down 17.5%
• Office sales were down -10.2% 
• Sales in January-February were a disaster, falling 20.9% overall, compared to the first two months of 2011, -24.7% for residential.
• Total amount of floor space “for sale” was up 35.5%, compared to the same date last year
• Floor space of residential units “for sale” grew 47.4%.
• At the end of 2011, total floor space “under construction” was roughly 4.6 times the floor space sold
• A year and a half worth of excess inventory is hidden somewhere in the pipeline
• New starts in April fell 14.6% year-on-year and 27.0% month-on-month, for property as a whole
• Housing starts fell -14.4% year-on-year and -23.4% month-on-month
• Office starts fell -21.0% year-on-year in April, and -45.1% compared to March
• Retail property starts fell -18.7% year-on-year, and -36.8% compared to March
• Land sale revenues in April (RMB 27 billion) were down -54.7% compared to April last year
• Foreign funding for property development was down -91.4% in March and -80.8% in April, compared to the same months last year.

Clearly a crash is underway. The above stats also show the soft-landing thesis is written on toilet paper.

GDP Analysis

I like the analysis by Chovanec on GDP implications and the highly-overrated "soft landing" theory.
The “resilient” growth in real estate investment that seemed to promise a “soft landing” is not very resilient at all. It’s more like the last gasp of a market that’s running out of steam. Once the surge in completions plays out, the declining number of new starts will become the pipeline, and growth in property investment will flatten or go negative.

Property investment accounts for roughly a quarter of gross Fixed Asset Investment (FAI), and net FAI accounts for over half of China’s GDP growth. As I noted in January, in a back-of-the-envelope thought exercise, if property investment plateaus (growth falls to zero), it could shave as much as 2.6 percentage points off of real GDP growth. If it fell 10% (in real, not nominal terms) it could bring GDP growth down to 5.3%.

At the time I first saw this dynamic in the data, when the Q1 numbers came out, I figured it would take several months to begin playing out. But the April numbers suggest it is already happening. Chovanec notes if real estate investment drops by 10%, GDP will come in at 5.3%. What if real estate investment falls by 20% or 25%? Moreover, why shouldn't it?

Nails in the Hard Landing Coffin?

One of the sillier stories making the rounds earlier last month was China currency move nails hard landing risk coffin

I responded at the time with ...
The longer China puts off rebalancing its economy, the bigger the crash later on. Moreover, widening the band on its currency is a needed part of that rebalancing, and does not preclude in any way a huge slowdown in growth.

The structural imbalances in China are large and for now, still growing. However, huge cracks have appeared in real estate, and changes are coming up with a regime change. Finally, peak oil alone makes many of the growth estimates we have seen for China outright impossible. The real estate crash has arrived. The GDP crash will follow. For details, please see 12 Predictions by Michael Pettis on China; Non-Food Commodity Prices Will Collapse Over Next Three to Four Years; Nails in the Hard Landing Coffin?

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

Capital flight from Greece continues, €5bn in May, not counting orders to buy foreign bonds. The exodus now includes cashing out time deposits as reported by the Financial Times in Greek banks see steady deposits outflow.
Greek banks have seen a steady outflow of deposits this month, reflecting savers’ concerns over the failure of political leaders to form a coalition government and the prospect of another inconclusive election, which will be on June 17.

Athens-based bankers said withdrawals exceeded €1.2bn on Monday and Tuesday – 0.75 per cent of deposits – as President Karolos Papoulias failed in two final meetings with conservative, socialist and leftwing leaders to form a national unity government.

A senior Greek banker said the experience of the past few days “gives rise to concern that withdrawals may accelerate”. Another banker said: “We are seeing something very unusual, customers breaking their time deposits in order to withdraw funds.”

“The situation with the banks is extremely difficult ... there is no panic but there is great fear which could turn into panic and the resistance of the banks is very limited just now,” Mr Papoulias told the political leaders on Sunday, according to a transcript of the meeting released by his office.

The president cited a briefing by George Provopoulos, the central bank governor, who told him that withdrawals last week reached €700m, excluding funds used to buy German bonds and other foreign securities.

One of the Greek bankers said that since the end of April, deposits had been reduced by some €5bn, including orders to buy foreign bonds and securities. Why anyone would have even a cent in Greek bank accounts is a complete mystery. Certainly the smart money left long ago.

Here are a few charts courtesy of Steen Jakobsen, chief economist at Saxo Bank in Denmark.

Demand Deposit Flight: Greece, Italy, Portugal, to Germany



click on chart for sharper image
ECB Deposits



click on chart for sharper image
Central Bank Balance Sheets as Percent of GDP



click on chart for sharper image
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "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.

Once again, I sadly report that Ambrose Evans-Pritchard at The Telegraph hits the nail on the head as to what is happening, yet cannot hit the broadside of a barn with a shotgun from 15 feet in regards to the solution.

It really pains me to see excellent analysis go straight into the toilet with hopeless proposals to problems at hand.

Please consider Appetiser cost of Greek exit is €155bn for Germany, France: trillions for meat course by Ambrose Evans-Pritchard.
Eric Dor's team at the IESEG School of Management in Lille has put together a table on the direct costs to Germany and France if Greece is pushed out of the euro.

These assume that relations between Europe and Greece break down in acrimony, with a full-fledged "stuff-you" default on euro liabilities. It assumes a drachma devaluation of 50pc.

Potential losses for the states, including central banks.


Upper bound of the losses Billions €
French State German State TARGET2 liabilities of the Bank of Greece 22.7 30.2 Greek sovereign bonds held by the Eurosystem: SMP 9.8 14 Bilateral loans to Greece in the context of the first programme 11.4 15.1 Guarantees to bonds issued by the EFSF to provide loans to Greece in the context of the second programme 8.4 11.2 Guarantees to debts issued by the EFSF in the context of its participation to the “Private Sector Involvement” –restructuration of the Greek debt:“sweetener” 6.5 8.6 Guarantees to debts issued by the EFSF in the context of its participation to the “Private Sector Involvement” –restructuration of the Greek debt: payment of accrued interest 1 1.4 Guarantees to bonds issued by the EFSF to provide loans to Greece in order to buy back sovereign bonds used by banks as collateral to obtain funding from the Eurosystem 7.6 10.2 Total 66.4 89.8

Sounds about right. So far so good. I think a 70% devaluation is about right, but let's not quibble.

Contagion Silliness

This is where Pritchard's analysis starts getting more debatable.

Pritchard writes ..."Needless to say, the real danger is contagion to Portugal, Ireland, Spain, Italy, Belgium, France, and the deadly linkages between €15 trillion in public and private debt in these countries and the €27 trillion European banking nexus."

This idea of contagion sounds much like the totally discredited "domino" theory in regards to Vietnam. Simply put the rest of Asia did not fall into the hands of communists when the US lost the war in Vietnam.

In this case, Spain will sink or swim on its own merits regardless of what Greece does.

If anything, there will be contagion in the reverse sense. There exists a possibility that Greece recovers "because" it exits the Eurozone (however structural reforms are needed as well).

The ridiculous fear is failure in Greece will lead to a failure in Spain. Clearly both states have failed already.

Mad Hatter Tirade

Pritchard then went off the deep end into a mad hatter tirade.
This nonsense can of course be stopped in ten minutes if the EU:

1) announces that it will equip itself with a real central bank (a lender of last resort) that takes all risk of sovereign default off the table — with conviction and overwhelming force, with no ifs and buts, and no ambushes from the Bundesbank.

2) announces EMU debt-pooling, fiscal union, a joint EMU budget and tax system, and an EMU government as a counterpart for the enhanced the ECB.
The idea that Greece and Spain can be saved by central bank printing "with conviction and overwhelming force, with no ifs and buts" is of course asinine.

Sorry Ambrose, "asinine" is the best word that describes what you propose. Greece and Spain can only be saved if and only if they implement badly-needed structural reforms.

Defaulting on debt which would cause inflation in Greece and Spain (not Germany), may assist recovery, but the 100% necessary condition in both cases is structural reform.

Pritchard then recovers by concluding ...
My sympathies to the German people. This is what your leaders got you into (without asking permission). It was the elemental implication of monetary union.

We at the Telegraph screamed from rooftops in the early 1990s that EMU was a destroyer of nation states, and democracies. So did the brave German professors. Nobody would listen.

My guess is that German citizens will not accept this implication. Precisely!

As Pritchard suggests, Germany will indeed pay. Mathematically Germany must pay. It's something I have pointed out numerous times over the years.

The problem as Pritchard notes is the flaw in the Eurozone in the first place.

I commend Pritchard for being among the first to point that simple fact out. However, neither Keynesian nor Monetarist nonsense is the cure for anything.

Regrettably, Pritchard keeps attempting to put a square peg into a round hole, and worse yet keeps proposing "asinine" solutions to a fundamental problem.

If Wishes Were Fishes

• If monetary stimulus worked, the LTRO would have been a spectacular success already. 
• If monetary stimulus worked, housing in the US would be in full-blown recovery.
• If monetary stimulus worked, Japan would not have a debt-to-GDP ratio above 200%. 
• If printing worked, Zimbabwe would have been the greatest country in the world long ago.

It is really sad to see otherwise fine analysis go straight into the toilet with such ridiculous proposals as solutions.

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

Official Denials From Finance Minister

Finance Minister Says "Nothing to Hide" Asks for ECB Audit of Banks, Denies Need for Rescue Fund
The Economy Minister Luis de Guindos, said Tuesday it has asked the European Central Bank (ECB) to assist in the independent audit of the Spanish banks' balance sheets and is committed to full throttle work as has asked the Eurogroup, in order to have results within two months.

In addition Guindos assured that no minister of economy of the eurozone has said that Spain should come to the rescue fund EU to recapitalize their banks.

"There is nothing to hide, believe that the reform we are doing is a reform that clarifies and introduces transparency and clarity in balance sheets and the Spanish government has a will very clear about it," stressed the Minister of Economy.

"Nobody has spoken at all to go to the bailout fund, is a matter of speed independent valuations," has settled the finance minister when asked about whether Spain would seek assistance from the EU to help banks unable to meet the requirements of provisions providing for the reform. Another 30 Billion Euros Needed, More Nationalizations Coming Up

Banks that do not return the aid within 5 years will be nationalized
The State nationalize financial institutions that do not return within five years aid articulated through convertible bonds, the so-called 'coconuts', designed to 'clean up' their balance sheets of real estate assets.

This is particular the Legislative Decree on Saturday published the Official Gazette (BOE), which requires banks additional sanitation EUR 30,000 million credit-linked unproblematic 'brick'.

After this period, the Bank Restructuring Fund (FROB), through which the state sanctions the 'coconut', have a maximum of six months to implement in practice what would be nationalization of the entity.

However, the rule empowers the Bank of Spain to proceed with the conversion of shares before those five years when it considers "unlikely" that a particular bank can afford to pay for this help.

And if the entity defaults on the repayment of the aid, the regulator may also temporarily replace the administrative or management of the entity, which would eventually assuming his speech.

Spanish banks must set aside another 30,000 million for provisioning loans to real estate developer and healthy yet recorded incidents of payment. Collapse in Credit

Banks Use ECB Money to Refinance Large Enterprises, New Credit To Households Down 80%
Loans from the European Central Bank (ECB) for Spanish banks are finally beginning to be seen in the figures for new credit. After many months of fall shows signs of stabilization and down only 1.5%. However, the news is not as good as it seems.

If we analyze the data by sector we find that the money has not been evenly distributed, but for families and small business loan new credit falls with increasing strength while for the general business credit do you see a recovery (+8.9% compared to March 2011). These loans are likely to mostly be treated refinancing to large companies in dire financial shape, given the terrible sales data that are being seen in recent months.

In the first graph we see the evolution of total credit, which appears to show signs of stabilization, at present, about 50,000 million / month, less than half that seen at the peak of the bubble. We can also see the credit business, which also stabilizes over 45,000 million / month, less than 60% of what was in 2007, and the family is declining and is already below the 6,000 million / month, less than a quarter of what had in 2007.



click on chart for sharper image
The following graph we can see the evolution of new credit to households, broken down into housing, which fell by 21.7% compared to March 2011 (down nearly 80% from maximum), consumption, whose rate of decline increases to 10 , 2% (also down almost 80% from maximum), and other purposes, which drops to 9.8% (almost 70% from maximum). Families, therefore, despite the extraordinary liquidity injections to three years of the ECB (LTROs) were the tap is closing more and more credit.



click on chart for sharper image
The situation for the small business credit, which is what you see in the chart below, is very similar. Increases its rate of decline to 14.8% and down almost 60% from highs. However, the situation for the great credit business is very different. Increases by 8.9% over March 2011 and down only just over 36% from highs.

There is no doubt that banks are giving priority to these large companies, which not only get much more credit than all other sectors combined (despite employing only a third of private sector employees) but also , are increasing their participation in the growing pie, as they have gone to get before the crisis over 40% of loans over 60% right now.



click on chart for sharper image
The privileges of these big companies do not end here, since the conditions are also radically different for large and small loan. If before the crisis the difference used to be 100 basis points (bp), 1% or so, now the widening and extending more and reaches the 266 bp (2.66%).

Everything indicates that Spain is moving increasingly in the Anglo-Saxons called crony capitalism , but as an Iberian, ie banks that also pays to be the handouts to their favorites regardless of purely commercial factors. This can only affect an increasingly inefficient allocation of resources and a poorer functioning of markets, which will only further reduce the resilience of our economy in a globalized world increasingly difficult. Ponzi Financing

Those charts show the Spain is banking system is in deep, deep trouble in spite of official denials from the finance minister.

Ponzi financing of the largest enterprises is the name of the game and the bond market has zeroed in on it. Yield on the 10-year bond has soared to 6.35%. I expect back above 7% soon.

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

China bulls are in for a multi-year shock because rebalancing from an economy overly dependent on exports is going to be far more painful, and last much longer than most think. Data is coming in much weaker than expected, but I propose this is only the very beginning.

The New York Times reports Data Signal Economic Trouble in China
China announced Thursday that growth in imports had unexpectedly come to a screeching halt in April — rising just 0.3 percent from the same period a year earlier, compared with expectations for an 11 percent increase. Businesses across the country appeared to lose much of their appetite for products as varied as iron ore and computer chips.

Growth in other sectors appears to be slowing, too, particularly in real estate. Soufun Holdings, a Chinese real estate data provider, released figures Monday showing that residential land sales in the country’s 20 largest cities had fallen 92 percent last week from the week before, as declining prices for apartments have left developers short of cash and reluctant to start further projects.

In a series of interviews over the past week, bankers and senior executives from provinces all over China, in a range of light and heavy industries, cited a broad deterioration in business conditions. Two of them said that some tax agencies in smaller cities had been telling companies to inflate their sales and profits to make local economic growth look less weak than it really was, while reassuring the companies that their actual tax bills would be left unchanged.

There are early signs of a credit crunch, at least among private sector companies. Many seem to be asking their suppliers for more time to pay debts and complaining of cash flow problems. Zhang Jinmei, the sales manager at Qitele Group, a company that makes playground equipment in the coastal city of Wenzhou, said that local investment and lending pools there were starting to charge higher interest rates for loans, a sign of worries about creditworthiness. Imports and Exports Fall Way Short of Expectations

The Financial Times reports China trade: warning signals.
Whichever way you look at it, China’s latest set of trade figures is bad news. Not only did both exports and imports fall short of expectations, they missed by quite a way.

Although the first half of 2012 was expected to be a tough one, analysts say action is needed soon if the Q3 rebound many have been pinning their hopes on is going to happen at all.

If the large jump in the trade surplus is the symptom, the economic illnesses look multiple.

Exports have fallen to Europe for the second month in a row, which, from a trade perspective, makes this a low-point since the opening depths of economic crisis.

That Chinese imports have fallen even faster is the greater worry. Many had hoped that Chinese shoppers (and builders) would rescue the rest of the world with a voracious appetite for everything. But that seems not to be the case, at least not until the credit taps are turned back on. Easily Predictable

All of this was easily predictable yet most did not see this coming and fewer still still see what is ahead. For example please consider this feeble China forecast by PIMCO.
China’s slowdown may deepen as policy makers unwind the excesses of a record credit boom while only gradually increasing stimulus, leaving 2012 growth at the weakest in 13 years, Pacific Investment Management Co. says.

“The economy is unlikely to bottom until the third quarter,” Ramin Toloui, Pimco’s global co-head of emerging markets portfolio management in Singapore, said in e-mailed comments May 13.

Pimco, which oversees the world’s largest bond fund, sees Chinese growth this year in the “mid-7 percent range,” a pace unseen since 1999. Its call is still lower than that of banks from Citigroup Inc. and JPMorgan Chase & Co. to Bank of America Corp. and UBS AG, which all pared their forecasts after April economic data were released last week. Bottom When?

Note the feeble forecasts by Pimco, Citigroup, JP Morgan, Bank of America, and UBS.

And what's with this bottom call by Pimco in the third quarter? I have to ask, third quarter of what year? 2020?

What a bunch of collective bunk!

I am sticking with 3.5% average growth for the rest of the decade, an idea proposed by Michael Pettis in a bet with The Economist. For details, please see 12 Predictions by Michael Pettis on China; Non-Food Commodity Prices Will Collapse Over Next Three to Four Years; Nails in the Hard Landing Coffin?

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

On Sunday, May 06, 2012 I gave an Exclusive Interview to the "Daily Bell" with Anthony Wile that I would like to share with my readers.

The Daily Bell is pleased to present this exclusive interview with Mish Shedlock.

Introduction: Mike "Mish" Shedlock blogs at Mish's Global Economic Trend Analysis, for which he has won awards from the New York Times, Time Magazine, Bloomberg, CNBC and Strategist News. Mish is a contributing "professor" blogger at the economic and financial education site Minyanville and offers podcasts every Thursday on HoweStreet. He's a registered investment advisor representative for SitkaPacific. He says that unlike many free-market "Austrians," he emphasizes credit impacts and deflationary trends within larger business-cycle manifestations. When not writing about economics, Mike enjoys photography; 80 of his photos have become magazine and book covers.

Daily Bell: Give us some background.

Mish Shedlock: My background is actually in computer programming and engineering. I worked for banks for 20 years primarily as a computer analyst working on the technical end of applications. I was an assistant vice president for Harris Bank for most of that time. AVP was as high a position as technicians could get. When Bank of Montreal bought out Harris, I left to become a consultant.
Shortly after 9/11, contracts dried up and I was out of work for three years with literally no income. When the economy was doing well, I wasn't. My message at the time was cash is not trash and be prepared to lose your job. Needless to say, few listened.

I started a blog in 2005 hoping to be discovered as an economic writer. Given there are millions of blogs the success of which are near-zero, one might even think such a chance would be impossible since I had no background in either economics or investing.

However, I had some excellent teachers, primarily but not exclusively Austrian-economic minded. A person named Heinz Blasnik from Germany taught me Austrian economic fundamentals. I picked up many ideas about debt from Australian economist Steve Keen. More recently, Michael Pettis from China taught me nearly everything I know about trade. I blended those views into my own model on credit.

I received lots of help from others at numerous spots along the way. Barry Ritholz at the Big Picture Blog promoted some of my material and Calculated Risk created the first template for my blog.

Daily Bell: How did you get interested in investing?

Mish Shedlock: Shortly before I lost my job, I started hanging out on stock message boards. I met some pretty smart minds on a place called Silicon Investor and I ran one of the most popular boards on the Motley Fool.

Daily Bell: Why do people call you "Mish"?

Mish Shedlock: Every bank I worked at formulated user IDs out of a combination of one or two characters from first names and six characters of last names. Thus my login to many banks where I worked was Mishedlo. I used that name on the Motley Fool and Silicon Investor. In stock message chat rooms, people truncated that to "Mish." I thought "Mish" had a nice ring to it and adopted it as my "brand."

Daily Bell: Tell us about your relationship to Sitka Pacific and how it was formed.

Mish Shedlock: Sitka Pacific was founded by Brian McAuley. His background is not stocks or the economy, either. Rather, Brian worked for a biotechnology firm. I met Brian on the Motley Fool in early 2000. At the time he was trading for himself, then himself and family, then friends of family. Once you get above ten, you need a license. He got that license and decided he no longer wanted to work in biotechnology but rather the investment community by putting their needs first. Indeed, Sitka always puts client needs first. That does not mean we will always be right but rather we will never do anything that puts our interests first. I am proud of the fact that our backgrounds are not Wall Street oriented.

Daily Bell: Tell us about Minyanville.

Mish Shedlock: Shortly after I started my blog John Succo, a Minyanville "professor," asked the founder, Todd Harrison, to post my columns. There was some concern by the Minyanville staff that I did not have a Wall Street or hedge fund background. However, eventually, my work stood for itself. I have always believed that being an outsider and not having preconceived notions about money supply, money multipliers, buy-and-hold strategies and efficient market theory (which I think is nonsense) to be to my advantage. I was the first industry outsider (I was not yet at Sitka) to make "professor" status. The term simply means regular contributor.

Daily Bell: What is your relationship to Dollar Collapse?

Mish Shedlock: Many of the ideas I write about come from articles I read elsewhere. Dollar Collapse and Bloomberg were at the top of the list. Currently I get many stories from Financial Times. Also, writers from around the world send me links. "Brisbane Bear" sends me stories every day from Australia. "Bran" sends me links every day from Spain. I get email updates from Michael Pettis in China and from Steen Jakobsen, the chief economist from Saxo bank in Copenhagen, to name a few. Literally I am swamped with links from all over the world. My goal is to make sense of the news. Sometimes I agree with those I quote and sometimes I am very harsh. Either way, I try to add something to the conversation, not just copy a story.

Daily Bell: How were you able to find the time to do so much incisive writing?

Mish Shedlock: When you are out of a job, with no income, you have plenty of time on your hands. That is how it all started. Now blogging and Sitka Pacific are full-time jobs. I am reading and writing 14 hours a day on many days. However, it does not seem like a job. Many times I am laughing my head off at what I write and hope others do, too. One of the best compliments I ever received was when someone asked me to please remind them to not drink coffee while reading my blog. That request came from someone who spit coffee out his nose trying to suppress laughter while reading my blog.

Certainly I am not always humorous. Sometimes I am sarcastic, angry or questioning. There is no particular slant I try for. However, my role is always the same: to make sense out of the news in an educational way that people can easily relate to. I am pleased the New York Times recognized that effort, naming my blog, along with Calculated Risk and the Big Picture, as their number one idea for the year. (See "NYT 10th Annual Year in Ideas - #1 Idea of the Year 'Do-It-Yourself Macroeconomics.")

Daily Bell: Do you consider yourself an Austrian in some sense?

Mish Shedlock: Absolutely I am Austrian. Money supply and credit are paramount in economic analysis. However, many Austrians missed the mark badly by failing to consider credit. To me, inflation is an increase in money supply and credit with credit marked to market. Deflation is the opposite. Those who predicted massive "price inflation" based on rapidly rising base money supply or M2 missed the boat and missed it badly. Many Austrians called for treasury yields to go to the moon. When oil hit $140 in 2008 I called for record low yields across the entire yield curve. Most thought I was crazy. My rationale was based on credit, the demand for more credit and the value of credit on the balance sheets of banks. The demand for credit plunged, the value of debt as an asset on balance sheets plunged and in response, yields plunged.

This set of events was very predictable but many called for hyperinflation based on rapid increase in base money supply and the misguided money multiplier belief that increases in money supply get lent out ten times over. In practice, the money multiplier theory is nonsense and the $1.5 trillion in excess reserves at the Fed proves it. Banks lend under three conditions, all of them required: 1) Banks are not capital impaired. 2) Banks believe they have credit-worthy borrowers. 3) Credit-worthy businesses and individuals want loans. If any of those conditions fail, credit expansion goes nowhere (at best) and is negative if defaults rise.

Except for student loans, credit expansion has indeed gone nowhere in this recovery. I wrote about credit expansion recently, complete with nice charts, in my post, The Real Consumer Credit Story: Virtually No Recovery in Revolving Credit, No Recovery in Non-Revolving Credit.

Daily Bell: What is your position relative to Bill Still, Ellen Brown and others who espouse public central banking?

Mish Shedlock: Should populist Ellen Brown get her way, I would have to rethink my US hyperinflation position. Sadly, Brown is another one of those who understands various problems with the Fed, but proposes a solution that is worse, putting state politicians in charge of printing presses. When push comes to shove, the Fed would protect the banking system. Politicians would not. Moreover, the idea that North Dakota, a small, loosely populated farm state is in good shape because it has a state bank is preposterous. Worse yet, Brown takes that absurd position to the extreme, with a proposal to end the Fed and put California politicians (state politicians in general) in charge of printing money to support union causes. For further discussion please see "Lawmakers Threatenn to Take Over Monetary Policy."

Daily Bell: You want to end the Fed don't you? What would you put in its place?

Mish Shedlock: One word: nothing. The free market can easily set interest rates.

Daily Bell: Do we need government bureaucrats to dictate the production or the price of cement, oranges, automobiles, computers or copper?

Mish Shedlock: Anyone proposing such an insane idea would be laughed out of the room yet we expect a bunch of academics, with no real world experience, to do something far more difficult: set the proper amount of money and the interest charged on it. The idea is as ludicrous a Russian central planners setting steel production levels. Results speak for themselves: a series of economic bubbles and collapses with increasing amplitude in both directions. The result is a shrinking middle class and increasing wealth concentration at the top.

Daily Bell: Does Greenbackerism lead to inflation? If not, why not?

Mish Shedlock: Before there can be intelligent discussion, one must define the terms "Greenbackerism" and also "inflation." Let me ask a simple question: What's more important to the economy, home prices falling from $600,000 to $250,000 or the price of steak going from $4.99 to $5.99 or gasoline from $2.50 to $4.00. People constantly moan about the latter, but economically speaking, the plunge in home prices is far more important. I discussed this at length in "How Far Have Home Prices 'Really' Fallen? HPI and the CPI."

I suspect the answer to your "Greenbackerism" question is, "Yes, eventually," with an emphasis on eventually. It is safe to say, regardless of your definitions, that printing is unsound and ultimately, printing money leads to bigger boom-bust cycles or other economic distortions that crucify the middle class.

Once again, my definition of inflation is an increase in money supply and credit, with credit marked-to-market. Deflation is the opposite.

Let's compare the practicality of my definition vs. a definition that involves prices or a definition that involves money supply in isolation.

If the definition of inflation is a nominal rise in the CPI, then the inflationists have allegedly been correct. However, treasury yields are at record lows, home prices are at record lows, jobs have languished and credit has stalled. Simply put, most of the things one would expect to see in inflation have not happened. The same holds true for those who only look at exploding base money, forever predicting the money will multiply ten times over and treasury yields will soar.

On the other hand, my credit-view of deflation has accurately called for most of these things, including the rise in the price of gold and a collapse in the value of houses. Like Humpty Dumpty, people can define the term inflation however they want, but those who miss the boat on credit are left wondering why the economy is not acting as generally expected by their definition.

Most Austrians completely missed the ramifications of collapsing credit and the collapsing value of credit on bank balance sheets. Similarly, virtually all Keynesians missed the boat on the housing bust. In general terms, Keynesians missed the inevitability of a collapse that must follow a reckless expansion of credit. Only those who focused on credit have been properly aligned with what is actually taking place.

Daily Bell: What's the future for the EU?

Mish Shedlock: No currency union in history has ever survived without there being a fiscal union as well. Since there will not be a fiscal union, the Eurozone must break up. The ideal way would be for Germany and the Northern countries to exit. The painful way will be a piecemeal exit. I expect this to be long and painful.

Daily Bell: How about China?

Mish Shedlock: China is due for a "hard landing" which I define as less than 3.5% growth for the rest of the decade. I expect commodity prices will likely crash and the commodity producing currencies such as Australia and Canada will take a big hit as well.  

The Economist believes China will be the world's largest economy by 2018. I suggest 2030 may be optimistic and Chinese growth will average 3% or less for the rest of the decade. For a discussion of the implications, please see "12 Predictions by Michael Pettis on China; Non-Food Commodity Prices Will Collapse Over Next Three to Four Years; Nails in the Hard Landing Coffin?"

Daily Bell: If China goes into a meltdown, the world faces a full-scale depression. What's your take?

Mish Shedlock: The US will actually fare relatively well in a collapse of China. It is the trade surplus nations and commodity produces that will take the biggest hit as noted in the previous link.

Daily Bell: Where is the US headed?

Mish Shedlock: The US is headed for recession. The US recession will not be as bad as Europe, but corporate earnings will sink like a rock. The US dollar will strengthen much to the dismay of the hyperinflationists. Then, after Europe, China, and Japan take big hits, then and only then will the final plunge in the US dollar occur.

Daily Bell: Where is Japan headed?

Mish Shedlock: Japan is all but guaranteed to blow up before the US. A mere rise in long-term interest rates from 1% to 2% would consume nearly all government revenues. Ironically, I like Japanese equities but only hedged against a plunge in the Yen. After 20-plus years of deflation, Japanese companies have almost no debt but the currency risk is huge.

Daily Bell: Are you confident of your businesses success in the US?

Mish Shedlock: If you mean me personally, yes, pretty much so, but not overconfidently so. I am debt-free. We paid off our mortgage this month. The key will be to catch the turn. I will not be bearish forever.

Daily Bell: Are you thinking of traveling abroad?

Mish Shedlock: Personal difficulties make overseas travel problematic. I am now involved in a fundraiser for ALS research (Lou Gehrig's Disease). My wife is in the late stages and nearly immobile. She has been on a feeding tube for over a year and cannot eat or drink anything, including water. So far, people from at least 22 countries have made donations. I ask everyone to please consider making a contribution. To learn how you can help, please read "My Wife Joanne Has ALS, Lou Gehrig's Disease."

Daily Bell: What do you think of US monetary policy?

Mish Shedlock: It's hopeless. We should get rid of the Fed specifically and all central bankers in general. As noted earlier, central bankers are nothing but serial bubble blowers. The irony is they purport to be "inflation fighters." In reality, central banks are the very cause of inflation. Bernanke even wants a 2% inflation target. Economically speaking, it's crazy. Eventually asset prices and wages do not follow consumer prices and all hell breaks loose, which is precisely where the global economy is today. I have some nice charts of inflation targets and real disposable income in "Huge Problem With Bernanke's 2% Inflation Target Explained in Pictures."

Daily Bell: On US government statistics?

Mish Shedlock: Any statistics that need to be produced, the free market can do better and cheaper. For example, Gallup does monthly surveys on unemployment and they do a very good job. Do we need a mountain of highly paid government bureaucrats to gather unemployment stats? I think not. Most do not believe the stats anyway.

Daily Bell: What's in the future for gold and silver?

Mish Shedlock: Gold is money. When available, the free market has always selected gold as money. Government decree cannot change that fact. Silver, however, has a huge industrial component. Sometimes silver acts like money but most of the time it acts more like a commodity plaything. Would the free market accept gold and silver as money right now if allowed? I don't know but I sure would like to find out. What sets me apart from the Prechter deflationists is my recommendation that people hold 10-30% of their investment capital in gold. I do not have a price target but strongly believe another big surge is coming.

Note that gold does not necessarily respond to movements in the US dollar. For example, the US dollar index is near 80. The dollar index was at 80 in late 2004 and gold was just over $400. If gold is not responding to moves in the dollar then what is it responding to? I suggest gold has responded to central bank efforts to revive credit. It has also responded well to sovereign credit stress.
The Fed wants home prices to rise. The Fed also wants another credit lending spree. Neither happened. Clearly, the Fed can provide liquidity but it cannot determine where (if anywhere) liquidity goes. Since more liquidity efforts are surely on the way, and gold is the likely beneficiary, I highly doubt that gold has peaked. Eventually there will be a huge currency crisis and gold will soar.

Daily Bell: Tell us more about the performance of your firm.

Mish Shedlock: Sitka Pacific manages portfolios that look across asset classes in an effort to generate absolute returns without exposing the portfolio to catastrophic drawdowns. You can find more information including our 6-plus year performance track record at sitkapacific.com.

Daily Bell: What's your investment strategy?

Mish Shedlock: Sitka Pacific is very cautious right now. Our Absolute Return strategy currently has a position in gold, but is otherwise essentially market neutral. Our current mission is risk avoidance with a focus on avoiding the next big decline. We feel risk is high and if we avoid big drawdowns we will more than make up for it by hopping in when valuations are more attractive. To be fair, I said the same thing over a year ago. Sometimes the market has other ideas. That's why we do not use leverage, and we are never net short.

My personal views on risk and valuations are reflected in my post, "Misty Water-Colored Memories, Dirt-Cheap Stocks, and Patient Opportunism."  I also believe there is a strong likelihood of "Negative Returns for a Decade." There are numerous references in the preceding link.

Daily Bell: Do you believe there's a power elite that wants to create global government?

Mish Shedlock: Yes. One can easily see it in Europe. Many are angling for what I call the European "nanny zone." One can also see the idea in various IMF Special Drawing Rights proposals.

Daily Bell: Is that a good idea?

Mish Shedlock: Obviously not. It will fail for the same reasons the Euro will fail. Europe is the big test and I think the Eurozone splinters. Should the Eurozone actually hold together, expect zero growth for at least a decade. Germany will take a huge hit regardless. Either Germany provides more capital, or the Southern states default leaving Germany holding the "euro bag." Expectations that Germany will decouple from the rest of the Eurozone are thus nonsensical.

Daily Bell: What about this tax situation? Why the current emphasis on tax revenue?

Mish Shedlock: Hiking taxes in the midst of a global recession is foolish at best. Europe and the US need work rule reforms and pension reforms, not higher taxes. I strongly support ending collective bargaining of public unions, scrapping Davis-Bacon and all prevailing wage laws and instituting national right-to-work laws. Many US cities are effectively bankrupt by making pension promises that cannot be met. Greece is bankrupt for that reason (and others) as well
.
Raising taxes is not the answer. So what's the solution? I have an eight point proposal in "Public Unions Bankrupt Illinois: Unpaid Bills Top $9 Billion as Comptroller Reports 'State Treading Water'; Mish's Eight-Point 'Bold' Plan to Save Illinois."

Daily Bell: Where do you go from here?

Mish Shedlock: I am thinking about writing a book on the direction the US should take. I have lots more ideas. However, the problem is finding the time to do it.

Daily Bell: Thank you for taking time from your busy schedule for this interview, and our best wishes to you and your wife.

Mish Shedlock: Thank you for the invitation.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.

In case you missed it, back on April 2, 2012 I reported My Wife Joanne Has ALS, Lou Gehrig's Disease.

In that post, I announced I was running a raffle for the benefit of the Les Turner ALS Foundation. Please read the post if you have not yet seen it.

Many people have asked for an update, so here goes.

Raffle ticket purchases and contributions have come in from 22 countries around the world.

Countries Making Donations

1. Australia
2. Belgium 
3. Canada 
4. Chile
5. China
6. Estonia 
7. France 
8. Germany 
9. Ireland 
10. Japan 
11. Luxembourg 
12. Mexico
13. Netherlands 
14. New Zealand 
15. Norway 
16. Panama 
17. Singapore 
18. South Africa 
19. Spain 
20. Sweden 
21. Switzerland 
22. United Kingdom

Approximately $209,000 has been raised so far of which $9,000 has been cash contributions, not raffle ticket purchases.

In addition, two corporate sponsors have kicked in $10,000 each. Sitka Pacific was a corporate sponsor (half mine) and GoldMoney was a corporate sponsor.

Given half of raffle ticket proceeds go to raffle winners, and half to the Les Turner ALS foundation, the approximate total raised for ALS research is about $130,000.

The Les Turner ALS foundation is thrilled with those results, but I am disappointed. I have about 46,000 subscribers to my blog feed, but a mere 997 raffle tickets have been sold as of Sunday.

I never expected to sell the allotted number of 30,000 raffle tickets, but the state of Illinois required us to pick a number so I purposely picked a high one. However, I did hope to raise $1 million in lottery tickets, half going to ALS research.


Over the years many people have asked me to put up a tip jar. I refused. I have always thought the best information is free. That philosophy has served me well. I have never asked for anything, but I am asking now.

If information from this blog, for free, 4-5 posts a day (for 7 years!) has made you money or kept you out of trouble, then please consider purchasing a raffle ticket or making a donation.

If times are tough, and they may very well be, then please consider a cash donation of $10 or more. Every bit helps.

Checks

To make a cash donation by check or money order, please send a check or money order to
Lacey Wood 
Mish Campaign
Les Turner ALS Foundation
5550 W. Touhy Avenue, Suite 302 Skokie, IL 60077
847.679.3311 (Main)
Any questions, please call the above number.

Credit Card

You can make a donation or purchase raffle tickets by credit card on the raffle site.

Some people did not like entering the information fields required, however, the purpose is only to ensure the foundation knows how to get in touch with raffle winners.

People move, phone numbers change, and email addresses change. It's as simple as that.

Those who do not like disclosing personal information on a form (the site is secure) can send a check or money order for tickets or to make a donation.

Corporate Sponsors

I am also disappointed in lack of response from corporate sponsors. Where is Google? Apple? Sony? I emailed all three.

So a big tip of the hat to  GoldMoney for stepping up to the plate.

If you wish to buy a raffle ticket or make a donation, please click on this link to Support the Les Turner ALS Foundation.

Thanks
Mish

Addendum:

Counting the US there are 23 countries now

As of Thursday 5-17-2012 the updated total is $273,759

• Donations $14,931
• Tickets $236,800
• Corporate Sponsorships $20,000

Les Turner gets half of ticket sales so the direct benefit to Les Turner so far is $154,331

Some people did not like entering the information fields on the raffle site. The purpose is only to ensure the foundation knows how to get in touch with raffle winners. People move, phone numbers change, and email addresses change. It's as simple as that.

Those who do not like disclosing personal information on a form (the site is secure) can send a check or money order for tickets or to make a donation.

Thanks
MishMike "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.

Those looking for a bit of humor in the European debacle can find it in statements from Jean-Claude Juncker, head of the eurozone finance ministers.

Juncker says "I don’t envisage, not even for one second, Greece leaving the euro area. This is nonsense. This is propaganda. We have to respect Greek democracy."

Bear in mind this statement comes from the same man who said "When it becomes serious, you have to lie."

Also bear in mind Juncker's support for a Troika installed puppet government in Greece, after Greek Prime Minister George Papandreou proposed putting bailout measures to a vote.

Notice that bailout measures went to a vote anyway.

Two More Days of Hopefully Futile Greek Negotiations

The Financial Times reports Greece set for further coalition talks
Greece’s president is set to resume coalition talks on Tuesday with the country’s political leaders in another attempt to avoid a fresh general election after a meeting on Monday evening ended without agreement.

President Karolos Papoulias has another 48 hours to persuade politicians to join a national unity government according to the constitution or face having to call another election.

Mr Venizelos said after the meeting he had supported the president’s proposal for a “government of personalities” with backing “from as many political parties as possible” to implement further reforms agreed in return for a second €174bn bailout.

“The situation is very difficult and I’m not optimistic, but we must try every possible solution,” Mr Venizelos said.

Alexis Tsipras, the leader of Syriza, the radical leftwing coalition that rejects the terms of Greece’s international bailout, refused to participate in Monday’s talks. “We’re not going to join in selective meetings of political leaders ... The circle of contacts provided for by the constitution has been completed,” he said.

Jean-Claude Juncker, the Luxembourg prime minister who heads the group of eurozone finance ministers, sharply criticised other EU leaders for “threatening” Greece with expulsion from the single currency, saying the will of Greek voters must be respected.

“I don’t envisage, not even for one second, Greece leaving the euro area. This is nonsense. This is propaganda,” Mr Juncker said angrily at a news conference. “We have to respect Greek democracy.”

He added he would be open to debating easing terms of the €174bn bailout, including extending dates to hit fiscal and economic reform targets by a year, something that has been anathema to several leaders in Germany, the European Central Bank and the European Commission.

Maria Fekter, the outspoken Austrian finance minister, went so far as to suggest Greece may have to leave the EU, since there is no legal provision for leaving the euro without exiting the union.

“Greece would have to reapply and then we would have membership negotiations and look very closely whether Greece would be able to become a member at all,” said Ms Fekter. “We look much more closely than when they joined the euro.”make full repayment on the bond, which was issued under UK law, to avoid future legal action by holdout investors, the official said. Lies Everywhere

Junker's statement about willingness to negotiate changes in bailout terms is of course a blatant lie aimed at keeping Greece in the Eurozone.

Also note the lie from  Maria Fekter about Greece having to leave the EU if it exits the eurozone. Given that numerous countries are in the EU without being in the Eurozone, the UK is a prime example, Fekter's statement is complete nonsense.

That said, perhaps Greece is better of not being in the EU as well. Certainly the UK would be better off telling the EU where to go.

"When it becomes serious, you have to lie."

Indeed Juncker and and others have proven lies are the norm.

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

The grim situation in California is about to get grimmer as Unemployment Benefits Go Bye-Bye More than 200,000 long-term jobless Americans will lose their unemployment checks this week, when eight states roll off the federal extended benefits program.

Nearly half of them live in California, and the rest reside in Florida, Illinois, North Carolina, Colorado, Connecticut, Pennsylvania and Texas.

The federal extended benefits program has provided the jobless with up to 20 weeks of unemployment checks after they've run through their state and their federal emergency benefits, which together last up to 79 weeks.

But the extended benefits program is expiring throughout the country as the economy improves. To be eligible for these benefits, a state must show that its unemployment rate is at least 10% higher than it was in at least one of the past three years.

Already, 25 states have rolled off the extended benefits program, with 15 of them exiting last month alone. But more unemployed folks will be affected by this week's cessation than April's, when about 135,000 people saw their payments end.

The jobless have been able to collect up to 99 weeks of benefits for much of the Great Recession and its aftermath. But after multiple extensions, Congress in February passed a law that starts phasing out this unprecedented lifeline.

Starting later this year, the maximum number of weeks the jobless can collect unemployment benefits will be reduced to as little as 40 weeks in states with jobless rates below 6% and to as many as 73 weeks where unemployment tops 9%. Long Term Unemployed



The chart shows a drop of about 1.5 million off the long-term unemployment rolls. Yet, about 5.1 million are still long-term unemployed.

Moreover the numbers are probably much worse than they look as some of that drop is a result of fraudulent disability claims. For details please see TrimTabs on Debt and Disability Claims: How Much Debt Does it Take to Generate $1 in GDP? Disability Fraud vs. Expiring Unemployment Benefits Revisited.

Given a total of 335,000 have lost or about to lose unemployment benefits, I expect to see another jump in fraudulent disability claims. Those of retirement age might also select "forced retirement" in order to collect social security benefits.

As noted above, California bears the brunt of this wave of benefit expulsions, and that will exacerbate the state's fiscal problems. For details, please see California Deficit Soars to $16 billion; Governor Brown Threatens Public Education Unless He Gets "Temporary" Tax hikes; How Brown Ruined California in His First Term; Four Point Solution.

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

The talks still continue but good news is on the horizon as yet another political party, the Democratic Left, has backed out of the Unity coalition.

Please consider Greece's moderate left says no government possible
The moderate Democratic Left party in Greece says it will not join pro-bailout parties in a coalition without the more radical far-left Syriza.

Syriza is refusing to attend coalition talks because it will not back any government which supports austerity measures demanded by the EU and IMF.

The Greek president has summoned the four main parties for last-ditch talks in an effort to avoid new elections.

"No unity government can emerge," Fotis Kouvelis, head of the Democratic Left party, told Greek television.

"A government without Syriza would not have the necessary popular and parliamentary backing." Chart Explains Why Deal Is Now Impossible

Here is a nice chart from the article that highlights the situation. Annotations in purple by Me.



The Independent Greeks are willing to form a coalition, however please note 7 Conditions For Coalition Government The head of Greece's nationalist Independent Greeks party Sunday set seven conditions--including annulment of the country's loan deal--for his party's participation in a coalition government, even as Greece scrambles to resolve a weeklong political deadlock following inconclusive polls last week.

Speaking less than an hour after a meeting with Greece's president, Panos Kammenos said any coalition partners would also have to agree to immediately expand the country's exclusive economic zone, set up a special committee to re-examine the size of Greece's official debt--which Kammenos disputes--and press the case of German war reparations from the World War II, among other things.

"The president of the republic said he would share our proposals with the heads of the other parties," Kammenos said. "If these seven proposals are accepted, at that point we will see if a coalition government is possible with the other parties."

Kammenos, who polled fourth in last Sunday's elections and won 10.6% of the vote, reaffirmed his opposition to the loan memorandum and the austerity measures associated with it. Two Votes Short

Those conditions leave the Unity coalition two vote short of a majority. Unless a couple of elected representatives switch parties, a new vote will take place. It is highly likely Syriza will get enough votes from the left to form a government.

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

A small dose of reality has set in for a group of European central bankers: Euro Officials Begin to Weigh Greek Exit as Euro Weakens.
Greece’s possible exit from the euro moved to the center of Europe’s financial-crisis debate, rattling markets as authorities in Athens struggled to form a government.

Meetings brokered by Greek President Karolos Papoulias were set to continue today after Syriza, the leading anti-bailout party, rejected a unity government following inconclusive elections May 6. That moved the country closer to a new vote, with at least five European central bankers broaching the once-taboo topic of its exit from the euro.

Euro finance ministers meeting today in Brussels may discuss the bailout for Greece, as well as the situation in Spain, where the government last week made a fourth attempt to clean up banks. Getting German Chancellor Angela Merkel to weaken her demand that debt cutting be the core of the crisis response will be a key objective of new French President Francois Hollande when the two meet tomorrow in Berlin.

The euro fell for the 10th day in 11, weakening 0.4 percent to $1.2872 at noon in Brussels, the lowest in three months.

No New Concessions

The euro finance ministers, known collectively as the eurogroup, will convene in Brussels at 5 p.m. local time.

The European Commission isn’t considering easing the terms of the joint bailout for Greece from the EU and the International Monetary Fund, EU spokesman Amadeu Altafaj said, denying a report by Athens-based Real News. Message to Greek Politicians "No New Concessions"

Greek Unity-Clown proponents Evangelos Venizelos, leader of Pasok party, and Antonis Samaras, leader of the centre-right New Democracy party, keep promoting the idea of a "Unity" government that will renegotiate the terms of the bailout. Clearly they are liars.

If the eurocrats, Germany, and IMF were to agree to negotiate new terms, that would be now, not after Greece kisses the Troika's ass with a "Unity Pledge".

Given the statement from the EU on concessions,  Syriza party leader Alexis Tsipras would be a fool to agree to a "Unity" government. Actually, he would be a fool anyway because no one can possibly believe meaningful concessions are coming, promised or not.

Lies and Half-Truths from German Finance Minister

German finance minister Schaeuble Says If Greeks Had Own Currency It Would Devalue.

The devaluation claim is certainly true enough, but it is also obvious.

Here is Schaeuble's blatant lie: "The advantages for the Greeks [to stay in the eurozone] are greater, but it will be strenuous".

Chancellor Angela Merkel will host French President Francois Hollande in Berlin tomorrow after his election on a platform of a switch away from the chancellor’s focus on austerity. Hollande wants to reopen the European Union’s budget treaty to include measures to spur economic growth.

“I think Hollande knows that the fiscal pact can’t be renegotiated,” Schaeuble said.

That is a lie as well and we will find out soon enough. Given the Crushing Defeat for Merkel's CDU Party in German Elections last weekend, Hollande will press even harder for what he wants: Eurobonds and a weakening of austerity measures.

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

California, like Greece is perpetually in fiscal trouble. Overoptimistic revenue forecasts coupled with spending $2 billion more than expected has California in a deep hole. Governor Jerry Brown has the same non-solution as ever, hike taxes.

Brown wants a "temporary" (as in seven years) tax hike. Given we all know there are no such things as temporary tax hikes in California (seven years is permanent enough in the first place), and also given the California school budget needs an axe, I say let him.

Please consider California deficit has soared to $16 billion, Gov. Jerry Brown says
Gov. Jerry Brown announced on Saturday that the state's deficit has ballooned to $16 billion, a huge increase over his $9.2-billion estimate in January.

Lawmakers and others were hoping that a rebounding economy would help the state avoid steep cuts to social services. But revenue in April, the most important month of the year for income taxes, fell far short of expectations, leading to a shortfall of at least $3 billion in the current fiscal year.

The state has also spent $2.1 billion more than expected, according to the controller, further worsening California's financial health.

Advocates involved in budget discussions say they expect deeper cuts to social services than Brown originally proposed in January. Union officials are also in negotiations with administration officials about ways to reduce state payroll costs, an issue that wasn't on the table earlier this year.

Brown has said there will be even deeper cuts, mostly to public education, if voters do not improve tax hikes in November. He is seeking a quarter-cent increase in the state sales tax for four years and a seven-year hike on incomes of $250,000 or more that will range from 1 to 3 percentage points. He says the measure would raise $9 billion in the upcoming budget year. Tax Hikes, Public Unions, and Union Sympathizers Hand-in-Hand

Whenever tax hikes are on the table, union supporters are at the front of the line demanding them.

Yahoo!News has additional details in California facing higher $16 billion shortfall
Under Brown's tax plan, California would temporarily raise the state's sales tax by a quarter-cent and increase the income tax on people who make $250,000 or more. Brown is projecting his tax initiative would raise as much as $9 billion, but a review by the nonpartisan analyst's office estimates revenue of $6.8 billion in fiscal year 2012-13.

Supporters of the "Schools and Local Public Safety Protection Act of 2012" say the additional revenue would help maintain current funding levels for public schools and colleges and pay for programs that benefit seniors and low-income families. It also would provide local governments with a constitutional guarantee of funding to comply with a new state law that shifts lower-level offenders from state prisons to county jails.

A second tax hike headed for the November ballot is being promoted by Los Angeles civil rights attorney Molly Munger, whose initiative would raise income taxes on a sliding scale for nearly all wage-earners to help fund schools.

Anti-tax groups and Republican lawmakers say both tax increases will hurt California's economic recovery. State GOP Chairman Tom Del Beccaro has embarked on a statewide campaign to discuss alternatives to Brown's tax hikes.

The governor is expected to propose a contingency plan with a list of unpopular cuts that would kick in automatically if voters reject tax hikes this fall. In January, he said they would result in a K-12 school year shortened by up to three weeks, higher college tuition fees and reduced funding for courts. Expect to hear Armageddon chants from public unions immediately if not sooner.

How Brown Ruined California in His First Term

Bear in mind that Governor Brown helped ruin California with public union collective bargaining rights in his first stint as governor, in the 70's.

• The Educational Employment Relations Act of 1976, established collective bargaining in California's public schools and community colleges
• The Ralph C. Dills Act of 1978 established collective bargaining for state government employees
• The Higher Education Employer-Employee Relations Act of 1979, extended collective bargaining to the state university system.

California schools and taxpayers are perpetually in the hole because of Brown's idiocy decades ago.

Four Point Solution

Fixing the problem is easy to describe, but hard to implement given all the union sympathizers who want to further wreck the state.

1. California needs to end collective bargaining of public unions
2. California needs to claw back promised pension benefits
3. California needs to end all defined benefit plans for public employees
4. California needs to scrap prevailing wage laws that have crucified cities

Raising taxes will just cause the exodus of more corporations and highly salaried workers as noted in California Tax Revenues Plunge; Businesses Exit "Taxifornia" in Droves; Piecing Together the Jobs-Picture Puzzle

Taxed to Death

If Brown continues to suck up to the public unions responsible for the mess California is in, expect still more businesses to leave, expect the unemployment rate to rise, and expect a continued plunge in revenue.

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

I was hoping for an election announcement today, but the pressure is on for "one" more day as Greek President to Meet Four Party Leaders Tomorrow in one more attempt to form a "Unity Coalition".
Greek President Karolos Papoulias will meet with political party leaders at 7:30 p.m. tomorrow as discussions on forming a national unity government continue, state-run NET TV said, without citing anyone.

New Democracy leader Antonis Samaras, Pasok leader Evangelos Venizelos and the head of the Democratic Left party Fotis Kouvelis will attend the meeting, NET reported. NET initially said that Syriza party head Alexis Tsipras was also expected to attend the meeting, but later reported he would not be taking part. Greek Communist Head Calls For Annulment of Greek Loan Deal

 The Wall Street Journal reports Greek Communist Head Calls For Annulment Of Greek Loan Deal The head of Greece's Communist KKE party Sunday called for the annulment of the country's loan deal, ruling out her party's participation in a coalition government, even as Greece scrambles to resolve a weeklong political deadlock following inconclusive polls last week.

"We will introduce legislation in the Greek parliament, which is going to set out very specifically the elimination and annulment of the [loan agreement], Aleka Papariga said after a meeting with Greece's president Karolos Papoulias.

For the benefit of Greece and taxpayers in the Eurozone in general, let's hope this last attempt to form a coalition falls flat.

The sooner Greece leaves the euro, the sooner it will have a chance to recover.

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

Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Things are looking better for Greece as the latest report is Greek coalition talks break down in acrimony.
Greece appeared to be heading for fresh national elections after last-ditch coalition talks chaired by the country’s president ended in mutual mud-slinging by the conservative, socialist and leftwing leaders.

Antonis Samaras, leader of the centre-right New Democracy party, said the radical left coalition Syriza had blocked efforts to break the deadlock, even after a letter from premier Lucas Papademos was circulated at the meeting outlining Greece’s deteriorating fiscal position.

Tax collection slowed markedly during the election campaign, putting budget deficit targets at risk, according to a finance ministry official. Prolonged political instability would also delay the implantation of a €40bn recapitalisation scheme for Greek banks included in the country’s second bailout by international lenders, the official said.

Mr Samaras criticised Syriza’s 37-year-old leader for refusing to help form a coalition or support a government that would try to re-negotiate the terms of the bailout. “I don’t know where (Alexis) Tsipras is heading,” Mr Samaras said at the end of a 90-minute meeting described as “highly charged” by presidential aides.

Evangelos Venizelos, leader of the PanHellenic Socialist Movement (Pasok), accused the Syriza leader of “showing arrogance” by opposing a coalition deal. Again and Again Samaras Proves He's a Liar

Samaras' idea that terms of the bailout can be renegotiated is a complete farce and he knows it. He is simply looking for any way to get into power.

Moreover, falling tax receipts means only one thing: harsher austerity terms and more demand from Germany not less. If there was any change of heart from Germany, it would be up to Germany to lead the way, not Greece. Samaras knows this as well.

I suppose one can accuse Syriza party leader Alexis Tsipras of lies as well, given he is running on a platform of staying in the Euro as well as defaulting on debts. However, anyone with an IQ above the level of a rock knows that is impossible.

Let's hope for another election on June 10th or 17th, one with a clear mandate to tell the Troika to go to hell. Such an outcome is in the clear best interest of all of Europe.

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

The BBC reports New election blow for Germany's Merkel
Chancellor Angela Merkel's conservatives have suffered heavy losses in an election in Germany's most populous state, exit polls suggest.

Support for the Christian Democrats dropped from 35% to 26% in North Rhine-Westphalia, with the Social Democrats set to return to power with the Greens.

It is the Christian Democrats' worst result in the state.

Analysts say many voters rejected Mrs Merkel's tough line on fiscal discipline as a cure for state debt.

In another development, the exit polls suggested Germany's Pirate Party had won seats in North Rhine-Westphalia, making it their fourth state parliament.

The Pirate Party has grown in strength recently with its calls for transparency and internet freedom.

According to two exit polls, the Social Democrats (SPD) won around 38%, the Christian Democrats (CDU) 25.5%, the Greens 12%, the Free Democrats (FDP) 8.5%, the Pirates 7.5% and the Left, 2.5%.

The FDP, the CDU's national coalition partner, performed better than expected, increasing their vote by nearly two percentage points and thereby giving the lie to speculation that they might fail to win seats.

When the CDU and FDP recently lost elections in the northern state of Schleswig-Holstein, Mrs Merkel's party scored its lowest tally there for 50 years. German Voters Reject Austerity

The Financial Times reports German Voters Reject Austerity
Angela Merkel’s centre-right Christian Democratic Union suffered a bruising defeat on Sunday night in the election of a new parliament in North Rhine-Westphalia, Germany’s most populous state, when the centre-left opposition of Social Democrats and Greens won a clear majority.

The vote for the CDU slumped to just 26 per cent, according to the first exit polls, by far its worst result in the state in the post-war period, and a serious setback for the German chancellor.

The outcome will be seen as a rejection by voters of the strict austerity policy promoted by Ms Merkel’s party at both local and national level, and a boost for the opposition. It will encourage the SPD and Greens to campaign all out for a “red-green” coalition at national level when Ms Merkel stands for re-election in autumn 2013.

However the biggest casualty will be Norbert Röttgen, environment minister in Berlin and leader of the CDU in NRW, who immediately took responsibility for the disastrous defeat and announced his resignation from the local party leadership.

Mr Röttgen, who was regarded as a crown prince and potential successor to Ms Merkel, had sought to make the government’s austerity policy in Berlin and in Europe the central theme of the NRW campaign. The outcome suggests that he made a mistake in doing so, and that the CDU espousal of austerity in NRW actually lost the party votes. Crown Prince Turns Into Frog

It is probably amazing to most US citizens that a political party named "Pirates" running on a platform of internet freedom could win any seats. Such is the nature of European politics where parties get representation if they meet a small threshold, in Germany's case, a mere five percent.

The big news is not the Pirate Party but the trouncing CDU took at the hands of the Social Democrats.

Ex-crown prince, Mr. Röttgen, is now a toad because he played himself as a Merkel clone. He tried to take the blame for this debacle,  but without a doubt Merkel will bear the brunt of the blame.

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