Mish's Global Economic Trend Analysis

Fiscal Cliff Talks Underway Between Obama, House Speaker Boehner; Market Rallies on Talk of "Fluff" Compromise
Weak Regional Manufacturing Surveys: Philly Fed, NY Fed, Dallas Fed; Don't Blame Hurricane Sandy
Ron Paul, American Hero; His Farewell Speech to Congress; Mish Reflections On Why the Country is Broke

Fiscal Cliff Talks Underway Between Obama, House Speaker Boehner; Market Rallies on Talk of "Fluff" Compromise

Posted: 16 Nov 2012 11:08 AM PST

The SP&P staged a mild (and meaningless) 19-point flagpole rally on news of a possible compromise between House Speaker John Boehner and president Obama as shown by the following chart of S&P Futures.

Market participants hope that Obama and Boehner agree to kick the can down the road. Most likely they will, the question is by how much.

Please consider Obama Opens Fiscal Cliff Talks as Boehner Open to Revenue

House Speaker John Boehner said he offered a "framework" including new revenue to reduce the U.S. budget deficit in his first face-to-face talks today with President Barack Obama and top Congress leaders since the Nov. 6 election.

As both sides expressed optimism that a deal is possible, U.S. equity markets rose.

Boehner also said he is serious about including revenue in an agreement if accompanied by significant spending cuts. The framework is "consistent with the president's call for a fair and balanced approach," he said after what he called a "constructive" meeting with the president and other congressional leaders in the Roosevelt Room at the White House.

"We're prepared to put revenue on the table, provided we fix the real problems," including entitlement costs, said Senate Republican leader Mitch McConnell of Kentucky.

Despite the optimism, the starting points for both sides -- Obama's insistence on higher taxes for top earners and Republicans' refusal to raise rates -- leaves negotiators with arithmetically complex and politically fraught choices.

While insisting on taxes, Obama has shown some openness in recent days. He and Geithner said rates must increase without specifying that the top rate must return to the 39.6 percent level in effect when President Bill Clinton left office.

Democrats and some Republicans are also beginning to talk publicly about another alternative: a more modest increase in upper-income tax rates.

One idea would be to raise Obama's $250,000 income threshold for a tax increase to $500,000 or $1 million and increase the current 35 percent top rate to 37 percent, Peter Orszag, Obama's former director of the Office of Management and Budget, said today on Bloomberg Television.

"Will John Boehner really blow up a deal for a 1 percent point increase above $1 million?" Orszag said. "The administration has made it clear there has to be at least some increase in marginal tax rates."

Several congressional aides have suggested that in the event talks fail, both parties in Congress are discussing fallback plans for $60 billion to $100 billion in deficit reduction to replace automatic spending cuts set to take effect in January.

Why the Country is Broke

Read that last paragraph above carefully. No one in either party has the guts to stand up and say "we cannot afford this".

I talked about this earlier today in Ron Paul, American Hero; His Farewell Speech to Congress; Mish Reflections On Why the Country is Broke

Question of the Day

If Republicans are not in favor of deficit spending and Democrats are not either, then how the Hell do we have trillion dollar deficits?

The answer is vast majority of politicians are liars, with no backbone to stand up and tell the truth to US citizens: "the country is broke".

We cannot afford wars. We cannot afford to keep troops in 140 countries. We cannot afford to be the world's policeman.

We also cannot afford Davis-Bacon and prevailing wage laws. We cannot afford the pension promises we have made. We cannot afford collective bargaining of public unions. We cannot afford all kinds of entitlements that have been promised.

How Does It Happen?

We have all of these things because corrupt politicians buy votes of constituents who want to hear the lie that we can afford those things. In the end, that's what it's really all about.

The unions, the warmongers, the banks, and all the other special interest groups buy votes of corrupt politicians every step of the way. The "compromise" in Congress is Republican get their wars and Democrats get fiscally unsound social programs.

Expect Fluff Compromise

Look for a compromise to do as little as possible to fix the structural problems in the US. Instead look for Republicans to scale back cuts in military spending and Democrats to scale back revenue increases.

The non-leaders in both parties will stand up and proclaim "we saved the US from the fiscal cliff" or some other self-congratulatory nonsense.

Once again, I am not in favor of tax hikes (unless they come at a steep price such as scrapping Davis-Bacon, ending collective bargaining of public unions, etc., things that will actually fix some structural problems).

However, I don't expect anything but fluff compromises because neither Obama nor Boehner has the courage to tell the truth.

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

Weak Regional Manufacturing Surveys: Philly Fed, NY Fed, Dallas Fed; Don't Blame Hurricane Sandy

Posted: 16 Nov 2012 09:13 AM PST

Let's take a look at the latest Fed regional economic surveys to catch a glimpse at current business conditions.

Philly Region Back in Contraction

The November 2012 Philadelphia Business Outlook Survey is back in negative territory.

Indicators Suggest Diminished Activity

The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, decreased 16 points, to a reading of ‑10.7. The fallback of the general activity index followed a single positive reading in October that was preceded by five negative monthly readings. Nearly 32 percent of firms reported declines in activity this month, while 21 percent reported increases. The demand for manufactured goods, as measured by the current new orders index, declined 4 points from last month and remains in negative territory. Shipments also fell this month: The current shipments index fell 7 points, to ‑6.7. Declines in inventories were also more widespread this month; 31 percent of firms reported declines compared with 21 percent in October.

Labor market conditions at the reporting firms remained weak this month. The current employment index, at ‑6.8, was slightly improved from its negative reading in October (‑10.7) but has remained negative for five consecutive months. The percentage of firms reporting decreases in employment (20 percent) exceeded the percentage reporting increases (13 percent). Firms also indicated fewer hours worked: The average workweek index was virtually unchanged but posted its eighth consecutive negative reading.

Current and Future Business Activity

Don't Blame Sandy

It's tough to pin this all on Hurricane Sandy although many will try.

New York Manufacturing in Contraction Fourth Month

The Federal Reserve Bank of New York Empire State Manufacturing Survey shows manufacturing declines at modest pace.

The November 2012 Empire State Manufacturing Survey indicates that conditions for New York manufacturers declined at a modest pace. The general business conditions index was negative for a fourth consecutive month, but was little changed at -5.2. The new orders index rose above zero for the first time since June, although it was only slightly positive at 3.1.

Labor market conditions were noticeably weaker. The index for number of employees
fell fourteen points to -14.6, a sharp drop to its lowest level since 2009, and the average workweek index drifted down to -7.9.

In a series of supplementary questions, firms were asked about the extent to which their businesses were affected by the "superstorm" Sandy. Among firms based in upstate New York, only 21 percent reported any loss of activity due to the storm—and in most cases, for no more than one day.

Business Conditions Decline Modestly

The general business conditions index was little changed in November and, at -5.2, suggested that activity for New York manufacturers continued to decline at a modest pace. Nineteen percent of respondents reported that conditions had improved over the past month, while 24 percent reported that conditions had worsened.

NY Fed Business Conditions

Expansion Slows in Dallas Region

The Dallas Fed Texas Manufacturing Survey shows manufacturing activity expands at a slower pace.

Texas factory activity increased in October, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, dipped from 10 to 7.9, indicating slightly slower growth.

Most other measures of current manufacturing activity also suggested growth in October, although new orders declined. The capacity utilization index edged up from 9.3 to 11.4, with more than one-quarter of manufacturers noting an increase. The shipments index held steady at 4.7, suggesting shipments rose at about the same pace as in September. The new orders index fell from 5.3 to –4.5, reaching its lowest level this year and indicating a decrease in demand.

Labor market indicators reflected slow but steady labor demand growth and shrinking workweeks. The employment index was 5.2 in October, largely unchanged from last month but well below the higher levels seen earlier in the year. About 15 percent of firms reported hiring new workers, while 10 percent reported layoffs. The hours worked index fell back into negative territory with a reading of –5.9, down from 2.8 in September.

While not outright horrid, the regional manufacturing surveys show renewed weakness that is tough to pin on Hurricane Sandy. I expect conditions to deteriorate further.

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

Ron Paul, American Hero; His Farewell Speech to Congress; Mish Reflections On Why the Country is Broke

Posted: 16 Nov 2012 12:04 AM PST

On Wednesday, Rep. Ron Paul (R-Texas) delivered a 48-minute farewell address on the House floor after serving 30 years in Congress. His farewell speech is arguably the best in his career.

Time permitting, I strongly encourage everyone to play the video or at least read the full and complete text. For now ...

Here are a few highlights.

Note: For ease in reading, I dispense with my normal blockquotes (indentation).

Paul Highlights

The major stumbling block to real change in Washington is the total resistance to admitting that the country is broke. This has made compromising, just to agree to increase spending, inevitable since neither side has any intention of cutting spending.

If liberty is what we claim it is- the principle that protects all personal, social and economic decisions necessary for maximum prosperity and the best chance for peace- it should be an easy sell. Yet, history has shown that the masses have been quite receptive to the promises of authoritarians which are rarely if ever fulfilled.

In the early part of the 20th century our politicians promoted the notion that the tax and monetary systems had to change if we were to involve ourselves in excessive domestic and military spending. That is why Congress gave us the Federal Reserve and the income tax. The majority of Americans and many government officials agreed that sacrificing some liberty was necessary to carry out what some claimed to be "progressive" ideas. They failed to recognized that what they were doing was exactly opposite of what the colonists were seeking when they broke away from the British.

We Need an Intellectual Awakening. Without an intellectual awakening, the turning point will be driven by economic law. A dollar crisis will bring the current out-of-control system to its knees.

If it's not accepted that big government, fiat money, ignoring liberty, central economic planning, welfarism, and warfarism caused our crisis we can expect a continuous and dangerous march toward corporatism and even fascism with even more loss of our liberties. Prosperity for a large middle class though will become an abstract dream.

Economic ignorance is commonplace. Keynesianism continues to thrive, although today it is facing healthy and enthusiastic rebuttals. Believers in military Keynesianism and domestic Keynesianism continue to desperately promote their failed policies, as the economy languishes in a deep slumber.

The immoral use of force is the source of man's political problems. Sadly, many religious groups, secular organizations, and psychopathic authoritarians endorse government initiated force to change the world. Even when the desired goals are well-intentioned—or especially when well-intentioned—the results are dismal.

We now have a standing army of armed bureaucrats in the TSA, CIA, FBI, Fish and Wildlife, FEMA, IRS, Corp of Engineers, etc. numbering over 100,000. Citizens are guilty until proven innocent in the unconstitutional administrative courts.

Government in a free society should have no authority to meddle in social activities or the economic transactions of individuals. Nor should government meddle in the affairs of other nations. All things peaceful, even when controversial, should be permitted.

The Constitution established four federal crimes. Today the experts can't even agree on how many federal crimes are now on the books—they number into the thousands. No one person can comprehend the enormity of the legal system—especially the tax code. Due to the ill-advised drug war and the endless federal expansion of the criminal code we have over 6 million people under correctional suspension, more than the Soviets ever had, and more than any other nation today, including China. I don't understand the complacency of the Congress and the willingness to continue their obsession with passing more Federal laws. Mandatory sentencing laws associated with drug laws have compounded our prison problems.

The federal register is now 75,000 pages long and the tax code has 72,000 pages, and expands every year. When will the people start shouting, "enough is enough," and demand Congress cease and desist.

It is claimed that war, to prevent war for noble purposes, is justified. This is similar to what we were once told that: "destroying a village to save a village" was justified. It was said by a US Secretary of State that the loss of 500,000 Iraqis, mostly children, in the 1990s, as a result of American bombs and sanctions, was "worth it" to achieve the "good" we brought to the Iraqi people. And look at the mess that Iraq is in today.

Questions

Excessive government has created such a mess it prompts many questions:

Why are sick people who use medical marijuana put in prison?

Why can't Americans manufacture rope and other products from hemp?

Why are Americans not allowed to use gold and silver as legal tender as mandated by the Constitution?

Why do our political leaders believe it's unnecessary to thoroughly audit our own gold?

Why can't Americans decide which type of light bulbs they can buy?

Why is the TSA permitted to abuse the rights of any American traveling by air?

Why should there be mandatory sentences—even up to life for crimes without victims—as our drug laws require?

Why haven't we given up on the drug war since it's an obvious failure and violates the people's rights? Has nobody noticed that the authorities can't even keep drugs out of the prisons? How can making our entire society a prison solve the problem?

Why do we sacrifice so much getting needlessly involved in border disputes and civil strife around the world and ignore the root cause of the most deadly border in the world -the one between Mexico and the US?

Why does Congress willingly give up its prerogatives to the Executive Branch?

Why does changing the party in power never change policy? Could it be that the views of both parties are essentially the same?

Why did the big banks, the large corporations, and foreign banks and foreign central banks get bailed out in 2008 and the middle class lost their jobs and their homes?

Why do so many in the government and the federal officials believe that creating money out of thin air creates wealth?

Why do so many accept the deeply flawed principle that government bureaucrats and politicians can protect us from ourselves without totally destroying the principle of liberty?

Why can't people understand that war always destroys wealth and liberty?

Why is there so little concern for the Executive Order that gives the President authority to establish a "kill list," including American citizens, of those targeted for assassination?

Why is patriotism thought to be blind loyalty to the government and the politicians who run it, rather than loyalty to the principles of liberty and support for the people? Real patriotism is a willingness to challenge the government when it's wrong.

Why is it is claimed that if people won't or can't take care of their own needs, that people in government can do it for them?

Why do some members defend free markets, but not civil liberties?

Why do some members defend civil liberties but not free markets? Aren't they the same?

Why don't more defend both economic liberty and personal liberty?

Why does the use of religion to support a social gospel and preemptive wars, both of which requires authoritarians to use violence, or the threat of violence, go unchallenged? Aggression and forced redistribution of wealth has nothing to do with the teachings of the world's great religions.

Why do we allow the government and the Federal Reserve to disseminate false information dealing with both economic and foreign policy?

Why should anyone be surprised that Congress has no credibility, since there's such a disconnect between what politicians say and what they do?

Conclusion

What are the greatest dangers that the American people face today and impede the goal of a free society? There are five.

1. The continuous attack on our civil liberties which threatens the rule of law and our ability to resist the onrush of tyranny.

2. Violent anti-Americanism that has engulfed the world. Because the phenomenon of "blow-back" is not understood or denied, our foreign policy is destined to keep us involved in many wars that we have no business being in. National bankruptcy and a greater threat to our national security will result.

3. The ease in which we go to war, without a declaration by Congress, but accepting international authority from the UN or NATO even for preemptive wars, otherwise known as aggression.

4. A financial political crisis as a consequence of excessive debt, unfunded liabilities, spending, bailouts, and gross discrepancy in wealth distribution going from the middle class to the rich. The danger of central economic planning, by the Federal Reserve must be understood.

5. World government taking over local and US sovereignty by getting involved in the issues of war, welfare, trade, banking, a world currency, taxes, property ownership, and private ownership of guns.

The problem we have faced over the years has been that economic interventionists are swayed by envy, whereas social interventionists are swayed by intolerance of habits and lifestyles. The misunderstanding that tolerance is an endorsement of certain activities, motivates many to legislate moral standards which should only be set by individuals making their own choices. Both sides use force to deal with these misplaced emotions. Both are authoritarians. Neither endorses voluntarism. Both views ought to be rejected.

I have come to one firm conviction after these many years of trying to figure out "the plain truth of things." The best chance for achieving peace and prosperity, for the maximum number of people world-wide, is to pursue the cause of LIBERTY.

If you find this to be a worthwhile message, spread it throughout the land.

End Paul - Start Mish

It sounds so logical, doesn't it? So why are we in this mess?

The answer is we nominate clowns like Mitt Romney and President Obama and the vast majority of people choose between Tweedle-Dum and Tweedle-Dee based on some sense of morality or perhaps some kind of handout.

The pro-life hypocrites were willing to vote from Mitt Romney who is hell bent on starting a war with Iran in spite of obvious failures in Iraq and Afghanistan, in spite of the fact that war kills real living people.

As Paul said, "500,000 Iraqis, mostly children, in the 1990s died, as a result of American bombs and sanctions." Supposedly it was "worth it" for the greater "good". It was so "worth it" that we did it a second time, and lied to do it.

Congressional lemmings supported the war en masse. Paul didn't. Neither did I, and I am proud of it.

Question of the Day

If Republicans are not in favor of deficit spending and Democrats are not either, then how the Hell do we have trillion dollar deficits?

The answer is vast majority of politicians are liars, with no backbone to stand up and tell the truth to US citizens: "the country is broke".

We cannot afford wars. We cannot afford to keep troops in 140 countries. We cannot afford to be the world's policeman.

We also cannot afford Davis-Bacon and prevailing wage laws. We cannot afford the pension promises we have made. We cannot afford collective bargaining of public unions. We cannot afford all kinds of entitlements that have been promised.

How Does It Happen?

We have all of these things because corrupt politicians buy votes of constituents who want to hear the lie that we can afford those things. In the end, that's what it's really all about.

The unions, the warmongers, the banks, and all the other special interest groups buy votes of corrupt politicians every step of the way. The "compromise" in Congress is Republican get their wars and Democrats get fiscally unsound social programs.

In the meantime, government grows bigger and bigger and bigger. And the Fed (and Congress) repeatedly bail out the banks and the wealthy at the expense of the middle class.

For more on the Fed, please see ...

Click on those links and you will have no problems answering the question "Why is the middle class is shrinking?"

The short answer is inflation benefits those with first access to money (namely the banks, the already wealthy, and the politicians). So does tax policy, favoritism, and special interest legislation.

A day of fiscal reckoning is coming over such economic insanity. From where I sit the sooner the better.

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

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Mish's Global Economic Trend Analysis

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