Mish's Global Economic Trend Analysis

Hate Mail Before and After Election; Wake-Up Call for Republican Party; Reflections on Extreme Polarization in US; Time to Move On; Rand Paul 2016
Italy Seeks Charges Against Rating Agencies for Downgrade of Italian Debt; Courts Go Nuts Again
Laugh of the Day: IMF is Too Pessimistic; Public Feud Spat of the Day: Lagarde vs. Jean Claude Juncker
Misdiagnosing the Fiscal Cliff; Shrill Voices and Economic Nonsense; Tyranny of Balanced Budgets

Hate Mail Before and After Election; Wake-Up Call for Republican Party; Reflections on Extreme Polarization in US; Time to Move On; Rand Paul 2016

Posted: 13 Nov 2012 09:59 PM PST

A week has passed since the election. It's time to reflect on the polarization of America, hate mail, and what went wrong for the Republican party, all in a constructive way.

Hate Mail

Hate mail came pouring in to my inbox before and especially after the election. One person wrote a blazing "F U" email. I received some radical attacks regarding abortion.

One person blamed me personally for the election results in a rather threatening manner, (but ambiguously enough to make reporting it useless). Another blamed libertarians.

Liz, a very close friend of mine, received a phone call after the election from one of her close friends stating "Liz, I cannot be your friend anymore because you voted for Obama."

How's that for extreme polarization?

Wake-Up Call for Republican Party

Here's the deal:

I did not abandon the Republican party it abandoned me. In more general terms, the Republican party abandoned women, gays, independents, even Catholics.

As amazing as this may seem, and in spite of the Catholic church position on abortion, Catholic Culture reports Obama Won Catholic Vote. It was not by much, but it is stunning that it happened at all.

Yet this is what happens when views are too extreme. I am very pleased to report 'Red' Indiana sends Democrat to US Senate, as women fled Mourdock.

Mourdock said "God intended" pregnancies that result from rape. Romney was stupid enough to say he still supports Senate candidate after rape comment.

Mistakes Add Up

Extreme views, especially in a close election, are bound to add up, and they did.

I was actually hoping Republicans would pick up two senate seats. Instead they lost two.

In spite of weak economy, in spite of the fact Obama did not deliver any of his promises on jobs, in spite of the fact unemployment rate is a reported 7.8% (but more like 10.5% in practice), Romney lost the election.

How? By abandoning women, gays, independents, blacks, Hispanics, atheists, Catholics, etc.

Romney's last ditch effort to move towards the middle, coupled with an amazingly bad performance by president Obama in the first debate is the only thing that prevented a complete devastating blowout.

Exactly as I suggested in 90% Chance of Obama Win; Three Things Romney Needs to Win; Election Night Coverage With Mish on National Syndicated Radio, the late deciders swung to Obama.

No one should be surprised by this. I certainly wasn't. After all, it's pretty hard to win an election when you abandon so many groups.

Time to Move On

On Coast-to-Coast national syndicated radio, election night with George Noory, I commented this was a wake-up call for Republicans. I also commented Mitt Romney and Rush Limbaugh were the past and that it was time to move on.

I propose it's time to stop fighting World War II and the cold war. US military is supreme and will still be supreme with reasonable (even massive cuts). It's time to move on.

Independents want cuts in military spending. The far-right doesn't. It's time to move on.

Independents can go along with some abortion restrictions, but not extreme positions as that espoused by Mourdock. Thanks to Obama's re-election Roe vs. Wade will not be overturned. It's time to move on.

The US cannot afford to keep troops in 140 countries. It's time to move on.

It's time to move on (and to the middle) and to abandon the far-right for so many reason and in so may ways I cannot begin to name them all.

Yet, it's also time to face the facts on entitlements, on public unions, on pension promises, on collective bargaining, on prevailing wages.

By taking extreme positions on peripheral issues, Republicans abandoned the chance to make much-needed headway in numerous other places including fiscal responsibility, Davis-Bacon (and prevailing wage laws), and ending collective bargaining of public unions.

Future of the Republican Party

The future of the Republican party, as I stated on Coast-to-Coast election night is Rand Paul and other libertarian-minded Republicans.

Thus, I was pleased today to see the POLITICO headline Welcome to the Rand Paul evolution.

He'll push to loosen marijuana penalties, legalize undocumented immigrants and pursue a less aggressive American foreign policy.

Call it the Rand Paul Evolution.

In the wake of Barack Obama's reelection win and ahead of a possible 2016 White House bid of his own, the Kentucky Republican plans to mix his hard-line tea party conservatism with more moderate policies that could woo younger voters and minorities largely absent from the GOP coalition. It's the latest tactic of the freshman senator to inject the Libertarian-minded views shared by his retiring father into mainstream Republican thinking as the party grapples with its future.

In an interview with POLITICO, Paul said he'll return to Congress this week pushing measures long avoided by his party. He wants to work with liberal Democratic Sen. Patrick Leahy and Republicans to eliminate mandatory minimum sentences for pot possession. He wants to carve a compromise immigration plan with an "eventual path" to citizenship for illegal immigrants, a proposal he believes could be palatable to conservatives. And he believes his ideas — along with pushing for less U.S. military intervention in conflicts overseas — could help the GOP broaden its tent and appeal to crucial voting blocs that handed Democrats big wins in the West Coast, the Northeast and along the Great Lakes.

Rand Paul 2016

This is welcome news. Had Romney won, we would have been stuck with Romney running again in 2016.

Instead, Republicans have the chance to purge the war-mongers, purge the Rush Limbaugh clones, purge the extremists of all kinds, and get down to fiscal-conservative business.

Please read the rest of that POLITICO story because Rand Paul is the future.

For more on the need to address the budget, including a brief mention of Rand Paul, please see Misdiagnosing the Fiscal Cliff; Shrill Voices and Economic Nonsense; Tyranny of Balanced Budgets

One Final Thought

Here is one final thought on the polarization of the US. A very close life-long friend offered these comments on the hate mail that I received:

"Unfortunately an ethic has developed where it's OK to yell at people with whom you don't agree. In fact, it's considered manly and admirable in some quarters. All these extremist jackasses that believe it courageous to talk about advancing their position with force. Of course, they've never lived in a place where that actually happens."

Please read those last paragraph again and again (especially the last two sentences) until it sinks in.

Embrace the Opportunity

Had Romney won, there would have been no chance to move on. Now there is. That is the best thing to come out of this election.

Republicans need to embrace the opportunity to move on that this loss provides.

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

"Wine Country" Economic Conference Hosted By Mish
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Italy Seeks Charges Against Rating Agencies for Downgrade of Italian Debt; Courts Go Nuts Again

Posted: 13 Nov 2012 02:20 PM PST

I am still shaking my head over the insane verdict last month in which Six Italian Scientists Convicted because they failed to predict an earthquake.

Six scientists and a government official were sentenced to six years in prison for manslaughter by an Italian court on Monday for failing to give adequate warning of an earthquake that killed more than 300 people in L'Aquila in 2009.

The seven, all members of a body called the National Commission for the Forecast and Prevention of Major Risks, were accused of negligence and malpractice in evaluating the danger and keeping the central city informed of the risks.

This month Italy seeks trials over credit downgrades

Italian prosecutors have requested that five employees of Standard & Poor's and two from Fitch be put on trial for alleged market manipulation connected to their downgrades of Italy's credit rating.

The prosecutors contend the accused violated EU rules by releasing the downgrades when European markets were open and by not alerting the Italian government 12 hours before the decisions, dating back to earlier this year and last year, were made public. A judge must now decide whether to order a trial, a decision that could come in a few months.

"These claims are entirely baseless and without any merit as our role is to publish independent opinions about creditworthiness according to our public and transparent methodologies, which we apply consistently around the world," S&P said.

"We will continue to perform our role without fear or favour of any investor, debt issuer or other external party and to defend our actions, our reputation and that of our people."

I have no respect for the big three rating agencies, but this action is preposterous.

The word "insane" does not even begin to describe the prosecution (let alone conviction) of the earthquake scientists.

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

Laugh of the Day: IMF is Too Pessimistic; Public Feud Spat of the Day: Lagarde vs. Jean Claude Juncker

Posted: 13 Nov 2012 09:55 AM PST

The eurozone finance ministers postponed agreement on the next Greek deal following a rare public feud between IMF chief Christine Lagarde and "Liar-in-Chief" Jean-Claude Juncker, chair of the eurogroup of finance ministers.

Recall that Juncker once publicly stated "When it Becomes Serious, You Have to Lie".

Today, please consider EU-IMF Feud Erupts Over Greek Debt

Christine Lagarde, the IMF chief, and Jean-Claude Juncker, chair of the eurogroup of finance ministers, publicly sparred over whether Greece must reduce its debt levels to 120 per cent of economic output by 2020, long viewed the target to get Athens back to a sustainable debt level.

An agreement between the IMF and eurozone governments is essential to releasing the bailout tranche since both creditors disburse financial assistance concurrently.

In a rare breach, Mr Juncker told a post-meeting press conference the target would be moved to 2022, prompting Ms Lagarde to insist the IMF was sticking to the original timeline. When Mr Juncker again insisted it would be moved – "I'm not joking," he said – Ms Lagarde appeared exasperated, rolling her eyes and shaking her head.

"In our view, the appropriate timetable is 120 per cent by 2020," Ms Lagarde said. "We clearly have different views." Officials will meet again November 20 in an effort to reach agreement, Mr Juncker said.

The Lagarde-Juncker spat was a public manifestation of a fight that has been simmering behind closed doors for months. The IMF has insisted the overhauled bailout plan include a credible debt reduction proposal, which may force eurozone countries to accept losses on bailout loans.

But European Commission officials believe the IMF is being overly pessimistic, arguing Greece can grow faster economically and should be given more leeway to meet debt targets.

According to senior officials, the IMF believes that without any relief, Greek debt will stand at nearly 150 per cent of gross domestic product by 2020, while the European Commission believes it will be just over 140 per cent. Without agreement on the baseline, officials cannot come up with a debt relief plan, which will involve both eurozone governments and the ECB giving up cash they had originally been owed by Greece.

Moving Targets

Bear in mind the original target for Greece was 100% by 1014, then 120% by 2014, then 120% by 2018, then 120% by 2020, and now these clowns are wrangling whether it's 150% vs. 140% by 2020 with Juncker wanting to stretch the mess out to 2022.

I made up some of those dates and amounts because they have changed so many times no one could possibly keep track of them all.

The key point is not the exact dates or amounts, but rather the IMF was overly optimistic every step of the way, about Greece and about Europe in general.

For example, please consider my January 9, 2012 post Dimwit Comment of the Day: Christine Lagarde, IMF Director says "Europe May Avoid a Recession This Year".

If' that was not blatant optimism, what is? Europe is smack in the midst of a horrendous recession, and the IMF is looking for growth next year. It won't happen.

The irony is "Liar-in-Chief" Juncker argues the IMF is too pessimistic. Here's a clue for you: "Things are Serious".

Date is Irrelevant

It does not matter whether the date is 2016, 2020, or 2022. Greece is going to default anyway.

Thus, arguing about the date is like kids arguing who gets the bright red marble when there is no red marble at all. In this case, there is not even a bucket of marbles to choose from.

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

Misdiagnosing the Fiscal Cliff; Shrill Voices and Economic Nonsense; Tyranny of Balanced Budgets

Posted: 13 Nov 2012 01:42 AM PST

The amount of worry over something that needs to happen is staggering.

I actually hope the fiscal cliff triggers. Better now than what is 100% certain to hit in a more severe way later.

Ideally, I would prefer no tax hikes and massive budget cuts. Senator Rand Paul's plan to balance the budget would have me jumping for joy.

The next best thing would be a small tax hike in return for deep cuts in spending. However, Republicans foolishly killed that idea last summer, even rejecting plans that would cut spending over tax hikes in a ratio of 10-1.

Republicans refused that deal based on the foolish belief that Obama could not possibly win the election.

Well, Obama did win. And now, nearly everyone is screaming in shrill voices about a "fiscal cliff" that really could have and should have happened long ago.

Shrill Voices and Economic Nonsense

Heading up the list of shrill voices is none other than Ambrose Evans-Pritchard who writes World cannot afford second Fiscal Cliff after Europe's failed attempt.

The story is by now well-known. Unless there is a deal in Congress by the end of the year, the Bush-era tax cuts and the payroll cuts will reverse automatically; extended jobless benefits for the long-term unemployed will be cut off; defence spending will be cut; so on. Everybody's sacred cow is sacrificed. The combined austerity would be around $700bn over 2013, or 4.5pc of GDP.

The youth jobless rate is 58pc in Greece, 54.2pc in Spain, 35.1pc in Italy, and 25.7pc in France.

Labour economist and Nobel laureate Peter Diamond says the life trajectory of these young people will be damaged. There is almost nothing worse you can do to the productive potential of an economy - and therefore to debt ratios - than locking a great chunk of the future workforce out of the system during their formative years.

"They have a debt problem and an unemployment crisis, but they think it is the other way round," he said.

The tragedy is that Europe is wasting its last chance to train a workforce for the 21st Century before its demographic crunch hits later this decade. EMU leaders - like the donkey generals of the trenches - are fighting the wrong war. They are crippling a generation. Budget deficits are coming down - though far less than assumed - but the skills deficit of the jobless army is going through the roof. It is the tyranny of the Maastricht Treaty.

It would be a double tragedy if the US succumbed debt fetishism and made the same historic misjudgement.

Tyranny of the Balanced Budget

Regular readers know that I have an on-again, off-again view of Ambrose Evans-Pritchard. When it comes to Keynesian clown economics, it is decidedly off.

If fiscal and monetary stimulus worked, Japan would not be facing its own fiscal cliff, with a debt-to-GDP ratio of 235 percent. If printing money worked, Zimbabwe would be the richest nation on earth.

The idea that balanced budgets will destroy the world is sheer idiocy. Indeed, any household in the US in severe economic straits would tell you (provided they were honest), that prolonged spending more money than they take in is the road to ruin.

But no! Pritchard not only rails against balanced budgets, he also rails against the "tyranny of the Maastricht Treaty" (the treaty that founded the eurozone), which allows for 3 percent deficit spending forever.

What 7th graders can easily understand (and what history has proven) is debt is the problem.

Pritchard, Bernanke, most of Congress, and most economists believe the way out of a debt crisis is to spend more money.

Quite frankly, such policy is pure idiocy.

Fiscal Cliff Compromise

Liam Halligan, also from the Telegraph writes Compromise can save Obama from fiscal cliff.

In 2008, US government debt was 70pc of GDP. Now it is 102pc. The last time it was this high was in the aftermath of the Second World War. Back then, America was a nation in its zenith, about to embark on a population boom and a run of growth and rampant economic development. America today is an ageing society, weighed down with liabilities stretching years into the future.

For above and beyond the impending fiscal shenanigans, there is no sign whatsoever of any political agreement on how to reform old age benefits so as to prevent the derailment of Uncle Sam's finances over the coming decades as tens of millions of baby boomers retire.

Some want Obama to use the political leverage he has gained from re-election to raise taxes and lock-in higher benefits. The real leverage the president has, in his second and final term, is that he doesn't need to worry about re-election. That's why Obama should offer the Republicans a deal to rein in the country's ballooning entitlement spending before it spirals completely out of control. Only then will he give America the "hope" he so eloquently offered at the start of his presidency.

Political Chicken

Halligan presents an interesting opinion but I have to ask, where the H is there room for compromise?

Obama wants tax hikes, House speaker John Boehner does not want tax hikes but rather closing of loopholes. Is this fertile ground for compromise?

While pondering that question, please consider US plays chicken on edge of fiscal cliff by Rob Harding.

Chicken is not a complicated game. Only one thing can improve your chances of winning: sending a credible signal that you will not be the person to swerve from the collision.

Election over, the Republicans and Democrats are now revving up for the fiscal cliff, and the game is chicken. If there is no deal then everybody loses.

Let's stop right there because Harding is out of his mind. Someone is always a winner, at least in relative terms, and in politics, relative terms is what matters.

The only problem is figuring out who the relative winner is. Had Republicans realized Obama would win this election, they would have made a far different choice in last summer's budget negotiations.

Harding continues ...

If one side swerves then the other wins; and if both swerve – extending all current policy – then we come back next year and do it all again. In order to show that they will not swerve, politicians on both sides are publicly flirting with the idea of going over the cliff, at least temporarily.

If everybody knows how much damage this would do then the credibility of these threats is easy to assess. The danger comes, however, if people have different views of the cost, making their actions less predictable – and so far economists have not helped by sending out a mixed message.

Precisely. The real game of chicken is exactly the opposite of what Harding first suggested. The real game of chicken is neither party can figure out precisely who will benefit from the fiscal cliff.

If neither party can figure that out, they will both agree to kick the can down the road. This is what happened last summer. However, I doubt it will happen again to the same degree again.

President Obama cannot be elected for another term so he has nothing to lose by holding out.

On the other hand, Republicans may have something to lose (the mid-term elections two years from now).

If either side blinks, expect Republicans to blink first.

Don't Fear Fiscal Cliff

In regards to the game of chicken, Democrat senator Patty Murray, co-chair of last year's deficit supercommittee says Don't Fear Fiscal Cliff

"If the Republicans will not agree with that, we will reach a point at the end of this year where all the tax cuts expire and we'll start over next year," said Patty Murray, who was co-chair of last year's deficit supercommittee, on ABC's This Week. "And whatever we do will be a tax cut for whatever package we put together. That may be the way to get past this."

The Washington senator is one of the most senior figures from either party to suggest that temporarily going off the fiscal cliff could be an acceptable way to break the impasse over fiscal policy. Her hard line could strengthen the negotiating position of Democrats but frighten markets.

Going off the cliff would have the political advantage of letting Congress vote for tax cuts, after they go up automatically at the end of the year, rather than voting for tax rises now.

There's an interesting thought: Let the fiscal cliff happen, then pretend to cut taxes days later.

The problem once again (from a political perspective) is figuring out precisely who will benefit from alleged "reduced taxes" even though anyone with an eighth-ounce of common sense will realize taxes were not lowered.

Anatomy of the US Fiscal Cliff

Gavyn Davies writing for the Financial Times has interesting analysis and charts in his post Anatomy of the US Fiscal Cliff.

For starters, not the absolute absurdity of Republican protests over defense cuts.

The key item is in regards to the Bush tax cuts. The problem for those affected (me included) is the Republican leadership that negotiated these terms were arrogant fools thinking Obama had no chance of reelection.

Once again, please do not blame me. I did not vote for Obama. I was all in favor of Rand Paul's budget-balancing proposal that got hardly any votes.

Secondarily, I was in favor of a plan negotiated by Republican senator Tom Colburn as part of the "gang of six" bipartisan senators.

Sadly, those choices may now be off the table for four more years. In the meantime, please ponder this chart.

From that perspective, the fiscal cliff does not seem so bad. Consequences be damned because I will certainly be affected.

Once again, I am not in favor of tax hikes. However, (and unlike most hypocrites in Congress) I am not in favor of deficit spending either.

Options that Republicans had six months ago simply may not be there today. Don't blame the messenger for this sorry state of affairs.

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

"Wine Country" Economic Conference Hosted By Mish
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