Mish's Global Economic Trend Analysis

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Brussels Says "No" to France Proposal for Deficit Target Leniency Posted: 05 Apr 2014 07:07 PM PDT Francois Hollande's new government is of to a shaky start. The European Commission told Manuel Valls, Hollande's new Prime Minister to "be more like Spain", and impose more austerity to meet deficit targets. The irony of course is that Spain has failed at least three times to meet repeatedly watered-down deficit targets. Via translation from El Pais, please consider EC Says No to Valls Deficit Request. The flamboyant French Prime Minister, Manuel Valls, asked the European Commission to grant him leniency on meeting deficit targets in exchange for reforms, cuts to public spending, and tax breaks. Valls received yesterday the Commission response: No. No way. There will be none of that. German Finance Minister, Wolfgang Schäuble, suggested that France had been given leeway twice already, and a third time could be counterproductive. The vice president even Economic Affairs Commission Olli Rehn, yesterday got out the glove and categorically ruled out more time to Paris. "An extension of the deficit targets for France would be justified only if there are negative surprises. And there is nothing like that on the horizon. The eurozone is in full recovery, "he told Reuters. That view is shared by President José Manuel Durão Barroso and Jean-Claude Juncker. Rehn cited as models for France to countries that have made reforms, such as Germany and more recently, Ireland, Latvia and even Spain, although in three cases the results still leave much to be desired. In April, Paris must send their tax plans to Brussels. And that's when the mess really starts. Olli Rehn's notion that the eurozone is in full recovery is of course laughable. As for negative surprises, expect to see plenty of them. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Australia's House Prices 'Flashing Red', Debt to Income at Record Level Posted: 05 Apr 2014 09:09 AM PDT Australia's housing bubble is back in full swing. Prices rose almost 11 percent over the past year to record levels in absolute terms and near-record levels as a share of household income.  Prices in Sydney rose 15 percent. Household debt as a percent of income surpassed the previous record. WAtoday reports Australia's house prices 'flashing red', debt to income ratio at record levels. Australian household debt has hit a record 177 per cent of annual disposable income while housing valuations are "flashing red", according to Barclay's chief economist, Kieran Davies. "House prices now equate to 4.3 times annual income and 28 times annual rent, both within a fraction of their historic highs," Mr Davies said. Home Prices to Income Household Debt as Percent of Income In March RBA governor Glenn Stevens warned "we need to be alert to the possibility that the past year of strong rises in dwelling prices leads people to assume that this is the norm". "Were such an assumption to lead to increasing speculative activity, accompanied by a renewed increase in household leverage with all the associated risks to the housing market ... that would be unwelcome," Mr Stevens said. That home prices and debt-to-income are back up at record levels is a sign that speculation is already back in full swing already. Is there any central bank governor anywhere that can spot speculative bubbles before they burst? Apparently not. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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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