31.3.13

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Italian President Giorgio Napolitano Denies He Is Stepping Down After Phone Call From ECB President

Posted: 31 Mar 2013 10:58 AM PDT

Whether or not Italian President Giorgio Napolitano intended to step down or it was just a rumor, following ECB President Mario Draghi phone call, Napolitano denies resignation reports.
Napolitano pledged on Saturday that he would stay in office until the end of his term on May 15 following reports that he planned to step down to break the deadlock created by last month's election, which left no party able to form a government.
Months of Pressure on Bersani and Silvio Berlusconi

The ECB clearly does not want to take a chance that Beppe Grillio's Five Star Movement will win the next election, so the pressure is on by the ECB for a different result.

Bloomberg reports Napolitano Names Advisers in Renewed Push for Italian Deal
Italian President Giorgio Napolitano renewed his push to forge a government from the country's divided parliament by drafting advisers from two of the top three political forces.

Members of the parliamentary coalitions headed by Pier Luigi Bersani and ex-Prime Minister Silvio Berlusconi were among the 10 men selected, according to an e-mail sent late yesterday by Napolitano's office. Civil servants, a former politician, a retired judge and a central banker rounded out the two lists. Beppe Grillo's Five Star Movement, the third-largest group, had no lawmakers included.

Grillo, an ex-comic who characterized his party's mission as the French Revolution without the guillotine, criticized Napolitano's appointment of advisers in a blog posting today.

Italy "doesn't need 'caretakers of democracy,' but rather to make its parliament function better and quickly," Grillo said. "The country doesn't need mysterious negotiators or facilitators of the caliber of Violante, the grand master of backroom deals, to cite just one, to act as a group of wise men."

Violante, a former speaker of the lower house of parliament, didn't respond to a request via his website for comment.
Coalition Won't Last

If Napolitano does manage to scrape together a coalition, it will not last long. Berlusconi is angling for the right to name the next president to form a government. However, once that is done, he will no longer need the coalition and will be happy to have elections free from worry over prosecution and also with rule changes more favorable to his party.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Happy Easter

Posted: 31 Mar 2013 09:10 AM PDT

I wish all of you a happy Easter. Here is a colorful image from Der Spiegel that I wish to share.



click on imager for larger view

Each year, Volker Kraft decorates an apple tree with more than 10,000 colourful eggs in Saalfeld, Thuringia, to celebrate Easter and the arrival of spring.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

30.3.13

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Time to Wave the White Flag on the "War on Poverty"

Posted: 30 Mar 2013 06:38 PM PDT

In response to Unwilling to Work; 25% in Hale County AL Collect Disability, 14 Million Nationwide; A Simple Solution I received some interesting emails from readers.

Regardless of Insurance, Taxpayers Pay

Reader Chris writes
Hey Mish,

I have been discussing disability for quite some time with others. I know a few people on disability who should not be qualified. I also have one good friend who is on disability for back problems. He had several surgeries and is genuinely disabled. The interesting part is my friend paid for his own insurance for 25+ years and the minute that he was declared unable to work, a lawyer saw to it that he would go on SS benefits. The insurance company collected premiums for 25+ years and now the government (taxpayers) pay.
Discussion on Radio Station KMJ

I was on radio station KMJ in Fresno, California for 45 minutes on Friday discussing my post on disability. Mike, a disabled worker was kind enough to share his thoughts. Mike writes ...
Hello Mish

I just heard you on KMJ and agree with what you have said. I am a disabled person working in the social services system, I will soon be retiring due to stress related problems. I would like to keep working at another position with less stress but many of my friends think I am stupid for wanting to work instead of taking social security.
Time to Wave the White Flag

Reader Claudette, writes ...
Hello Mish

Thanks for a good post on a complex issue. SSI/SSDI comes from social security funds, making that program even less sustainable over time.

I also see those who are truly disabled and unable to be competitively employed...they are being sustained in poverty by this program because of the sheer numbers in the program.

Multiple disincentives are built into the system to getting a job for fear of losing your stable disability check and Medicare coverage, so that it is very hard for the state Vocational Rehab system (where I work) to get disability recipients back to work.

There are few entry level jobs that pay enough or have benefits adequate for the recipients to take the risk of leaving the safe harbor of Disability.

Let's just raise a white flag and admit that the "war on poverty" has been lost and look critically at how our programs sustain people in poverty rather than lift them out of it.
Thanks all. Yes, it is time to raise the white flag. Many of these programs are structured to keep people on disability rather than get them off disability.

Reader mike shows the pressure on the few who really do not want to take advantage of the system.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Beppe Grillo "We are the French Revolution Without the Guillotine"

Posted: 30 Mar 2013 09:38 AM PDT

With Beppe Grillo unwilling to form a coalition government, and with Prime former Prime Minister Silvio Berlusconi making demands that Bersani will not go along with, Italian President Giorgio Napolitano Considers Options.

One of those options includes stepping down early so the next president can call elections. Under Italian law, an outgoing president is restricted. Napolitano's term ends mid-April.
Napolitano, who met with lawmakers yesterday, may make an announcement today, the president's spokesman said late yesterday. Napolitano will continue talks with leaders in parliament and may consider resigning, daily La Repubblica reported today, without citing anyone.

To reach a compromise, Napolitano would need help from lawmakers loyal to either former Prime Minister Silvio Berlusconi or Beppe Grillo's Five Star Movement. Berlusconi said yesterday he would back a government in partnership with the Democratic Party, while Grillo reiterated he will shun a deal with other parties.

"We were and still are open to giving life to a coalition," Berlusconi, 76, said yesterday after meeting Napolitano. "We think it's logical that if we form a government together, a coalition government, then together we must discuss about who will be the best president of the republic."

Vito Crimi, Five Star's head in the Senate, and Roberta Lombardi, the party's leader in the Chamber of Deputies, repeated their resistance to compromise after meeting Napolitano yesterday. That position was praised by Grillo later in an interview broadcast on his website.

"We're going to win with our ideas and our strength because we're a miracle," Grillo said. "We are the French Revolution without the guillotine."
Poison Pill

Silvio Berlusconi is willing to form a coalition but his price of admission is high.

Berlusconi wants to shield himself from further lawsuits, and he wants new rules favorable to his PdL party. He also wants the PdL to name the next president.

Grillo would never go along with such demand, and Bersani has thrice ruled out such a deal.

The sane thing to do would be for Napolitano to step down so there could be early elections. If he goes the route of attempting to find a technocrat suitable to everyone, the odds of success will be very low, and the odds the election delayed until September, high.

My main scenario remains No Working Government for 7 Months, Then Elections in September but an early resignation by Napolitano could alter the time line.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

29.3.13

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Robot Reality: "Last Resort" Service Jobs Next to Go; "Baxter" Back in the News

Posted: 29 Mar 2013 06:14 PM PDT

I have written about "Baxter" before. Baxter is not a person. Rather Baxter is a robot rapidly replacing humans in various manufacturing jobs.

See Meet "Baxter" the Robot Out to Get Your Minimum-Wage, No Benefits, Part-Time Job, Because He's Still Much Cheaper; Fed Cannot Win a Fight Against Robots.

Service Jobs Next to Go

Baxter is back in the news. The Fiscal Times says The Robot Reality: Service Jobs Are Next to Go.
If you meet Baxter, the latest humanoid robot from Rethink Robotics – you should get comfortable with him, because you'll likely be seeing more of him soon.

Rethink Robotics released Baxter last fall and received an overwhelming response from the manufacturing industry, selling out of their production capacity through April. He's cheap to buy ($22,000), easy to train, and can safely work side-by-side with humans. He's just what factories need to make their assembly lines more efficient – and yes, to replace costly human workers.

But manufacturing is only the beginning.

This April, Rethink will launch a software platform that will allow Baxter to do a more complex sequencing of tasks – for example, picking up a part, holding it in front of an inspection station and receiving a signal to place it in a "good" or "not good" pile. The company is also releasing a software development kit soon that will allow third parties – like university robotics researchers – to create applications for Baxter.

These third parties "are going to do all sorts of stuff we haven't envisioned," says Scott Eckert, CEO of Rethink Robotics. He envisions something similar to Apple's app store happening for Baxter. A spiffed-up version of the robot could soon be seen flipping burgers at McDonalds, folding t-shirts at Gap, or pouring coffee at Starbucks.

What's worrisome to Martin Ford [robotics expert and author of The Lights In the Tunnel: Automation, Accelerating Technology and the Economy of the Future] is that these jobs have been offering a huge safety net to the middle class.

They're jobs he calls "the jobs of last resort." When someone can't find a salaried job, they look for lower-paying service jobs to get by – and because the jobs typically have a high turnover rate, they're more likely to be available. Think of all the college graduates who take jobs as cashiers or baristas before they find salaried work. If those jobs were to vanish, those workers would be forced to file for unemployment instead."
Jobs of Last Resort

The Fed and the Obama administration are both clueless as to why this is happening and what to do about it.

Obama wants to raise minimum wages. He also sponsored Obamacare that is going to cost businesses plenty. Those moves encourage automation.

On its part, the Fed has driven interest rates to zero. When money is that cheap, all kinds of capital expenditures that would not otherwise be affordable, quickly become affordable.

Technology is actually a good thing. Few see it that way because the Fed has destroyed the value of the dollar and Obama is hell bent on giving businesses a reason to outsource jobs to robots as fast as they can.

To be fair, much of this is natural workforce evolution. However, the Fed and the Obama administration goosed the trend at the worst possible time.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Arizona Lawmakers Advance Bill Allowing Gold and Silver as Money; Bureaucratic Nightmare?

Posted: 29 Mar 2013 10:09 AM PDT

I have encouraging news in the state of Arizona where lawmakers back gold, silver as currency.
The measure is Arizona's latest jab at the federal government, which prohibits states from minting their own money. It also reflects a growing distrust of government-backed money.

The bill, which advanced in a 4-2 vote by a House committee Monday, states that gold and silver should be legal currency not subject to tax or regulation as property. The Republican-led Senate gave the bill its blessing in February in a 17-11 partisan vote.

The bill would let people use the precious metals as money as long as businesses agree to take them. If made law, it would take effect in 2014.

Democrats oppose the measure. They say it would be a bureaucratic nightmare because businesses don't have the equipment to determine the value of gold and silver.
Bureaucratic Nightmare?

Nonsense.

The bill is well written and extremely well thought out. It does not force companies to accept gold or silver (nor should it), it merely allows businesses to do so if they want. Any company that does not want to deal with gold or silver will not have to. So where's the nightmare?

States will not be minting their own money under such a proposal (nor should they) so there is no conflict on that part of Federal law.

I commend this bill, expect Arizona lawmakers to pass it, and urge the Governor to sign it. When that happens, gold will once again be legal money.

I support gold as money and believe gold is money whether or not the bill passes.

There is significant reason for people to distrust government-sponsored fiat currencies backed by nothing. I made the case recently in Fraudulent Guarantees; Fictional Reserve Lending; Comparison of US to Cyprus; What About New Zealand?

Here is a brief synopsis, but I encourage you to read the full article.

Monetary Recap

  • Base Money Supply: $2.9 Trillion
  • M1: 2.4 Trillion
  • M2: 10.4 Trillion
  • Total Credit Market Debt Owed: $56.3 trillion

One Giant Ponzi Scheme

Clearly far more money has been lent than exists. How can it possibly be paid back? If it can't be paid back, how good is a government guarantee on deposits?

In 2010 Bernanke proposed ending reserve requirements completely, but long-time Mish readers understand what Bernanke proposed is the de facto state of affairs already. (see the above link for an explanation).

Five Key Points


  1. In a Fractional Reserve Lending scheme, the notion there are meaningful reserves is ridiculous.
  2. Far more money has been lent out than really exists (the rest is a fictional accounting entry).
  3. Fractional reserve lending constitutes fraud (just as lending something you do not own is fraud).
  4. There is no way for all this money to be paid back (so it won't be).
  5. The Reserve Bank of New Zealand has the most sensible policy on deposit insurance of all the world's central banks. (NZ offers no deposit insurance). See my article for a full explanation.

In the sake of full disclosure, I own gold, silver, platinum, as well as shares in various mining corporations.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

28.3.13

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Canada Discusses Forced Depositor Bail-In Procedures for "Too Big To Fail" Banks in 2013 Budget

Posted: 28 Mar 2013 01:54 PM PDT

Inquiring minds in Canada managed to slog through a massive 433 page budget proposal and discovered Depositor Haircut Bail-In Provisions For Systemically Important Banks.

Sure enough. Right on page 145 (PDF page 155) of the Canada Economic Action Plan for 2013 We see ...

"The Government proposes to implement a bail-in regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital. This will reduce risks for taxpayers. The Government will consult stakeholders on how best to implement a bail- in regime in Canada. Implementation timelines will allow for a smooth transition for affected institutions, investors and other market participants."

In case you are unfamiliar with bank parlance, deposits are not "assets" they are "liabilities". A plan that would turn "certain bank liabilities" into regulatory capital is a plan to confiscate deposits.

As noted in Fraudulent Guarantees; Fictional Reserve Lending; Comparison of US to Cyprus; What About New Zealand? I believe guarantees on deposits are inherently fraudulent. But at least the Reserve bank of New Zealand is upfrnot about the situation. Canada is not.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Youth Unemployment Rates: US, Germany, Italy, Spain, France, Greece; Where to From Here?

Posted: 28 Mar 2013 09:59 AM PDT

Here are some unemployment charts I put together via Ycharts.

Youth Unemployment Rates US vs. Europe

Germany Youth Unemployment Rate Chart

Spain and Greece have youth unemployment over 50%. Germany, at 7.9%, has the only youth unemployment rate under 10%. US has second-best 16.8%, nothing to brag about except in relative terms.

Unemployment Rates US vs. Europe

Germany Unemployment Rate Chart

Once again, notice the tight clustering at the start of the recession vs. the huge spreads today. As with youth unemployment, Spain and Greece lead the pack with overall unemployment rates above 25%.

Youth Unemployment Rate Percentage Change US vs. Europe

Germany Youth Unemployment Rate Chart

In percentage terms, Germany is the only country with falling youth unemployment. US youth unemployment is up 58.56% in five years. 

Unemployment Rate Percentage Change US vs. Europe

Germany Unemployment Rate Chart

In percentage terms, Germany is the only country with falling overall unemployment in the last five years. German unemployment has fallen by 32.05% in five years, while US unemployment is up 50.98% in the same time frame.

The Disability Connection

Since late 2009 US unemployment has dropped, but much of that is a mirage based on people dropping out of the labor force at a staggering rate, with many going on disability.

For the disability connection please see Unwilling to Work; 25% in Hale County AL Collect Disability, 14 Million Nationwide; A Simple Solution.

Looking Ahead

Looking ahead, I expect the unemployment picture in Europe to worsen dramatically. Germany will not be immune. For an explanation, please see Eurozone Downturn Accelerates Despite German Growth; Divergence to France Widest in 15 Years

The global "recovery" is over, even though economists in general refuse to make note. So don't expect the US to be immune from rising unemployment either, no matter how much Bernanke floods the system with QE.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

27.3.13

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Rational Reason to Panic; Hot Money Blues; Right for the Wrong Reasons

Posted: 27 Mar 2013 11:06 PM PDT

The first rule of panic is simple: "Panic before everyone else does." With that rule in mind, the obvious question is likewise simple: "Should I panic now?"

For those in Europe, I offer an emphatic "Yes!" One is foolish at best to keep more than 100,000 euros in any European bank, especially any Southern European banks.

Nonetheless, fools are everywhere, even though there is a clear and obvious "Rational Reason to Panic".

I am not the only one who thinks that way. Wolfgang Münchau makes the case in his Der Spiegel column Euro rescue plan: Thank Dijsselbloem!
Dutch Finance Minister and Euro Group Chief, Jeroen Dijsselbloem earned much criticism because he deviated from the official line that Cyprus was an "isolated incident".

I welcome this unusual burst of openness. Dijsselbloem expressed the brutal truth. I'm not criticizing that he states the policy. Rather, I criticize the policy itself.

This policy will destroy the euro, with the two now foreseeable interlocking mechanisms.

The first way is capital flight from the euro crisis countries. Expect permanent restrictions on the free movement of capital.

The second way is a never ending recession in the eurozone.

The first of these mechanisms is the logical consequence of Dijsselbloem's settlement blueprint. Spanish or Portuguese citizens would be pretty stupid to keep over 100,000 euros in a savings account.

Rational savers will distribute their assets to different banks, each with a limit of €100,000. German savers will do so as well.

Germany rejects a European deposit guarantee, so no credible reinsurance exists across southern Europe. Most of the Southern states are insolvent. A Cyprus-like rescue works only in context of a union of banks, and Germany emphatically rejects that mechanism.

Dijsselbloem's blueprint and Germany's veto of a European deposit guarantees savers have a "rational reason to panic now", everywhere.

The Withdrawal Debate Has Begun

US economist Paul Krugman says that it now is the best for Cyprus to leave the euro.

Cyprus is officially an "isolated incident". Greece, Spain, and Portugal will be there as well.  Dijsselbloem's dictum guarantees that end. And Because there are proportionally fewer large savers in Spain than Cyprus, the hazard on a participation of small savers is even greater.

Expect bank runs or permanent controls on capital flows. Either way, the Monetary Union will come to an end.
Right for the Wrong Reasons

Reader Bernd, from Germany, sent me the above link. I translated it, hopefully accurately, with a copy of this post going to Wolfgang Münchau.

In his email, Bernd says...
Paul Krugman has advised Cyprus to exit the Eurozone. You advised Cyprus the same, for the right reasons. Krugman does so, for the wrong reasons. I hope the day comes, when Münchau quotes you instead of Krugman.

Bernd
Hot Money Blues

Münchau and Bernd refer to Hot Money Blues by Paul Krugman.
Whatever the final outcome in the Cyprus crisis — we know it's going to be ugly; we just don't know exactly what form the ugliness will take — one thing seems certain: for the time being, and probably for years to come, the island nation will have to maintain fairly draconian controls on the movement of capital in and out of the country.

Depending on exactly how this plays out, Cypriot capital controls may well have the blessing of the International Monetary Fund, which has already supported such controls in Iceland.

It's hard to imagine now, but for more than three decades after World War II financial crises of the kind we've lately become so familiar with hardly ever happened. Since 1980, however, the roster has been impressive: Mexico, Brazil, Argentina and Chile in 1982. Sweden and Finland in 1991. Mexico again in 1995. Thailand, Malaysia, Indonesia and Korea in 1998. Argentina again in 2002. And, of course, the more recent run of disasters: Iceland, Ireland, Greece, Portugal, Spain, Italy, Cyprus.

What's the common theme in these episodes? Conventional wisdom blames fiscal profligacy — but in this whole list, that story fits only one country, Greece. Runaway bankers are a better story; they played a role in a number of these crises, from Chile to Sweden to Cyprus. But the best predictor of crisis is large inflows of foreign money: in all but a couple of the cases I just mentioned, the foundation for crisis was laid by a rush of foreign investors into a country, followed by a sudden rush out.

Now what? I don't expect to see a wholesale, sudden rejection of the idea that money should be free to go wherever it wants, whenever it wants. There may well, however, be a process of erosion, as governments intervene to limit both the pace at which money comes in and the rate at which it goes out. Global capitalism is, arguably, on track to become substantially less global.

And that's O.K. Right now, the bad old days when it wasn't that easy to move lots of money across borders are looking pretty good.
85% Rubbish

As is typically the case (which explains his popularity), Krugman gets part of the story correct, the sensational part. Krugman is of course correct that Cyprus is going to be ugly. And he is sure to follow up with numerous "I told you so" articles.

This is where common sense stops and nonsense begins. Europe and the US do not suffer from lack of capital controls. The origin of this crisis is fractional reserve banking in and of itself.

The Krugman "solution" is more government controls, more taxation, more regulation, more manipulation, even to the point of actually advocating the "bad old days" when everyone had capital controls.

In addition to capital controls, Krugman advocates tariffs,  advocates higher minimum wages, higher taxes, and more government spending.

Good grief!

Not once does Krugman ever stop and think that the absurd Keynesian policies that he espouses are precisely what has caused the problem!

Capital flight starts because of the nonsensical policies he espouses. Money flows to places like Cyprus, Luxembourg, and Spain "because of " inane Keynesian and Monetarist problems elsewhere.

Rather than address the root problems, Krugman now wants capital controls on top of all the other idiotic things he desires.

When does it stop Paul? When?

Reflections on Münchau's Shift in Attitude

I believe Münchau's heart is in the right place. He really wanted to make the eurozone work, believing the euro would help create a better Europe.

However, the eurozone can never work. The euro was fatally flawed from the beginning, starting with a "one size fits Germany" interest rate policy and lack of appropriate banking unions. The global recession brought those flaws to the forefront, and the North-South divide is the widest ever, and growing.

To no surprise (at least in this corner) euro skepticism is large and growing in the UK, Italy, Greece, and Poland. Cyprus and Spain will soon follow.

Meanwhile, attitudes in Germany and the Netherlands make it impossible for there ever to be the union that Münchau once envisioned.

It is extremely refreshing to see Münchau questioning ideas he once held sacrosanct. For that reason I commend Münchau, even though quoting Krugman for the wrong reasons can hardly be commended at all.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Wine Country Conference

I am hosting an economic conference on April 5 in Sonoma, California. Proceeds go to the Les Turner ALS Foundation (Lou Gehrig's Disease).

Please see My Wife Joanne Has Passed Away; Stop and Smell the Lilacs for my association with the disease.

To learn about the economic conference with world-class speakers including John Hussman, Michael Pettis, Jim Chanos, John Mauldin, Mike "Mish" Shedlock, Chris Martenson with guest moderator Lauren Lyster and other Special Guests, please visit Wine Country Conference April 5, 2013

"You have to Destroy the Maastricht Treaty to Save It"

Posted: 27 Mar 2013 01:18 PM PDT

There are plenty of news headlines rattling Europe today. Let's take a look at some of them.

Severe Capital Controls in Cyprus

In spite of the fact the Maastricht Treaty under which the eurozone was formed mandates a free flow of capital, Cyprus unveils severe capital controls.

"Cyprus is the first eurozone country ever to apply capital controls, with limits on credit card transactions, money transfers abroad and the cashing of cheques. Depositors will be limited to credit card transactions of up to €5,000 per month and will be able take a maximum of €3,000 of bank notes out of the country per trip."

Capital controls are said to expire in seven days. So, don't worry, its only temporary.

Hopefully everyone understands the implied theory: "You have to Destroy the Maastricht Treaty to Save It."

Top Orwellian Comments Of All Times

  • An American major after the destruction of the Vietnamese Village Ben Tre: "It became necessary to destroy the village in order to save it."
  • Vice President Joe Biden: "We Have to Go Spend Money to Keep From Going Bankrupt."
  • President George W. Bush: "I've abandoned free-market principles to save the free-market system."(For a discussion please see The Most Redeeming Feature of Capitalism is Failure)
  • Nancy Pelosi said "We have to pass the health care bill to see what's in it." (YouTube Video)
  • Larry Summers says "The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending." (Reuters

But What about those advertised losses of 30% on large Cyprus depositors?

Glad you asked. "Laiki depositors holding more than €100,000 may lose up to 80 per cent of their funds, and only get the remaining 20 per cent back over a period of years, Cyprus's finance minister said on Tuesday."

Italy Industrial Orders Sink

Dow Jones reports Italy Industrial Orders Fall in Jan on Declining Internal Demand

"Italian industrial orders dropped for the third consecutive month in January and were down compared with the same period a year ago, hit by declining internal demand, the national statistics institute reported Wednesday. Orders fell 1.4% in January from December in seasonally-adjusted terms and were down 3.3% from January 2012 in unadjusted terms, Istat reported."

Merkel Ally Backs Double-Digit Hike in Top Tax Rate

If you thought Merkel and her CDU party were true conservatives, it's time for you to think again.

Reuters reports Merkel CDU Ally Backs Double-Digit Hike in Top Tax Rate.

"A senior conservative ally of Chancellor Angela Merkel, Annegret Kramp-Karrenbauer, premier of the western state of Saarland and a senior figure in the Christian Democratic Union (CDU), said in a weekend radio interview that Merkel's predecessor Gerhard Schroeder had gone too far by reducing the top rate to 42 percent from 53 percent in the 1990s."

Is Poland Having Second Thoughts?

The Financial Times reports Poland opens way to euro referendum.

"Donald Tusk, Poland's prime minister, took a big political gamble on Tuesday when he opened the door to a referendum on joining the euro, in the face of strong public opposition to the common currency. The latest opinion survey shows 62 per cent of Poles are opposed to joining, with scepticism increasing markedly since the financial and debt crises hit Europe five years ago. But now Mr Tusk has publicly raised the possibility of allowing a referendum – demanded by rightwing opposition parties opposed to euro membership – in return for an agreement with the opposition to push through the necessary constitutional changes."

Tusk is setting a trap. Tusk wants the constitutional changes now, but will only hold a vote when favorable. Should the vote fail, rest assured there will be another and another and another. Unless of course the eurozone splinters to high heavens in the meantime which of course is a likely possibility.

The correct move is for the opposition to demand a referendum immediately, and if and only if it passes (it won't), should the constitutional changes be taken up.

French Unemployment Hits 16-Year High

President Francois Hollande's socialist policies are firing on all four cylinders now, except in reverse as French Unemployment Hits 16-Year High.

The Financial Times reports "French unemployment nudged a record level in February as the jobless total rose for the 22nd month in succession to a 16-year high, adding to the acute political pressure on President François Hollande as he battles a stalled economy. The OECD predicts unemployment will reach 11.25 per cent, surpassing the record level of 10.8 per cent previously hit in 1994 and 1997."

Except for Spain, Germany, Greece, Cyprus, Portugal, Italy,  Ireland, Slovenia, Luxembourg, France, and various other eurozone countries, everything in the eurozone is quite lovely.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Bersani Pleads for "More Insanity" as Italian Government Talks Collapse

Posted: 27 Mar 2013 10:14 AM PDT

Pier Luigi Bersani, who heads the centre-left (Common Good) coalition has a mandate by the Italian president (Giorgio Napolitano), to form the next government of Italy and become its next Prime Minister.

However, talks between Bersani, and Silvio Berlusconi's centre-right Popolo della Libertà PDL (the People of Freedom) alliance fizzled yesterday, as expected. Talks between Bersani and Beppe Grillo's Five Star Movement M5S fizzled today, also as expected.

The reaction of Bersani as reported by the Financial Times is rather amusing.

"Only an insane person can have the eagerness to form a government in this moment," declared Mr Bersani, grim faced and looking somewhat exasperated, at his webcast meeting with the Five Star Movement. "I am ready to take on this enormous responsibility and I would ask everyone to take on a little bit of it."

The PDL offered to form a "Grand Coalition" with Bersani but only on grounds the centre-left cannot accept.

Next up, president Napolitano is expected to seek a technocrat prime minister but odds the center-left, center-right, and M5S agree to that are essentially zero.

Napolitani is the outgoing president and cannot call for new elections. His seven-year term ends May 15. The next head of state would then call for fresh elections.

This is all playing out exactly as outlined on March 7 in What's Next for Italy? No Working Government for 7 Months, Then Elections in September.

A tip of the hat to reader "AC" who made hung-parliament call before the February elections (see European Reader Offers Insights on Upcoming Italian Election on February 19, 2013).

Explaining the Plea for More Insanity

Bersani will not win again next time. Both M5S and PDL have surged in the polls taking votes away from the center-left. Bersani is not even expected to be the next center-left candidate in new elections. Rather,  Matteo Renzi, Mayor of Florence is widely expected to be the next center-left party leader.

So, this is Bersani's only shot, which explains his plea for more insanity.

Bersani will be out. But to who? Don't rule out another hung parliament.

The last election was a hung parliament between PDL and Bersani's centre-left. If Beppe Grillo's M5S wins the lower parliament in the next election, the result may very well be a hung parliament between PDL and M5S.

Won't that be fun?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Unwilling to Work; 25% in Hale County AL Collect Disability, 14 Million Nationwide; A Simple Solution

Posted: 27 Mar 2013 12:57 AM PDT

A NPR report "Unfit For Work" notes the startling rise in those on disability. Here are some interesting facts from the article.

  • Every month 14 million Americans receive a disability check.
  • In 1961 the leading cause of disability was heart disease and strokes, totaling 25.7% of cases. Back pain was 8.3% of cases.
  • In 2011 the leading cause of disability was a hard to disprove back pain, totaling 33.8% of cases. The second leading cause was an equally difficult to disprove "mental illness" at 19.2%. Strokes and heart disease fell to 10.6%.
  • In West Virginia, a whopping 9% of the population collects disability checks. In Arkansas, 8.2% are on disability, and in Alabama and Kentucky, 8.1% collect disability. In Alaska, Hawaii, and Utah, the figure is 2.9%.
  • In Hale County Alabama 1 in 4 receive disability checks.
  • One thing nearly every case in Hale County Alabama has in common is Dr. Perry Timberlake who defines disability in a rather creative way.
  • Those on Supplemental Security Income, a program for children and adults who are both poor and disabled is nearly seven times larger than 30 years ago.
  • Once people go onto disability, they almost never go back to work. Fewer than 1 percent of those who were on the federal program for disabled workers at the beginning of 2011 have returned to the workforce.

Percentage of Population On Disability by State



click on chart for sharper image

Children on Disability



How Easy is it to Get Disability?

Hale county's Dr. Timberlake asks a simple question to all his patients. "What grade did you finish?" If you claim "back pain" and do not have a degree, Timberlake believes you are disabled.

The Disability Deal

Getting disability seems easy enough in some states, and especially easy in Hale County Alabama. But is disability better than minimum wage? The answer is yes. NPR author Chana Joffe-Walt explains:
People who leave the workforce and go on disability qualify for Medicare, the government health care program that also covers the elderly. They also get disability payments from the government of about $13,000 a year. This isn't great. But if your alternative is a minimum wage job that will pay you at most $15,000 a year, and probably does not include health insurance, disability may be a better option.

Going on disability means you will not work, you will not get a raise, you will not get whatever meaning people get from work. Going on disability means, assuming you rely only on those disability payments, you will be poor for the rest of your life. That's the deal. And it's a deal 14 million Americans have signed up for.

Disability has become a de facto welfare program for people without a lot of education or job skills.
Parents Force Kids to Underachieve

Joffe-Walt explains the special plight of kids.
When you are an adult applying for disability you have to prove you cannot function in a "work-like setting." When you are a kid, a disability can be anything that prevents you from progressing in school.

Jahleel's mom wants him to do well in school. But her livelihood depends on Jahleel struggling in school. This tension only increases as kids get older. One mother told me her teenage son wanted to work, but she didn't want him to get a job because if he did, the family would lose its disability check.

Kids should be encouraged to go to school. Kids should want to do well in school. Parents should want their kids to do well in school. Kids should be confident their parents can provide for them regardless of how they do in school. Kids should become more and more independent as they grow older and hopefully be able to support themselves at around age 18.

The disability program stands in opposition to every one of these aims.
Clinton Ends Welfare As We Know It

In 1996 Bill Clinton signed a welfare reform act, that he proclaimed to be the "End of Welfare As We Know It". It was. People moved off welfare on to even easier to get disability programs.

Part of Clinton's welfare reform plan pushed states to get people on welfare into jobs, partly by making states pay a much larger share of welfare costs.

The incentive "worked" using the term loosely. Welfare rolls shrank but disability rolls soared.

Welfare Costs States Money Disability Doesn't
A person on welfare costs a state money. That same resident on disability doesn't cost the state a cent, because the federal government covers the entire bill for people on disability. So states can save money by shifting people from welfare to disability. And the Public Consulting Group is glad to help.

PCG is a private company that states pay to comb their welfare rolls and move as many people as possible onto disability. "What we're offering is to work to identify those folks who have the highest likelihood of meeting disability criteria," Pat Coakley, who runs PCG's Social Security Advocacy Management team, told me.

The company has an office in eastern Washington state that's basically a call center, full of headsetted women in cubicles who make calls all day long to potentially disabled Americans, trying to help them discover and document their disabilities:

"The high blood pressure, how long have you been taking medications for that?" one PCG employee asked over the phone the day I visited the company. "Can you think of anything else that's been bothering you and disabling you and preventing you from working?"

The PCG agents help the potentially disabled fill out the Social Security disability application over the phone. And by help, I mean the agents actually do the filling out.

There's a reason PCG goes to all this trouble. The company gets paid by the state every time it moves someone off of welfare and onto disability. In recent contract negotiations with Missouri, PCG asked for $2,300 per person. For Missouri, that's a deal -- every time someone goes on disability, it means Missouri no longer has to send them cash payments every month. For the nation as a whole, it means one more person added to the disability rolls.
Disability Fraud

Who is making the case for the other side? Who is defending the government's decision to deny disability?

Nobody.

And that in a nutshell explains soaring disability roles and massive fraud.

Disability fraud also makes a joke out of reported unemployment numbers. If you have a disability, you are no longer in the workforce.

Not in Labor Force With a Disability



I would love to show data pre-recession. Unfortunately, the data only goes back to mid-2008. We can see however, that nearly 23 million Americans are not in the labor force because of "disabilities".

I suggest "fraud" is more like it.

Curious BLS Numbers

Here's the curious thing: 14 million collect disability, but the BLS says 22.726 million are not in the labor force (not working), because of disabilities.

What are the other 8.726 million doing? Is the BLS inflating disability numbers making the unemployment rate absurdly low, or are states doing that poor a job getting people off welfare and on to federal government disability programs? Some of both?

Regardless, we need to stop this madness.

Simple Solution

One easy way to eliminate some of the fraud would be to put someone in charge of making a case for the other side. No, we do not need new Federal programs. All we need do is "Un-end Welfare as We Know It".

If states had any incentive to stop disability fraud, we would not have so much of it. Make states responsible for a large portion of disability claims just as they are for welfare, and the number of people collecting disability will collapse.

I have written many times about disability fraud, its relation to the unemployment rate, and its relation to expiring unemployment benefits. Inquiring minds may wish to consider some Disability Fraud Examples.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Wine Country Conference

I am hosting an economic conference on April 5 in Sonoma, California. Proceeds go to the Les Turner ALS Foundation (Lou Gehrig's Disease).

Please see My Wife Joanne Has Passed Away; Stop and Smell the Lilacs for my association with the disease.

To learn about the economic conference with world-class speakers including John Hussman, Michael Pettis, Jim Chanos, John Mauldin, Mike "Mish" Shedlock, Chris Martenson with guest moderator Lauren Lyster and other Special Guests, please visit Wine Country Conference April 5, 2013

26.3.13

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


The Axe is in Position, Only the Timing of the Swing is in Question

Posted: 26 Mar 2013 11:50 AM PDT

It has been amusing listening to the hypocrisy from Brussels regarding the leverage in Cyprus.

Jeroen Dijsselbloem, president of the eurogroup led the charge that Cyprus had an unsustainable problem with deposits over 700% of GDP.

Here is a little perspective courtesy of the Financial Times.

European Bank Assets as Multiple of GDP



Somehow we are supposed to believe that 7-1 ratio of deposits to GDP is a problem but the 22-1 ratio in Luxembourg is not. And what about the 4-1 ratios in France and the Netherlands?

What sunk Cyprus now rather than later was Cyprus was dumb enough to be in Greek bonds.

So why did Cyprus stay in Greek bonds so long? The answer is Cypiot banks were foolish enough to believe ECB president Jean Claude Trichet when he insisted there would be no haircuts on Greek bonds.

Trichet Hails Success of Cyprus

Those looking for an amusing flashback should consider this glowing speech by Jean-Claude Trichet on the successful entry of Cyprus into the euro area, in January of 2008.
Today's euro celebrations are the result of the successful macroeconomic policies that the Cypriot authorities have pursued in recent years. Cyprus has made significant progress in both nominal and real convergence, owing to successful policies – namely, well-managed monetary and exchange rate policies combined with a range of structural reforms. ... The ECB and the Central Bank of Cyprus, together with the National Changeover Board, the European Commission and national and international authorities cooperated closely in many ways to prepare the introduction of the euro.  ...  It included public opinion polls, advertising and direct marketing. Over 900,000 copies of different publications were distributed by the Central Bank of Cyprus - this is more than one copy per Cypriot! ... As a result of these efforts, today we can celebrate a successful cash changeover.  ... intimate cooperation between the members of the team, the national central banks of the Eurosystem, and the ECB is the key for the success of the single monetary policy in the euro area.
Somehow, distributing over one pamphlet per Cypriot on the benefits of the euro was an insufficient formula for success. Shocking.

Four years and two Greek bond restructurings later, Cyprus was ruined but did not realize it yet. The second Greek bond haircut did Cyprus in, but the axe was yet to fall.

The ECB waited until the Cypriot election a month ago when their communist president was ousted by the pro-euro Nicos Anastasiades. The ECB then dropped a bomb on the new president.

For those of you who think Cyprus is "one off" and this will never happen again, please let me point out a few recent things.


  1. Dijsselbloem brags Cyprus to be model for future bailouts.
  2. A German Bank Economist Proposes "One Time" Cyprus-Like 15% Wealth Tax on Italians
  3. By a 526 to 86 vote, the nannycrats in Brussels passed a regulation in March that will require a country to accept a bailout if offered. It's An Offer You Cannot Refuse.
  4. Laying it on thick, the Bundesbank claims Spaniards are 33% richer than Germans.
  5. The "men in black" seek answers in Spain. Troika to Return to Spain in May Asking "What Happened to €42 Billion in ESM Bank Recapitalization Tranches?"

Timing the Axe on Spain and Italy

Cypriot banks may be the first to suffer a forced bail-in but they will not be the last.

Recall the "success" of Mario Draghi's LTRO program? Yes, it brought down yields on Italian and Spanish bonds, I believe temporarily.

The LTRO program was also an open invite for German banks to dump Spanish and Italian bonds and for Spanish and Italian banks to snap them up.

Was LTRO really a "success"? For who? The answer is Germany, not Spain or Italy.

Economists hailed Draghi a genius. Yet, LTRO further concentrated bond risk. Spanish banks are now more leveraged to Spanish bonds and Italian banks more leveraged to Italian bonds. It was concentrated risk that brought down Cyprus.

Groundwork Laid for Additional Forced Bail-Ins

Groundwork for further forced bail-ins has been laid: A model is in place, regulations are in place, and German sentiment is in place. Spaniards are supposedly more wealthy than Germans, and the "men in black" demand an audience in May.

Solidarity, be damned. It's every country for itself. Arguably, that is the way it should be, but that certainly wasn't the promise.

It's too late now for Spain, Portugal, and Italy. The axe is in position. Only the timing of the swing is in question.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Wine Country Conference

I am hosting an economic conference on April 5 in Sonoma, California. Proceeds go to the Les Turner ALS Foundation (Lou Gehrig's Disease).

Please see My Wife Joanne Has Passed Away; Stop and Smell the Lilacs for my association with the disease.

To learn about the economic conference with world-class speakers including John Hussman, Michael Pettis, Jim Chanos, John Mauldin, Mike "Mish" Shedlock, Chris Martenson with guest moderator Lauren Lyster and other Special Guests, please visit Wine Country Conference April 5, 2013

EU Pushes Bail-In Regulations on All Deposits Above €100,000; Run on Banks Coming Up?

Posted: 26 Mar 2013 10:01 AM PDT

Cyprus was such a "success", EU to push for losses on big savers at failed banks.
The European Parliament will demand that big savers take losses if their banks run into trouble, a senior lawmaker told Reuters, adding momentum to a policy unveiled as part of a Cypriot bailout.

Jeroen Dijsselbloem, head of the Eurogroup of euro zone finance ministers, said on Monday that in future, the currency bloc should first ask banks to recapitalize themselves, then look to shareholders and bondholders and then "if necessary" to uninsured deposit holders.

Now the likelihood is rising that tough treatment of big depositors will be written into a new EU law, making losses for large savers a permanent feature of future banking crises.

"You need to be able to do the bail-in as well with deposits," said Gunnar Hokmark, an influential member of the European Parliament, who is leading negotiations with EU countries to finalize a law for winding up problem banks.

"Deposits below 100,000 euros are protected ... deposits above 100,000 euros are not protected and shall be treated as part of the capital that can be bailed in," Hokmark told Reuters, adding that he was confident a majority of his peers in the parliament backed this line.

The law, which will also introduce means to impose losses on bondholders, is due to take effect at the start of 2015. Germany wants provisions for bailing in bondholders and others in the same year, though that may be delayed.

Hokmark urged savers to check their banks' health before taking the risk of depositing money.

"If you put your money in Royal Bank of Scotland ... or Deutsche Bank, depending on how that bank is working you are taking a risk," he said. "You need to be aware that you are taking a risk.
Step in Right Direction

Such regulation is a step in the right direction actually. There should be no deposit guarantees at all, no bondholder guarantees, and people should have to pay attention to where they put their money.

For a detailed explanation, please see Fraudulent Guarantees; Fictional Reserve Lending; Comparison of US to Cyprus; What About New Zealand?

Here are the key ideas from the article

Five Key Points

  1. In a Fractional Reserve Lending scheme, the notion there are meaningful reserves is ridiculous
  2. Far more money has been lent out than really exists (the rest is a fictional accounting entry)
  3. Fractional reserve lending constitutes fraud (just as lending something you do not own is fraud)
  4. There is no way for all this money to be paid back (so it won't be)
  5. Of all the central banks, the Reserve Bank of New Zealand has the most sensible policy for the most sensible reasons of all the central banks.

That said, note how bondholders and the ECB have been protected so far.

Bondholders did not suffer losses on Irish bonds, and the ECB did not even take a hit on its Greek bonds. Cyprus bondholders were not protected, primarily because the big European banks were not involved so they had nothing to lose.

Run on Banks Coming Up?

Looking ahead, the implication is that no one should place more than €100,000 in any bank. So no one will, especially in questionable Southern European banks. Instead, expect capital flight to presumed "too big to fail" Northern European banks, and also expect people to park more money directly at the ECB, where it will be safe.

Might such legislation then, spur a run on banks? Seems that way to me. My advice for European depositors is simple "Please don't wait until 2015 to find out."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com