Mish's Global Economic Trend Analysis

Christine Lagarde, IMF Chief, Warns US About Short, Medium, and Long-Term Problems; Like All Keynesian Clowns, Lagarde Does Not Want to Deal With the Present
Davidowitz on QE and the Economy: "Bernanke is Certifiably Nuts"
Spain's Fiscal Deficit 8.56% of GDP in First Half; Impossible Second Half Targets

Christine Lagarde, IMF Chief, Warns US About Short, Medium, and Long-Term Problems; Like All Keynesian Clowns, Lagarde Does Not Want to Deal With the Present

Posted: 21 Sep 2012 09:16 PM PDT

For a brief moment, I almost thought Christine Lagarde, head of IMF, gained control of her senses.

The Telegraph headline IMF chief Christine Lagarde says US needs to rein in its banks is the illusion that briefly (very briefly) led me astray.

Not to fear, in the end, Lagarde proved in spades that she is the same Keynesian clown as before. Let's take a look where she makes sense, and doesn't.

The opening paragraph (below) about "challenges everywhere" makes sense, although there is little substance.

Speaking ahead of key meetings for the IMF and the World Bank early next month, Ms Lagarde called on political leaders to "get beyond the crisis in the eurozone" as "we have challenges everywhere".

I am in 100% agreement with the following paragraph.

"The United States has short-term and medium-term challenges as well, none of which are really properly addressed at the moment," she said.

Then Lagarde immediately proved she is still a Keynesian clown.

"In the short term, there is the issue of the fiscal cliff, which is a combination of fiscal cuts that will stop early in 2013 and public spending that will be withdrawn in 2013, if nothing happens. That will be automatic, and it will create a major contraction of the deficit, yes, but also of growth, which would be a threat to the global economy. That's for the short term."

The only reasonable interpretation of that paragraph is that Lagarde does not want the US to address its fiscal problems "now".

Keynesian clowns are very good about pointing out the need to do something in the future. They never want to address the present.

The fact of the matter is US government spending is totally and completely out of control. Something needs to be done now.

Largarde then continues with complete hogwash, hoping to sound like some sort of fiscal conservative. "In the longer term, there has to be again anchoring of expectations about the fiscal policy of the United States in order to address the issue of the deficit and the debt as well."

Longer Term Never Arrives

Looking for expectations to anchor? Then anchor this: the "longer term" never comes to Keynesian clowns. They are perpetually worried about stopping growth (not that government spending ever creates growth in the first place). It doesn't.

All government stimulus can ever do is create artificial booms while increasing debt. Japan is proof enough. And the irony is Lagarde is now warning Japan to do something.

The Telegraph article concludes "In early October, thousands of policymakers and business leaders will meet in Tokyo to discuss the outlook for the world economy, and how to address the eurozone crisis."

If global policymakers really want to do something about the global economy, I suggest they all stay home and read my blog, that of Acting Man, and that of Michael Pettis at China Financial Market.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Davidowitz on QE and the Economy: "Bernanke is Certifiably Nuts"

Posted: 21 Sep 2012 12:04 PM PDT

Howard Davidowitz, chairman of Davidowitz & Associates Inc., talks about the performance of Federal Reserve Chairman Ben S. Bernanke and the impact of Fed policy on consumer confidence. Davidowitz speaks with Tom Keene, Sara Eisen and Scarlet Fu on Bloomberg Television's "Surveillance."

Tom Keene: How will the American consumer react to the unlimited punch bowl?

Howard Davidowitz: Zero. This is not going to effect the American consumer. Bernanke has consistently been wrong. All the sugar bowls have consistently been wrong. GDP is going nowhere. Consumer wealth, median family income is down 10% over four years. Family wealth is down 40%. Unemployment is totally in the crapper. We've spent 5.4 trillion, we have nothing for it. .... The only way you fix anything is pain ... I've always thought Bernanke is certifiably nuts. His record speaks for itself.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Spain's Fiscal Deficit 8.56% of GDP in First Half; Impossible Second Half Targets

Posted: 21 Sep 2012 10:18 AM PDT

Spain's original deficit target for 2012 was 4.4%, then revised to 5% then 5.3%. The last revision brought the target all the way up to 6.3%. So how is Spain doing?

Via Google Translate Libre Mercado says Spain recorded a fiscal deficit of 8.56% of GDP in the first half

The government set the offset recorded 45.233 million euros to June, equivalent to 8.56% of GDP semester.

Now Available budget execution data of all public sector until the second quarter of the year, and the first assessment of the Government of Mariano Rajoy on the deficit is not exactly favorable. According to data from the State Comptroller (IGAE), Public Administration (AAPP) reported a gap between revenues and expenditures (deficit) 45,233,000 euros through June in terms of the excessive deficit procedure (EDP, the methodology valid for Eurostat).

This corresponds to 8.56% of GDP until the second quarter cumulative -528 161 000 euros, according to the National Statistics Institute (INE) -. Thus, Spain moves away from deficit target committed to Brussels for the full year, set at 6.3% of GDP.

Central Government, Regional Governments, Local Government and Social Security admitted 173,320 million during this period, but spent 218,553,000. That is, the overall public sector continued spending 26% more than they entered through fiscal. In fact, the cumulative deficit through June is just half the total phase shift recorded last year (91,344,000) so that, if not corrected this trend, Spain in 2012 recorded a deficit similar to 2011.

Impossible Second Half Targets

Rajoy is sticking to the 6.3% deficit target for the year.

Let's see how ridiculous that idea is with a calculation to figure out what the second half deficit must be to hit that target.

(8.56 + X) / 2 = 6.3
8.56 + X = 12.6
X = 12.6 - 8.56
X = 4.04

Assuming GDP stays constant (it won't, Spain's GDP will be worse in the second half, probably much worse), Spain would need a second half deficit of about 4% to reach its target.

No one can possibly think 4% is a credible second half target. Sure, numerous tax hikes will kick in (supposedly raising revenue). However, tax hikes will also suppress growth which in turn will suppress revenue.

Thus, VAT hikes will not bring in what the government anticipates. How can it with unemployment soaring?

Note that Spain's 2013 target was 3% (revised up to 4.5%). Spain will not hit that target either, and Brussels will be calling for still more tax hikes next year.

How long will Spanish citizens put up with this?

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

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21.9.12

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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