European Credit Stress Returns With Vengeance - Irish, Portuguese Bond Spread at All Time High - Yen Soars - Gold Hits All Time High

The risk aversion trade was back in play today with treasuries, the dollar, the Yen, and gold all rallying while the Euro and European government bonds (except German Bunds) were under significant pressure.

Please consider Stocks, Irish Bonds Drop, Gold, Yen Rally on Europe Concern

Stocks slid, while Greek, Portuguese and Irish bonds tumbled, gold rose to a record and the yen surged to a 15-year high versus the dollar on concern Europe’s debt crisis will worsen. U.S. and German bonds rallied.

The MSCI World Index slid 1.1 percent and the Standard & Poor’s 500 Index lost 1.2 percent at 4 p.m. in New York. The gaps between 10-year German bond yields and Irish and Portuguese debt grew to all-time highs, while the German-Greek yield spread increased to the widest since May. The yen rose to as little as 83.52 per dollar as the Bank of Japan refrained from increasing bank loans. Ten-year Treasury yields lost 10 basis points to 2.6 percent. Gold futures closed at $1,259.30 an ounce.

Banks led stocks lower on concern European lenders will require more capital to compensate for holdings of bonds in the region’s weakest economies. Germany’s banking association said yesterday that the nation’s banks need to raise $135 billion and Pacific Investment Management Co. said Greece still faces “substantial” default risk.

“The challenges haven’t gone away,” said James Dunigan, chief investment officer at PNC Wealth Management in Philadelphia, which oversees $103 billion. “The European debt worries that haunted us earlier this year are showing up again. Even as last week we had a couple of economic signals that weren’t as bad as we thought, the headwinds have been around.”

The rally in gold, Treasuries and the yen came as investors sought assets perceived as the safest. Even after a 750 billion euro ($960 billion) bailout for the weaker economies in the euro zone, investors are skittish about sovereign debt of some nations -- and about the banks that hold the region’s government bonds. A default by Greece could trigger the collapse of banks with large sovereign-bond holdings, says Konrad Becker, an analyst at Merck Finck & Co. in Munich.

The German bund yield dropped 8 basis points to 2.26 percent. Greek bonds plunged, pushing the yield on the 10-year security up 28 basis points relative to bunds to 942 basis points, the most since the European Union and International Monetary Fund crafted the bailout package in May.

The German-Irish 10-year yield spread climbed to as wide as 380 basis points, the highest since Bloomberg started compiling the data, from 343 basis points. It was at 372 basis points as of the close of trading in New York. The Portuguese-German spread reached 356 basis points, also a record, from 333 basis points. Wider spreads signaled increased concern that the most indebted European nations will struggle to fund budget deficits.

Stocks Rally Halted

The S&P 500 dropped for the first time in five days, halting its longest streak of gains since July. Wells Fargo & Co., JPMorgan Chase & Co. and Bank of America Corp. dropped at least 2.2 percent to pace a retreat in 77 of 80 financial companies in the index. Oracle Corp. rallied 5.9 percent after naming Mark Hurd, former chief executive officer of Hewlett- Packard Co., as a president.

Japan’s and Australia’s central banks signaled the outlook for U.S. growth is deteriorating, making it tougher for them to set monetary policy. The Reserve Bank of Australia extended a pause in raising interest rates “for the time being” today, even after the nation’s gross domestic product rose the most since 2007. The Bank of Japan said it’s prepared to add more monetary stimulus after last week’s emergency decision to expand a credit program.

Dollar, Yen Strengthen

The dollar strengthened against all 16 major currencies except the yen and franc. The Dollar Index, which gauges the currency against six major trading partners, rallied 1 percent to 82.827.

Gold Record Close

Gold futures for December delivery rose 0.7 percent to $1,259.30 an ounce on the Comex in New York, its highest closing price ever. Copper for delivery in December fell 0.8 percent to $3.4705 a pound in New York. Crude for October delivery retreated 0.7 percent to $74.09 a barrel on the New York Mercantile Exchange.

Another name for the risk aversion play is the deflation play. There is plenty of room for the dollar, treasuries, gold, and German government bonds to rally while the rest of the commodity complex drifts lower.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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NBER Likely to say "Recession Ended" July 2009; Assessing the Real Time Probability US Back in Recession

One problem with the NBER recession dating analysis is that it is months and sometimes years late in making its assessments.

Marcelle Chauvet, professor of economics at the University of California addresses those shortfalls in an interesting article called Real Time Analysis of the U.S. Business Cycle

Although careful deliberations are applied to determine turning points, the NBER procedure cannot be used to monitor business cycles on a current basis. Generally, the committee meets months after a turning point (that is, the beginning or end of an economic recession) has occurred and releases a decision only when there is no doubt regarding the dating. This certainty can be achieved only by examining a substantial amount of ex post revised data. Thus, the NBER dating procedure cannot be used in real time. For example, the NBER announced only in July 2003, twenty months after the fact, that the 2001 recession had ended in November 2001.

Some models, however, can gauge how weak or strong the economy is and date business cycles in real time. In particular, the dynamic factor Markov switching model (DFMS) in Chauvet (1998) has been very successful in dating business cycles in real time and in closely reproducing the NBER dating.

The model yields a monthly indicator of the U.S. business cycles and probabilities of recessions and expansions when applied to the same series used by the NBER: nonagricultural employment, real personal income, real manufacturing and trade sales, and industrial production.

What does the DFMS nonlinear probability model tell us about U.S. recessions?

Since 1959 the U.S. economy has experienced eight recessions. Figure 1 shows the business cycle indicator, and Figure 2 shows the smoothed probabilities of recessions obtained from the DFMS model and the NBER recession dating. The probabilities are obtained using full sample information (that is, all information available from 1959 up to now).

As Figure 2 illustrates, the probabilities increase substantially at the beginning of recessions (peaks) and decrease around the end of the recessions (troughs). Recessions are generally short, lasting on average a year, whereas expansions are much longer, averaging about five years. The 1990s experienced the longest U.S. expansion (ten years) in the past 150 years, while the 2007–09 recession was the longest in the past 50 years.



Current probability of recession

Because of a two-month delay in the availability of the manufacturing and trade sales series, the probabilities of recession are also available only with a two-month delay.

The most recent probability of recession from the DFMS model is for June 2010, which uses information up to September 2010. The probability that the U.S. economy is in a recession in June is 24.7 percent.

The Beginning and End of the 2007-2009 Recession

Inquiring minds are reading the Center for Research on Economic and Financial Cycles article dating The Beginning and End of the 2007-2009 Recession

The Figure shows the real time probabilities of recession from the Dynamic Factor Model with Regime Switching (Chauvet 1998). The probabilities indicate that the U.S. recession started in December 2007.



The NBER only announced that the recession began in December 2007 twelve months later, in December 2008.

Review of the Odds Over Time - To Date

Marcelle Chauvet updates the odds we are currently in recession in his blog
Real Time Probabilities of Recession

U.S. Recession ended in June/July 2009

Probability of Recession in June 2010 INCREASED to 24.7% after being below 10% for the last 7 months and below 50% since July 2009.

2009 January		100.0			-4.4
February		98.7			-2.8
March		96.1			-2.6
April		82.8			-0.9
May		77.2			-1.1
June		66.2			-1.6
July		27.9			0.4
August		21.9			0.4
September		18.6			-0.3
October		11.0			-0.2
November		3.1			1.1
December		2.2			0.8
2010 January		1.4			0.8
February		0.9			0.8
March		0.5			1.3
April		0.8			1.6
May		2.5			1.4
June		24.7			0.2

That is a partial table. Marcelle Chauvet shows the odds starting in October 2007. Notice how the odds the US is currently in recession have risen from 2.5% in May to 24.7% in June.

Odds Higher Today Than June

We will see the odds for August in a couple months. Those odds will be higher than today because of all the recent grim economic data.

Bear in mind Chauvet posts the odds we are already in recession. When the current odds are soaring at an amazing rate (which they are), the odds of a going into recession at a future time, will be much higher.

Some don't see it that way.

Here is a snip is from Bloomberg as discussed in Nonsense from NBER on Odds of Double-Dip

Harvard University Professor Martin Feldstein, who sits on the Business Cycle Dating Committee of the National Bureau of Economic Research says “There’s still a significant risk, maybe one chance in three, that there will be a double dip.” Fellow panel member and Princeton University Professor Mark Watson said those odds are “way too high” and puts them instead at “one in 10 or maybe one in 20.”

Double-dip odds of one-in-10 or one-in-20? When the odds are roughly 1-in-4 we are already in recession as of June?

If Marcelle Chauvet's model is accurate (and assuming the recession is over, her model is the most realistic model I have seen to date), then the above snip was indeed nonsense, not from the NBER per se, but rather from one or two economists who sit on the panel, most notably Princeton University Professor Mark Watson.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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B.J. Lawson Pulls Into Lead in North Carolina Over Democratic Incumbent

On Sunday, I received an email from B.J. Lawson saying he has pulled into a small lead over incumbent David Price.

B.J. Writes ...

Dear Friends,

This election will be proof positive that public sentiment has shifted towards shrinking the size of the federal government, restoring the Constitution and returning to fiscal responsibility. This shift is essential -- not just for my campaign -- but also for the future of our country.

My opponent, David Price, has been described as a "true blue liberal" who has fought his entire career for single payer healthcare and other big government, big spending programs. That would explain why Mr. Price has voted with Nancy Pelosi more than any other congressman. They also entered Congress together in 1987.

Washington is broken and voters are waking up.

Washington takes too much and spends too much in an attempt to be all things to all people. I am running for Congress to end runaway government spending, balance our budget, cut taxes and restore the Constitution.

If we don’t change directions in 2010, our children and future generations will suffer immensely. Our race is the perfect opportunity to send Washington D.C. a message: It’s time to stop mortgaging our children’s future and get our nation’s financial affairs in order.

I hope you will support us in this effort. There are too many issues needing our attention for us to remain silent and divided, and I hope you’ll join us in this historic race to take back our government, and our future.

Yours in Freedom,
William "BJ" Lawson
Republican for Congress North Carolina's 4th District

Sentiment has indeed shifted. I am starting to expect a blowout in the midterm elections as
Voters Strongly Favor Non-Incumbent GOP Newcomers in Midterm Elections.

B.J. Lawson Profile

Inquiring minds will want to check out where Lawson Stands on the Issues

• Cut Taxes to Stimulate Job Growth
• Reduce the Size of Government
• Reform the Federal Regulatory Burden
• Reduce Spending to Restore Fiscal Balance
• Empower Local Education
• Restore Trust in Government

Those are highlights. Click on the above link for details.

David Price, his Democratic congressional opponent in the upcoming election admits to not reading or understanding health care legislation before voting.

Lawson says "Passing legislation that is not fully understood, or understandable, is simply legislative malpractice. We must demand better of our elected representatives if we are to restore the trust and legitimacy of our federal government."

Charles Goyette Interview

Please click on this link to download and play this B.J. Lawson Interview with talk show host Charles Goyette.

Money is always welcome, but so is your time and energy! Please click here to Volunteer Time or Services to B.J. Lawson.

Please do what you can to support B.J. Lawson. He is of a rare Ron Paul mode, and we cannot afford to let any opportunities to elect such candidates slip through the cracks.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Infrastructure Bank: Obama's Desperate Attempt to Win Midterm Democrat Votes; Stimulus Déjà Vu

The president's pandering to public unions has backfired and now he wants to create an “infrastructure bank” which would be run by the government but would pool tax dollars with private investment.

The New York Times reports Obama Offers a Transit Plan to Create Jobs.

President Obama, looking to stimulate a sluggish economy and create jobs, called Monday for Congress to approve major upgrades to the nation’s roads, rail lines and runways — part of a six-year plan that would cost tens of billions of dollars and create a government-run bank to finance innovative transportation projects.

Central to the plan is the president’s call for an “infrastructure bank,” which would be run by the government but would pool tax dollars with private investment, the White House says.

some leading proponents of such a bank — including Gov. Arnold Schwarzenegger, Republican of California; Gov. Ed Rendell, Democrat of Pennsylvania; and Michael R. Bloomberg, the independent mayor of New York — would like to see it finance a broader range of projects, including water and clean-energy projects. They say such a bank would spur innovation by allowing a panel of experts to approve projects on merit, rather than having lawmakers simply steer transportation money back home.

“It will change the way Washington spends your tax dollars,” Mr. Obama said here, “reforming the haphazard and patchwork way we fund and maintain our infrastructure to focus less on wasteful earmarks and outdated formulas, and more on competition and innovation that gives us the best bang for the buck.”

Mish Comment: What a bunch of crock. If the president was genuinely interested in keeping costs down he would ask Democrats to scrap Davis Bacon and collective bargaining.

The White House did not offer a price tag for the full measure or say how many jobs it would create. If Congress simply reauthorized the expired transportation bill and accounted for inflation, the new measure would cost about $350 billion over the next six years. But Mr. Obama wants to “frontload” the new bill with an additional $50 billion in initial investment to generate jobs, and vowed it would be “fully paid for.” The White House is proposing to offset the $50 billion by eliminating tax breaks and subsidies for the oil and gas industry.

Mish Comment: If the bill was fully paid for the the President ought to have the balls to say how. In simple terms he is either disingenuous or a blatant liar. Is there not even $50 billion in military spending he could cut? Nothing?

After months of campaigning on the theme that the president’s $787 billion stimulus package was wasteful, Republicans sought Monday to tag the new plan with the stimulus label. The Republican National Committee called it “stimulus déjà vu,” and Representative Eric Cantor of Virginia, the House Republican whip, characterized it as “yet another government stimulus effort.”

But Governors Rendell and Schwarzenegger, and Mayor Bloomberg, who in 2008 founded a bipartisan coalition to promote transportation upgrades, praised Mr. Obama. And in policy circles, the plan, especially the call for the infrastructure bank, is generating serious debate.

Mish Comment: Schwarzenegger and Mayor Bloomberg both have no backbone. Bloomberg panders to unions and until recently Schwarzenegger refused to play hardball. All there are hoping for a large share of the transit plan.

There is no shortage of projects in search of money. The problem, analysts say, is that Congress, which would create the bank, is not known for its ability to single out strategic priorities for growth. Instead, it traditionally builds broad support by giving a little something to everybody — Montana, for instance, would get a small amount of Amtrak money in return for its support for improvements along the Northeast corridor.

Samuel Staley, director of urban growth and land-use policy for the Reason Foundation, a libertarian research group, said the best way to spend money efficiently would be to establish the bank as a revolving loan fund so that money for new projects would not become available until money for previous projects had been repaid.

Mr. Staley expressed concern that in their zeal to spur growth and create jobs, Congress and the Obama administration would not impose such limits.

“With the $800 billion stimulus program, they were literally just dumping money into the economy,” he said. “There was little legitimate cost-benefit analysis.”

Mish Comment: There is never a shortage of ways Congress can and will waste taxpayer money. This will not change unless and until there is balanced budget amendment. Until taxes have to be raised to fund projects, Congress and any

Business Tax relief

In addition to the Infrastructure Bank, Obama to Propose Business Tax Relief, Spending to Spur Growth

Obama tomorrow will announce an expanded tax incentive to encourage business investment, an administration official said on condition of anonymity. Obama also will urge Congress to extend permanently and expand a research-and-development tax credit for businesses, costing about $100 billion over a decade. He began the rollout of initiatives yesterday in Milwaukee, calling for $50 billion in the first of a six-year program to fix roads, railways and runways and modernize the air-traffic control system.

Elections in less than two months to decide U.S. House seats and about a third of the Senate are focused on unemployment near 10 percent and a budget deficit swelled by the government’s financial-system bailout. Obama is traveling this week to Midwestern states where joblessness is hurting some Democratic candidates’ chances of getting elected.

At an event tomorrow in Cleveland, Obama will propose allowing companies to fully deduct the cost of purchasing equipment such as tractors, wind turbines, computers and solar panels, the official said.

In 2008 and 2009, companies could deduct 50 percent of their costs using so-called bonus depreciation. The latest proposal would increase the tax break to 100 percent through the end of 2011 and would make it retroactive to Sept. 8, 2010, the official said. The bonus depreciation measure would cost $30 billion over 10 years. It and the proposed permanent extension of the research tax credit have garnered the support of the business community.

Speaking to union members and their families on the Labor Day holiday in the U.S., Obama called for an “infrastructure bank” and requested money to rebuild 150,000 miles (241,400 kilometers) of roads, construct and maintain 4,000 miles of rail and overhaul 150 miles of runways.

Senate Republican Leader Mitch McConnell, of Kentucky, responded in a statement that the “latest plan for another stimulus should be met with justifiable skepticism,” and “Americans are rightly skeptical about Washington Democrats asking for more money.”

“Infrastructure programs are always popular for stimulus talk but disappointing in practice,” Douglas Holtz-Eakin, president of the Washington-based American Action Forum and a former adviser to the 2008 presidential campaign of Senator John McCain, a Republican from Arizona.

Holtz-Eakin also questioned whether Congress will agree to more spending, given signs of growing voter opposition to a deficit that the Congressional Budget Office estimates will reach $1.3 trillion in the fiscal year ending Sept. 30, near last year’s record shortfall of $1.4 trillion.

‘Politics’

“The ratio of politics to substance in this effort is infinite,” Holtz-Eakin said.

Things are looking very bleak for Obama in the midterm elections, and even Democrats are starting to shy away from many of his policies, including healthcare.

For more on Labor Day pandering, please see Labor Day Insanity from Clinton's Secretary of Labor

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Labor Day Insanity from Clinton's Secretary of Labor

It's Labor Day. The markets are closed. Those working for government, banks, schools etc have the day off. All totaled, 17.3 million citizens do not have a job today nor a job they can return to on Tuesday. Another 8.9 million will not work as many hours as they would like, this week, next week, or the week after that.

How NOT to End the Great Recession

In a New York Times Op-Ed, Robert B. Reich, a secretary of labor in the Clinton administration, and professor of public policy at the University of California, Berkeley comes to all the wrong conclusions about where we are, how we got here, and what to do about it.

Please consider How to End the Great Recession

Reich: THIS promises to be the worst Labor Day in the memory of most Americans. Organized labor is down to about 7 percent of the private work force. Members of non-organized labor — most of the rest of us — are unemployed, underemployed or underwater.

Mish Comment: When organized labor is at 0%, both public and private, we will be on our way to prosperity. Organized labor in conjunction with piss poor management bankrupted GM and countless other manufacturing companies. Now, public unions, in cooperation with corrupt politicians have bankrupted countless cities and states.

Reich: The Labor Department reported on Friday that just 67,000 new private-sector jobs were created in August, while at least 125,000 are needed to keep up with the growth of the potential work force.

The national economy isn’t escaping the gravitational pull of the Great Recession. None of the standard booster rockets are working: near-zero short-term interest rates from the Fed, almost record-low borrowing costs in the bond market, a giant stimulus package and tax credits for small businesses that hire the long-term unemployed have all failed to do enough.

That’s because the real problem has to do with the structure of the economy, not the business cycle. No booster rocket can work unless consumers are able, at some point, to keep the economy moving on their own. But consumers no longer have the purchasing power to buy the goods and services they produce as workers; for some time now, their means haven’t kept up with what the growing economy could and should have been able to provide them.

Mish Comment: Consumers no longer have the purchasing power because of a number of factors.

1. Loose monetary policies at the Fed that encouraged asset speculation, including housing.
2. Rampant property price escalation (until the crash) and rampant property tax increases even though wages did not keep up.
3. A sinking dollar because of inane amounts of government spending. The US has troops in 140 countries around the globe, and a military budget as nearly big as the rest of the world combined.

Quite literally we are spending ourselves to death, with absolutely nothing to show for it.



The above chart from The FY 2009 Pentagon Spending Request - Global Military Spending

It's not what one makes that matters, it's how far the dollar goes. Our policies ensure the dollar does not go very far.

Reich: This crisis began decades ago when a new wave of technology — things like satellite communications, container ships, computers and eventually the Internet — made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago.

Mish Comment: The crisis started when Congress perpetually spent more money than it took in, when social engineering and regulation made it undesirable to do business in the United States, when tax policy encouraged flight of jobs and capital. The internet was an enabler, it is not to blame.

Reich: Eventually, of course, the debt bubble burst — and with it, the last coping mechanism. Now we’re left to deal with the underlying problem that we’ve avoided for decades. Even if nearly everyone was employed, the vast middle class still wouldn’t have enough money to buy what the economy is capable of producing.

Mish Comment: The underlying problems still remain. Unfortunately Robert Reich is clueless about what the underlying problems are.

Reich: THE Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity. In the 1930s, the American economy was completely restructured. New Deal measures — Social Security, a 40-hour work week with time-and-a-half overtime, unemployment insurance, the right to form unions and bargain collectively, the minimum wage — leveled the playing field.

Mish Comment: Payment for the absurd policies of FDR are now coming due. Social Security is broke, there is no "lock box" demographics are unfavorable, and acts like Davis Bacon and collective bargaining have wrecked many cities and states.

When it comes to jobs creation, we need to get the most done for the cheapest amount and the way to do that is scrap the Davis-Bacon act. Please see Thoughts on the Davis Bacon Act for details.

Socialists like Robert Reich point out alleged benefits of FDR's policies. The Fact of the matter is FDR's policies were extremely destructive.

The baby boom following WWII is what got the economy humming, not inept policies or unions. We recovered in spite of piss poor policies, not because of them. Indeed unions sewed the seeds of their own destruction which is exactly why only 7 percent of the private work force is unionized. We need to celebrate this fact, not bemoan it.

In the decades after World War II, legislation like the G.I. Bill, a vast expansion of public higher education and civil rights and voting rights laws further reduced economic inequality. Much of this was paid for with a 70 percent to 90 percent marginal income tax on the highest incomes. And as America’s middle class shared more of the economy’s gains, it was able to buy more of the goods and services the economy could provide. The result: rapid growth and more jobs.

By contrast, little has been done since 2008 to widen the circle of prosperity. Health-care reform is an important step forward but it’s not nearly enough.

Mish Comment: Once again Reich does not understand what it takes to create jobs in the real world. Reich lives in academia, insulated in his womb of academic theory, theories that anyone living in the real world can easily see are fatally flawed in today's world.

It would behoove Reich to read Small Business Trends - Yet Another Disaster

From the NFIB ...

The expiration of the Bush tax program and the implementation of the health care bill represent the two largest tax increases in modern history. Add to that serious talk of a VAT and passing cap and trade. Nothing here to create optimism about the future for business owners or consumers. Top that off with government borrowing of $1.8 trillion last year and $1.5 trillion this year and on into the future, it is no surprise that owners are fearful and pessimistic.

What’s missing from the “debate” is logic. Policies should not violate common sense and logic, if they do, they are misleading and disguising a hidden agenda. Arguing that more government spending and taxes are needed to re-establish optimism, confidence and growth doesn’t meet the common sense test. Saving bankrupt companies to preserve union jobs doesn’t make sense either. The list of these “policy inconsistencies” is long.

Bottom line, owners remain pessimistic and nothing is happening in Washington to provide encouragement. Confidence is lost.

Plight of Small Businesses

I have written extensively about the plight of small businesses. Here are some examples Reich needs to consider.

• August 03, 2010: Wells Fargo/Gallup Small Business Index Hits Record Low, Future Expectations Dip Below Zero First Time Ever


• August 20, 2010: Small Businesses are Not Hiring - Why Should They?


• August 24, 2010: Another Atlas Shrugs - Small Business Owners Chime In

Obama's healthcare "solution" is a huge gripe of numerous small business owners.

Reich: What else could be done to raise wages and thereby spur the economy? We might consider, for example, extending the earned income tax credit all the way up through the middle class, and paying for it with a tax on carbon. Or exempting the first $20,000 of income from payroll taxes and paying for it with a payroll tax on incomes over $250,000.

In the longer term, Americans must be better prepared to succeed in the global, high-tech economy. Early childhood education should be more widely available, paid for by a small 0.5 percent fee on all financial transactions. Public universities should be free; in return, graduates would then be required to pay back 10 percent of their first 10 years of full-time income.

Mish Comment: Small business owners and entrepreneurs are scared to death of the lunacy of Cap-and-Trade. It gives existing businesses the right to sell energy credits they "earned" because they are currently a polluter. New businesses will pay the price.

Cap-and-Trade also opens up ridiculous financial trading of these credits and their derivatives for the benefit of Goldman Sachs and the other broker-dealers.

Cap-and-Trade is preposterous, not only in theory but actual practice. For example, please consider Cap-and-Trade Carbon Credit Extortion Scam In Full Swing.

Here is another example of the stupidity of Cap-and-Trade: Walmart, Costco, US Bank Profit From Energy Credits in US; Carbon Tax Thrown Out By French Court

Reich: Another step: workers who lose their jobs and have to settle for positions that pay less could qualify for “earnings insurance” that would pay half the salary difference for two years; such a program would probably prove less expensive than extended unemployment benefits.

These measures would not enlarge the budget deficit because they would be paid for. In fact, such moves would help reduce the long-term deficits by getting more Americans back to work and the economy growing again.

Policies that generate more widely shared prosperity lead to stronger and more sustainable economic growth — and that’s good for everyone. The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that’s barely moving. That’s the Labor Day lesson we learned decades ago; until we remember it again, we’ll be stuck in the Great Recession.

Conclusion

Reich, is blinded by academic theory. He does not understand business in the real word. He cannot distinguish between the problem and the solution. He never once discusses how the "haves" (overpaid unionized public workers), are destroying private ordinary taxpayers.

Reich wants socialistic policies that will provide further incentives for businesses to move overseas.

The one book Reich desperately needs to read is "Plunder" by Steve Greenhut. For a book review, please see Five Thumbs Up for Steve Greenhut's Plunder!

There can be, nor will there be any recovery until the wage discrepancies and pension benefits of the public sector are brought in line with those of the private sector, not by increasing private sector wages but by reducing insane benefits of the public sector. In addition we need better tax policies and we need to rein in absurd military spending.

Finally I would be remiss if I failed to point out the self-serving educational proposals of Reich. Education costs are soaring right now and there are cries for more to do it "for the kids".

We are not doing it for kids, we do it for teachers and administrators. Wages and benefits are preposterous enough already. The irony is most professors seldom teach. Instead students are taught by substitutes while the professors entertain self-serving research projects to justify their inflated salaries and egos.

Thus, Reich cannot possibly be further off in his solutions to the crisis. Such is to be expected from socialist academics living in self-serving academia instead of the real world.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

"Destitute Index"

In response to Reflections on the "Recovery" reader "Thomas" has an interesting question regarding U6 unemployment that I would like to share.

Thomas writes ...

Dear Mish,

Always look forward to your analysis. One small question. How many living, breathing, frustrated, suffering, hopeless, and poverty stricken actual human beings does the U-6 number 17.6% translate to? Thank you. Best Regards,

Thomas

Here is the chart in question once again.



One year ago the official unemployment rate was 9.7%. Today it is 9.6%.One year ago U-6 unemployment was 16.8%. Today U-6 is 16.7%

For links to the actual numbers behind the percentages, please see Jobs Decrease by 54,000, Rise by 60,000 Excluding Census; Unemployment Rises Slightly to 9.6%; A Look Beneath the Surface.

Essential Math

Officially unemployed - 14.9 million unemployed
Marginally Attached Workers - 2.4 million
Part Time For Economic Reasons - 8.9 million

The total is 26.3 million but not all of the above are destitute or in poverty, even though the vast majority of them are suffering in some way.

Unfortunately, the total does not stop there because it does not include children or elderly. Both children and the elderly have been affected by the economic downturn, but neither reflects in unemployment stats.

Food Stamps

Most of the destitute are on food stamps (now called SNAP - Supplemental Nutrition Assistance Program to destigmatize the name).

According to SNAP, there are 41,275,411 on food stamps. However, that total is understated because it does not include the homeless. In addition, one must factor in AFDC (Aid to families with dependent children), Head Start, and numerous other state programs. One cannot add them all up because of obvious overlap.

Homeless

The Coalition for the Homeless addresses the question How Many People Experience Homelessness?

There are several national estimates of homelessness. Many are dated, or based on dated information. For all of the reasons discussed above, none of these estimates is the definitive representation of "how many people are homeless.” In a recent approximation USA Today estimated 1.6 million people unduplicated persons used transitional housing or emergency shelters. Of these people, approximately 1/3 are members of households with children, a nine percent increase since 2007. Another approximation is from a study done by the National Law Center on Homelessness and Poverty which states that approximately 3.5 million people, 1.35 million of them children, are likely to experience homelessness in a given year (National Law Center on Homelessness and Poverty, 2007).

These numbers, based on findings from the National Law Center on Homelessness and Poverty, Urban Institute and specifically the National Survey of Homeless Assistance Providers, draw their estimates from a study of service providers across the country at two different times of the year in 1996. They found that, on a given night in October, 444,000 people (in 346,000 households) experienced homelessness – which translates to 6.3% of the population of people living in poverty. On a given night in February, 842,000 (in 637,000 households) experienced homelessness – which translates to almost 10% of the population of people living in poverty. Converting these estimates into an annual projection, the numbers that emerge are 2.3 million people (based on the October estimate) and 3.5 million people (based on the February estimate). This translates to approximately 1% of the U.S. population experiencing homelessness each year, 38% (October) to 39% (February) of them being children (Urban Institute 2000).

It is also important to note that this study was based on a national survey of service providers. Since not all people experiencing homelessness utilize service providers, the actual numbers of people experiencing homelessness are likely higher than those found in the study, Thus, we are estimating on the high end of the study’s numbers: 3.5 million people, 39% of which are children (Urban Institute 2000).

That was written in July of 2009. It is safe to assume the number is higher now. For the sake of argument let's assume the count is 3.5 million.

Dynamics of Poverty

Here are a few snips from Income, Poverty, and Health Insurance Coverage in the United States: 2008

Approximately 31.0 percent of the population had at least one spell of poverty lasting 2 or more months during the 4-year period from 2004 to 2007.

Income in the United States

Real median household income declined by 3.6 percent between 2007 and 2008, from $52,163 to $50,303, following 3 years of annual income increases. The decline in income coincides with the recession that started in December 2007.

Real median income declined for both family (3.3 percent) and nonfamily households (4.0 percent) between 2007 and 2008.

Real median earnings of both men and women who worked full-time, year-round declined in 2008, following increases in 2007. Men’s earnings declined by 1.0 percent to $46,367 and women’s declined by 1.9 percent to $35,745. The 2008 female-to-male earnings ratio, 0.77, was lower than the 2007 ratio of 0.78.

Median Household Income



Median household income was back at 1996-1997 levels for all but Asians. Bear in mind these numbers are for 2008! It is worse now.

I find the above snip in red astonishing: Approximately 31.0 percent of the population had at least one spell of poverty lasting 2 or more months during the 4-year period from 2004 to 2000

Politics and the Upcoming Election

All of the above stats are worse now than a couple years ago. Is it any wonder the population is madder than a hornet at politicians and the protected class of government workers and public unions, whose salaries and benefits have done nothing but go up, and up, and up, since 1996?

Please consider Voters Strongly Favor Non-Incumbent GOP Newcomers in Midterm Elections

The public is fed up with how beholden Obama is to unions. They are fed up with sacrifices they have to make that government workers don't. They are fed up with how well the political class has fared in this "recovery" vs. how well they have fared in this "recovery". They are fed up with never-ending wars.

It's not that people prefer Republicans by some huge margin. They don't. They specifically prefer non-incumbent Republicans hoping for a Change. Obama promised "Change you could believe in", but where is it? We are still bogged down in Afghanistan, Obama did not get us out of Guantanamo Bay as promised, but most importantly he did continue the same bailout strategies and surrounded himself with the same economic philosophy and same Wall Street advisors as Bush.

The public is fed up and rightfully so. The anti-union vote is going to be huge, and deservedly so.

I am increasingly confident that Republicans are going to take the House. So be prepared to Kiss Nancy Pelosi goodbye and be prepared to welcome John Boehner as the new House speaker. Perhaps we can get some real change. If not, gridlock is better than what we have seen under Obama.

Returning to the original question, U6 does not directly translate to determining the number of frustrated, suffering, hopeless, and poverty stricken human beings affected by this economic slump. One must add up various numbers, taking care to not double count. One must also consider the fact that people go into and out of poverty, while others straddle the line, just beyond the threshold of being counted.

Mike "Mish" Shedlock
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Hooked on Prescription Drugs - Half of US Took at least One Prescription Drug in Previous Month

Here is an interesting article on Bloomberg regarding prescription drug usage. The study is from 2008. Please consider Prescription Drug Use Rose to Include Half of Americans in 2008.

Almost half of Americans took at least one prescription drug per month in 2008, an increase of 10 percent over the past decade, a U.S. study found.

One of every five children ages 11 or younger took at least one medication each month in 2008, led by asthma and allergy treatments, according to the survey released today by the U.S. Centers for Disease Control and Prevention. Among those ages 60 or older, 37 percent used five or more prescriptions per month.

The most common medications for adolescents were treatments for attention-deficit disorder, a condition in which people have trouble paying attention and engage in impulsive behavior.

For adults ages 20 to 59, antidepressants, including Eli Lilly & Co.’s Cymbalta and Pfizer Inc.’s Zoloft, were the most-used drugs. Cholesterol-lowering medications, including Pfizer Inc.’s Lipitor and AstraZeneca Plc’s Crestor, were the most common drugs taken by people ages 60 and over, with 45 percent of those in that age group on such therapies.

$238 Billion Industry

Prescription drug were a $234.1billion industry in 2008. The number is certainly higher today. Are pharmaceutical companies interested in curing anything or just treating the symptoms?

Throughout grade and high school, I do not recall any kids with attention problems. How is it that attention-deficit disorder is now so widespread? Are kids today different? Why?

I do not like the way drugs are advertised. Is anyone else with me on this?

What's up with the "ask your doctor about the purple pill" campaign? What does the color have to do with reasons to take a pill. The most annoying thing about the ad are versions that do not even say what the drug is for, they simply stress the color purple, telling you to ask your doctor about it.

Mike "Mish" Shedlock
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Sunday Funnies 2010-09-05 Voting Trends

Mike "Mish" Shedlock
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Driver's License Facility, State Lawmakers Face Eviction Over Nonpayment of Bills by State of Illinois

The state of Illinois is sitting on $4 billion in unpaid bills. Some of that is to hospitals, some to schools, some of it is internal transfers, but a lot of it affects the lives of real people who need the money to pay their bills.

For example, please consider Libertyville driver's license facility may be evicted

Stephen Martin, whose family owns the Brookside shopping center on the 300 block of Peterson Road that houses the Secretary of State office, has sent a letter to state officials saying he wishes to terminate the lease agreement because of the long-overdue payments. Martin said the state owes him nearly $43,000 in back rent and expenses.

It's not the first time the state has fallen behind on payments for the facility, which opened in 1987, Martin said. Payments were six months overdue by the time a check was cut in December, and this past April the state owed Martin four months worth of rent when it finally paid.

If the state doesn't pay up this time, Martin said, he will go to court and begin eviction proceedings.

The delinquent rent checks are symptomatic of the state's ongoing financial problems. The comptroller's office has $4.3 billion in unpaid bills in its system, spokesman Alan Henry said this week.

Several state lawmakers have faced eviction because of late payments; just this week, state Rep. Sandy Cole of Grayslake temporarily began working out of her house because her office was shut down.

Without a doubt, Illinois is bankrupt.

Mike "Mish" Shedlock
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Dissolving Cities - Is this the Way Out?

Some cities in California are so bloated in debt and other problems they are considering dissolution. Mercury News asks is this The End of Half Moon Bay?

Between budget losses and lawsuit payments, Half Moon Bay's financials have become so dire that if a local sales tax measure doesn't pass this November, officials say they may have to disincorporate.

City leaders have been using the "D" word for a few weeks now as they try to persuade voters to pass Measure K, a one-cent sales tax increase that would help the city balance its budget with an extra infusion of $1.4 million per year for the next seven years.

Dissolving Half Moon Bay -- handing the city's budget, operations and services to San Mateo County -- would be an absolute last resort, but the city may not have many other options left, City Councilman John Muller said.

At first glance, disincorporation could save taxpayers some money: no more city administration to support. Police services would be contracted out, and the county would cover planning, building and public works projects from its offices in Redwood City.

City Manager Michael Dolder admits disincorporation is one of the options on the table now. The City Council already cut $900,000 from the current budget -- including half its employees -- and imposed furloughs on those who remain. Some of the cuts were needed to pay for the Beachwood lawsuit settlement, a $15 million burden the city will shoulder in bond payments for the next 20 years.

Disincorporation is so rare in California that it's almost without precedent. The last city to do it, Cabazon in Riverside County, had fewer than 2,000 residents and no functional government to speak of when it voted to give up cityhood.

The process is so complicated that county officials said they don't know what kinds of services the Board of Supervisors would choose to provide or how much they would cost.

One thing is certain: disincorporation is not a bailout. The county would lay claim to revenues, including Half Moon Bay's property taxes, sales taxes and hotel taxes, but not its liabilities. Today's Half Moon Bay residents would be required to assume the debt burden of Beachwood bond payments, which would likely be added as a lien on their properties, according to Assistant County Controller Bob Adler.

D Is for Disincorporate

The PropZero blog writes California Cities: D Is for Disincorporate

City officials in Half Moon Bay say the municipal budget is such a mess that it may make sense to disincorporate and turn the place over to San Mateo County

Consider Los Angeles County which has 88 cities, many of which it clearly does not need. Several of the smaller cities seem to exist as personal playgrounds for families or particular businesses. Those municipalities -- the now famous Bell just one of them -- have extensive histories of municipal corruption. If such cities were to go away, would they be missed?

A side note: unions have revived legislation in Sacramento that seeks to prevent cash-strapped cities from declaring bankruptcy (Municipalities would have to get permission from a labor-dominated commission first). The consequence of that legislation, were it to pass, might well be to promote more disincorporations -- that is, the shutting down of cities -- since bankruptcy would be all but off the table.

Simple Solution

Unions have revived measures to prevent municipal bankruptcies, but hopefully the governor would veto such asinine legislation were it to actually pass. I doubt there would be enough votes to override the veto.

The problem with disincorporation straight up is that it leaves the debts intact.

Instead, I propose Half Moon Bay file bankruptcy, wiping out its debts, or at least sending them to bankruptcy court. Then Half Moon Bay can disincorporate, saving itself the problems of dealing with a local police force and its pensions.

Mike "Mish" Shedlock
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New Job Opportunity - Spitting at the Moon

In multiple posts Paul Krugman is saying "I told you so". For example, please consider Nobody Could Have Predicted

Pictures support the view that stimulus worked as long as it lasted, boosting the economy — which is the same conclusion Adam Posen drew from Japan’s experience in the 1990s: Fiscal policy works when it is tried.

But the stimulus wasn’t nearly big enough to restore full employment — as I warned from the beginning. And it was set up to fade out in the second half of 2010.

So what was supposed to happen? The invisible cavalry were supposed to ride to the rescue.

I never understood why the Obama administration thought this would happen so soon; history tells us that the effects of a financial crisis on private spending are normally protracted. And sure enough, the cavalry has not arrived.

Stimulus and Full Employment

The idea we can stimulate the economy to full employment is about as silly as silly gets. Krugman wanted double the stimulus we got. Well, we got zero benefit unemployment-wise from the stimulus and in my book infinity times zero is still zero.

Yes, unemployment fell from 10.1% to 9.5% but all of that decrease, if not more than all of that decrease, was a result of a falling participation rate. The bottom line is neither the Fed increasing its balance sheet by $trillions nor a $1.4 trillion deficit did a thing to lower unemployment.

Of course the Keynesian clowns will holler things would have been worse in the absence of stimulus. Really?! Would banks be lending more? Would small businesses be hiring?

Full Employment Made Easy

Krugman wants full employment. I suppose the government could easily employ everyone who does not have a job. Then again, didn't we effectively do just that?

Here is a snip from "Contained Depression" that suggests we did.

We are certainly in a depression. However, 40 million people on food stamps as of August 2010, masks that depression. The cost of the food stamp program is on schedule to exceed $60 billion in fiscal 2010. For comparison purposes, there was just over 11 million on food stamps in 2005.

Please note there are 14.6 million unemployed, but of them 4.5 million of them are receiving regular unemployment benefits and another 4.7 million are receiving extended benefits. Thus 63% of those unemployed are receiving benefits. Being paid while not working also masks the depression.

Spitting at the Moon

Suppose that instead of handing out free money to 9.2 million unemployed, we hire them at minimum wage to spit at the moon. GDP would rise because all government spending by definition adds to GDP, regardless of how unproductive the activity really is.

Such a move would allow Krugman the wonderful opportunity to crow about rising GDP.

Moreover, unemployment would crash to seven percent or so. That would really get Krugman crowing. Yet, would anything have changed about the true state of the economy? Clearly the answer is no.

Suppose government hired all 14.6 million unemployed to spit at the moon. Would that get the economy humming? For any longer than the jobs to spit at the moon lasted?

The above examples may sound absurd, but the the result is much the same whether we hire people to spit at the moon vs. paving roads that don't need to be paved. The main difference is money will run out faster hiring road workers because of the wasted material and equipment costs.

Practical Example

In actual practice, tax credits for housing was an abysmal failure. Would doubling that program have achieved different results? Would wasting the same out of money to repair schools or build new schools have done any better? Once again the answer is no. The only difference in any of these examples is the burn rate at which stimulus money is wasted.

Only Genuine Demand Will Fix Economy

What will get the economy humming is better tax policy, scrapping Davis-Bacon, dumping public union workers wherever possible, slashing defense spending, and letting home prices bottom.

Real demand for housing will step up as soon as there are bargains. Instead we have policies to prop up home prices.

Lesson of Japan

The lesson of Japan is the same as the lesson of home tax credits in the US - Stimulus programs do not work period, regardless of size. In Japan, every program failed. Japan is now in debt to the tune of 200% of GDP.

Some suggest Japan is no worse off for it. Nothing could be further from the truth. Japan squandered massive savings in the stupidest manner possible, building bridges to nowhere, and now its citizens are aging, in need of drawing down their savings.

Unfortunately those savings were squandered.

Japan is poised to blow up, however, the timing is uncertain. Sadly, the US is on the same path and Krugman is hellbent to get us there faster.

Consumer Credit Inflection Point

Let's review Are we "Trending Towards Deflation" or in It?

The key problem for Bernanke is we have reached the Consumption Inflection Point - No One Wants Credit; Consumer Spending Plans Plunge

Keynesian Policies Fail

Keynesian stimulus measures have failed and will continue to fail. Please see Three Mish Segments on Tech Ticker, on Stimulus, Retail Sales, the Markets, Alternatives for details and an online interview.

We have wasted $2 trillion fighting deflation. It has not produced any jobs.

The correct way to spur growth is by fostering an economy that supports economic growth. For details, please see Bleak Outlook for Small Businesses and Job Creation; Where Obama Went Wrong, and What to do About It.

Keynesian Cures Worse than the Disease

Krugman has the wrong definition and the wrong worry. However, he is correct in his call for deflation. Unfortunately, this will lead to a bunch of "I told you so" kinds of posts from Krugman, in spite of the fact his cures are worse than the disease.

Indeed, Keynesian "cures" are one of the reasons this economy is in the mess it is in.

The final analysis shows that the real threat is not of deflation, but of absurd Keynesian and Monetarist attempts to prevent it. The Greenspan-Bernanke housing bubble (and subsequent crash), and decades of futility in Japan should be proof enough.

Nobody

For another "I Told You So" Krugman post, please consider Nobody

The truth is that some of us were practically screaming back in January 2009 that the administration was proposing too small a program. Start with Stimulus arithmetic (wonkish but important) and work forward. And no, the point isn’t that I’m so smart — it is that given the forecasts we had at the time, and given historical experience of recessions after financial crises, it wasn’t at all hard to see that the plan was too small. Things have been worse than expected — but not that much worse.

And why does this matter? Because the best chance Obama et al have to change things now is to make the case that we need to do more, and that Republicans stand in the way. Yet here they are, apparently trying to run on the claim that they had it right all along, or something. Is this just boneheaded political strategy? Is it about the egos of the advisers who called it wrong?

I Told You So

The easiest predictions in the whole world were ....

1. Stimulus would fail no matter how big.
2. Krugman would brag "I Told You So".

Three things about Krugman that irk me to no end are ...

• His failure to look at the seen and unseen consequences of his proposals
• His failure to address the question as to what happens when stimulus ends
• His failure to look at structural problems

Ability for government borrowing is not infinite (at least without major economic repercussions). One easy to see problem is interest on the national debt will consume all tax collections if we stay on this path. Moreover, expiration of housing tax credits provides a clear example as to what happens when stimulus ends.

The Invisible Cavlalry

My friend HB has written an excellent article on similar lines. It turns out prosperity is not around the corner after all. Please consider Paul Krugman and the Invisible Cavalry

Averting the Great Depression Again

Throwing money at problems cannot ever work, but that especially holds true when structural problems like union salaries and public pension promises are left intact.

Just because Krugman was correct that stimulus would fail does not make him correct about the reasons why, or what the correct policy actions should have been. The irony as my friend points out, is Krugman's 2009 proclamation "So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government".

Now we need big government to save us again. Spare me the sap. Big government is clearly the problem, not the solution.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Voters Strongly Favor Non-Incumbent GOP Newcomers in Midterm Elections

More than any other class, including Republicans in general, voters have a decided preference for non-incumbent GOP challengers. Moreover, three in four believe an influx of new members would improve Congress, says Gallup.

Please consider Americans Most Likely to Favor GOP Newcomers for Congress

Suppose you had a choice among each of the following four types of candidates for Congress. Which one would you be most likely to vote for?

Republican serving in Congress - 15%
Republican who has not served in Congress - 38%
Democrat who has not served in Congress - 16%
Democrat serving in Congress - 24%
Other - 3%
No Opinion - 4%

Overall, a majority of Americans prefer a Republican candidate (regardless of experience) to a Democrat, 53% to 40%. And a majority also prefer a non-incumbent (regardless of party affiliation) to an incumbent, 54% to 39%.

The fact that Americans who prefer a Republican candidate want one who is new to Congress suggests that these voters want both GOP control of Congress and the new perspectives that come from members with no prior Washington experience. Americans who favor Democratic candidates, on the other hand, apparently are more satisfied with the type of experienced representatives now in Congress.

One would naturally expect Democrats to prefer Democratic candidates, and Republicans to prefer Republican candidates, and that is the case when looking at the data by party. But partisans' preferences for incumbents versus challengers seem to be influenced by their knowledge that the Democrats currently have a majority in Congress, and thus, more Democrats will be defending House seats this fall. Democrats are more likely to prefer a Democrat who is in Congress to a Democrat who is not, and Republicans are more likely to prefer a Republican outside of Congress to one who is currently serving there. Independents also show a strong preference for Republican non-incumbents.

Strong Anti-Democratic Sentiment

Gallup reports Anti-Democratic Sentiment Aids GOP Lead in 2010 Vote

The Republicans' lead in the congressional generic ballot over the past month may be due as much to voters' rejecting the Democrats as embracing the Republicans. Among voters backing Republican candidates, 44% say their preference is "more a vote against the Democratic candidate," while 48% say it is "more a vote for the Republican candidate."

The 44% of Republican voters who say they are voting more against the Democratic candidate exceeds the level of negative voting against the incumbent party that Gallup measured in the 1994 and 2006 elections, when party control shifted (from the Democrats to the Republicans after the 1994 elections and from the Republicans to the Democrats after the 2006 elections).

GOP Holds Huge Edge In Turnout Related Question

In our third poll topic, Gallup shows Republicans Hold Wide Lead in Key Voter Turnout Measure

Two months before this year's midterm congressional elections, Gallup finds 54% of Republicans, compared with 30% of Democrats, already saying they have given "quite a lot of" or "some" thought to the contests.



Republicans' current level of thought about the elections, from Gallup Daily tracking conducted Aug. 23-29, matches or exceeds that found in October/November of the last three midterm years. By contrast, Democrats are giving far less thought to the elections today than they did in the final weeks before the prior four midterms. As a result, Democrats are on par with independents in current attention levels -- a sharp departure from recent years, when the Democrats exceeded independents on this measure.

The large party gap in "thought" suggests the typical Republican turnout advantage could be larger than usual this year if that gap persists until Election Day. Attention normally spikes as elections approach, and this is likely to occur among Democrats. However, it is unclear whether the Republicans have reached the limit for how much attention they will pay to a midterm election, or whether their attention will rise to perhaps a historic level by November. How this plays out will determine Democrats' ability to catch up to Republicans on this measure before Election Day, and will in turn determine the size of the Republican turnout advantage.

It's a virtual certainty that voters' attention to the election will increase in the coming months. If this increase is proportionate between Republicans and Democrats, then the Republicans will likely maintain a formidable turnout advantage. However, it's also possible that Republicans have merely tuned in early to the elections, leaving less room for their attention to expand -- and thus giving the Democrats an opportunity to narrow the gap by November.

Temper Tantrum?

In Our Quick-Fix Electorate on Real Clear Politics, Eugene Robinson proclaims

...This isn't an "electoral wave," it's a temper tantrum. In the punditry business, it's considered bad form to question the essential wisdom of the American people. But at this point, it's impossible to ignore the obvious: The American people are acting like a bunch of spoiled brats. ...there's no mistaking the public mood, and the truth is that it makes no sense.

On the contrary, this makes perfect sense. The public is fed up with how beholden Obama is to unions. They are fed up with sacrifices they have to make that government workers don't. They are fed up with how well the political class has fared in this election vs. how well they have fared in this election. They are fed up with never-ending wars.

It's not that people prefer Republicans by some huge margin. They don't. They specifically prefer non-incumbent Republicans hoping for a Change. Obama promised "Change you could believe in", but where is it? We are still bogged down in Afghanistan, Obama did not get us out of Guantanamo Bay as promised, but most importantly he did continue the same bailout strategies and surrounded himself with the same economic philosophy and same Wall Street advisors as Bush.

The public is fed up and rightfully so. The anti-union vote is going to be huge, and deservedly so.

I am increasingly confident that Republicans are going to take the House. So be prepared to Kiss Nancy Pelosi goodbye and be prepared to welcome John Boehner as the new House speaker. Perhaps we can get some real change. If not, gridlock is better than what we have seen under Obama.

Mike "Mish" Shedlock
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Understanding Reality - You Don't Know What You've Lost Till Its Gone

As everyone should know by now, my main concern with unions is specifically with public unions. While I do not care for unions at all, and never have, at least with private unions, someone other than corrupt politicians buying votes is bargaining at the other end of the table.

In the case of public unions, if politicians strike a bad deal, taxpayers foot the bill. In the case of private corporations, if management strikes a bad deal, the company goes bankrupt, shareholders take a hit, or the jobs move elsewhere, as soon as the contract is up.

Except in few cases every now and again, private unions just cannot seem to understand this simple economic fact.

Machinists Union Pickets Cessna Aircraft

The Kansas Wichita Eagle highlights the typical union response, public or private, in Cessna's initial offer to Machinists includes wage cut

Machinist union members at Cessna Aircraft picketed near the company's plant in southwest Wichita on Thursday to protest jobs being sent outside the city.

Members fought strong, gusty afternoon winds and carried signs that read "Keep it Made in Wichita," "Outsourcing is Treason" and "We built the Air Capital," as they picketed at K-42 and Hoover roads. Some carried American flags.

Cessna and the Machinists union are in the midst of contract negotiations. The current contract expires Sept. 19. About 2,300 hourly workers at Cessna are covered by the agreement. Hawker Beechcraft also has reopened negotiations with the union as it considers sending work to Louisiana, Mississippi and outside the country.

Cessna's initial proposal is for a 10-year agreement that cuts wages 4.2 percent, weakens job security, replaces the pension plan with a 401(k) plan and increases the share of the cost of health insurance paid by the workers to 30 percent, said union spokesman Bob Wood.

"There's no job security in the current proposal," Wood said.

"Wichita is based on aircraft," said Cynthia Hise. "If you don't get a good contract...." Darren Hise finished her sentence. "It's going to hurt the whole economy in Wichita."

Reflections on Job Security

Here's the deal. The Hise's and the union in general, appears ready willing and able to "hurt the whole Wichita economy" if they do not get what they want.

I have to ask "How stupid is that?"

The answer is "tremendously stupid".

It is far better to have a good paying job and no job security than no job at all and no prospects of a job. That's what it boils down to, and like it or not, that is the economic reality.

I do not know what salaries are, but a 10 year contract with only a 4.2% pay cut does not strike me as a bad deal. Those who think otherwise need to compare it to the alternative: seeing all the jobs go to Louisiana, Mississippi, or outside the country.

By the way, wouldn't residents of Louisiana and Mississippi be very grateful for those job, regardless of what the salary was? I think so. So the bottom line is this mess, is the unions would be to blame and only the unions to blame if Cessna moves elsewhere. The union will also be responsible for wrecking the entire local economy if it happens.

Take the contract and run! It's for 10 years! Because .... You Don't Know What You've Lost Till Its Gone, Then It's Too Late. In this case, it will be gone forever.

Mike "Mish" Shedlock
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Reflections on the "Recovery"

One year ago the official unemployment rate was 9.7%. Today it is 9.6%.

One year ago U-6 unemployment was 16.8%. Today U-6 is 16.7%

click on chart for sharper image

For more details on the jobs report, please see Jobs Decrease by 54,000, Rise by 60,000 Excluding Census; Unemployment Rises Slightly to 9.6%; A Look Beneath the Surface

For all the trillions of dollars in stimulus and additional trillions of dollars in bank bailouts and trillions of dollars of expansion of the Fed's balance sheet, this is all we have to show for it.

Moreover, the economy is clearly slowing already by many economic reports including new home sales, existing home sales, the regional Fed manufacturing surveys, sentiment measures, and consumer spending trends. The only major discrepancy is ISM.

This week, none of that matters. However, I would like to point out that bear market rallies end, not on bad news, but on good news. It will be interesting to see how much more good news there is, and the market's reaction to it.

Mike "Mish" Shedlock
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