Mish's Global Economic Trend Analysis

Romney's Nearly Impossible Math; Foot-in-Mouth Disease; Mish Electoral College Prediction
Farage Fined €3,000 for Saying President of European Council, Herman Van Rompuy, has "Charisma of a Damp Rag"; Europe’s Most Dangerous Politicians Revisited
Infinite QE; Central Bank Balance Sheets as Percent of Nominal GDP; Euro Demand Deposits; Break-Even Inflation Trends
Battle Between Germany and France Over Spain Bailout Application; Numerous EU Ministers At Odds Over Banking Union

Romney's Nearly Impossible Math; Foot-in-Mouth Disease; Mish Electoral College Prediction

Posted: 17 Sep 2012 10:32 PM PDT

Foot-in-mouth disease appears to be as least as important than the economy. Thanks to the former, as well as Mitt Romney's completely inept handling of independent voters, it will be extremely difficult if not impossible for Romney to win the presidential election in November.

Romney Casts Off 47% of Voters

Every other week or so, Romney seems to make a major gaff of some sort. His recent flip-flops on Obamacare are a case-in-point.

Worse yet, a new video out shows Romney Casts Off 47% of Voters.

Mitt Romney's efforts to turn round his campaign were thrown off course after video clips emerged in which the Republican presidential nominee said Barack Obama could count on the support of 47 per cent of Americans who are "dependent on government", do not pay tax and "believe that they are victims".

In one clip, Mr Romney says: "There are 47 per cent of the people who will vote for the president no matter what . . . who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe they are entitled to healthcare, to food, to housing, to you-name-it . . . These are people who pay no income tax."

Mr Romney added: "My job is not to worry about those people. I'll never convince them they should take personal responsibility and care for their lives."

Jim Messina, Mr Obama campaign manager, responded: "It's hard to serve as president for all Americans when you've disdainfully written off half the nation."

Video Clip

It does not matter whether Romney made any sense or not. What matters is pissing off close to half the electorate is not good common politics.

Obama vs. Romney

Real Clear Politics has a very nice interactive Create Your Own Electoral College Map where you can predict states as solid, likely, leaning, or toss-up.

Here is mine.

Toss-Up Analysis

I listed 4 states as toss-ups. Even if Romney wins all of then, he still loses the election, assuming I am right about everything else.

However, I do not think Romney wins all of them. I think Virginia breaks towards Obama just as it did four years ago. If so, unless Romney pulls off a miracle in Ohio coupled with a difficult win in Florida, he simply cannot win.

For the sake of making a prediction, I think Romney carries Iowa and Wisconsin and loses Virginia and Ohio. That makes Florida's 29 votes meaningless. Nonetheless, I think Obama wins Florida.

Filling in the Toss-Ups, my electoral college prediction right now is as follows.

Four years ago, I predicted 49 of 50 states accurately before Obama even won the nomination. This election is much more difficult but I just do not see how Romney can possibly win.

Mathematical Nonsense

Discarding 47% and hoping to "win the middle" is mathematical nonsense.

Moreover, Romney's flip-flopping on Obamacare coupled with his promise to increase military spending (something that most independents loathe), is a road to complete failure.

Independents Will Vote Solidly For Obama Again

I will not vote for either of them, but I strongly suspect most independents will break solidly for Obama based on military spending, women's health-care issues, and a more pragmatic position on tax hikes.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Farage Fined €3,000 for Saying President of European Council, Herman Van Rompuy, has "Charisma of a Damp Rag"; Europe’s Most Dangerous Politicians Revisited

Posted: 17 Sep 2012 05:35 PM PDT

If you are seeking an amusing yet disconcerting diversion from QE talk, please consider Lawmaker fined about $4,000 for insulting EU chief.

How much does it cost to tell the one of the EU's top officials he has "the charisma of a damp rag?" About €3,000, or close to $4,000, as a European member of Parliament has discovered.

In 2010, Nigel Farage, an anti-European Union member of the EU Parliament, rose following a speech by Herman Van Rompuy, the president of the European Council. As Van Rompuy listened, Farage, a Briton, added that the former Belgian prime minister came from "pretty much a non-country."

The Parliament docked Farage €2,980 — 10 days' expenses. Farage appealed to the European Court of Justice. It ruled this month that he filed his appeal too late and would also have to pay Parliament's legal expenses.

The decision was posted on the court's website on Monday.

Europe's Most Dangerous Men

On August 8, 2012, Der Spiegel claimed Nigel Farage was Europe's 7th most dangerous man. I think Farage is a hero and spelled out my own list in Europe's Most Dangerous Politicians

Here is Spiegel's list, followed by mine.

Top 10 List

Markus Söder, Bavarian Finance Minister: The politician from the Christian Social Union, the conservative sister party to Chancellor Angela Merkel's Christian Democratic Union, is known for his tub-thumping rhetoric and has stepped up a gear in the euro crisis with vitriolic comments about Greece. "An example must be made of Athens, that this euro zone can show teeth," he told the Bild am Sonntag tabloid newspaper this week.
Alexis Tsipras, the leader of Greece's leftist Syriza party: In his latest proposal, Tsipras argues the Greek government should refuse to talk to the so-called troika comprised of the European Commission, the European Central Bank and the International Monetary Fund. He wants to "criminalize" the privatization of public enterprises. He has been labelled the "most dangerous man in Europe" since he became leader of the radical left and has been pressuring successive governments to abandon austerity measures that underpin Greece's continued access to international aid.
Silvio Berlusconi, entrepreneur and former Italian prime minister: His Popolo della Libertà (People of Freedom) party supports current Prime Minister Mario Monti but is secretly preparing for Italian elections next year. Berlusconi wants to win a fifth term as prime minister with the help of populist anti-euro rhetoric. He recently said the Italian central bank should simply print more euros to avoid instructions from Brussels. He has also threatened to reintroduce the lira.
Marine Le Pen, leader of the far-right Front National in France: The populist politician campaigned in this year's presidential election by warning about the supposed might of the EU. "Frau Merkel and her friends, Van Rompuy and the European Commission are in the final stages of creating a European Soviet Union," she thundered. "We are about to lose our status as a free nation."
Timo Soini, leader of the True Finns party and a member of the European Parliament: Since the election, Finland has demanded that Greece provide collateral in return for Finnish aid. Soini wants that aid to stop. "Not a penny more," he says. "We've paid enough."
Alexander Dobrindt, general secretary of the conservative Bavarian Christian Social Union (CSU): "It's the end of the line for Greece," Dobrindt said recently. Previously, he had demanded that the Greek government should no longer pay its civil servants and pensioners in euros but in drachmas.
Nigel Farage, leader of the UK Independence Party (UKIP) and a member of the European Parliament: Farage is the man who can cause an uproar in the otherwise dull European Parliament, where he called the Lisbon Treaty "the most spectacular, bureaucratic coup d'etat that the world had ever seen." He has described European Council President Herman Van Rompuy as having the "charisma of a damp rag."
Heinz-Christian Strache, head of the Austrian Freedom Party (FPÖ): Strache claims that the permanent euro bailout fund, the European Stability Mechanism (ESM), will destroy "not only our state, but also our democracy and constitution." He says the ESM is tantamount to an ´Ermächtigungsgesetz, an allusion to the 1933 German law that allowed Hitler to rise to power.
Geert Wilders, head of the Dutch Freedom Party (PVV): Wilders wants to see the return of the Dutch guilder and described the ESM as "a dictate from Brussels."
Viktor Orbán, Hungarian prime minister: Orbán's statement that he would bow to Brussels' power but not to its arguments created considerable irritation.

Der Spiegel is Clueless and Dangerous

While the list does include some fascists and other questionable characters, the main "crime" against the collective group is they seek to end the euro.

Mish's Top List of Europe's Most Dangerous Politicians

Angela Merkel, Chancellor of Germany, deserves special mention. Merkel is widely blamed for not doing enough to keep the eurozone crisis from spreading. However, her hands are tied by constitutional issues as well as political issues within her coalition. Yet, every step of the way Merkel caved in to demands of those desperately attempting to save the unsaveable. Nothing is more dangerous that ranking politicians on a mission to do the wrong thing, hoping to preserve their legacy.
Francois Hollande, president of France: Hollande is about to wreck France with a plethora of tax hikes, by rolling back retirement age, and a preposterous policy that would "Make Layoffs So Expensive For Companies That It's Not Worth It"
David Cameron, UK Prime Minister: Cameron refuses to call a vote on exiting the EU even though the UK is damaged by inane EU rules. Last December, Cameron almost gave in to ridiculous EU treaty changes but did not do so only because he was dead set against preposterous financial transaction taxes proposed by Brussels. Were it not for the financial transaction tax, it appears Cameron would have done the wrong thing.
Jean-Claude Juncker, Luxembourg Prime Minister and head of the eurozone finance ministers: Juncker is famous for his quote "When it becomes serious, you have to lie". More recently, Juncker told another whopper "I Don't Envisage, Not Even for One Second, Greece Leaving the Euro Area"
Mario Monti, technocrat Prime Minister of Italy. Monti was never elected, he was installed by eurocrats because he would support the euro.
Herman Van Rompuy, European Council president: Van Rompuy spends his time flying all over Europe promoting discarded eurobond ideas. He seldom shows up in European Parliament.
José Barroso, European Commission president: Farage describes Barroso as "delusional idiot and was a supporter of Chairman Mao"

Reflections On Merkel

Nigel Farage properly classifies Barroso as a "delusional idiot". The same applies to Herman Van Rompuy, and self-admitted liar Jean-Claude Juncker.

In contrast, Chancellor Merkel is anything but a delusional idiot.

Rather, Merkel is an extremely skilled, as well as widely respected if not charismatic leader, with a seriously misguided notion there needs to be a European nannyzone super-state. Worse yet, she appears willing to sell her soul and the future of Germany to secure that outcome.

As noted above, nothing is more dangerous that ranking politicians on a mission to do the wrong thing, hoping to preserve their legacy.

Without a doubt, Merkel's attributes make her the most dangerous politician in Europe.

A Note About Nigel Farage

Der Spiegel labeled Farage Europe's 7th most dangerous politician. Check out the platform of UKIP, Farage's party.

We believe in the minimum necessary government which defends individual freedom, supports those in real need, takes as little of our money as possible, and doesn't interfere in our lives.

I think the Republican Party in the US should adopt that platform and that anything except a platform based on minimal government and individual freedom is dangerous.

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

Infinite QE; Central Bank Balance Sheets as Percent of Nominal GDP; Euro Demand Deposits; Break-Even Inflation Trends

Posted: 17 Sep 2012 12:59 PM PDT

Here are a few very interesting charts from Steen Jakobsen, chief economist at Saxo Bank in Denmark.

click on any chart for sharper image

Central Bank Balance Sheets

Demand Deposits

Capital flight from Spain, at least in terms of demand deposits, has stabilized even if other types of deposits or transfers have not.

Infinite QE

Steen writes ...

The following chart shows my main theme since "QE Infinite": Inflation expectations continue to rise. Note the 10-Year break-evens rates from Germany and the US. However some of this is of course the result of Draghi's put.

Breakeven Rates

Here is an explanation of Break-Even Inflation.

If you currently own bonds, you've already made a bet on inflation, whether you know it or not. Traditional fixed-income investments may not provide the real return investors need during periods of high inflation. It's important to know whether your traditional fixed-income investment breaks-even with inflation.

Break-even inflation is the difference between the nominal yield on a fixed-rate investment and the real yield (fixed spread) on an inflation-linked investment of similar maturity and credit quality. If inflation averages more than the break-even, the inflation-linked investment will outperform the fixed-rate. Conversely, if inflation averages below the break-even, the fixed-rate will outperform the inflation-linked.

Calculation Formula: Comparable Fixed-Rate – Inflation-Linked Real Yield = Break-Even Inflation

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

Battle Between Germany and France Over Spain Bailout Application; Numerous EU Ministers At Odds Over Banking Union

Posted: 17 Sep 2012 09:55 AM PDT

France has encouraged Spain to apply for aid as soon as possible. In Germany, Wolfgang Schäuble wants anything but a timely application.

Note that unless a country requests a bailout, and agrees to terms set by the IMF (something Spain does not want to do), the entire OMT plan of Draghi is useless.

On September 12, José Manuel Barroso, European Commission president unveiled his European banking union proposal with a goal of having it approved by December.

All 27 EU member states have a veto on Barroso's plan, not just the eurozone countries.

Numerous EU Ministers At Odds Over Banking Union

The odds of approval by December are zero percent given battles between eurozone and non-eurozone countries erupted over the banking union erupted in Cyprus at an EU meeting on Saturday.

Germany, Sweden, Poland and the Netherlands called for a more "realistic" negotiating timetable to resolve the problems, suggesting talks will run into 2013. Anders Borg, Sweden's finance minister, said it was "undecidable and not acceptable" to aim for a deal by the end of the year.

Germany is in favour of the ECB having some responsibility for monitoring big financial institutions, but is resisting the broad scope and high degree of centralisation proposed by the European Commission.

Germany also objects to what it says is hasty implementation, with the ECB taking over supervision for all banks by 2014.

After the meeting Wolfgang Schäuble, the German finance ministers, threw out a further complication by demanding a pan-eurozone stress test for banks before supervision is passed to the ECB.

This step-by-step approach is at odds with France, which is pressing for the eurozone to move rapidly towards a centralised system for supervising all 6,000 lenders in the single currency area.

Sweden, Poland and the UK are concerned about the legal anomaly of the European Banking Authority being unable to impose binding decisions on the ECB, while it could force sovereign states to comply when it adjudicates in a dispute. The commission argues that, in the rare event of the ECB failing to comply voluntarily, banks would be bound to comply with EBA decisions.

Battle Brews Between Germany and France Over Spain

Eurointelligence reports Germany now actively discourages Spanish EFSF application.

Among the many narratives from the informal Ecofin over the weekend, the one that struck us the most has been the active discouragement by Wolfgang Schäuble of a Spanish aid application, while France has been reported to be pressuring Spain to make an application. Last week, on his visit to Madrid Jyrki Katainen made the same point. Germany appears to be siding with Finland and other small countries, according to Bloomberg, which writes that France exerts pressure in the opposite direction.

(We think this is quite remarkable, and a certain way to end the current phase of optimism. Schauble does not want a Spanish EFSF/ESM vote in the Bundestag, but by encouraging a delay, or worse an attempt to forego an application indefinitely, the entire OMT programme by the ECB will soon be exposed to be fraud, as it is premised on the idea of an aid application.)

The other big theme from Cyprus is the sharpening dispute over a banking union.

The FT quotes Anders Borg of Sweden as saying it was "undecidable and not acceptable" to aim for a deal by the end of the year. Cinco Dias quotes Borg as saying "we cannot accept banking supervision centered on an ECB we cannot belong to without joining the Euro". El Confidencial arrives at the logical conclusion that Spain is failing to secure its objective to extract a commitment to bank recapitalization on the timetable agreed in June.

As reported by EUObserver last Tuesday, the 10 EU countries outside the Euro have strong misgivings about the banking union and might withhold the necessary unanimity, though not only over being forced to submit to ECB supervision but for instance out of concern that being backed by the ESM would give Eurozone banks a competitive advantage over non-Euro banks in the eyes of depositors.

The Wall Street Journal [in Slow Path to Policing Europ Banks] writes that Jörg Asmussen presented the ECB's proposals for a banking union to the Ecofin, which he said must include common supervision, resolution regime, and deposit insurance. Wolfgang Schäuble is opposing joint supervision of all banks, advocating instead ECB supervision of "systemic" institutions. The German savings bank association is said to oppose plans for joint resolution and deposit insurance on the grounds that this would "raid Germany's financial safety net to bail out shaky foreign banks". The Sparkassen and Volksbanken have, in fact run ads in the German press last week in the form of an open letter to Angela Merkel, as reported by Handelsblatt on Thursday.

Non-euro countries raise concerns on banking union

Let's take a closer look at the EU Observer article Non-euro countries raise concerns on banking union, mentioned above by Eurointelligence.

EU ambassadors from Bulgaria, the Czech Republic, Denmark, Hungary, Latvia, Lithuania, Poland, Romania, Sweden and the UK met on Monday evening (10 September) in Brussels to share concerns regarding the European Commission's banking union plans to be unveiled on Wednesday.

The 10 'euro-outs' each have a veto over the banking union plans, as they will require unanimity in the EU Council of ministers to pass.

A level playing field between banks inside and outside the eurozone is the main sticking point.

For central and eastern European states - where 65 percent of the banking sector is in the hands of Austrian, German, French and Italian banks - the worry is the move will create unfair competition of big banks versus local ones.

"If the choice is between an Austrian and a Romanian bank, where would your grandmother put her money? Clearly having the might of the ESM and Germany behind it creates a competitive disadvantage for the local ones," one EU diplomat said.

Another issue is that non-euro countries can opt into the banking union, but would have no say in the governing council of the ECB which is made up of eurozone members only.

The debate about having a parliament - or a special committee within the European Parliament - just for the eurozone is being followed with deep concern among the 'outs,' as it would cement a two-speed Europe already taking shape.

For Britain, having a more powerful and united eurozone is also problematic when it comes to banking regulation or the balance of powers within the European Banking Authority, the London-based body pooling all 27 national banking supervisors.

Estonia - a eurozone member - is a special case, as its whole banking sector is in Swedish hands. But Sweden is outside the eurozone, so Estonia will be in the banking union, but its banks will remain under national supervision from Sweden.

List of Countries Having Problems With Banking Union Proposal

Germany
Netherlands
UK
Sweden
Poland
Bulgaria
Czech Republic
Denmark
Hungary
Latvia
Lithuania

As I have stated before, the UK ought to decide to leave the EU entirely. To place itself at risk of having to comply with EU banking regulations and restrictions in London, financial transaction taxes, and eurozone bailout funding, on top of numerous silly trade agreements and absurd farm policy agreements is pure insanity.

Since any one country can sink this thing, it sure cannot pass as is, nor can all of this possibly be ironed out by December.

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

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