Mish's Global Economic Trend Analysis

Gulf Countries Now Back Iran Deal; Buchanan Explains Republicans' No-Win Situation
Ukraine's Ultra-Right Militia Threatens Military Coup
Wage Growth Accelerating? By How Much? Total Compensation and the Obamacare Effect

Gulf Countries Now Back Iran Deal; Buchanan Explains Republicans' No-Win Situation

Posted: 03 Aug 2015 06:58 PM PDT

It was already difficult to imagine Congress mustering up enough support to override a presidential veto of a bill to kill the Iran deal, but it will be impossible now that Kerry Secures Gulf Support.

Gulf Arab countries gave cautious backing on Monday to the nuclear deal with Iran, giving the White House an important diplomatic card as it seeks to gain congressional support for the agreement.

Speaking alongside US secretary of state John Kerry after a meeting in Doha, Qatari foreign minister Khalid al-Attiyah said that the agreement which the Obama administration helped negotiate with Iran would make the "region safer and more stable".

"This was the best option amongst other options in order to try to come up with a solution for the nuclear weapons of Iran though dialogue," Mr al-Attiyah said, speaking on behalf of the Gulf Co-operation Council. "We are sure that all the efforts that have been exerted make this region very secure, very stable."

With that, some Democrats on the fence will likely be convinced. Republicans should too, but most won't.

Republicans in No-Win Situation

Pat Buchanan is one of few republicans thinking clearly about Iran. Buchanan explains The GOP's Iran Dilemma.

It appears that Hill Republicans will be near unanimous in voting a resolution of rejection of the Iran nuclear deal.

They will then vote to override President Obama's veto of their resolution. And if the GOP fails there, Gov. Scott Walker says his first act as president would be to kill the deal.

But before the party commits to abrogating the Iran deal in 2017, the GOP should consider whether it would be committing suicide in 2016.

For even if Congress votes to deny Obama authority to lift U.S. sanctions on Iran, the U.S. will vote to lift sanctions in the U.N. Security Council. And Britain, France, Germany, Russia and China, all parties to the deal, will also lift sanctions.

A Congressional vote to kill the Iran deal would thus leave the U.S. isolated, its government humiliated, unable to comply with the pledges its own secretary of state negotiated. Would Americans cheer the GOP for leaving the United States with egg all over its face?

And if Congress refuses to honor the agreement, but Iran complies with all its terms, who among our friends and allies would stand with an obdurate America then?

Israel would applaud, the Saudis perhaps, but who else?

And as foreign companies raced to Iran, and U.S. companies were told to stay out, what would GOP presidential candidates tell the business community?

Would the party campaign in 2016 on a pledge to get tough and impose new sanctions? "Coercive diplomacy," The Wall Street Journal calls it.

Would we bomb Iran? Would we go to war? Not only would Americans divide on any such action, the world would unite — against us.

Republicans seem to be unable to grasp the changes that have taken place in this century. With the Arab Spring, the fall of half a dozen regimes, the rise of al-Qaida and ISIS, civil wars in Libya, Syria, Yemen and Iraq, we have a new Middle East.

Our principal enemies are now al-Qaida and ISIS. And while both have been aided by our old allies, Turkey, Qatar, and Saudi Arabia, both are being resisted by Iran.

All Iran had to do was prove it had no bomb program, which was not difficult, as U.S. intelligence had repeatedly said Iran had no bomb program.

Then the Iranians proved it. They agreed to cut their centrifuges by two-thirds, to eliminate 98 percent of their uranium, to halt production of 20 percent uranium at Fordow, to convert the heavy-water reactor at Arak that produces plutonium to a light water reactor that produces one kilogram a year, and to let cameras in and give U.N. inspectors the run of their nuclear facilities.

And how is Israel, with hundreds of atom bombs, mortally imperiled by a deal that leaves Iran with not a single ounce of bomb-grade uranium?

Remarkable. Iran agrees not to build a bomb it had already decided not to build, and we agree to lift all sanctions. And they pulled it off.

Does Iran Really Want a Bomb?

Buchanan also tackles the question Does Iran Really Want a Bomb?

While Iran and its allies are fighting al-Qaida and ISIS, Turkey and our Arab allies are malingerers at best and collaborators at worst.

How explain this? Not difficult.

The Shiites, a religious minority in the Muslim world -- Hezbollah, Assad's regime, Baghdad, Tehran -- see ISIS as a mortal threat and are willing to fight to kill the monster.

Our Sunni allies won't go out and fight ISIS, because that would make them allies of Iran and the Shiites, whom they fear even more.

Our Sunni friends want America to crush ISIS and al-Qaida, then to crush Hezbollah, Syria and Iran. But why is it in our interest to send U.S. troops back into any of these wars?

Is America more threatened than our Arab allies?

Rather than listening to allies who are non-combatants, we should take a hard look at the Mideast. To whom does the future belong? And with what can we live?

The Republicans want to give a blank check to Obama and any future president to fight ISIS and al-Qaida everywhere and forever. And they want the United States to treat Iran as we should have treated Nazi Germany had Hitler been about to get the bomb.

But if the GOP platform takes the neocon-Netanyahu line that we must not only fight ISIS and al-Qaida, but also Iran and Syria, the party will imperil its improving chances for 2016.

Americans don't want another war.

Though Israel has 200 atomic bombs, Iran has not produced a single ounce of uranium enriched to bomb-grade 90 percent.

U.S. intelligence agencies in 2007 and 2011 declared, with high confidence, that Iran has no active bomb program.

Why would Iran test and build a nuclear bomb, when this would set off a nuclear arms race across the Middle East and put Iran in mortal peril of being smashed by the United States, or by Israel with a preemptive strike?

Question Now Moot

The question as to whether Iran wants a bomb is now moot. The deal pretty much guarantees Iran won't get one.

Yet, Republican war-mongers would rather risk war with Iran than work with a county that actually would make a better ally than Saudi Arabia.

Did Iran Threaten to "Wipe Israel off the Map"?

The Hitler Card players in both parties keep referring to an alleged statement by Iran's Mahmoud Ahmadinejad to "Wipe Israel Off the Map".

The problem is twofold.

Ahmadinejad was not the power broker in Iran.
The translation was not even correct.

Ahmadinejad was actually referring to a statement made by leader Khamenei in which Khamenei said in Persian "Een rezhim-i eshghalgar-i Quds bayad az sahneh-i ruzgar mahv shaved." This means, "This occupation regime over Jerusalem must vanish from the arena of time."

Anonymous wire service translators rendered Khomeini as saying that Israel "must be wiped off the face of the map."

The myth still persists to this day. President Bush, and Even President Obama have used it when it suits their purpose.

And of course, every time that I have spoken favorably of the agreement, I hear the same "wipe the map" nonsense from readers.

Rare Victory for Peace

Due to political divisiveness, political leaders are never willing to say the other side did anything right.

That's why I will never be a political leader. I bash Obama often enough, and for many things. But I equally bash the warmongers who have been wrong every which way, and virtually every time!

This was a rare victory for peace.

I am proud of the fact that I stood against the Vietnam War, I was against the War in Iraq, and I have been on the right side of the Iran debate from the beginning.

I echo Ronald Reagan's former budget director David Stockman who says All Praise To Barack Obama For Stiffing The War Party—- Peace Is Finally Being Given A Chance.

I even go one step further and encourage President Obama to resume normal relations with Iran. Only good can come from such talks.

Amazingly Nearsighted Fools

Walker and Rubio are amazing fools. Sadly, nearly all the Republican candidates don't have their heads on straight regarding this deal.

Here's my simple position: I will not vote for any candidate who take the position he or she will kill the deal if elected.

Buchanan 2016?

Perhaps Pat Buchanan should throw his hat into the ring. Why not? Everyone else has. And the war-mongering talk from the others clearly shows Buchanan is better qualified than the current field leaders.

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

Ukraine's Ultra-Right Militia Threatens Military Coup

Posted: 03 Aug 2015 12:59 PM PDT

Dissatisfied with alleged concessions to Russia, the leader of the Right Sector battalion, Dmytro Yarosh, seeks a nationwide no-confidence referendum in President Petro Poroshenko.

The Right Sector is an illegal battalion that Kiev tolerates because its fighters are well-trained, well-equipped, and willing to take on the separatists.

There is growing unease in Kiev over the Right Sector, because of Yarosh's call for a vote of no-confidence along with some in the group openly threatening a military coup.

Russia claims (likely accurately), Right Sector neo-Nazis were responsible for the violence in the 2014 Ukrainian Revolution that ousted then-President of Ukraine, Viktor Yanukovych.

Please consider Fears Grow as Ukraine Rightwing Militia Puts Kiev in its Sights.

Fears are growing that Right Sector — the only major volunteer battalion Kiev has not yet managed to bring under regular army control — could turn its fire on the new government itself.

Dmytro Yarosh, Right Sector's leader, called late last month for a nationwide no-confidence referendum in President Petro Poroshenko. He was addressing a rally in Kiev of up to 5,000 Right Sector activists, angry over what they say is the government's slow progress in fighting corruption and excessive concessions to Moscow as it attempts to reach a settlement over eastern Ukraine.

"We are an organised revolutionary force that is opening the new phase of the Ukrainian revolution," Mr Yarosh told the rally.

Right Sector fighters regularly drive outside the base in camouflaged jeeps, passing freely through security checkpoints despite having their own — illegal — licence plates identifying them as Right Sector.

"We could send up to 10,000 fighters to the frontline," said Artem Skoropadsky, a spokesperson for Right Sector.

Though the group's fighters admit they constitute an illegal armed force, they blame Ukraine's parliament for dragging its feet in legislating to legalise them as a single elite unit under Ukrainian army command.

"It may come to a military coup," said one Right Sector fighter — although many in the group say they would not go that far. He admitted, however, that public support for such a scenario was low. "That's why we haven't done it yet."

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

Wage Growth Accelerating? By How Much? Total Compensation and the Obamacare Effect

Posted: 03 Aug 2015 06:51 AM PDT

On July 24, the Conference Board asked the question: Is Wage Growth Accelerating?

The Board's answer was "All signs point to Yes!"

One big question regarding the US economy is whether wage growth is accelerating. You might think that this is a pretty straightforward question to answer, but it's not. There are many measures of wage growth, and they don't all point in the same direction.

For example, we can compare the year-over-year wage growth in recent years (Chart 1)according to four different measures, three from the US Bureau of Labor Statistics: the Employment Cost Index (wages and salaries), average hourly earnings (Establishment Survey), median weekly earnings (Current Population Survey), and the new Atlanta Fed Wage Growth Tracker. Some of these measures show a significant pickup, but some show no acceleration at all. What should we make of this?

Four Measures of Wage Growth

The Employment Cost Index (ECI) line in green shows a nice looking 2.6% year-over-year growth. The Atlanta Fed model shows an even bigger gain.

Two other measures show stagnation at best. So, which two lines should one believe?

Fresh data may provide a clue.

Shocking Decline in Employment Cost Index

Economists were stunned on Friday July 31 when the Employment Cost Index came in at 0.2% vs. the Bloomberg Consensus ECI estimate of 0.6%. Worse yet, the year-over-year ECI gain plunged from 2.6% to 2.0%.

In a shocking result, the employment cost index rose only 0.2 percent in the second quarter which is far below expectations and the lowest result in the 33-year history of the report. Year-on-year, the ECI fell 6 tenths to plus 2.0 percent which is among the lowest readings on record. The record low for this reading is plus 1.4 percent back in the early recovery days of 2009 when, apparently unlike today, there was enormous slack in the labor market.

The report's two components both fell back sharply with wages & salaries moving down to plus 0.2 percent from 0.7 percent in the first quarter and benefits at plus 0.1 percent vs the first quarter's plus 0.6 percent. Year-on-year, wages & salaries are up 2.1 percent with benefits below 2.0 percent at 1.8 percent.

This report, which is very closely watched by policy makers, may very well unsettle the outlook for the Fed's rate liftoff, pushing expectations to the December FOMC from the September FOMC. For the inflation outlook, wage pressures are supposed to be an offset to still weak commodity prices. The Fed's 2 percent goal for core inflation is looking elusive.

Employment Cost Index Civilian Workers "Wages and Salaries"

Last quarter the year-over-year gain in wages and salaries was 2.52%. That fell to 2.09% in the second quarter. But what about benefits?

Employment Cost Index Civilian Workers "Total Compensation"

Obamacare Effect

Total compensation fell from 2.57% to 1.98%, larger than the decline in wages and salaries. I believe we all know the answer to this one: Obamacare.

Employers are passing on the increased costs of Obamacare to employees.

Longer Timeline Provides Better Picture

None of the above charts accurately display what is really happening with wages and salaries. The time frame is too short.

But we cannot display data we don't have. So let's take a look at a different data series that is more robust.

Average Hourly Earnings Production and Nonsupervisory Employees

The above chart puts a different perspective on the recent jump in average hourly earnings.

But what about the jump in minimum wages. Should that have a huge impact?

The next two charts will help explain.

Minimum Wage Employees

Only 3.9% of hourly workers make at or below the federal minimum wage.

Paid Federal Minimum Wage Aged 25 Years and Over

Under 600,000 employees aged 25 or under get paid federal minimum wage.

For all the brouhaha over minimum wages, the above charts help put things into proper perspective.

Hikes in minimum wages are likely to most affect employment of teens and those in school.
It will put some small businesses out of business.
Job growth will slow.
Teenage employment will likely suffer the most.

Digging still deeper, here are a few more charts to consider.

Real "Usual" Weekly Earnings, Employed Fulltime

For those lucky enough to be working fulltime, median real wages are precisely where they were in first quarter of 2002: $341 a week.

Assuming those people work 52 weeks a year (not likely), that's a salary of $17,732.

Caveats

Benefits not factored in
Property taxes not factored in
Chart assumes the CPI has affected you no more than the BLS claims

Growth in Average Hourly Earnings Minus Growth in CPI

Let's now take a look at average hourly nominal earnings.

Here is a chart I put together in Fred. I took the year-over-year change in average hourly earnings and subtracted the year-over-year change in CPI.

During the recession in the 1970s, average real hourly earnings got clobbered. The opposite happened in 2001 and 2007.

Real average hourly earnings are allegedly up 1.76% from a year ago. But, the above chart is also not reflective of the true state of affairs for the same caveats noted above.

Obamacare expenses have risen, and so have rental costs. I believe both are understated in the CPI. And renters in some places have been clobbered.

Let's hone in on why real hourly earnings are supposedly up 1.76% from a year ago. Here is the same chart overlaid with the year-over-year percent change in CPI.

Growth in Average Hourly Earnings Minus Growth in CPI vs. CPI Growth

Group-Think Economic Illiterates

Average real hourly earnings are up year-over-year for the precise reason the year-over-year CPI change is up a mere 0.18%.

Those renting, those negatively impacted by Obamacare, and those struggling in part-time jobs, are likely to disagree with the notion their wages are going up more than expenses.

Couple that with high and rising student debt. Then factor in those on fixed income, struggling with retirement.

In spite of the above, economists still wonder why people aren't spending their wage hikes, and "what they save on gasoline".

What a collective bunch of economic illiterates.

The problem is not lack of rising wages, nor lack of inflation, but rather the Fed's bubble-blowing boom bust cycles for the benefit of banks and the already wealthy.

Inflation Fighting Nonsense

The red line in the preceding chart shows the absurdity of the Fed's claim they are "inflation fighters".

Moreover, and opposite of what the Fed states, and most economists believe, people benefit from falling prices!

Ironically, right on the verge of "price stability" (which I define as stable prices but the Fed defines as rising prices) the Fed desperately seeks more damaging inflation that will further destroy the middle class.

The Fed's record speaks for itself: bubbles of increasing amplitude over time for the sole benefit of banks, the already wealthy, and government bureaucrats.

Here's the final irony: The Fed rails against "income inequality" when they are its number 1 sponsor.

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

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