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2N
nuggets of financial self-defence
Financial blog on news and global macroeconomic themes regarding the world economy. The blog's primary focus pertains to inflation, deflation, and hyperinflation, especially currencies, gold, silver, crude, oil, energy and precious metals. Other macro discussion topics include interest rates, China, commodities, the US dollar, Euro, Yuan, Yen, stagflation, emerging markets, politics, Congressional and statewide policy decisions that affect the US and global markets.
Zaktualizowano: 12 godzin 44 min. temu

German Two-Year Bonds Have Negative Yield, Demand High; Euro Bond Bubble Guaranteed to Burst

pt., 22/08/2014 - 20:01
Central bank money madness continues, with market participants expecting QE to begin in Europe.

Would QE spur bank lending? Of course not. Banks do not lend from excess reserves. Banks lend (provided they are not capital impaired), when credit-worthy borrowers want credit and banks perceive risks worth lending.

The ECB also tried to induce banks to lend by charging, rather than paying interest on excess reserves. The results are in: Yield on Two-Year German Bonds is Negative
German two-year debt yields held close to 15-month lows just below zero on Wednesday, with record low money market rates and expectations of easier ECB monetary policy underpinning demand at an auction of similarly dated bonds.

Germany sold over 4 billion euros of a new two-year bond, with demand from investors double that amount despite the average yield and the coupon both being zero.

A Reuters poll this week showed money market traders saw a 50-percent probability of QE in the next 12 months, up from a one-in-three chance in last week's survey.

"We've seen really bad growth numbers and these translate into deflation fears, which in turn fuel QE expectations," DZ Bank market strategist Felix Herrmann said, noting that risks around wars in Iraq, Ukraine and Gaza also supported demand at the German auction.

"All that argues for lower German yields for shorter and medium term maturities. There are few, if any, reasons for Bund yields to rise."

Two-year bonds yield minus 0.004 percent in the secondary market, meaning buyers will get slightly less money than they invested when the bond comes due. They first traded negative at the height of the euro zone debt crisis in 2012.

Some banks may prefer to buy such assets rather than being charged 10 basis points for keeping the money in the ECB's deposit facility - a result of the central bank's unprecedented deposit rate cut into negative territory in June.

That rate cut and the ample excess liquidity in the euro zone banking system has pushed the overnight bank-to-bank Eonia lending rate fell to a new record low of 0.005 percent.

Elsewhere in the euro zone, ECB easing expectations pushed other euro zone yields lower on Wednesday. Spanish and Italian 10-year yields hit new record lows earlier in the session, falling 6 and 3 bps respectively to 2.38 and 2.56 percent, before reversing some of those gains in the afternoon.

Portuguese and Greek equivalents dropped 12 and 10 bps respectively to two-month lows of 3.31 and 5.80 percent.Bubble Guaranteed to Burst

The calls pour in for the ECB to "do something". The ECB did, and the results speak for themselves.

There is no demand for loans and/or willingness of banks to lend.  Credit-worthy customers simply do not want loans in this environment. And no fundamental flaws with the euro have been fixed after all these can-kicking years.



Meanwhile, Spanish banks gorge on low-yielding Spanish bonds, Italian banks on low-yielding Italian bonds, Portuguese banks on low-yielding Portuguese bonds, etc., all with massive leverage.

The ECB's expectation was to spur lending, instead it created a bond bubble. It's a bubble guaranteed to burst.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "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.
Kategorie: Najnowsze feedy

Time to Short the US Dollar? Go Long Commodities?

pt., 22/08/2014 - 10:51
Is it time to short the dollar?

Saxo bank chief economist Steen Jakobsen thinks so. Via email from Steen ...
What is wrong with changing your mind because the facts changed? But you have to be able to say why you changed your mind and how the facts changed. Lee Iacocca

My biggest call all year has been for global lower rates,  and in particular lower core country (Germany, Denmark, and US) yields led by this magic trinity of factors:

1. China and Asia rebalancing growth away from nominal to quality growth
2. US current account deficit reduced by 50%  (see chart below)
3. A Europe where Germany will pay the price for the first two factors with a lag of six to nine months. 

The headline call was and remains that Germany will be close to recession by Q4-2014 or Q1-2015 setting up a desperate ECB and a Europe once again close to zero growth instead of the “escape velocity” everyone and their dog promised you and me in December and January.



This past week we went through the important floor of 1% on ten year German Bund yield and I took profit on my long held position.

A position I established back in Q4-2013. Feeling “naked”  I did some additional work and heavily supported by our Saxo JABA model we have changed the asset mix-up and also our yield call:

• Highest conviction call remains for lower global yields (Low in Q1-2015), but for rest of 2014 I see US yields falling more than European equivalent – this will lead to Bunds underperforming Ten year Treasury and set up the second call:

• US Dollar will significantly weaken from mid-Q3 into Q1-2015. Market remains overexposed to US dollar and US equities relative to norm – Furthermore with mid-term election on November 4th the coming budget talks will have a hard time producing convincing and long-term results needed. Bunds will not be able to follow the re-pricing of Fed (away from early 2015 hike) and growth in the US (It’s not the weather) as Q2 gets revised back down to 2.25-2.50% and geo-political risk and lag of global earnings for S&P-500 companies reduces margin and cash-flow. The US average GDP the last five years has been 2.0%......

I am presently almost square in fixed income – alpha model – from very long, but will use a any correction in US bonds to activate medium term long. (Again Bunds yields will continue to fall but less than US rates remains the new call…) hedging any US dollar exposure back into JPY and EUR.  EUR/USD could trade 1.4000+ and USDJPY below 97.00.

Global growth is slowing down – World Growth in 2014 was in January expected to be higher than 3.1% - Today my learned colleagues have revised their “guess-estimates”  down to 2.53% - a “small” drop of 0.6% - which is not only concerning but also put at risk the coming budget talks – certainly in Europe but also in the US.



This is of course relatively bold calls considering the market and consensus have short EUR/USD, long USDJPY and overweight US stocks as their main risk vehicles when VaR (value at risk) is allocated. It’s important to underline that major US investment houses, and certainly every single sales person I talk to, believe US is about to accelerate in growth not slow-down. Q3 could be ok but the real damage will come in Q4 as the lead-lag factor of geopolitical risk, lack of reforms and excess global supply leads to low inflation and despite Fed recent optimism about an exit strategy the fact remains few institutions is worse than the FED in projections even their simple target goals:



Fed is simply terrible in predicting. Why would they be right this time?

They will not be – Q2 will be revised down to 2.5-ish by third correction – the standard correction is 1.5% from 1st to 3rd reading:

… And largely ignored, the US consumer remains on strike despite “lower” unemployment:

No, hope and lack of alternatives is ruling the markets…..the major call is:

Short US Dollar Index and soon also long commodities as the weak US dollar and soon lower US yield sets up great value trade.

Yes, it’s time to be defensive … very defensive.

Safe travels,

Steen JakobsenShort the Dollar?

I think so. Rate hikes are priced in that I do not believe will happen. And if they don't, it would be dollar negative.

Of course the ECB could go ape with QE, and that would be negative for the euro (thus dollar supportive).  On balance, I think Steen has this correct.

Long commodities? 

Not so sure. If global growth is slowing why shouldn't oil, copper, and base metals do poorly?

Yet, I do like gold here. It's priced as if the Fed will hike and QE will never start again.

Those are likely bad assumptions.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "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.
Kategorie: Najnowsze feedy

Obamacare Manufacturing Facts: 85% of Firms Raise Premiums, 91% Raise Deductibles, 74% Raise Out of Pocket Maximum, 15% Decrease Employment

czw., 21/08/2014 - 22:00
A special question on the impact of Obamacare on businesses in the August Philly Fed Manufacturing Survey shows the stunning failure of Obamacare.

Here are the results in table form. I added the net results in red.



click on chart for sharper image

Net Percentage of Manufacturing Firms That ...

CategoryNet PercentageDecrease Employment15.2Increase Part-Time Workers16.7Increase Outsourcing10.7Increase prices28.8Raise Healthcare Premiums 85.3Raise Healthcare Deductibles91.2Raise Out of Pocket Maximums73.6Increase Copays61.8Reduce Medical Coverage38.3Decrease Network Choices26.5

As always, I encourage everyone to look on the bright side: A net 2.9% of manufacturing firms cover a higher percentage of the lower number of employees they have.

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

Spain Dips 37% Into Social Security "Piggy Bank", Fund Depletion in 4 Years at Current Rate; What, Me Worry?

czw., 21/08/2014 - 19:24
The "recovery" news in Spain keeps piling up. Via translation from El Economista, Government has already taken 37% of the total 'pensions piggy bank'. If extractions continue at the current rate, the fund would be exhausted in 4 years.
The Government of Mariano Rajoy has released 24.65 billion euros of the Social Security Reserve Fund in less than two years. Such amount represents nearly 37% of the total 66.815 billion fund accumulation. That figure marks the highest cumulative piggy bank draw-down in history, following its commissioning in 2000 and after eleven years in which successive governments did not need to dip into it.

The situation changed dramatically with the height of the crisis. The current government has broken into the social security bank twelve times since 2012. The total amount withdrawn exceeds 24.6 billion euros while 54.69 billion remains.

This implies "at the current depletion rate, in a period of four years or so, the fund would be exhausted".Advice of the Day

I am sure glad no one sees a problem here. As we all know, problems vanish if you ignore them. It's mind over matter. I learned that from former US secretary of treasury, Tim Geithner.

And as long as you are ignoring some problems, why not ignore all problems?

For example, please ignore Spain's trade deficit unexpectedly rising as noted in Recovery Mirage in Spain Dissipates Into Ashes.

Instead, let's focus on the dramatic improvement of Spain's unemployment rate.



click on chart for sharper image

In a few years, at the current rate of progress, Spain's unemployment rate may be back to a mere 21% or so. Isn't that something to be proud of?

I sure would think so. But will there be anything left in the piggy bank?

What, Me Worry?




To all you naysayer pessimists who may be shocked by the above, please consider this simple question: If Social Security bankruptcy doesn't bother the US, why should it bother Spain or any other country?

Far be it from me, Mish the eternal optimist, to be any sort of worrywart, but your answer must take into account one additional question: Who controls the printing press in the US and who controls the press in Spain? 

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "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.
Kategorie: Najnowsze feedy

Japan PMI "Strongest Since March": Does That Mean "Strong"?

czw., 21/08/2014 - 08:53
The spin in media reporting, in both directions (but typically bullish), is pervasive.

Here is a case in point. Markit reports Japan PMI Points to Strongest Manufacturing Expansion Since March.

Does "strongest since March" mean "strong"?

Here are the Key Points:

  • Flash Japan Manufacturing PMI™ at 52.4 (50.5 in July). Modest improvement in growth registered in August.
  • Flash Japan Manufacturing Output Index at 53.2 (49.8 in July). Output increased at solid pace.

A few charts will put this into perspective.



click on chart for sharper image

It seems to me that Japan has been treading water above and below the 50-50 expansion-contraction line for years (mostly below since 2007).

Will this surge prove to be more lasting than any of the others?

If so, please don't credit Abenomics. Instead, I propose the recovery is due to trend exhaustion, in spite of Abenomics.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "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.
Kategorie: Najnowsze feedy

China Manufacturing PMI Treads Water

czw., 21/08/2014 - 07:41
Chinese manufacturing is once again treading water, barely above contraction according to the HSBC Flash China Manufacturing PMI.

Key points

  • Flash China Manufacturing PMI™ at 50.3 in August (51.7 in July). Three-month low.
  • Flash China Manufacturing Output Index at 51.3 in August (52.8 in July). Three-month low.



click on chart for sharper image

Comments

Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said ...

The HSBC Flash China Manufacturing PMI moderated to 50.3 in August, down from 51.7 in July. Both domestic and external new orders rose at slower rates compared to the previous month. Meanwhile, disinflationary pressure returned as input and output prices contracted over the month. Today's data suggest that the economic recovery is still continuing but its momentum has slowed again. Therefore, industrial demand and investment activity growth will likely stay on a relatively subdued path. We think more policy support is needed to help consolidate the recovery. Both monetary and fiscal policy should remain accommodative until there is a more sustained rebound in economic activity.”

Mish Translation of Comments

China PMI has gone nowhere. The last uptick Qu raved about is now in the ashcan. Thus, Qu wants more "policy support" AKA loose money from the China central bank to "consolidate the recovery".

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

Election Jackpot Scratch and Sniff: LA Proposes Free Lottery Tickets if You Vote; Romney Says Obama Worse Than Expected

śr., 20/08/2014 - 22:33
Turnout in some Los Angeles elections is so low that LA Considers Giving Citizens Lottery Tickets if they Vote.
With as few as 8% of registered voters showing up to vote in some recent elections, the Los Angeles Ethics Commission has urged the City Council to consider improving turnout with a lottery pilot program. No actual vote would be required, but those participating would have to show up at the polls to participate. There was no decision on what the grand prize for participating in the democratic process. “Maybe it’s $25,000, maybe it’s $50,000,” Ethics Commission President Nathan Hochman told The Los Angeles Times. “That’s where the pilot program comes in—to figure out what...number and amount of prizes would actually get people to the voting box.”

It would seem that almost any prize would draw more voters than are currently participating in municipal elections. Only 23% of registered voters cast ballots in the 2013 mayoral election, according to the Times.

Detractors of that initiative, and the Los Angeles proposal, say it would bring people to the polls who were interested only in the prize, not in the issues.

“That might produce better results,” Fernando Guerra, a researcher at the Center for the Study of Los Angeles at Loyola Marymount University, told Southern California Public Radio. “There is no data to show that uninformed voters make worse decisions than informed voters.

Los Angeles is also considering a more mundane solution to the problem of voter turnout. It’s looking at moving its municipal elections to even-numbered years to coincide with state and federal elections.Is there any data that says it matters how people vote?

Speaking of which, look at the pathetic choices in the last presidential election. Romney vs. Obama how did it matter?

Romney Says Obama Worse Than Expected

The laugh of the day is Mitt Romeny Claims Obama Worse Than Even I Expected.

It's easy enough to cite failures of Obama. There are dozens of them. But at no point in the interview did Romney say what he would have done differently.

For starters, Obamacare is Romneycare no matter how much he tried to distance himself from that simple fact. Would Romney have given arms to Syrian rebels like Hillary proposed? Would the US be at war with Iran now since Iranian sanctions did not do a damn thing?

Would we be at war with Russia? Economic war with China? In what ways would anything be different under Romney?

Might Things Under Romney Actually Be Worse?

On the military front, I suspect we would be in more wars. We would also be in more trade wars if Romney did what he said with China.

Would anything on immigration have passed in a split Congress?

In what ways, others than birth control, abortion, and the like, would anything be different under Romney?

"None of the Above"

Is it time to consider adding "none of the above"as an option on every ballot? And if "none of the above" wins, should we just do away with the office?

That would actually give people a reason to vote.

The problem with such proposals is the only safe politicians will be in gerrymandered districts.

Some propose term limits. But how does that help in a district that votes overwhelmingly for the same political party every year, and the candidates are all clones of each other?

"If voting changed anything they'd make it illegal"

That phrase has been attributed to Mark Twain, but more likely it belongs to anarchist Emma Goldman.

You can pay people to vote, but what we really need is non-gerrymandered, real choices, not politicians owned by party demagogues, not politicians bought and owned by special interests.

Given the Supreme Court ruled corporations are people, and given special interest groups bribe politicians with huge campaign contributions, I don't see any impetus for reform unless and until there is campaign finance reform and non-gerrymandered districts.

Nonetheless, I keep hoping. I have voted in every national election since the age of 18.

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

Argentinian Peso in Massive Slide; Argentina’s Bonds Decline on Plan to Offer Local-Law Swap

śr., 20/08/2014 - 20:48
In June, the US Supreme Court ruled that Argentina Cannot Selectively Default on a small group of hold-outs demanding full payment on otherwise restructured government bonds.

The problem with the ruling is that if Argentina pays the vulture fund full value, it will have to pay all the bondholders full value, and that would wreck the country again.

In the future, bond agreements will force everyone to go along with a majority decision.

In the meantime, US courts ruled Argentina must negotiate will all the parties, including the vulture funds that own roughly 8% of Argentine debt and demand full payment on it.

The ruling meant, and banks enforced, the all or none principle. Argentina defaulted on all the bonds, not because it wanted to, but because US courts forced that outcome.

Local-Law Swap

In an attempt to circumvent the ruling, Argentina will swap the bonds in question for new bonds. It will then hope to pay the 92% according to the prior workout agreement, leaving the vulture funds in limbo.

With that backdrop it will be easier to understand today's Bloomberg report Argentina’s Bonds Decline on Plan to Offer Local-Law Swap.
Argentina’s bonds sank to a two-month low after the government said it plans to pay foreign-currency notes locally to sidestep a U.S. court ruling that blocked payments and caused its second default in 13 years.

The government will submit a bill to Congress that lets overseas debt holders swap into new dollar-denominated bonds governed by domestic law, President Cristina Fernandez de Kirchner said in a nationwide address yesterday. Payments will be made into accounts at the central bank instead of through Bank of New York Mellon Corp., the current trustee.

Fernandez’s move flies in the face of orders from U.S. District Judge Thomas Griesa that a swap would be illegal. He has said the nation must pay $1.5 billion to holders of debt defaulted on in 2001 or reach a settlement before resuming payments on restructured notes.

The country’s benchmark restructured bonds due in 2033 fell 2.58 cents to 80.16 cents on the dollar as of 11:47 a.m. in New York, the lowest level since June 19. The price is still above the 74.03-cent average of the past five years.

On June 20, Griesa said that Argentina is prohibited from paying the overseas bonds in Argentina under a local law. Any intermediaries assisting Argentina in the process could be sued for contempt of court, while investors who aren’t able to hold local bonds would have to sell their holdings.

The Argentine president has argued that obeying the ruling by paying the holdouts would trigger a Rights Upon Future Offers clause in the exchange bond contracts that obliges Argentina to match any improved offer to all bondholders. That could trigger claims of at least $120 billion, according to the proposal. Intermediaries Now Gone

The trustee and primary intermediary was Bank of New York Mellon Corp. Kiss that intermediary goodbye. Bondholders can get payment directly from Argentina's central bank.

The fact that debt is above average valuation of the past five years looks promising. The article suggests Argentina will be shut out of the credit markets.

Is that necessarily the case?

After all, Argentina is going out of its way to pay 92% of the bondholders who agreed on the initial restructuring.

Nonetheless, Bloomberg reports "U.S.-based investors may be wary of taking part in the swap over concern they will be held in contempt of court, according to Casey Reckman, an economist at Credit Suisse."

If so, it's ridiculous. In fact, the Supreme Court ruling is ridiculous. When you make risky bets, some of them work, some of them don't.

The idea that bondholders or even certain bondholders can never take losses is idiotic, yet that is what the court ruled.

Argentinian Peso in Massive Slide

Inquiring minds may be interested in how the Argentinian Peso has been holding up under the circumstances.

Peso vs. US Dollar



Since late 2007, the peso has fallen from 3.02 to the dollar to 8.32 to the dollar. That's a decline of 63.7%.  

Question of Reserves

Argentina has about $29 billion in foreign currency reserves. Is that enough?

The Wall Street Journal discussed the issue the other day in Argentine Bonds Fall Further as Talks Stall.
Investors are more focused than ever on Argentina's reserves, which the central bank uses to defend its currency and fund imported goods.

Unable to borrow hard currency abroad because of a debt dispute in U.S. courts, President Cristina Kirchner has instead borrowed $31 billion from the central bank to pay public- and private-sector creditors since 2010.

Reserves stood at just under $29 billion on Thursday, up about $2 billion since the end of March thanks to exports of a record soy harvest and import restrictions.

Payments to multilaterals this year won't necessarily mean a net decline in reserves because Argentina frequently gets new loans as it pays back those lenders.

Even so, Argentina's reserves are among the lowest of major Latin American economies due to government borrowings and capital flight by investors weary of Mrs. Kirchner's populist policies.

Inflation thought by many to be around 40%, dollar shortages that have forced the government to restrict vital imports, and sluggish trade with neighboring Brazil pushed Argentina into recession earlier this year. The economy is expected to contract about 0.9% in 2014, according to the latest monthly survey of analysts by FocusEconomics.

Argentina defaulted on some of its bonds on July 30, after it missed a roughly $539 million interest payment due to its restructured bondholders. U.S. District Judge Thomas Griesa has ruled that Argentina can't pay its restructured bondholders until it pays the holdouts, which are a group of hedge funds suing the country for full payment on bonds it defaulted on in 2001.

Argentina has argued that it isn't in default because it deposited on June 26 with Bank of New York Mellon BK +0.36% the money necessary for the interest payment. The deposit was made in both dollars and euros. However, BNY Mellon hasn't passed the money along to bondholders because Judge Griesa also warned that any bank who helps Argentina process the payment would be violating a U.S. court order.

Judge Griesa reiterated in an Aug. 6 order that BNY Mellon will keep the money in its account until otherwise ordered by the court. He also said BNY Mellon wouldn't be held liable for claims by bondholders.

On Friday, a group of restructured bondholders who own Argentine bonds denominated in euros appealed Judge Griesa's Aug. 6 order to the U.S. Court of Appeals for the Second Circuit. The euro bonds were among the ones Argentina defaulted on two weeks ago because BNY Mellon wasn't allowed to process the interest payment Argentina deposited. These bondholders have tried to get their interest payment by suing BNY Mellon in Belgian courts, and they have threatened to sue the bank in U.K. courts.As noted above, US courts ruled the holdouts must be paid in full, or nobody paid at all.

Yet, if Argentina paid the holdouts, it would trigger $120 billion in other claims, and Argentina only has $29 billion in reserves.

Inane US court ruling? I think so.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "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.
Kategorie: Najnowsze feedy

Idiot's Guide to Austrian Economics

wt., 19/08/2014 - 23:12
Congratulations go to Forbes columnist John Tamny and editor of Real Clear Markets for producing the "Idiot's Guide to Austrian Economics'.

Ironically, that is not exactly what Tamny set out to do. The actual title of Tamny's article is "The Closing Of The Austrian School's Economic Mind".

Point by Point Look

Tamny: "It’s well known that some Austrians have a major problem with 'fractional reserve banking' whereby banks pay for liabilities (deposits) by virtue of turning those liabilities into assets (interest paying loans). Instead, they borrow money from depositors seeking a return on their savings, and who don’t need access to their savings right away, only to lend the money borrowed to individuals who do need it right away. The profits come from borrowing at one rate of interest, then lending longer term at a higher rate."

Mish: With that single paragraph Tamny proves he does not understand AE or fractional reserve lending. In fact, he makes it clear he is clueless as to where the money banks lend even comes from. AE has no beef against lending. Rather, AE does object to money being created out of thin air for lending.

I don't care, nor does AE care if 100% of deposits are lent out, as long as three conditions are met: 1) Money is not created into existence by the loan 2) Money is not lent out for terms longer than the bank has access to the money 3) Depositors who lend money to the banks for interest are the ones who pay the price should there be a default on the loans.

In regards to point number three, it should be implicitly understood that the higher the interest banks pay for deposits, the greater the risk the banks (and depositors) must take to achieve that return. If it blows up, depositors, not innocent bystanders should pay the price.

Tamny: "Banks aren’t in business, nor could they remain in business if they simply warehoused money."

Mish: Is there a need for warehousing? Even if the answer is no (which it isn't), Tamny clearly fails to understand AE does not preclude lending. AE only precludes fraudulent lending.

Tamny: To many Austrians, this non-coerced act of exchange between consenting individuals is a fraud, and needs to be treated as such by the state. The Austrians want government to restrain what they deem a violation of property rights.

Mish: No! The problem of property rights comes into play multiple ways. Let's go through some examples.

1. Banks take a deposit, say a CD that pays interest for 5 years. Then the bank lends the money for 30 years. That's as fraudulent as me leasing a home for 5 years and issuing a 15 year sublease on my lease.

2. Checking accounts are known in the industry as "demand deposit accounts". Money is supposed to be available on demand. It isn't. In 1994 Greenspan allowed sweeps, whereby banks can nightly "sweep" all money from checking accounts into savings accounts, unbeknownst to the depositor, so the money could be lent out. Money people think is there for safekeeping isn't there at all. The Fed recently stopped reporting of sweeps

Sound fraudulent to you? It does to me.

It's fraudulent even if people agree to it in obscure hard to understand legalese. Why? Because it's as fraudulent as lending out 100 tons of grain when only 20 tons are in the warehouse, whether or not the owner of the 20 tons of grain signs an OK for lending out 100 tons.

3. Fraudulent lending of money causes economic distortions of all sorts, especially economic bubbles and income inequality. Those with first access to money (the banks and the already wealthy) are the ones who benefit the most. By the time money is available to the lowest guys on the totem poles, assets are already grossly overpriced. Price and asset inflation caused by lending out more money than exists is tantamount to theft. It artificially and fraudulently lowers the value of money on deposit kept for safe-keeping (checking accounts).

Tamny: The problem here is that the Austrians don’t stop at merely seeking an end to bailouts, Fed lending from its discount window, and while it’s largely bank financed, privatization of the FDIC. They once again feel that borrowing from savers in order to lend those savings out is a fraud, and that the state should abolish “fractural banking” in favor of banks backed by “100 percent reserves.” To Austrians, fractional banking leads to “excess credit creation” through what they refer to as a “money multiplier.”

Mish: Tamny keeps repeating nonsense, further proving he does not understand AE or lending. You can also safely conclude Tamny does not understand 100% reserves. Note that 100% reserves do not preclude lending as Tamny seems to imply.

Unfortunately, the "money multiplier" effect to which Tamny refers is believed by some Austrians (but also some non-Austrians). Tamny gives a ludicrous straw-man example then sets out to prove it wrong.

Tamny: The problem is that the very notion of a “money multiplier” is a logical impossibility; one that dies of its illogic rather quickly if analyzed in the lightest of ways. To explain what isn’t, banks are generally required to keep a 10% deposit cushion. Simplified, if a bank is the recipient of a $1,000 deposit, it can generally only lend out $900, or 90% of its deposits. What might surprise some is that the previously described loan is what has many Austrians up in arms.

Mish: Those who believe in the "Money Multiplier" theory are wrong, but so is Tamny. In a fractional reserve system banks can (and do) make loans whether they have reserves or not. Heck, banks can even borrow reserves from the Fed if need be.

From the BIS report Unconventional monetary policies: an appraisal

The level of reserves hardly figures in banks’ lending decisions. The amount of credit outstanding is determined by banks’ willingness to supply loans, based on perceived risk-return trade-offs, and by the demand for those loans.

The main exogenous constraint on the expansion of credit is minimum capital requirements.

The BIS has it correct. Any Austrians or others who believe in the money multiplier are wrong. Of Course Tamny is wrong as well.

Tamny: "Banks are generally required to keep a 10% deposit cushion."

Mish: There are no reserve requirements on savings accounts, and Greenspan allows sweeps of checking accounts into savings accounts so there are effectively no reserves of checking accounts either.

Lending is entirely based on whether or not banks believe they have a credit-worthy borrower that won't default (or that rising asset prices will cover any defaults).

On the absurd theory that consumers would not walk away from houses or home prices would go up enough to cover losses, banks made some pretty horrendous decisions. Once capital impairment set it, then and only then could banks not lend. 10% deposit cushions have nothing to do with lending, or lending restraints. The money multipliers are wrong, but so is Tamny.

Tamny: No reasonable person would suggest as certain Austrians do that banks multiply credit in lending out a large portion of the money they take in.

Mish: Total Credit Market Debt is $59.399 trillion. Base Money Supply is $4.01 Trillion. Thank God banks don't lend out a large portion of what they take in!

It seems to me that 100% lending looks reasonable compared to the 1,357% lending we have now.

Tamny: Notable here is that no one is keeping “deposit banks” backed by 100 percent reserves from forming, thus raising the question why Austrians themselves don’t fulfill what they deem an essential market need. Indeed, if fractional banks are a fraud, wouldn’t the free markets welcome the banks desired by Austrians that are apparently the opposite of fraudulent? The answer to the above is fairly simple. The markets shun “deposit banks” simply because the warehousing of cash involves a cost.

Mish: The answer is indeed easy but it's not the answer Tamny gives. The answer is banks make a profit off "legal fraud". They would make less profit if they didn't. Banks have every incentive to make money fraudulently simply because it's allowed.

People are willing to go along because of deposit guarantees, and also because the state mandates fiat money as legal tender.

In the Name of Fairness

Tamny had a bit on "fairness". And to be fair, Tamny is correct on this aspect:

To be fair here, Austrians are properly offended by bank bailouts and other governmental backstops that prop up errant banks, and it’s the politically protected nature of banks that at least partially informs their views on banking. There’s agreement on the subject of bailouts. Those that took place in 2008, and long before that, were an abomination that weakened the banking system. Precisely because we love banks and their economic function, and because failure is the author of innovative evolution, we should let them go bankrupt when they can no longer attract operating funds.

AE vs. Purported AE Writers

I can be fair too.

There is a difference between sound AE theory and what various writers propose as sound AE theory. I can claim to be a Martian. Does that make me one?

Many writers alleged to be AE writers are anything but.

Most of the hyperinflationists fall into this camp (and there is a huge number of them). The hyperinflationists range from being seriously misguided on a few points to being outright charlatans to serve their own purpose (and it is difficult at best to tell the difference).

Yet, the articles keep on coming and coming. The authors tend to have a few things in common:

  1. They do not understand the difference between credit and money. 
  2. They do not understand debt deflation. 
  3. They are overly US-centric.

In a fiat credit-based economy, reckless expansion of credit lead to asset bubbles. Then when the bubbles burst, debt deflation ensues.

Japan, the Eurozone, and the US all went through this.

Debt deflation is still underway in the Eurozone. If asset prices in the US tank (which is inevitable), the US will be back in it. Japan, after decades (and inane Abenomics) may be coming out of it.

The US-centric authors point out soaring money supply in the US but ignore soaring money supply elsewhere, especially in China. The US is certainly not alone in economic madness. With nearly every major country doing the same thing, and with money supply soaring in China at an even faster rate than other major countries, it is ridiculous to sigle out the US for hyperinflation.

There are conditions that could cause hyperinflation (defined as a complete collapse of currency), but it would take a political event to cause it.

For example: Congress could vote to give every US citizen $1,000,000 per year, indexed to price inflation. That would surely do it.

$4 trillion in QE when the total credit market is $59 trillion, hasn't (and won't) produce hyperinflation.

For a discussion of the political aspect of hyperinflation and what causes them, please see Reader Questions On Hyperinflation; Would Printing $50 Trillion Tomorrow Do Anything?

Money Multiplier and Reserve Madness

When it comes to the money multiplier and reserves, it's important to understand that in a practical sense there are no reserves.

One might dispute this by looking at Excess Reserves of Depository Institutions as shown below.



It appears banks have excess reserve lending capacity of $2.6 trillion dollars.

Economically illiterate writers (including some of the purportedly AE writers) make inane claims "Just wait till this money comes pouring into the economy 10 times over".

Yeah right. The fact is, lending comes first and reserves second. As I stated before (and the BIS agrees) when it comes to bank lending, reserves are essentially irrelevant.

Note that with every injection of QE, alleged excess reserves go up. They are "real" in the sense banks collect free interest on the reserves. In a "practical" sense, they are vaporware. The Fed can produce as many reserves as it wants, at any time, out of thin air.

If banks wanted to lend, they would lend, and then the Fed would create adequate reserves after the fact.

Excess reserves are simply free money to the banks who collect interest on them. 

What bank doesn't want free money?

And who pays the price? Taxpayers via asset bubbles and inflation.

Property Rights

Let's return once more to property rights.

If I give money to a bank and it promises my money will be available on demand, and the next moment it lends a large portion of it out, my property rights are clearly violated.

What happens in such instances is twofold.

  1. I own my money.
  2. Someone else owns my money too.

Logically that is impossible. And that is precisely why it's fraudulent. I challenge Tamny to dispute that simple math!

It doesn't matter that most of the time not enough people show up for withdrawals to uncover the fraud. It is still fraud, every bit as fraudulent as someone subletting an apartment for 15 years when their lease is 5 years.

Moreover, the boom-bust cycle, caused by the creation of fiduciary media (deposits backed by nothing, out of thin air), harms completely innocent parties as well. It also impinges on their property rights and the value of their money and assets.

Finally, it should be clear that zero economic advantages can accrue from creating money from thin air. Not one iota of new capital can be created in this manner, it only redistributes already existing real wealth to those first in line for the money.

Reason for Rising Inequality

Looking for the reason behind rising income inequality and the decline in real median wages? Look no further than the Fed, free money to the banks, deficit spending, and fractional reserve lending.

Rothbard Chimes In

For more on the case against Fractional Reserve Lending please see


On page 46 of the book Case Against The Fed Rothbard says "By the very nature of fractional reserve lending, banks cannot honor all its contracts".

Since that is known upfront, how is that not fraud?

My easy-to-understand examples show precisely where and why Tamny is wrong. Nonetheless, I also recommend  the above eBooks by Rothbard. They are generally easy to read, and cover related topics in depth.

Conclusion

Tamny did not write "Idiot's Guide to Austrian Economics", rather, he wrote a guide guaranteed to make you an AE idiot, assuming you believed much of what he wrote.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "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.
Kategorie: Najnowsze feedy

Ukraine Overnight Interest Rates Soars to 17.5%; External Debt Cannot Be Paid Back; Ukraine Demands Rebels Surrender

wt., 19/08/2014 - 20:30
It's crystal clear Ukraine has no interest in a ceasefire under any terms. Instead it demands rebels lay down weapons and for Russia to stop intervention. In short, Ukraine demands surrender.

Thus death and destruction will continue, possibly long after Ukraine takes over Luhansk and Donetsk (or rather what's left of Luhansk and Donetsk).

Please consider Ukraine Says It Makes Gains Against Rebels in Luhansk.
The Ukrainian government said its forces took control of one of four districts in the pro-Russian separatist stronghold of Luhansk and are fighting in the city center as diplomatic efforts to end the conflict intensified.

European leaders are pushing to halt the conflict that’s killed more than 2,000 people and fractured Ukraine since Russia annexed Crimea in March.

“Ukraine’s armed forces have been beating the separatists for weeks now and are moving deeper into the east,” Karl-Heinz Kamp, academic director at the German government’s Federal Academy for Security Policy in Berlin, said by phone. “Something must have happened that’s boosting their fighting skills. My gut feeling -- and I don’t have any concrete evidence -- is that the Ukrainian forces are getting support from the outside.”

Ukraine’s government says it will declare a truce only if the pro-Russian rebels lay down their arms and Russia stops supplying them with weapons. Russian Foreign Minister Sergei Lavrov, meeting with his Ukrainian, French and German counterparts in Berlin, repeated calls yesterday for an unconditional cease-fire. Russia denies it’s aiding the rebels.

Ukraine Rates

The conflict has cost Ukraine $8 billion, Prime Minister Arseniy Yatsenyuk was quoted as saying today by the Unian newswire. Ukraine’s central bank raised its overnight refinancing rate to 17.5 percent today from 15 percent as it seeks to support the hryvnia. The Ukrainian currency fell as much as 1.6 percent before trading little changed at to 13.03 per dollar, taking its decline for the month to 5.8 percent. Hryvnia vs. US Dollar



From mid-2007 the hryvnia crashed from 4.50 to the US dollar to 13.03 to the US dollar. That is a decline of 65%.

Given that Ukraine's external debt is not priced in hryvnia, but rather euros or US dollars, this currency decline really hurts.

Ukraine External Debt



Rule: When you have massive (relative to the size of your economy), external debts denominated in foreign currencies, very bad things happen.   

Ukraine's external debt as valued in US dollars has risen from under $40 billion in 2005 to nearly $140 billion today. Yet, I hear no mainstream media reporting on how Ukraine is supposed to pay this back.

Here's a hint. It can't.

And that is why interest rates are totally out of control, and why Ukraine will be beholden to the IMF and other creditors for decades unless it defaults.

As we all know ... This is a "small price" to pay for "peace".
And in case you missed it, please consider the Rule of Small Prices.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "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.
Kategorie: Najnowsze feedy

Recovery Mirage in Spain Dissipates Into Ashes

wt., 19/08/2014 - 08:33
The mirage in Spain pretending to be a recovery, has officially dissipated into wind-blown ashes.

Spain's trade deficit doubled in the first half as imports soared. Spain is again dependent on foreign financing.

Via translation from Libre Mercado, Spain Again Borrows Abroad to Finance Consumption.
One of the main and genuine green shoots making the Spanish economy begins to show the first worrying signs of weakness. It is the foreign sector, one of the few economic engines of the country in recent years. And not because of the export slowdown , as the significant increase in imports.

Spain recorded a trade deficit of 11.882 billion euros in the first half of the year, almost double a year ago now, when this same gap stood at 5.824 billion.

According to the Economy Ministry report released Monday, exports slowed their growth, after rising just 0.5% yoy. Imports, meanwhile, rose 5.3%.

"Spain is still in debt," says economist Juan Ramón Rallo. "That 6 million unemployed can only increase imports, not domestic production illustrates our problems," he warns.

In the same vein, economist Javier Santacruz adds that the most worrying of these data is that we are not competitive (exports stagnate), but "imports soar to finance domestic consumption," as shown by the increase internaual foreign car purchase (+ 17.6%) and non-durable consumer goods (+ 19.1%).

In fact, overall imports do not even account for energy products, which fell by 4.1%.

Spain has been living on borrowed time for years, accumulating a huge debt to maintain their level of consumption and investment-their standards of living. Between 2002 and 2007, Spain was amassing a growing external deficit, as more and sell less abroad (exports) and bought more (imports), bringing its foreign debt grew.

This imbalance is reflected in a very specific indicator, the current account deficit, which in 2007 reached a record high close to 10% of GDP. That is, the entire country that year said external financing close to 100 billion euros to cover their consumption and investment.

The fact that the trade deficit has risen again after the minimum economic rebound in recent quarters is a sign of weakness, because it demonstrates the strong dependence Spain still external financing to maintain their level of consumption and investment. Think Spain is going to meet its budget deficit goals for 2014? If so, think again.

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

Robot Successfully Hitchhikes Across Entire Length of Canada, Now On Way Back

wt., 19/08/2014 - 04:07
Meet hitchBOT, a robot from Port Credit, Ontario.



HitchBOT Help explains Everything you always wanted to know about hitchBOT, but were afraid to ask.

HitchBot successfully hitchhiked from Halifax, Nova Scotia to Victoria, British Columbia, a distance of about 4,000 miles. HitchBOT is now on a return trip.

CNN reports ...
The gender-neutral robot was conceived by university researchers David Harris Smith and Frauke Zeller, who view its quest as part performance art, part social experiment.

"People seem to be rather intrigued with hitchBOT, and take very good care (of it)," said Smith, a communications and multimedia professor at McMaster University in Hamilton, Ontario, and Zeller, a communications professor at Ryerson University in Toronto, in a statement e-mailed to CNN.

"We have even seen hitchBOT lying in a camping bed under a blanket, and sitting on a toilet," they said, "so people certainly have fun with it."

hitchBOT has a bucket for a torso, blue swimming-pool noodles for arms and legs and a smiling LED panel for a face, protected by a cake saver. It wears yellow gloves on its hands, and wellies -- rubber boots -- on its feet. Inside is a simple tablet PC and some components from Arduino, the open-source electronics platform. Together, all the parts cost about $1,000.

"We wanted to see what we can build on a shoestring budget ... and with tools/components that one can get in any hardware store," Smith and Zeller said.

Thanks to its computerized innards and speech software, hitchBOT can answer basic questions, make small talk and recite info from Wikipedia. It can also get pretty chatty, not always something you want in a road-trip companion.

"We knew that sometimes ... hitchBOT won't be able to properly understand what people are saying. For these cases, we came up with the solution to let hitchBOT simply chatter away," its creators said. "We taught hitchBOT to say that sometimes it gets a bit carried away, and that its programmers could only write that many scripts, hoping for people to be patient."

hitchBOT records its journey via GPS. It contains a camera and snaps random photos every half hour or so, which are moderated before being posted online to protect people's privacy. It also can record conversations with people it meets -- with their permission -- as a sort of audio diary.

Humans who encounter hitchBOT are directed to its website, where instructions tell them how to handle the robot (tip: drop it off at rest stops or gas stations instead of alone on busy highways).

Smith and Zeller say the goal of their project is to examine the relationship between humans and "smart" technologies while seeing whether an anthropomorphic robot can engender good will, cooperation and even affection.
Instagram Images

Instagram has some pictures of hitchBOT. Here are a couple of them.



Google Images

Google Search provides more images.



HitchBOT On Way Home

HitchBOT successfully completed the trip and is now on the way home as reported by Tech Times.
The kindly people of Canada have helped hitchBOT make it from the country's east coast to its western reaches and, so far, the hitchhiking robot hasn't been rerouted to an electronics supply store and scrapped for spare circuitry.
h
HitchBOT has already traveled the roughly 60 hour, 6,227-kilometer from Halifax, Nova Scotia, to Victoria, British Columbia, and is on its way back home. The cross-country trip is a social experiment, of sorts, as the team behind the hitchhiking robot is seeking to study interactions between humans and artificial intelligence.

"I was conceived in Port Credit, Ontario," states hitchBOT. "My guardians are Dr. David Smith (McMaster University), and Dr. Frauke Zeller (Ryerson University). Growing up I was surrounded by bright, intelligent, and supportive people who I am proud to call my family. I have one sibling, kulturBOT, who travels from one art gallery to the next, tweeting photos of the artwork and of the venues."

The talkative robot has been offering to chat up drivers about topics such as astrophysics and philosophy and it is sharing its soul-searching journey on Instagram and Twitter. While hitchBOT is conversational, its English skills aren't perfect yet.

"After much thought and contemplation, I've come to realize that there is so much to experience beyond the boundaries of Toronto," stated hitchBOT before setting out. "Every time I think about all of the mountains and valleys, towns and inlets, and people and lifestyles that exist across Canada, I become increasingly excited -- and nervous at the same time -- about my hitchhiking journey across Canada."Hitchbot vs. Bubble Headed Booby

No offense to hitchBOT, but it looks rather like the "bubble headed booby" from Lost in Space.



Looks don't count. So congratulations to hitchBOT and the hitchBOT team!

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

Rising Robots: Is it Obvious Robots Cost Human Jobs? Looking for Someone to Blame?

pon., 18/08/2014 - 20:46
Technology Review has an interesting infographic on the Rising Use of Robots, and which sectors show the biggest increase in use.

I broke up the infographic into a series of smaller ones for purposes of discussion, adding red, blue, and purple colored boxes in the following chart.

Robot Usage Since 2009



  • In Europe, except Germany, robot usage is up and employment down.
  • In the US, South Korea, and Germany, robot usage is up and so is human employment.
  • In Japan robot usage and employment are both down.
  • Japan did not even benefit from a falling Yen. 

This shows the relative increase in demand for US and Korean cars, and the relative lack of demand for Japanese cars and European cars other than German cars.

In the US, as long as cars sales remain strong, it appears auto jobs will stay. How long will that be?

Robot Usage by Sector



Note the robust use of robots in automotive and electronic. Contrast that with the three lowest usages of pharmaceuticals, food, and plastics.



Given the huge numbers of people employed in food industries, especially fast food, a growth area for food robotics seems relatively easy to spot.

Cost and performance of robots vs. cost of human labor is the key impediment to more robot use in food service.

Social concerns may also be at play. Do people prefer social interaction and the occasional bad server to a robot for whom you have to leave no tip?

Robot Sales



Robot sales are up, and so is job growth in the US. On a comparative basis, job growth in the eurozone, except for Germany is stagnant.

Point - Counterpoint

A comment to the infographic by Cathal Haughian caught my eye. Haughian commented "Those countries that have high minimum wages automate first. I had a tour of Mc Donald's newest Chicken factory, in China, this year. It employed a third of the workforce of a similar plant in the US. It's fully automated. Slaughters 5 million chickens per day. Robots the size of a two story house. Amazing. The Robot revolution will break the back of our economic system by 2020, I'd bet."

Technology Review editor replied "No it's actually more ambiguous than that, obviously: sometimes robots create entirely new jobs in new industries; sometimes they allow reallocation of labor to more productive uses; sometimes they sustain industries that would otherwise disappear. The truth is that no one knows whether we are witnessing a long-term restructuring of employment (in the sense that "full employment" may be a lower percentage of the population in industrialized nations) - and anyone who tells you otherwise is an ideologue on one side or another of this debate."

I side with the editor. Over the long haul, technology creates jobs. The problem being "over the long haul".

Why Robots?

It's obvious robots increase productivity.

But that is not the only force in play. The Fed (central banks in general) have cheapened the cost of money so much that some of the increase in use of robots is due entirely to cheap money.

Moreover, the push for rising minimum wages has done the same. Set the minimum wage at $20 per hour, and I bet you see far more robots, in far more places than you do today.

Looking for Someone to Blame?

Technology improvements are an inherently good thing. They lower prices, increase standards of living, and give us more free time.

Yet, if robot usage is artificially high thereby costing human jobs (and it likely is), blame the Fed for poor economic policy and blame Congress for poor fiscal policy. Don't blame the robots or the companies that use them.

Different This Time?

Some claim it's different this time, that robots are going to take your job no matter what it is.

Is it that simple?

For a robust discussion from multiple angles, including a couple of solutions, one of them grim, please see It's Different This Time: Humans Need Not Apply; Two Possible Solutions.

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

What States are the Biggest Job Winners and Losers in the Recovery?

pon., 18/08/2014 - 06:01
The Deloitte University Press has a very interesting, and comprehensive study on job gains and losses, by type of job, and state by state.

The biggest winners are states involved in energy production, finance, or healthcare. The biggest losers are states that did not recover from the real estate bust, or lost population due to emigration.

With that overview, let's dive deeper into the Geography of Jobs.
Only now, as we reach the fifth anniversary of the end of the recession, has employment in the United States finally regained its pre-recession peak. The national story of slow recovery obscures the more complicated regional picture: As is the case during most business cycles, the pace of recovery has been very uneven among the states. At present, only 16 states plus the District of Columbia have employment rates at least one percent higher than they had prior to the start of the recession.

Among the states that have experienced the highest overall employment gains are the beneficiaries of expanding energy production. Among the states where employment remains substantially below pre-recession levels are those states most affected by the bursting of the housing bubble and those with declining manufacturing employment.



click on chart for sharper image

Only 16 states and the District of Columbia are at least one percent above their pre-recession employment levels. For more than half of these states (North Dakota, Texas, Alaska, Utah, Colorado, Oklahoma, Montana, West Virginia, and Louisiana), expanding energy production has played a key role in driving employment growth. The District of Columbia and the other employment-gaining states can attribute their total employment growth to increases in a variety of sectors, most notably health services and leisure and hospitality.

Four of these states (North Dakota, Colorado, Texas, and South Dakota) and the District of Columbia also had among the highest proportional increases in population due to inflows of people from other states between 2010 and 2013 (net domestic migration) as people moved to where the jobs were. Texas alone added more than 400,000 people from other states (1.5 percent of its 2013 population) during this period.

The recession was significantly more severe for the states that fall at the bottom of the job recovery rankings; these states continued to lose jobs well after the end of the recession. Job creation did not pick up in Nevada and New Jersey until the beginning of 2011 and did not pick up in Alabama and Maine until the middle of 2011. It took until the middle of 2012 for employment to begin to grow in New Mexico.

Population also migrated away from the states at the bottom of the job recovery rankings: Of those in the bottom 10, New Jersey, Maine, New Mexico, Connecticut, Michigan, Rhode Island, and Illinois all lost population to domestic migration.

Currently only North Dakota, the District of Columbia, and Oklahoma have more construction workers than they did in December 2007. Two of the states in the bottom 10 for employment recovery, Nevada and Arizona, were the hardest hit by the bursting of the housing bubble: At present, construction employment in Nevada is 51 percent below, and in Arizona is 42 percent below, their December 2007 construction employment levels. The other three states that remain at the bottom in terms of employment recovery—Alabama, New Mexico, and New Jersey—all have construction employment losses at least five percentage points higher than the national average.The report takes a detailed look at mining, construction, and manufacturing gains and losses.

Mining is of course a net overall gain, while hard-hit manufacturing states were slow to recover.

Here are a few of my own conclusions, not from the report:

  • California no doubt benefited from Silicon Valley in spite of an overall hostile business environment and tax setup
  • Illinois was hit with a series of misguided tax hikes to the point Caterpillar threatened to leave the state. Illinois has no redeeming features to offset high taxes and other mistakes.
  • D.C. benefited from national politics and lobbying.
  • In general, red vs. blue is not the name of the game, but rather "what have you done for me lately".

It's a nice report. Inquiring minds may wish to take a closer look.

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

Brain Drain and Capital Flight: 64% of Wealthy Chinese Plan to Leave China

nie., 17/08/2014 - 20:55
Massive pollution, especially unbreathable air, lack of educational opportunities, food, safety, and corruption are some of the reasons behind a recent poll that shows a whopping 64% of wealthy Chinese plan to leave the country.

The Wall Street Journal calls it The Great Chinese Exodus.
Today, China's borders are wide open. Almost anybody who wants a passport can get one. And Chinese nationals are leaving in vast waves: Last year, more than 100 million outbound travelers crossed the frontiers.

Most are tourists who come home. But rapidly growing numbers are college students and the wealthy, and many of them stay away for good. A survey by the Shanghai research firm Hurun Report shows that 64% of China's rich—defined as those with assets of more than $1.6 million—are either emigrating or planning to.

The decision to go is often a mix of push and pull. The elite are discovering that they can buy a comfortable lifestyle at surprisingly affordable prices in places such as California and the Australian Gold Coast, while no amount of money can purchase an escape in China from the immense problems afflicting its urban society: pollution, food safety, a broken education system. The new political era of President Xi Jinping, meanwhile, has created as much anxiety as hope.

First-generation businessmen—the ones who powered China's economic rise—now dream of a secure retirement. That means legal safety in places like the U.S. and Canada.

Last year, the U.S. issued 6,895 visas to Chinese nationals under the EB-5 program, which allows foreigners to live in America if they invest a minimum of $500,000. South Koreans, the next largest group, got only 364 such visas. Canada this year closed down a similar program that had been swamped by Chinese demand.

Beijing makes a crucial distinction between ethnic Chinese who have acquired foreign nationality and those who remain Chinese citizens. The latter category is officially called huaqiao—sojourners. Together, they are viewed as an immensely valuable asset: the students as ambassadors for China, the scientists, engineers, researchers and others as conduits for technology and industrial know-how from the West to propel China's economic modernization.

In 1989, when the Tiananmen Square massacre triggered an outflow of traumatized students and shattered the Party's image among overseas Chinese communities, the Overseas Chinese Affairs Office kicked into high gear with a propaganda campaign to repair the damage. It proved highly successful.

But China's cross-border political activities are creating unease. Consider Australia—one of the most popular destinations for Chinese students, emigrants and tourists, and a country where Mandarin Chinese is now the second-most widely spoken language after English.

"Chinese Australians are being lectured, monitored, organized and policed in Australia on instruction from Beijing as never before," wrote John Fitzgerald of Swinburne University of Technology, one of the country's foremost China experts, in an article published by the Asan Forum, a South Korean think tank.

In the U.S., a vigorous debate has broken out in academic circles about the role on American campuses of Confucius Institutes, which are sponsored by the Chinese government and offer Mandarin-language classes, along with rosy cultural views of China.

China must be exceedingly careful not to leave too many fingerprints on its political activities offshore. For a start, it has an official policy of noninterference in the internal affairs of other countries. But it also puts established overseas Chinese communities at risk by raising the issue of their national loyalties. That is particularly true in Southeast Asia, where the Chinese of a previous era were often viewed with suspicion as a communist fifth column.

Still, the sheer volume of China's outbound travel these days, and its massive economic impact, gives it new leverage. In the global market for high-end real estate, Chinese buying has become a key driver of prices. According to the U.S. National Association of Realtors, Chinese buyers snapped up homes worth $22 billion in the year ending in March.

Australia called a parliamentary inquiry to find out whether local households were being priced out of the market by Chinese money. (The conclusion: not yet.)

The Chinese government has no desire to slow the flow of students. Its attitude is simple: Why not have the Americans or Europeans train our brightest minds if they want to? President Xi's own daughter went to Harvard.

As always with China, the numbers awe. In his memoirs, Zbigniew Brzezinski, the former national security adviser, recalls a meeting between President Jimmy Carter and Deng. Human rights were on Mr. Carter's agenda, and he started needling the Chinese leader about Beijing's tight emigration policies. "Fine. We'll let them go," Deng snapped. "Are you prepared to accept 10 million?"

Not even Deng could have imagined the human torrent his "open door" reforms would eventually unleash. Try 100 million—and counting.There is much more in the article including a video interview of political scientist James Jiann Hua To by WSJ's Deborah Kan. James To is author of ‘Qiaowu: Extra-Territorial Policies for the Overseas Chinese’, a book on how the Chinese government is using propaganda campaigns abroad to ensure loyalty from overseas Chinese.

At $146, I doubt he sells many copies. Instead, inquiring minds may wish to consider a Q&A on Qiaowu Writing China: James Jiann Hua To, ‘Qiaowu: Extra-Territorial Policies for the Overseas Chinese’.

For a discussion of  the impact of Chinese capital flight on the US housing market, please consider $22 Billion in California Homes Sold to Chinese All-Cash Buyers; "Beginning of Tidal Wave" says NAR Chief Economist.

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

It's Different This Time: Humans Need Not Apply; Two Possible Solutions

sob., 16/08/2014 - 23:32
On August 7, I wrote about "McCashier" Your $15.00 Per Hour McDonald's Worker Replacement.

Sure. You can make $15 an hour at McDonald's, at least in Seattle. You just have to perform better than this machine.



Many commented along the lines of "What's the big deal? It's only a cashier. There are more cooking jobs that cannot be replaced."

For example reader Chris commented ...
A McDonalds worker isn't a "cashier." The person who works the front end doesn't just take orders and money. The person who works up front also fills drinks for drive thru. They clean the restrooms and dining areas. They help assemble food if needed(dropping fries.) Does the machine do all those things? If it doesn't then it isn't really replacing anything or more cost effective then a person. There is usually 2-3 people in the back assembling food and 2 people up front taking orders, handling money, assembling trays with ordered food, preparing drinks for drive thru, etc., etc. You could get the kiosk and the stupid burger machine and still have more than enough work for those 5 people.Really? What about robot cooks, robot greeters, and even robot waiters?

Robot Cooks, Greeters, Waiters

The Times of India reports Robots Greet, Cook and Deliver Dishes at this Restaurant in China.
It's more teatime than Terminator — a restaurant in China is electrifying customers by using more than a dozen robots to cook and deliver food. Mechanical staff greet customers, deliver dishes to tables and even stir-fry meat and vegetables at the eatery in Kunshan, which opened last week.

"My daughter asked me to invent a robot because she doesn't like doing housework," the restaurant's founder Song Yugang told AFP.

Two robots are stationed by the door to cheerfully greet customers, while four short but humanoid machines carry trays of food to the tables.

In the kitchen, two large blue robots with glowing red eyes specialize in frying, while another is dedicated to making dumplings.

Song told the local Modern Times newspaper that each robot costs around 40,000 yuan ($6,500) — roughly equal to the annual salary of a human employee.

"The robots can understand 40 everyday sentences. They can't get sick or ask for vacation. After charging up for two hours they can work for five hours," he added. Robot Waiters



A restaurant in China is electrifying customers by using more than a dozen robots to cook and deliver food. (AFP Photo)

Robot Cooks



This photo taken on August 13, 2014, shows a robot cooking vegetables in a kitchen of a restaurant in Kunshan. (AFP Photo)

Humans Need Not Apply

Many people sent me a link to Humans Need Not Apply.



The 15 minute video is well done and very thought provoking. It's well worth your time to play it.

Is It Different This Time?

The gist of the video is that "It's Different This Time", that no matter what your job is, your job is in jeopardy.

I have stated that over the long haul, technology creates jobs, but there are periods of creative destruction where the opposite happens. For example: How many millions of jobs did the internet revolution create? Did they all vanish?

No they did not vanish, and they all won't.

Yet, we are in a creative destruction phase where computers take jobs away. Will this change? I don't know the catalyst, but historically speaking, it always has.

What about the meantime? And for those who think the setup is permanent, the problem has even more severe implications.

Many readers have written this is why we need a "guaranteed income", not a guaranteed minimum "living wage". Let's quickly dispense with such nonsense.

Pay people to do nothing and you promote doing nothing. Do we have enough energy resources to give everyone on the planet, a guaranteed "living income"?

The answer is no, we don't.

Reflections on Productivity

The natural state of affairs because of increased productivity over time is an increased standard of living, more free time, and falling prices.

Productivity and technological breakthroughs are inherently price-deflationary. 

Enter the Fed and central banks in general. Central banks are hell bent on producing 2% or more inflation in a deflationary world.

That is the source of the battle over "living wages".

The problem is money does not go far enough, rather than people do not make enough. Realistically, no one in their right mind should care if wages fall, if increased productivity makes prices fall faster.

But central banks do not want prices to fall. Nor do those who control the assets (the banks, the bureaucrats, and the already wealthy) want prices to fall.

So, with the Fed promoting inflation, bureaucrats promoting higher and higher minimum wages, and with the Fed holding interest rates artificially low, corporations have every incentive to replace workers with robots at a Fed-induced artificially high rate.

Two Possible Solutions

The solution is not higher minimum wages. The solution is not a tax on robots like Paul Krugman wants. The solution is not a guaranteed income.

The solution is to eliminate the Fed, eliminate fractional reserve lending, and give the free market a chance to create jobs at its own pace, without all this government and central bank interference.

The alternative "solution" and not one I support, is to kill off a lot of needless people by starting WWIII.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "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.
Kategorie: Najnowsze feedy

Rebels Inflict Heavy Damage on Ukrainian Military Vehicles; Anti-Putin Sanction Alliance Crumbles

sob., 16/08/2014 - 20:22
Contrary to the unsubstantiated rumor (most likely a complete fabrication) that Ukraine Destroyed a Russian Convoy, the rebels have inflicted serious damage on the Ukrainian military machine. And unlike the zero-proof offered by Ukraine, I have a few videos to show.

Descriptions from Jacob Dreizin, a US citizen who speaks Russian and reads Ukrainian.

Video 1: Stepanovka



Translated Text from Video URL:

"The defeat of Ukrainian troops in Stepanovka part 1. In Stepanovka Ukrainian army left dozens of pieces of equipment, a large quantity of ammunition, classified material. Locals said that the Ukrainian officers fatten when their soldiers were starving. In the Ukrainian army thrives drunkenness and panic."

Dreizin Synopsis 1:

Destroyed or abandoned Ukrainian equipment in/near Stepanovka in the south, the first of two Stepanovka videos. The first couple of minutes are very interesting, with lots of destroyed or abandoned equipment and milia carting off captured munitions and rummaging through stuff. Then a funky local man who tells the cameraman about how the Ukrainian officers didn't take care of their men and darted off leaving their men stranded, how the Ukrainians all drink heavily, how their morale is low and they panic during any kind of battle, and how they don't want to engage the militia up-close. Also you can see a stack of grad rockets on the ground around 5:50 and then again around 7:20.

But the most memorable quote is from around 7:18 to 7:52, as follows ...

"In the Stepanovka area, guys are jumping to go into battle, to kill the enemy even with bare hands.  In particular, in the assault units that captured Stepanovka, there are very many volunteers from Semyonovka [a town near Slaviansk that was largely destroyed by Ukrainian shelling], who are just burning with a thirst for vengeance for the acts of genocide that the fascists waged there.  I think that for Ukrainian soldiers, it's really best not to run into these guys. This is the mindset the Ukrainian army is fighting."

Video 2: Stepanovka



Translated text from the video URL "In Stepanovka Ukrainian army left dozens of pieces of equipment, a large quantity of ammunition, classified material. Showing the shocking footage of the deceased in the fire department of a Ukrainian paratroopers."

Dreizin Synopsis 2:

Destroyed or abandoned Ukrainian equipment near Stepanovka in the south, the second of two Stepanovka videos. This video is more interesting, much more equipment here, best part starts around 2:50.

Overall, for both (1) and (2), the narrator is describing the abandoned weapons, the tactical situation, and the human situation. In part (2) from 3:09-3:21, the narrator says that a militia burial party has already been to that particular spot, and along with a priest has taken the remains of 40 Ukrainians killed there and buried them nearby.

Video 3: Lugansk

Dreizin says "Warning! This may kill your appetite" Video URO description says "Consumed column Lviv airmobile brigade APU by the people's militia".



Dreizin Synopsis 3:

Dreizin describes this as the remains of a convoy of Ukraine's 95th Airmobile Brigade. I question the recentness of the video based on rotting flesh.

Video 4: Marinovka



Video URL Customs post with Russia "Marinovka" August 14, 2014

Dreizin Synopsis 4:

These militiamen are touring the captured border post of Marinovka, one of the points that plugs the western flank of the new cauldron in the south.  They are obviously really happy, and the tall guy with the beard and mustache even finds the occasion to shout out his own paraphrase of an excerpt from Pushkin's "Ruslan i Liudmila" at around 0:22-0:25 (roughly translated as "It now smells like Russia here".) 

Anti-Putin Sanction Alliance Crumbles

As the war rages on, and sanctions mount, support for those sanctions is now being reconsidered. Zero Hedge provides a nice synopsis in "Anti-Putin" Alliance Fraying: Germany, Slovakia, Greece, Czech Republic Urge End To Russian Sanctions

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "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.
Kategorie: Najnowsze feedy

Let's Play "Telephone"!

sob., 16/08/2014 - 07:43
Anyone recall the campfire game Telephone?

In the game of Telephone, someone, typically sitting around the campfire, whispers a phrase to the next person who in turn whispers the phrase to the next person until the message is passed to the final person who reports what he heard.

Inevitably, the final result is nothing like what the first person said.

I have a modern day prime example as well as a Mish boy scout example to report. Let's start with the modern day example.

Telephone!

Telephone Part 1: BBC reports "Around a dozen Russian light tanks have been seen heading for the Ukrainian border, as a Russian aid convoy remains parked near the frontier. The BBC saw the tanks early on Friday morning, but there was no confirmation that they were going to Ukraine."

Telephone Part 2: The Guardian reports  "a column of 23 armoured personnel carriers, supported by fuel trucks and other logistics vehicles with official Russian military plates, travelling towards the border near the Russian town of Donetsk – about 200km away from Donetsk, Ukraine."

Telephone Part 3: Lithuanian Foreign Ministry Says Russia Invaded Ukraine with 70 Pieces of Military Equipment

Telephone Part 4: Ukraine President Claims Russia Invaded Ukraine, and Ukraine Destroyed Russian Military Convoy

Thanks to reader Sergey for the first three links. I picked up and reported part 4 earlier, doubting the story from the moment I read it.

Mish Telephone Experience

I know full well how bullsheet like this spreads. It all goes back to the game of Telephone. Every listener (in this case writer) has a strong temptation to embellish the story to gain readership. This is how 12 becomes 40, becomes 70.

I learned an early lesson. In boy scouts, I purposely changed a message to something totally unrelated to what I actually heard. I never did it again because a counselor embarked on a binary chop method to figure out where the story went wrong.

Fortunately for me, the counselor stopped two people short.

Regardless, this is precisely how bullsheet spreads, and I now try hard not to be part of it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "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.
Kategorie: Najnowsze feedy

Ukraine President Claims Russia Invaded Ukraine, and Ukraine Destroyed Russian Military Convoy

pt., 15/08/2014 - 22:29
Here's the unbelievable claim of the day: Ukraine Attacks Russian Military Convoy, Says President. Moscow’s stand-off with Kiev intensified dramatically on Friday night after the Ukrainian government said it had blown up a Russian military convoy inside its territory, news that sparked a flurry of diplomatic activity to try to defuse the deepening crisis.

Just hours after a Russian humanitarian aid convoy of 270 white military trucks, some of which were empty, pulled up in the town of Kamensk-Shakhtinsky near Ukraine's border, Kiev said it had launched an artillery strike against a separate column of some two-dozen Russian military vehicles that had crossed into its territory under the cover of darkness.

In a phone call with British prime minister David Cameron on Thursday evening, details of which emerged on Friday, Ukraine’s president Petro Poroshenko confirmed a Russian military convoy had entered Ukraine but said most of it had been “eliminated” in an artillery strike.

Russia on Friday night denied Ukraine’s claim that it had “destroyed” part of a Russian military convoy on Ukrainian territory. The convoy that allegedly crossed the border into Ukraine did not exist, and such statements based on fantasy and assumptions should not be seriously discussed, the defence ministry said in a statement carried by state media.

The Russian foreign ministry accused Ukraine of threatening to use force against its humanitarian aid mission and of sharply stepping up hostilities “with the apparent aim of cutting off the path the convoy should take from the border to Lugansk under the agreement with Kiev.”
Which Side to Believe?

I am willing to change my mind on which side to believe as soon as evidence comes in.

If "some two-dozen Russian military vehicles" were mostly "eliminated", how about some pictures please?

It should be a simple matter to take a few pictures of destroyed equipment and a few more pictures of soldiers in Russian uniforms.

And where is US satellite evidence? For that matter, where precisely did this strike occur?

Destroyed and Captured Equipment   

My sources indicate we are soon going to see some images of destroyed and captured equipment of a completely different nature.

I will have a new map of major military operations and a new video out shortly.

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

France Finance Minister "I Refuse to Raise Taxes to Close any Budget Gaps"; "Rethinking" the USA

pt., 15/08/2014 - 20:40
Not only is support for sanctions in Europe crumbling, so is support for alleged austerity. I say alleged because there really hasn't been any austerity.

France Rebels Against Austerity

Please consider France Rebels Against Austerity as Europe's Recovery Collapses by Ambrose Evans-Pritchard.
Eurozone strategy is in tatters after economic recovery ground to a halt across the region and France demanded a radical shift in policy, warning that austerity overkill is driving Europe into a depression.

Growth slumped to zero in the second quarter, with Germany contracting by 0.2pc and France once again stuck at zero. Italy is already in a triple-dip recession.

Michel Sapin, France’s finance minister, sent tremors through European capitals with a defiant warning that his country would no longer try to meet its deficit targets and would not inflict further damage on its economy by tightening into the downturn. “I refuse to raise taxes to close any budget gaps,” he said.

Growth is too weak in Europe and inflation is too low. We must therefore stop reinforcing the causes of this depression,” he told RTL television.

“We must face the figures in front of us with realism. The truth is that, contrary to the forecasts of the International Monetary Fund and the [European] Commission, growth has broken down, both in France and in Europe.”Cause of the Depression

Sapin's statement "We must therefore stop reinforcing the causes of this depression" is correct.

Unfortunately, both Sapin and Pritchard are clueless about austerity and the cause of France's woes.

Austerity means (or at least should mean), cutting government spending, not hiking taxes to maintain ridiculous levels of government spending. Speaking of which, government spending accounts for a whopping 57% of French GDP.

Depression Hell

France desperately needs to cut government spending and burn thousands (if not tens of thousands) of regulations.

Instead, Pritchard wants the ECB to print more money. Sapin wants France to spend more money. It's a pair made in depression hell.

"Rethinking France"

Yesterday, in Time for a Rethink, I made these statements.
Time for a Rethink

Sapin wants a rethink. I certainly agree. It's time for France to ...

  • Rethink agricultural subsidies
  • Rethink high tax rates
  • Rethink work rules
  • Rethink countless regulations
  • Rethink government spending that accounts for 57% of GDP
  • Rethink Hollande
  • Rethink socialism

Actually, it's time for France to rethink everything that isn't working. In turn, that means France needs to rethink everything, because as best as I can tell, nothing is working properly."Rethinking USA"

Reader "Friendly Guy" complained about the fetid, foul-smelling  US and proposed the following.
"Friendly Guy" says the US should ...

  1. Rethink agricultural corn subsidies
  2. Rethink low tax rates
  3. Rethink work rules and the few vacation days employees receive
  4. Rethink countless lack of banking regulations
  5. Rethink government spending that accounts for a large part of GDP
  6. Rethink Obama
  7. Rethink capitalism

Every country should become like the fetid U.S. of A."Friendly Guy" is on to something, but in the opposite sense on all but two points 1 and 6, assuming I have his tone correctly. Here is his list with my comments.

The US should ...
  1. Rethink agricultural corn subsidies: Yes, it should eliminate them.
  2. Rethink low tax rates: Yes, it should lower taxes and cut government spending to make it possible.
  3. Rethink work rules and the few vacation days employees receive: Yes, the government should get out of the way of regulations except when it comes to health, safety, fraud, and property rights.
  4. Rethink countless lack of banking regulations: Yes it should eliminate all regulations except those whose only purpose is to prevent fraud. And speaking of fraud, we need to get rid of fractional reserve lending and absurd accounting methods.
  5. Rethink government spending that accounts for a large part of GDP: Yes, we need to reduce government spending to the bone, pass national right-to-work laws, eliminate forced collective bargaining, and scrap Davis Bacon and all prevailing wage laws.
  6. Rethink Obama: Obviously
  7. Rethink capitalism: No. There is nothing to rethink. We should actually try it for a change.

Possibly I have "Friendly Guy's" tone wrong and we are in perfect agreement, but his sarcasm makes me think otherwise.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.comMike "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.
Kategorie: Najnowsze feedy

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