Mish's Global Economic Trend Analysis

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• ESM Banking License? Not Happening as Merkel Allies Harden Opposition
• 100,000 Workers in Spain Will Not be Paid Because Regional Government of Catalona is Broke
• Recent Gold Hype Sounds Like Grade-School Chant; Five Non-Hype Reasons to Own Gold

ESM Banking License? Not Happening as Merkel Allies Harden Opposition Posted: 31 Jul 2012 10:58 AM PDT So far it's been nothing but hot air and no action from ECB president Mario Draghi after he pledged to do whatever it takes to save the euro. One of the highly-touted ideas as of late has been a ESM banking license. However, the idea is not really new, and has been shot down repeatedly already. Nonetheless eurocrats like Jean-Claude Juncker, chairman of the eurogroup, keep bringing the idea up as if the answer will change.  It won't. Bloomberg reports Merkel Allies Harden Opposition to Granting ESM Bank License German Chancellor Angela Merkel's coalition rejected granting the permanent euro rescue fund access to European Central Bank liquidity via a banking license, as the Finance Ministry said it saw no need for any such move. The rules of the European Stability Mechanism don't provide for refinancing through the ECB, the ministry in Berlin said today in an e-mailed response to questions. The ministry isn't holding talks on the topic nor are secret meetings taking place on such proposals, it said. France and Italy are building support for a previously floated plan to allow the permanent backstop to wield unlimited firepower courtesy of the ECB, Germany's Sueddeutsche Zeitung newspaper reported today, citing a European Union official it didn't name. Leading ECB governing council members are among those who now back the idea, the newspaper said. Lawmakers from all three parties in Merkel's coalition immediately repudiated the suggestion. It is a "dangerous attempt" to bypass the ban on the central bank financing states directly, said Hans Michelbach of the Bavarian Christian Social Union. The Free Democratic Party's Rainer Bruederle told Die Welt newspaper such a mechanism is a "wealth-destroying weapon," while Norbert Barthle of Merkel's Christian Democratic Union said it won't happen. "Those who try to circumvent their own rules through the back door lose their legitimacy in the eyes of the public," Michelbach said in an e-mailed statement. "Financing debt by means of the printing press leads to growing inflation dangers." One would hope this message would sink through the thick heads of the eurocrats, but it probably won't.  OK Mario, ball is in your court. What are you going to do? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

100,000 Workers in Spain Will Not be Paid Because Regional Government of Catalona is Broke Posted: 31 Jul 2012 09:14 AM PDT The crisis in Spanish regional governments continues to escalate. El Pais reports Catalona Will Not Pay Hospitals or Private Centers and 100,000 workers are affected. This month, the Government of Catalona cannot tackle  payments owed to hospitals, schools, residences, social organizations, and children in care centers and workshops. These are the services provided by entities, public and private, funded by the Government but managed not depend on it. The move affects up to 7,500 associations and some 100,000 workers, according to the third sector. The news that the Government could not meet its commitments this month was confirmed on Monday after several days of negotiations with the affected entities. Sources from the Departments of Health and Welfare explained ten days ago it "could not meet the payments this month." Welfare, however, has ensured that other non-contributory pensions paid or the minimum income. The federations that warn-grouped after an emergency meeting with Social Welfare that many of them are on the verge of "collapse" in a situation "unprecedented". And is that the default is added to other cuts that have affected the sector this year, as 56% of the budget on labor market policies. The Catalan Association of Relief calculated that 63% of companies cannot meet the payroll this month. To alleviate this choke, Acra has asked for help from families, proposing that advance a couple of months of contributions. This is not the first time that the Government is obliged to defer payment of the concerts. It happened last September when he could only address 65% of the amount and the rest was paid by the end of the year. The idea that Spain can avoid a complete sovereign bailout seems pretty absurd at this point. The solution, of course, is a combination of default, a eurozone exit, work rule reform, and pension reform, but so far there is no rational discussion of those ideas at the highest levels. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Recent Gold Hype Sounds Like Grade-School Chant; Five Non-Hype Reasons to Own Gold Posted: 31 Jul 2012 02:08 AM PDT Reader David emailed a link to GATA, SHAKA ZULU, And The Coming Gold/Silver STORM! with a note "please see fit to write about this!!!" The article is by Bill Murphy, the Gold Anti-Trust Action Committee (GATA) chairman. Here are the key snips. To get right to the point, three quality sources told me three weeks ago that the gold and silver markets were going to take off in August and I have been pounding the table on such ever since. It is time for things to happen. As you know by now, I have been jumping up and down for fireworks to happen in August. We shall see. All I can say is that what has been brought to my attention over last three week period from the "best of" sources all points to the same conclusion. It will be nitty gritty time SOON. Perhaps that "soon" is "now" the way gold has traded the past three days. If what I think I know is correct, it will be time to pour it on our adversaries and send them running for the hills. Grade-School Chant As I read that, I was wondering what exactly I was supposed to comment on. Murphy has three sources, all unnamed.  Worse yet, Murphy will not even state what the news is. The entire posts smacks of the playground chant "I know something you don't know, a ha, and a hen, and a ho ho ho." There is no story here, there is not even a rumor. There is only a rumor of a rumor. I am commenting because I was asked. Seasonality Murphy has at least one thing going for his call: seasonality. August is generally (but not always) a good time to buy gold. If nothing happens, Murphy will be on his bull horn complaining of manipulation, singing the same tired chant about gold shorts suppressing the price of gold. Manipulations Is the gold market manipulated?  A better question is "what isn't?" Certainly the Fed manipulates interest rates. The LIBOR scandal proved banks acted to manipulate LIBOR. The rating agencies manipulated pure garbage into AAA rated securities. Nearly everything is manipulated to some degree. However, I do not believe it is possible to manipulate prices for decades against the long-term trend. If there has been an effort to suppress the price of gold it certainly has failed miserably. Gold has gone from $250 to $1900 and is now $1620. Yet, every time gold declines the conspiracy clowns scream manipulation as if the price can never go down ever. Now they are singing playground chants. Five Reasons to Own Gold There are plenty of reasons to own gold without all the needless hype. Gold is a nice insurance policy against a currency crisis and I think one is coming. When or what country kicks things off that crisis, I don't know, but I suspect it is more likely to be the Japan, Italy, or some other country in Europe as opposed to the US. Gold, contrary to popular myth, is actually a great hedge against deflation in the senior currency (clearly the US dollar). Physical gold is a currency that is not someone else's liability and cannot be printed electronically. Central banks (not just the Fed) have been pouring on the liquidity as the global economy moves from one crisis to another. Odds strongly favor more coordinated central bank liquidity moves, and those liquidity moves tend to benefit gold in the long-haul. Should the world return to a gold standard with a 100% gold-backed dollar, $1600 an ounce will likely look like an extreme bargain.  GATA would be wise to stop the needless hype and instead concentrate on fundamentals because "I know something but I ain't sayin' what" is sure a silly thing for anyone to be banking on. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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