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Monday, April 27, 2015 8:55 PM

Sad News For Greece? Will Greece Kiss Troika's Ass?

I am convinced the best thing for Greece is to tell the troika where to go. And recent events (at least until today) suggested Greece would do just that.

On the other hand, extreme sentiment is usually wrong. It may not be, it just usually is. So please consider the British betting site, William Hill.

Sentiment is so lopsided that the British betting site William Hill No Longer Accepts Bets On Greece.

"No player seems interested in betting that Greece remains in the euro zone until the end of the year."

Greek Capitulation?

Wow. Zero bets is mathematically as lopsided as it gets.

Meanwhile, please consider Tsipras Reshuffles Negotiating Team to Sideline Varoufakis.

Greece’s outspoken finance minister Yanis Varoufakis has been sidelined after three months of fruitless talks with international creditors to unlock €7.2bn in bailout funds, heartening investors and sparking a rally on the Athens stock market.

Eurozone officials said they were encouraged by the move by Alexis Tsipras, Greece’s prime minister, to overhaul his bailout negotiating team in the wake of an acrimonious meeting of eurozone finance ministers in Riga last week.

The shake-up comes as Athens faces questions over whether it can meet this month’s wage and pension bill of nearly €2bn as well as a €750m loan repayment due to the International Monetary Fund on May 12.

The Athens stock market rose nearly 4.4 per cent on the news and borrowing costs on Greece’s July 2017 bonds were down almost 4 percentage points from Friday’s close to 21 per cent. Yields on Greece’s benchmark 10-year bonds were down a full percentage point at 11.4 per cent.

The socialist opposition Pasok party said the government was “emasculating Mr Varoufakis . . . and attempting to send a message to the Europeans and the IMF indicating political will for an agreement”.

While Mr Varoufakis retained his position as finance minister, Euclid Tsakalotos, deputy foreign minister for economic affairs, was appointed coordinator of the new team. The Oxford-educated economist is close to Mr Tsipras and his appointment was seen as an attempt to shield the new team from Mr Varoufakis.

A government official insisted the finance minister would remain involved, heading a new “political negotiating team” and would remain “in the frame of collective decision-making and execution” by the leftwing Syriza-led government.
Negotiation Shuffle

Betting sites and reality are not exactly the same thing.

Yet, given the "negotiation shuffle" the odds Greece is willing to kiss the Troika's ass just moved up quite a bit, even without German Chancellor Angela Merkel injecting herself into the picture.

This is not a good development for Greece in my opinion.

Mike "Mish" Shedlock

12:50 PM

6th Straight Negative New Orders Reading for Dallas Fed Manufacturing Survey

New orders in the Dallas Fed manufacturing survey came in negative for the sixth straight month today.

Weakness was expected due to collapse in oil prices, but the business activity range number was lower than any Bloomberg Consensus estimate.

Bloomberg Consensus

Texas Manufacturing Weakens Again

The Dallas Fed reports Texas Manufacturing Activity Weakens Again

Texas factory activity declined in April, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, posted a second negative reading in a row, coming in at -4.7.

Other measures of current manufacturing activity also reflected continued contraction in April. The new orders index edged up but remained negative at -14. The growth rate of orders index held steady at -15.5, posting its sixth consecutive negative reading. The capacity utilization index pushed further negative to -10.4, its lowest level since August 2009, and the shipments index edged up but stayed below zero at -5.6.

Perceptions of broader business conditions remained quite pessimistic for a fourth month in a row. The general business activity index stayed negative but ticked up to -16 in April, while the company outlook index moved down to -7.8, reaching its lowest reading in nearly two and a half years.
Dallas Fed Results

click on chart for sharper image

Weakness remains nearly everywhere one looks. The one bright spot had been the monthly jobs report, at least until last month. That "weather" report comes out Friday.

Mike "Mish" Shedlock

Sunday, April 26, 2015 10:47 PM

Reader Question: Is the Minimum Wage Really a Maximum Wage?

A reader asked me if I ever hired someone for the minimum wage. He also believes the minimum wage is really a maximum wage.

From Drew ...

Mish, I’m curious if you have ever had to actually pay someone minimum wage to work for you week in, week out, year after year?

I’ve signed plenty of paychecks myself, and honestly, I could never employ someone and pay the minimum wage knowing it was not enough for that person to live on, regardless of whether or not the “market” says I could hire them for that price. I have willingly paid more, and they always very much appreciated it, and I also felt like I got more effort since they knew I was paying them more. But I know that’s not how large corporations work.

I believe you would argue whether or not the minimum is enough on which to live is irrelevant and not the concern of the employer.

If that is correct, then what bothers me is that we have so many businesses whose profitability relies on keeping these wages as low as possible, for as long as possible, no matter how it affects them, no matter how many are on food stamps, subsidized housing, subsidized daycare, subsidized transportation (bus and train passes), all of which are costs not borne by the business but still must be paid in order for that employee to work for minimum wage.

I believe there must be an ethical or moral argument that for a business to be considered profitable it must be profitable for the various entities that rely on that business to produce its profits. The supplier won’t deliver the goods if they are not making a profit, and when Wal-Mart demands a few cents off each pallet next year, it’s the lowest guy on the pyramid that ends up paying for it.

Strangely enough, according to the history of the minimum wage it began with King Edward III setting a maximum wage for laborers in 1348 after the Black Plague.

The minimum wage law we have now is really a maximum wage for unskilled labor, since according to the theory the wage paid would fall below the minimum set if not fixed by law. How Orwellian they have managed to turn it around and make it sound good by calling it a minimum when it really is a maximum wage. This can easily be seen by the mega-corporations that rely on paying minimum wage, and your earlier contention that every dollar increase in the minimum wage would mean marginal locations closing and fewer jobs for unskilled workers.

If they called it a maximum wage, how much easier it might be to organize labor?

Well, I wish I had figured this out a long time ago. At least now I know the truth.


Questions First

First, let's address Drew's question: I have not employed anyone, at any wage, other than myself (self-employed).

Minimum Equal Maximum?

Drew is wrong about minimum being maximum and proof is voluntary pay hikes by Walmart and McDonald's.

Living Wage Nonsense

The one thing Drew is correct about is that I would indeed argue "whether or not the minimum is enough on which to live is irrelevant and not the concern of the employer".

The primary concern of the employer is to make enough profit to stay in business. The primary concern of a public business is to maximize shareholder returns.

It must be that way. If the goal of businesses was hiring people rather than to make a profit, no one would bother!

There are numerous businesses that could not make a profit at $15 an hour. I wonder how many independently owned McDonald's franchises would go under at a $15 minimum wage.

In theory, businesses could raise prices. In fact, they would have to.

But how many people think fast-food is already overpriced? It's a given that the higher the minimum wage the lower the employment if for no other reason than the drop in customer demand.

 I have seen studies that attempt to disprove that statement. Such studies are nonsense. Because of population growth and saturation of stores, employment tends to go up over time in spite of minimum wage hikes, not because of them.

Government Subsidies

Someone asked me the other day "Why is it OK for Walmart and McDonald's to pay wages so low the employees have to be subsidized by the government?"

I responded with four questions:

  1. Would we be better off if Walmart hired no one?
  2. Who sets subsidies?
  3. Are subsidies too high?
  4. How many people on fixed income want and need low prices they would not get if everything had a higher price?

The only way to pay people more is to hike prices or accept lower profit. That sponsors still more questions.

  1. What does higher prices do to those on fixed income with little savings?
  2. Do we throw retirees under the bus like Bernanke did for the benefit of a marginal number of people who get higher wages?

Many people are not worth the minimum wage. Some businesses have so little profit they can only afford minimum wage

If McDonald's workers don't want to work there, why don't they quit? Why don't they find another job or start their own business?

Make the minimum wage $15 and I 100% guarantee you there will be fewer stores and lower overall employment.

Blame the Fed

If money went further, no one would be upset at the current minimum wage. In fact, if money went far enough, people would be thrilled by the current minimum wage.

The problem is not lack of a "living wage". The problem is the Fed demanding higher prices in a deflationary world.

Businesses are not to blame for higher prices and income inequality. Those protesting Walmart and McDonald's ought to be picketing the Fed.

Mike "Mish" Shedlock

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