Dr. Mr. Speaker

Here are the Emails I sent to House Speaker John Boehner. The first is in regards to Ron Paul and the chairmanship of the Monetary Policy subcommittee.

Dear Mr. Speaker

As Speaker of the House, you have a duty to watch out for all citizens of the United States, not just your own Ohio constituency or the bank lobby.

As such I kindly ask you honor the will of the people and appoint Ron Paul as chairman of the Monetary Policy subcommittee.

Thank you.

Mike "Mish" Shedlock

Budget Deficit Email

My second Email to House Speaker John Boehner is regarding the budget deficit.

Dear Mr. Speaker

Polls show 75% of the citizens of this country place a priority on reducing the budget deficit.

Yet, somehow we see a compromise proposal from President Obama that goes back against his promises to tame the deficit.

We cannot afford this proposal. You know, I know it, and the public knows it. In fact, the only group supportive of this alleged “compromise” proposed by President Obama is Congress.

Congress Thinks It's Time to Party

To congress, the word "compromise" does not mean giving up anything you want. Instead, it means giving the other guy something you do not want him to have.

The process is much like asking a group of kids at a birthday party if they want cherry pie, chocolate cake, or fudge for desert and if there is no consensus winner, everyone gets a full slice of each, with chocolate chip cookies thrown in for good measure because that’s what Cousin Susie likes. It’s irrelevant whether or not Cousin Susie is even at the party.

I am thoroughly disgusted with Congressional “compromises” that look like a birthday party for 8-year olds. Yet that is exactly what we saw in this “compromise”.

Chocolate Chip Cookies for Susie

Susie was not at the party. Nonetheless, like a bolt out of the blue, president Obama proposed that kiddies get two additional cookies not previously on the menu.

1. A two percent payroll tax reduction
2. A full, upfront deduction for equipment purchases, in lieu of depreciation

The deficit-busting problem is the huge out-of-the-blue payroll tax reduction coupled with the "temporary" extension of income tax reductions for everyone.

I am all in favor of cookies, especially tax-cut cookies. However, I want to know how the deficit-hawk hypocrites on both sides of the aisle intend to pay for them. The answer is they don't intend to, which of course is what makes them deficit-hawk hypocrites in the first place.

The war-mongering will continue and so will the earmarks and so will a host of other things we cannot afford and do not even need.

But, hey, let's pig out. Cookies are on the table.

Bond Market Revolt

Mr. Speaker, the bond market reaction to the Fed’s QE policies and to this disgrace of a budget proposal was swift and severe. I have a picture of it for you right here.



That is what the bond market thinks of Ben Bernanke’s plan to spur inflation but hold down treasury yields.

The ovals show today’s bond-market reaction to the budget deficit that Bernanke will no doubt monetize as part of QE III and QE IV when this round of “quantitative easing” blows up in his face.

Mr. Speaker Where is Your Backbone?

We need genuine watchdog over the Fed. You can and should do that yourself by chairman of the Monetary Policy subcommittee.

We also need backbones from deficit-hawk hypocrites in both parties who claim to be fiscal conservatives yet they support this ludicrous compromise everyone knows we cannot afford.

Finally, Mr. Speaker, you need backbone as well. Please tell the President and your party that you insist on a genuine plan, not a party for 8-year-olds who do not know how to say no to more cookies.

Mike "Mish" Shedlock

Please email House Speaker Boehner Regarding Ron Paul to let him know how you feel. That link will put in a subject line of Ron Paul for Monetary Policy Chairmanship.

Please email House Speaker Boehner Regarding the Budget. The second link will put in a subject line of $900 Billion Budget Compromise.

Just click on the links and type away to your heart's content. If your browser does not interface with email, then simply email Boehner at AsktheLeader@mail.house.gov

Send an Email a day until the chairmanship is decided and this Budget Compromise is scrapped.

Phone: (202) 225-4000
Fax: (202) 225-5117

Please phone, Fax, and email today. Please forward to anyone willing to email Boehner.

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

Trend of Unemployment Claims as % of Continuing Unemployment; US Population vs. Employment, vs. Labor Force, vs. Continued Unemployed

Inquiring minds might be interested in a pair of charts courtesy of reader Tim Wallace. Click on either chart to see a sharper image.



Note the trendline of new unemployment claims as a percentage of continuing unemployment.

Over time, the chart suggests it takes longer and longer to find a job. There was a brief respite in the Clinton years, no doubt because of the internet boom, not because Clinton did anything particularly special.

The trend is unbroken all the way back to 1967. It just was not noticeable before because overall unemployment was lower.

US Population vs. Employment, vs. Labor Force, vs. Continued Unemployed



The recent spike in continued unemployed is especially aggravating given the flat growth in employment.

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

Lies, Half-Truths, and 100% Hubris on 60 Minutes; Deficit-Chicken Republicans; Middle-Class Crucifixion; Ron Paul Needs Your Support

I am very disheartened but not at all surprised (given that I predicted it), the complete fiscal irresponsibility of the "compromise" tax proposal by president Obama that Democratic sheep will no doubt approve right along with deficit-hawk deficit-hypocrite Republicans.

Obama's proposal will cost a whopping $900 billion over two years. For details please see Cookies for Susie and Obama's "Temporary" Tax Compromise

Bernanke let us all know this was coming in Sunday's Creampuff Interview on 60 Minutes

Pelley: Do you anticipate a scenario in which you would commit to more than $600 billion?

Bernanke: Oh, it's certainly possible. And again, it depends on the efficacy of the program. It depends on inflation. And finally it depends on how the economy looks.

Pelley: Some people think the $600 billion is a terrible idea.

Bernanke: Well, this fear of inflation, I think is way overstated.

I happen to agree with Bernanke's last statement (at least on the basis of $600 billion in QE alone). However, it's important to point out that I view inflation as an expansion of credit and I do not see that $600 billion in QE will spur lending.

Nonetheless, the Fed's QE policy is very misguided because it is likely to spur continued speculation in commodities. Think of it this way: China, Japan, or US investors do not have to finance $600 billion of US deficit spending, the Treasury simply printed enough money out of thin air to cover it.

That money will find another home, but I highly doubt it is the home Bernanke wants. There is little reason for businesses to hire workers in this environments and the odds of re-blowing the housing bubble are close to zero.

There are still other problems that adversely affect those on fixed income.

This is a very dangerous game Bernanke is playing. I talked about it yesterday in Multiple Simultaneous Games of "Chicken"; Price Controls on Walmart; China Declares Shift to "Prudent" Monetary Policy

Internationally, there are multiple simultaneous games of chicken.

For example, Bernanke plays chicken with China via a QE policy hoping to force China to jack up its interest rate, something China does not want to do.

Bernanke plays a second game of chicken with Congress, treading on fiscal policy while demanding Congress not comment on monetary policy.

Bernanke plays a third game of chicken attempting to spur inflation in the US while simultaneously holding down long-term interest rates. Can that possibly work? For how long? At what cost?

Bernanke Plays Chicken with the Bond Market

Outright Lies

Bernanke continued with statements best described a bald-faced lies.

"One myth that's out there is that what we're doing is printing money. We're not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way. What we're doing is lowing interest rates by buying Treasury securities. And by lowering interest rates, we hope to stimulate the economy to grow faster. So, the trick is to find the appropriate moment when to begin to unwind this policy. And that's what we're gonna do."

Bernanke is printing money. He is monetizing the national debt. He tried to hide it by saying "currency in circulation is not changing". That is not the definition of money the Fed uses at all. The Fed typically uses M2.

M2 1980-Present



It appears to me that money is changing in a significant way. Bear in mind there are better representations of money than M2, at least I think so, but M2 is what the Fed watches.

Bernanke stated he is lowering interest rates. What he should have said is that he hopes QE will lower rates. The irony in this is he wants inflation to rise.

First in Flight



The above courtesy of Scott Simonton at BlackHawk Capital Management.

Bernanke wants it both ways: higher inflation and lower treasury yields. Meanwhile his goal is to get China to hike interest rates hoping to get the dollar to drop. China is resisting and the global pressures build.

This is the market's response tonight in metals and in treasuries.

Metals



Treasuries



Yield Curve courtesy of Bloomberg.

Bear in mind one day does not a trend make.

However, the trend towards higher yields started the day after the election when QE formally went into effect. The yield on 5-year treasuries is up over 55 basis points (1/2%) since then. Gold had been rising long before that.

Expect More QE

To keep treasury yields low in the face of the $900 billion deficit-chicken "compromise" of Obama, Bernanke will need to monetize another $37.5 billion in treasuries a month, hoping this spurs inflation, spending, and hiring.

100 Percent Hubris

What if this does not spur hiring but instead spurs gasoline prices and food prices? Oh not to worry ....

Pelley: You have what degree of confidence in your ability to control this?

Bernanke: One hundred percent.

Bernanke is a man with 100% confidence who did not see the housing bubble, who did not see a recession, whose worst case scenario for unemployment was 8.5% when it was already over 8%. Bernanke cannot find his ass with both hands and a roadmap, yet he is one hundred percent certain about his ability to control things.

After everything blows sky high we just may hear a statement like this.



Creampuff Non-Questions

That was not really an "interview" on 60 minutes, it was an infomercial for Bernanke. Many Fed governors disagree with Bernanke. Where was the other side of the story?

The most disgusting part for me was pathetic exchange.

Pelley: Falling prices lead to falling wages. It lets the steam out of the economy. And you start spiraling downward.

Bernanke: Exactly. Exactly. That's deflation and that's what happened in the Great Depression.

Spare me the sap. What caused the great depression was the runup in credit that preceded it. The idea that you can throw the biggest party the world has ever seen and not pay a price for it is preposterous.

Fixed Income and Middle-Class Crucifixion

The idea that rising prices is a good thing when there are 15 million unemployed is moronic.

Moreover, if Bernanke does manage to hold down interest rates while getting his wish for higher prices, those on fixed incomes will be crucified.

Inflation is a tax on the poor and middle class, benefiting those with first access to money: banks and the wealthy.

Ron Paul Under Attack

Ron Paul is under attack as discussed in Monetary Policy: Fed Critic Ron Paul's Power Play

Retiring New Hampshire Senator Judd Gregg, one of the Federal Reserve's most stalwart Republican supporters, showed up for a meeting at the central bank in November bearing a surprising gift: a box of End the Fed books. As he handed out the 2009 best seller by Representative Ron Paul, a longtime Fed critic, Gregg told the gathering it would be worth reading to see what the other side is plotting.

Although his book ploy was couched in humor, Gregg laid plain a new Washington reality: Moderate, probusiness lawmakers like him, who consistently protected the central bank's independence and ability to set monetary policy, are mostly gone. In their place are politicians who view the Fed with suspicion, or worse. Their unofficial leader is Paul, the 75-year-old Texan whose quixotic 2008 Presidential run on the twin themes of ending the federal income tax and abolishing the Fed vaulted him to prominence with the nascent Tea Party. Some of those admirers are among the 75-plus new Republicans about to join Congress. For the first time since he was elected to the House in 1976, Paul's followers are formidable.

If he gets the subcommittee gavel, Paul says he plans a thorough review of Fed policy. Fear of inflation is what motivates him the most. Paul is a devotee of the Austrian School, which teaches that manipulating money supply and interest rates are responsible for history's boom-and-bust cycles. "The Fed creates all of the bubbles and they create the inevitable bursting of all of the bubbles," says Paul.

He believes his oversight role is long overdue. "There has been a politically cozy relationship between Congress and the Federal Reserve," he says. That includes past efforts to keep him from heading the subcommittee. "Republican leadership, with the Fed's influence, has been working to keep me away from this for a long time. That's not going to happen this time."

His prediction may be premature. Five GOP leadership aides, speaking anonymously because a decision isn't final, say incoming House Speaker John Boehner has discussed ways to prevent Paul from becoming chairman or to keep him on a tight leash if he does.

Time's a Wastin'

Boehner will decide some of those chair subcommittees as early as Dec. 8. There is no time to waste. Please phone, Fax, AND email Boehner today. Demand Ron Paul be given chairmanship of the monetary policy subcommittee.

Please email House Speaker Boehner to let him know how you feel.

Just click on the link. If your browser does not interface with email, then email Boehner at AsktheLeader@mail.house.gov

Sens an Email a day until the chairmanship is decided.

Phone: (202) 225-4000
Fax: (202) 225-5117

Please phone, Fax, and email today. Please forward to anyone willing to email Boehner.

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

Cookies for Susie and Obama's "Temporary" Tax Compromise; Total Cost $900 Billion

President Obama has agreed to a tax deal that's bound to please deficit-hawk hypocrites on both sides of the aisle. The total cost is $900 billion over the next two years.

Of course the last extension was "temporary" and the next extension will be "temporary" as well.

I have a better idea, why don't we just "temporarily" extend these deals until 2020 and be done with it? We might be in a genuine recovery by then.

Of course we will then have to factor in the idea that we may need to "temporarily" extend the benefits "one" more time lest we sink the nascent 2020 recovery.

Obama's Proposed "Compromise"

Inquiring minds may be asking "Just how compromising is the compromise, and more importantly, what's in it for Susie?" Those are very good questions. The answers can be found in the article Obama Agrees to Extend Tax Cuts for Everyone for Two Years.

President Barack Obama said he’ll agree to a two-year extension of all Bush-era tax cuts in exchange for extending federal unemployment insurance. The plan also would cut the payroll tax by 2 percentage points.

Obama said he would accept a lower rate for the estate tax than Democrats wanted in order to break a stalemate over extending the Bush tax cuts before Congress adjourns. The current tax rates, enacted in 2001 and 2003, are set to expire Dec. 31.

Without the compromise, middle-income families would become “collateral damage for political warfare here in Washington,” Obama said in televised remarks. He said he still believes the nation can’t afford to permanently extend the top tax rates.

“This compromise is an essential step on the road to recovery,” Obama said.

In addition to keeping the current tax rates for all Americans, the plan outlined by Obama would extend aid for the long-term unemployed for another 13 months. The payroll tax -- which funds Social Security and Medicare -- would be cut by 2 percentage points during 2011 to help spur hiring.

Obama also endorsed allowing a full deduction for equipment purchases that currently must be deducted over time. The proposal would accelerate $200 billion in tax savings for companies in the first year and benefit 1.5 million companies and several million individuals who run businesses, according to White House estimates.

Total revenue lost from the so-called expensing proposal over 10 years would be $30 billion; companies taking the immediate deductions wouldn’t be able to write off their expenses through depreciation in years to come.

Total Cost $900 Billion

The total cost of extending all the tax breaks plus the new giveaways is $900 billion. Assuming of course the extensions are "temporary".

The New York Times itemizes the costs in Obama and G.O.P. in Deal on Tax Cuts

President Obama announced a tentative deal with Congressional Republicans on Monday to extend the Bush-era tax cuts at all income levels for two years as part of a package that would also keep benefits flowing to the long-term unemployed, cut payroll taxes for all workers for a year and take other steps to bolster the economy.

The package would cost about $900 billion over the next two years, to be financed entirely by adding to the national debt, at a time when both parties are professing a desire to begin addressing long-term fiscal imbalances.

It would reduce the 6.2 percent Social Security payroll tax on all wage earners by two percentage points for one year, putting more money in the paychecks of workers. For a family earning $50,000 a year, it would amount to a savings of $1,000.

For a worker slated to pay the maximum tax, $6,621.60 on income of $106,800 or more in 2011, the cut would mean a savings of $2,136. That would replace the central tax break for middle- and low-income Americans in last year’s economic stimulus measure, White House officials said.

The deal would also continue a college-tuition tax credit for some families, expand the earned-income tax credit and allow businesses to write off the cost of certain equipment purchases. The top rate of 15 percent on capital gains and dividends would remain in place for two years, and the alternative minimum tax would be adjusted so that as many as 21 million households would not be hit by it.

In addition, the agreement provides for a 13-month extension of jobless aid for the long-term unemployed. Benefits have already started to run out for some people, and as many as seven million people would potentially lose assistance within the next year, officials said.

Some senior Democrats said an agreement by Mr. Obama to accede to Republican demands on the estate tax could lead to a revolt among lawmakers. Mr. Obama noted that he, too, still strongly disagreed with the Republican insistence on extending the tax breaks for the highest earners. “Ever since I started running for this office, I’ve said that we should only extend the tax cuts for the middle class,” he said, acknowledging that he had been thwarted in one of the chief goals of his presidency.

Meaning of Compromise

I have discussed congressional compromises on several occasions, most recently in Meaning of "Compromise"

Sometimes the word to fear most out of congress is "compromise". Typically it means both parties load up a bill with massive amounts of spending while simultaneously preaching the need for deficit reduction.

To congress, the word "compromise" does not mean giving up anything you want. Instead, it means giving the other guy something you do not want him to have in return for a similar favor.

The process is much like asking a group of kids at a birthday party if they want cherry pie, chocolate cake, or fudge for desert and if there is no consensus winner, everyone gets a full slice of each, with chocolate chip cookies thrown in for good measure because that’s what cousin Susie likes. It’s irrelevant whether or not cousin Susie is even at the party.

Chocolate Chip Cookies for Susie

Susie was not at the party. Nonetheless, like a bolt out of the blue, president Obama proposed kiddies get two additional cookies not previously on the menu.

1. A two percent payroll tax reduction
2. A full, upfront deduction for equipment purchases, in lieu of depreciation

The cost of the expensing provision is a mere $30 billion spread over 10 years.

The deficit-busting problem is the huge out-of-the-blue payroll tax reduction coupled with the "temporary" extension of income tax reductions for everyone.

I am all in favor of cookies, especially tax-cut cookies. However, I want to know how the deficit-hawk hypocrites on both sides of the aisle intend to pay for them. The answer is they don't intend to, which of course is what makes them deficit-hawk hypocrites in the first place.

The war-mongering will continue and so will the earmarks and so will a host of other things we cannot afford and do not even need.

But, hey, let's pig out. Cookies are on the table.

The question of the day is: Are there any Senate republicans with the backbone of N.J. Governor Chris Christie?

We are about to find out. A vote is coming up.

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

$930 Billion in Quarantined $100 Bills to be Burned, Don't Worry Real Cost is Only $120 Million; Security Measures "Too Difficult to Print"

In an effort to thwart counterfeiting, the US Government has implemented a $100 bill design so difficult to print even the U.S. Treasury cannot print them.

The government needs to burn $930 billion in flawed $100 bills, more than 10% of all existing cash. The cost of printing the flawed bills was a mere $120 million.

Please consider Government can’t print money properly

Because of a problem with the presses, the federal government has shut down production of its flashy new $100 bills, and has quarantined more than 1 billion of them -- more than 10 percent of all existing U.S. cash -- in a vault in Fort Worth, Texas, reports CNBC.

Officials with the Treasury and the Federal Reserve had touted the new bills' sophisticated security features that were 10 years in the making, including a 3-D security strip and a color-shifting image of a bell, designed to foil counterfeiters. But it turns out the bills are so high-tech that the presses can't handle the printing job.

It would take an estimated 20 to 30 years to weed out the defective bills by hand, but a mechanized system is expected to get the job done in about a year.

Combined, the quarantined bills add up to $110 billion -- more than 10 percent of the entire U.S. cash supply, which now stands at around $930 billion.

The flawed bills, which cost around $120 million to print, will have to burned.

The new bills are the first to include Treasury Secretary Tim Geithner's signature. In order to prevent a shortfall, the government has ordered production of the old design, which includes the signature of Bush administration Treasury Secretary Henry Paulson.

To point out the obvious: you can't print gold and gold coins are relatively easy to check for purity.

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

Texas Ratios of Banks and Credit Unions from 3rd Quarter 2010 FDIC / NCUA Reports

This interactive Texas Ratio display contains data for every bank and credit union found in 3rd quarter FDIC and NCUA reports. This is a lot of data and it may take extra time to load. Please be patient. It takes an extra 3-5 seconds on my computer. Your results may vary. If you have an inadequate memory, the display may be slow or inoperable.

Powered by Tableau

Thanks to Ellie Fields and Ross Perez at Tableau Software for help with the display.

Data compiled by and thanks to Ken Tumin at DepositAccounts.com

Texas Ratio Definition

The Texas ratio is a measure of a bank's credit troubles. Developed by Gerard Cassidy and others at RBC Capital Markets, it is calculated by dividing the value of the lender's non-performing assets (Non performing loans + Real Estate Owned) by the sum of its tangible common equity capital and loan loss reserves.

In analyzing Texas banks during the early 1980s recession, Cassidy noted that banks tended to fail when this ratio reached 1:1, or 100%. He noted a similar pattern among New England banks during the recession of the early 1990s.

The higher the Texas Ratio the higher the risk of failure. Ratios above 100% may be problematic.

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

San Diego Mayor Jerry Sanders' "Radical Idea" to Cut Costs; Is Sanders a Hero or a Liar?

Jerry Sanders, the mayor of San Diego claims to have a "radical" ideas to reduce city expenditures. Inquiring minds have a couple of questions. The first question is: Just how radical is the plan? The second question is: Just how big of a liar is Jerry Sanders?

Let's start the discussion with a look at Pension-Squeezed Cities May Turn to San Diego’s ‘Radical Idea’

Cities from New York to San Jose, California, facing almost $400 billion in unfunded pension liabilities, will be watching what San Diego Mayor Jerry Sanders calls his “radical idea” to cut costs.

After voters in the eighth most-populous U.S. city rejected a half-cent sales tax increase to balance the budget Nov. 2, Sanders is pushing to eliminate pension plans for new city employees, offering 401(k)-like savings accounts instead.

“We’re all going to have to get realistic,” Sanders, a 60-year-old Republican, said in a telephone interview. “The private sector went through this. Government will have to relook at how we do stuff as well.”

Sanders’s defined-contribution plan would apply to civilian employees in the city of 1.3 million. Police and firefighters would not be eligible, because lower benefits might hurt recruiting, he said.

That's Radical?

The deeper in that article you read, the less radical it gets. You want radical? Start talking bankruptcy. While I commend elimination of public pension plans, it is beyond absurd to use the term "radical" for any plan that exempts police and firefighters.

Moreover, the excuse "lower benefits might hurt recruiting" is pathetic. In fact, it's a blatant lie proving Sanders is beholden to public unions.

Lies Don't Stop There

It would be bad enough if the lies stopped there. But they don't.

Please consider SD Mayor Lied About Critical Need for Prop D Sales Tax

11/19/10

Was Mayor Sanders Lying About Critical Need for Prop D Sales Tax? Short answer -- HELL YES!

It was just three weeks ago that San Diego Mayor Jerry Sanders was running carefully orchestrated "town hall meetings" around the city -- threatening citizens with death and destruction if we did not approve Prop D -- the city sales tax increase. Fortunately in an epic battel, the measure lost by an awesome 62%-38% marign.

The frowny faced police chief and fire chief each dutifully stood before audiences and announced inevitable dramatic personnel and service cutbacks if the sales tax didn't pass. Doomsday was upon us.

[See article for list of cuts Sanders said he would have to make]

[Proposition D Went down in flames 62% to 38%]

Today the mayor sends out a press release (included below) cheerily announcing numerous solutions to close the budget deficit -- and NO MENTION OF PUBLIC SAFETY PERSONNEL CUTS, or indeed of any of the threatened cuts. Somehow the deadly unsolvable city budget deficit of three weeks ago is quite solvable after all!

There is no delicate way to say this -- given the short time frame to come up with these solutions, it is quite clear that Mayor Jerry Sanders knowingly lied to the public to frighten voters into supporting higher taxes.

Not that the Sanders solutions will solve the problem. His reforms are too tepid, and don't deal with the dramatically growing deficit problem. Carl DeMaio's comprehensive plan offers much better, more fundamental reforms.

It's clear that Mayor Sanders knew all along that the life-threatening service cuts (and resulting deaths) were cynical fabrications. Why does anyone still respect this man?

Who Backed Proposition D

Let's dig a little deeper with a look at Who funded the pro and con Proposition D campaigns?

The election results — Proposition D was rejected by 62 percent of voters — continue a pattern of labor unions losing city ballot initiatives over the past decade, a period in which public anger over guaranteed pensions for public workers has reached a crescendo.

Sales tax supporters, including Mayor Jerry Sanders, say the results are more a reflection of the public’s anti-tax mood in the middle of a rough economy than an indication that labor’s influence at City Hall is wilting.

“I don’t think it shows labor’s weak,” Sanders said. “Going out for a tax increase at any time is difficult and going out right now is especially difficult. ... This was kind of a lightning rod ballot initiative.”

Proposition D opponents, including Councilman Carl DeMaio, say voters are wising up after years of city leaders giving away generous pension benefits to union workers. DeMaio said San Diegans are willing to pay higher taxes but only after the city fixes its beleaguered pension system.

Proposition D supporters spent more than $500,000, with most of the money coming from city employee unions. Opponents spent more than $320,000 with significant contributions from restaurants, car dealers, developers and the Lincoln Club, a pro-business group.

Donations for Prop D

The article notes the following donations.

• City Firefighters Union - $153,800
• San Diego Imperial Counties Labor Council - $50,600
• City Police Union - $52,000
• Municipal Employees Association - $50,000
• AFSCME - $28,2000

I have a problem with taxpayer dollars going to public unions who are supposed to be public servants, using my tax dollars to campaign for still higher tax dollars.

Someone needs to stop this insanity. I propose not only to eliminate collective bargaining but to outlaw public unions altogether on the grounds no one watches out for the public interest.

If you want to talk "radical", that's radical.

Sanders Claims to be a Republican

In calling for increased sales taxes to bail out public unions, Mayor Sanders proves he is in bed with the police and fire unions. Sanders is not only a liar, but the wimpiest Republican on the face of the earth, a total disgrace to the Republican party.

City Councilmember Carl DeMaio's Plan

Those looking for genuine reform can amazingly enough find it right on a city Councilmember's home page. Councilmember Carl DeMaio has a very nice website appropriately named "Clean Up City Hall"

Please consider DeMaio's “Roadmap to Recovery” Plan that Balances City’s Budget and Reforms Pension System.

SAN DIEGO –City Councilmember Carl DeMaio today unveiled a comprehensive five-year financial recovery plan that balances the city’s budget and restructures long-term city finances to eliminate the city’s structural budget deficit.

“To fix the city’s financial problems and safeguard our neighborhood services, we must embrace new approaches in city government,” noted DeMaio.

Titled the “Roadmap to Recovery,” DeMaio’s plan borrows some elements of the bankruptcy process – with the imposition of a five year mandatory spending caps, reorganizing city operations, and restructuring several significant liabilities facing the city.

The centerpiece of DeMaio’s plan is a heavy dose of pension reforms – including a freeze on “pensionable pay,” creation of several more affordable pension options, and requiring city employees to share in increased costs and investment risks in the pension system.

DeMaio noted that fixing the city’s financial problems will require several tough, but necessary adjustments in city labor contracts.

There are many elements to the plan. Please click on the preceding link and give it a look.

Click here for a nice Roadmap to Recovery Slideshow.

Note: If the document load with the wrong orientation. Click once on the document then, click on "Rotate Clockwise".

If you wish to see still more details please see the Full Copy of Roadmap to Recovery. That PDF is 89 pages.

I salute Councilmember Carl DeMaio and his Roadmap to Recovery for San Diego. He offers a genuine proposal, one that may work.

Other cities are in far too much trouble for anything but bankruptcy to work.

It's possible San Diego is in a state-of-no-return as well, but at least DeMaio offers some genuine alternatives. Meanwhile, Jerry Sanders offers nothing but lies, hoping to buy more votes from the police and fire unions.

If you live in San Diego, please support Carl DeMaio should he ever decide to take on Sanders and run for mayor. His plan shows he would be a capable mayor, deserving of your vote.

Email Sanders

If you live in San Diego, please forward this post to your friends and neighbors. You may also wish to Email JerrySanders@sandiego.gov to let him know just what you think.

It's time for genuine reform for public unions and their untenable pension plans.

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

Multiple Simultaneous Games of "Chicken"; Price Controls on Walmart; China Declares Shift to "Prudent" Monetary Policy

China's is overheating. Consumer prices in aggregate rose at an annual rate of 4.4% as of October. Food prices are up 10.1 percent according to China Financial Daily.

Moreover, accelerating inflation is hurting profit margins in China's service sector. China's non-manufacturing PMI fell to a nine-month low in November, with new orders in consumer service industries showing outright contraction.

In response to these inflationary price pressures, China declared a shift to a "prudent monetary policy", including price controls at Walmart.

This begs the question: Since when do price controls constitute "prudent policy"? Price controls have never worked in history and this time will be no different.

This is a pretty long post, but please stay tuned until the end for an analysis of Multiple Simultaneous Games of "Chicken".

Topics include a comparison of monetary and credit growth in the US vs China, a look at the problems in Japan, a detailed look at various games of "chicken" central banks play with each other, and a detailed look at various games of chicken that speculators play with the market.

To fill in the details however, we need to start from the top with a look at China's overheating manufacturing sector.

Chinese Manufacturing Growth Accelerates

To date, interest rate hikes have not yet have any effects on industrial output. China's latest PMI survey shows Manufacturing Growth Accelerates

China’s manufacturing grew at a faster pace for a fourth straight month in November, indicating the economy can withstand higher interest rates as price pressures escalate.

The Purchasing Managers’ Index rose to 55.2 from 54.7 in October, China’s logistics federation said on its website today.

Cement prices have climbed to a record, the state-run China Daily reported today. Consumer prices may have climbed 4.8 percent in November after October’s 4.4 percent gain, which was the biggest in 25 months, according to China International Capital Corp.

Spot prices of power-station coal at Qinhuangdao port, a Chinese benchmark, rose to a two-year high this week.

The Irish Times reports the biggest increase in China's PMI came in the sub-index for input prices, which climbed to 73.5 from 69.9 a month earlier.

Service Sector Contraction

Unable to pass on price hikes, China’s Services Industry Slows as Inflation Erodes Margins.

China’s non-manufacturing purchasing managers’ index fell to a nine-month low in November as accelerating inflation eroded service companies’ margins.

The index dropped to 53.2 from 60.5 in October, according to a statement today by the Beijing-based National Bureau of Statistics and the Federation of Logistics and Purchasing. A reading above 50 indicates an expansion. A separate service PMI released by HSBC Holdings Plc fell to 53.1, a near two-year low.

“Inflationary pressure has started to show a negative impact on service expansion,” the logistics federation said in today’s statement.

The non-manufacturing measure encompasses business and consumer services as well as construction and real estate. The non-manufacturing new-order index fell to 50.1 last month from 56.3 in October, and new orders in consumer service industries indicated a contraction, with a reading of 47, today’s data show.

Shift to "Prudent" Monetary Policy

In response to the huge yet likely understated price inflation, China declares shift to "prudent" monetary policy

China will switch to a prudent monetary policy from a moderately loose stance, the Communist Party's top leaders decided on Friday, a change that could pave the way for more interest rate increases and lending controls.

At the same time, the Politburo elected to maintain China's proactive fiscal policy, an indication that the government wants to continue to ramp up investment spending even while taking tightening steps to control inflation.

"It means that all sorts of monetary policy tools to control liquidity and to control inflation can now be used," said Ken Peng, an economist with Citigroup in Beijing.

"In the past we've been clearly focusing on administrative measures. Going forward we could be using more price adjustments via interest rates," he said, adding that he expected five rate increases by the end of next year.

China Places Price Controls on Wal-Mart

Would five rate hikes by the end of 2011 be enough? Since the answer is unknown, prudence would dictate for China to start hiking now in order to slow rampant credit expansion.

Instead, Wal-Mart Among Companies Facing China Price Controls.

The southwestern Chinese city of Kunming, where Wal-Mart Stores Inc. and Carrefour SA have operations, has imposed temporary price ceilings on daily necessities to counter inflation.

Kunming’s government asked five retailers -- three non- Chinese, one Chinese and one based in Hong Kong -- to report any price adjustments and give reasons for the changes two days in advance of making any alterations, the National Development and Reform Commission’s local branch said on its website yesterday.

Besides the five companies, other food, cooking-oil and beverage producers are requested to apply for government approval 10 working days before making price changes, the statement said.

The city government also imposed temporary price ceilings on daily necessities in major parts of the city starting from yesterday to the end of February, according to the statement. Prices of grain, cooking oil, meat, eggs, milk and noodles are to be kept at levels before Nov. 17, the statement said.

The city limited retail prices of vegetables, depending on type, to 40 percent to 100 percent higher than wholesale prices, the statement said.

Price Controls Never Work

Not once in history have price controls ever accomplished anything good, unless you consider shortages a good thing. Expect shortages and black market pricing if the service sector and grocery stores cannot pass on input price increase.

The market's response last Friday was swift and severe as noted by the following commodity charts.

Grains



Metals



Crude



Chicken

It's not chicken prices that are important but rather the very dangerous game of chicken that China is playing. Money supply and credit are soaring in China and along with that explosion of credit is rampant inflation.

Economics Junkie has a nice set of charts comparing Money Supply in the US vs. China.

M1 in China



M1 (China) vs TMS1 (US)



Domestic Credit Contraction in US

According to the Fed Z1 Flow of Funds Report US domestic nonfinancial credit has been in contraction for 9 consecutive quarters, while domestic financial credit has been in contraction for 6 consecutive quarters.

This means one or more of the following conditions are true, most likely all of them.

• US banks are reluctant to lend
• US businesses and consumers are reluctant to borrow
• Banks are capital impaired and do not want to lend
• Chargeoffs exceed new loans

Total debt is up 4.8% but only because of massive government spending (much of it completely wasted on futile stimulus measures).

Moreover, the mark-to-market valuation of debt sitting on the balance sheets of banks is likely an absolute disaster. What cannot be paid back won't, and real estate loans are still extremely problematic.

Unfortunately, we don't have an accurate assessment of just how bad things are from a mark-to-market perspective because the FASB has suspended rule changes and the Fed and FDIC purposely looks the other way on horrendous bank balance sheets for as long as they can.

We do know the official problem bank list according to the 3rd Quarter 2010 Quarterly Banking Profile rose from 829 to 860. The unofficial total is 919.

The problem banks total would be higher yet judging from Texas Ratios. Meanwhile, in China ....

Credit Up by 9.3 Trillion Yuan

Please consider Fitch says slower credit rise premature

China's credit growth this year has not slowed materially from the rapid pace in 2009 despite headline data pointing to a slowdown, Fitch Ratings said in a report yesterday.

The rating agency said that Chinese banks have been off-loading trillions of yuan in loans this year by artificially reducing their holdings of discounted bills and by re-packaging the loans into investment products for sale to investors.

The report came on the same day that China said it would change to a "prudent" monetary policy in 2011 from a "relatively easing" stance.

According to the report, the balance of Chinese banks' discounted bills was understated by as much as 1.65 trillion yuan (US$250 billion) at end of the third quarter.

A discounted bill is an accepted draft against which a loan is made and the interest is deducted immediately. Through the action, bill holders can acquire cash before its maturity date at lower rate. It could be a channel for companies to get capital while bypassing the loan quota.

Banks held more than 2.5 trillion yuan (US$375 billion) in credit not reflected in their balance sheets in wealth management products at the end of November.

"Adjusting for these factors, the amount of new credit extended through the end of the third quarter was on par with the 9.3 trillion yuan extended in the same period a year ago," Chu said. "Credit conditions remain loose, which explains why inflation and property prices stay stubbornly high."

China's Credit Expansion is 28% of GDP

US GDP is close to $15 trillion. This year's borrowing, including government deficit spending is roughly $1.7 trillion, or 11% of GDP. Money supply growth is 5%.

In contrast, China's GDP is about $5 trillion with annual credit growth of 9.3 trillion Yuan (about $1.4 trillion), a whopping 28% of GDP. China's money supply growth has been over 20%, most of the time since 2007.

Credit Bubble on Borrowed Time

The Royal Bank of Scotland says China's Credit Bubble on Borrowed Time, Warns of Sovereign Default by China

According to The Telegraph "Property prices are 22 times disposable income in Beijing, and 18 times in Shenzen, compared to eight in Tokyo. The US bubble peaked at 6.4 and has since dropped 4.7. The price-to-rent ratio in China’s eastern cities has risen by over 200pc since 2004".

Citing Fitch, The Telegraph reports "private credit in China has grown to 148pc of GDP, compared to a median of 41pc for emerging markets."

Yes Virginia, there is rampant inflation, in China, not the US.

A Bit About Hyperinflation

Several misguided writers cite rising commodity prices and money supply growth in the US and warn of hyperinflation in the US by the end of 2011 or early 2012.

They ignore the fact that inflation in China is the primary driver for commodity price hikes; they ignore currency debasement the world over; they ignore extremely important trends in consumer credit and bank lending; and they especially ignore consumer and business attitudes regarding debt and credit.

That's one hell of a lot of things to ignore.

Bear in mind that hyperinflation is a complete loss of faith in currency. Political, not monetary events kick off hyperinflation.

Given that the US is one of the most politically stable countries in the world, with large gold reserves, with the world's strongest military, and with an increasingly conservative Congress, the idea that hyperinflation will hit the US anytime soon is preposterous.

Multiple Simultaneous Games of Chicken

As noted above, China plays chicken with commodity prices, credit expansion, and price controls. That is not the only game of chicken.

Internationally, there are multiple simultaneous games of chicken.

For example, Bernanke plays chicken with China via a QE policy hoping to force China to jack up its interest rate, something China does not want to do.

Bernanke plays a second game of chicken with Congress, treading on fiscal policy while demanding Congress not comment on monetary policy.

Bernanke plays a third game of chicken attempting to spur inflation in the US while simultaneously holding down long-term interest rates. Can that possibly work? For how long? At what cost?

Bernanke Plays Chicken with the Bond Market



Trichet Plays Chicken with the Euro

Trichet and the EU are in various games of chicken regarding the on-again-off-again strategy of buying sovereign bonds while offering "unlimited cash" to fight the alleged attack on the Euro (See ECB Offers "Unlimited Cash" for 3 Months at 1%, Buys Government Bonds to Fight Acute Tensions; Ireland, Take the Money and Buy Gold)

The only thing that can save Europe is if senior bond holders take a haircut on debt owed by Greece, Ireland, Spain, and Portugal that cannot possibly be paid back.

Instead of admitting the above, Trichet pulled out the "unlimited cash" bazooka. The problem with offering unlimited cash is that it is a high-interest loan that leaves the debt intact and puts a huge interest-rate penalty on top of it.

Ireland cannot possibly pay back its debt even at 0% interest. Yet the EU and IMF expect Ireland to come up with interest at 5.8%, on a huge loan, when its budget deficit is 30% of GDP, and its economy is in contraction. Mathematically this Ponzi scheme cannot possibly work.

Australian and Canadian Chicken

The Reserve Bank of Australia played its own games of chicken, letting property bubbles get sky high in order to prevent a recession in 2008. Now, in spite of still rising commodity prices, Australia is on the brink of recession, with 3rd quarter GDP falling to .2%.

Those plowing into Australian dollars in belief it is a safe haven just may have another thing coming when the Reserve Bank is forced to cut rates to combat a recession it refused to allow the last go around.

Australia is finally poised to crash with massively rising housing inventory and multiple failed property auctions. The Australian economy will be in shambles when housing collapses. Imagine what happens when China slows and commodity prices sink as well. The Australian stock market could be in for one nasty spill.

Canada has its own property bubble to reckon with, much the same as Australia. Indeed, most Canadian and Australian housing proponents are in their own Fantasyland bubble chanting "It can't happen here."

It will.

Chicken Japanese-Style

In one of the biggest games of chicken the world has ever seen, Japan is hell-bent on defeating deflation. The result is staggering. Japanese government debt is 200% of GDP and growing, but inflation is nowhere to be found.

Why is there no inflation in Japan? Because like the US, and unlike China, there is little to no credit expansion in Japan.

This shows the importance of credit expansion as opposed to monetary expansion alone. Nearly everyone gets this wrong in spite of overwhelming evidence that rampant credit growth is the driver for inflation.

Actually, to be far more accurate, net expansion of credit is inflation, not a driver of inflation.

To understand the paramount importance of credit, please see:

• "Straight Talk" with Economic Bloggers
• Are we "Trending Towards Deflation" or in It?
• Is Debt-Deflation Just Beginning?

In spite of ever-expanding national debt, Japan's long-term interest rates are the lowest in the world. Yet, because of demographics and a rapidly aging population, Japan will soon have to draw down on its "savings", all of which went into treasury bonds at 1%, all of it already spent, and 200% more, in various nonsensical deflation-fighting efforts.

The problem for Japan is interest on the national debt will consume all revenues if Japan's long-term interest rates rise to a mere 3%. Yet, demographics show higher interest rates are nearly guaranteed unless Japan decides to default.

The interesting thing about default is that countries frequently default on external debt but seldom default on debt owed to its own citizens. Nearly all of Japan's debt is internal. Will Japan default on that debt or will Japan attempt to print its way out?

Should Japan try printing instead of defaulting, it faces a currency crash. If taken to extreme measures, Japan could conceivably see a complete loss of faith in the Yen (hyperinflation). At this juncture, hyperinflation is far more likely in Japan than the US.

The critical question for Japan is "How long can this imbalance continue before it blows up in one direction or the other?" Interestingly, Japan may blowup both ways, first in one direction then the other, so the order and timing of bets is important.

Yuan Chicken

Interestingly, myopic, dollar-centric eyes remain focused on a US currency crash even though a Japanese Yen or Euro crash seems far more likely.

However, the ultimate currency irony pertains to the Yuan, especially with Bernanke and Congress pleading for China to allow the Yuan to strengthen.

Here is the reason: Hot money is flowing into China in speculation of rising interest rates, 10% perpetual growth, and a rising value of the Yuan.

Few bother to think ahead as to what happens when that hot-money flow reverses or what happens if China cannot expand at the expected rate of growth for any reason. The kicker is that China cannot possibly grow at 10% perpetually and peak-oil is the reason.

Peak-oil stares China-bulls straight in the face, but they are too blind to see it.

Crude Chicken

Crude prices are soaring higher and higher, not only because of peak-oil but also because of the game of chicken Bernanke plays with QE and the game of chicken China plays with interest rates. In response, shipping and manufacturing costs rise, China overheats, and a price squeeze mounts on businesses unable to pass along all the input price hikes.

Meanwhile, China-bulls (nearly everyone) cheer that which is unsustainable, and China itself thinks it can control prices with price-controls. As icing on the speculative cake, hedge funds, pension plans, and other speculators continually rollover ever-increasing numbers of futures and other derivatives which increases the risk for everyone.

All things considered, it seems likely that such speculation, in conjunction with China finally hiking interest rates enough to matter, will cause a second crash in commodity prices (including crude) before peak-oil finally takes its toll.

Investing Chicken

Bernanke and China together have acted in a manner that puts huge price pressures on the service sector, especially small businesses that cannot pass on prices. This will end, and it will not be pretty when it does end.

Yet, hedge funds, pension plans, and other investors plow into commodities, currencies, and emerging market equities as if growth in China, Asia, and Australia and their currencies is a "sure-thing".

Getting out in time is the key to success of hedge-fund and investing chicken, yet many do not even understand the nature of the game they are playing.

Chicken-Math

Every country including the US wants to export its way out of this mess. It's mathematically impossible. It's also mathematically impossible for Europe to grow its way out of its problem with the tactics taken by Trichet and the EU.

It's mathematically impossible for the US to cut its budget deficit, be the world's policeman, and not reduce entitlement spending. It's impossible to grow our way out of pension problems.

It's mathematically impossible for tariffs to solve our problems, yet Congress plays chicken with China on that score every month. Bernanke and Geithner have recently joined Congress in that game of chicken.

Collective Chicken

I hope you now see how interrelated and complicated this mess is, complete with simultaneous central-bank competitive currency devaluation tactics in Japan, China, and the US, with no possible currency tactics in Ireland, Greece, Portugal, and Spain (countries that arguably need currency tactics)!

Chicken End-Game

From Bernanke to Trichet, to China, to Australia and Canada, to hedge funds and investors, to currency and carry-trade speculators, very few understand the inevitable end-result of chicken.

It's called a crash.

We are in a currency endgame that no one on this planet can be sure how or when it ends, or who blows up first. I highly doubt the US is first, and certainly none of the above suggests US hyperinflation. Nonetheless, the order in which things blowup is very important, depending on which side of each trade you are on.

If that was not bad enough, the odds of a multiple simultaneous crash (or rapid series of crashes) is high and growing as central bankers pull out ever-increasing, counter-productive, and clearly destabilizing bazooka-stops, hoping-against-hope to keep a lid on things.

Is it any wonder the price of gold keeps soaring?

In the meantime, various pressures mount. At some point the global pressure cooker will blow sky high. I suspect the Eurozone or Japan will be the first of the big boys, but any number of scenarios are possible. When this complicated mess does blowup (and it will), all the "sure thing" traders on the wrong side of a bet will realize too late, that they played one game of chicken too many.

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

Royal Bank of Scotland Says China's Credit Bubble on Borrowed Time, Warns of Sovereign Default by China

Royal Bank of Scotland has advised clients to take out protection against the risk of a sovereign default by China. Although not predicting default, risk protection is one of its top trade trades for 2011.

Ambrose Evans-Pritchard has the story in The Telegraph article China's credit bubble on borrowed time as inflation bites

"Many see China’s monetary tightening as a pre-emptive tap on the brakes, a warning shot across the proverbial economic bows. We see it as a potentially more malevolent reactive day of reckoning," said Tim Ash, the bank’s emerging markets chief.

Officially, inflation was 4.4pc in October, and may reach 5pc in November, but it is to hard find anybody in China who believes it is that low. Vegetables have risen 20pc in a month.

RBS recommends credit default swaps on China’s five-year debt. This is not a forecast that China will default. It is insurance against the "fat tail risk" of a hard landing, with ramifications across Asia.

Diana Choyleva from Lombard Street Research said the money supply rose at a 40pc rate in 2009 and the first half of 2010 as Beijing stoked an epic credit boom to keep uber-growth alive, but the costs of this policy now outweigh the benefits.

The economy is entering the ugly quadrant of cycle – stagflation – where credit-pumping leaks into speculation and price spirals, even as growth slows. Citigroup’s Minggao Shen said it now takes a rise of ¥1.84 in the M2 money supply to generate just one yuan of GDP growth, up from ¥1.30 earlier this decade.

The froth is going into property. Prices are 22 times disposable income in Beijing, and 18 times in Shenzen, compared to eight in Tokyo. The US bubble peaked at 6.4 and has since dropped 4.7. The price-to-rent ratio in China’s eastern cities has risen by over 200pc since 2004

As it happens, Fitch Ratings has just done a study with Oxford Economics on what would happen if China does indeed slow to under 5pc next year, tantamount to a recession for China. The risk is clearly there. Fitch said private credit has grown to 148pc of GDP, compared to a median of 41pc for emerging markets. It said the true scale of loans to local governments and state entities has been disguised.

The result of such a hard landing would be a 20pc fall in global commodity prices, a 100 basis point widening of spreads on emerging market debt, a 25pc fall in Asian bourses, a fall in the growth in emerging Asia by 2.6 percentage points, with a risk that toxic politics could make matters much worse.

If there is a hard-landing in 2011, China’s reserves of $2.6 trillion – or over $3 trillion if counted fully – will not help much. Professor Michael Pettis from Beijing University says the money cannot be used internally in the economy.

While this fund does offer China external protection, Mr Pettis notes wryly that the only other times in the last century when one country accumulated reserves equal to 5pc to 6pc of global GDP was US in the 1920s, and Japan in the 1980s. We know how both episodes ended.

The Telegraph article is a very good read and inquiring minds will want to take a closer look.

I will have more on China, Japan, and Europe in a much longer post coming up shortly. The post will compare monetary and credit growth in the US vs China, with a detailed look at various games of "chicken" central banks play with each other as well as games of chicken various speculators play with the market.

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

Global Development Statistics Come to Life: 200 Countries, 200 Years, 4 Minutes

Here is an incredibly cool video in which statistics virtually come to life, right before your eyes. Swedish academic superstar Hans Rosling graphically illustrates global development over the last 200 years.

The video starts out slow for about 38 seconds. Please stick with it. After 45 second you will not want to shut it off. This is visual and informational entertainment at its finest.



If that video does not play for you, please try http://www.flixxy.com/200-countries-200-years-4-minutes.htm

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

Hillary Clinton vs. Sarah Palin on WikiLeaks

Occasionally I am pleasantly surprised by what politicians have to say. In this case, I am not only pleasantly surprised but shocked by some Statements from Secretary of State Hillary Clinton Regarding WikiLeaks.

Secretary of State Hillary Clinton pressed Central Asian governments on Tuesday to expand democratic freedoms, saying countries which quash human rights only make themselves less competitive on the global stage.

Launching a tour amid uproar over the leak of a huge cache of classified U.S. diplomatic cables by a whistleblower website, Clinton also said she was committed to Internet freedom.

She said it was important that "governments don't overreact" to information that they do not like being aired in public.

Clinton also said she was a "big believer" in Internet freedom. "It is always better to err on the side of more expression, more information, and then try to counter it with other information," she said.

"We also have to be very careful that governments don't overreact," she said, saying both sides had to be careful when navigating the minefield of Internet freedom.

Hillary Clinton vs. Sarah Palin on WikiLeaks

Please contrast those thoughtful unemotional statements from Hillary Clinton with the emotional paranoia from Sarah Palin as noted in Former Canadian Prime Minister Adviser Calls for Assassination of WikiLeaks Founder Assange; Assinity from Sarah Palin

Sarah Palin Compares Assange to Bin Laden

Tom Flanagan joins media darling Sarah Palin who thinks Assange is like an Al Qaeda terrorist

Sarah Palin has demanded that WikiLeaks founder Julian Assange is hunted down like Osama bin Laden. In an extraordinary outburst on Facebook, the former Alaska governor attacked the White House for 'incompetent handling of this whole fiasco.'

Assange is not a "journalist," any more than the "editor" of al Qaeda's new English-language magazine Inspire is a "journalist."

'He is an anti-American operative with blood on his hands.

'His past posting of classified documents revealed the identity of more than 100 Afghan sources to the Taliban. 'Why was he not pursued with the same urgency we pursue al Qaeda and Taliban leaders?'

Excuse me for asking but since when does exposing corruption and hypocrisy make one an al Qaeda' terrorist? Is the whole world supposed to stand up and salute our illegal wars, our torture of civilians, our holding of prisoners in Cuba with no charges being filed. Are we supposed to salute or simply look away from fraud by our banks and coverups in our Treasury department?

Sarah Palin is currently leading the Republican candidates, but of the major candidates she performs worst against President Obama. She may be the one person Obama could beat.

According to the latest ABC Poll 67% say she is not qualified to be president.

Said George Will "After the 2008 campaign she had two things she had to do. She had to go home to Alaska and study. She had to govern Alaska well. Instead she quit halfway through her first term and shows up in the audience of Dancing With The Stars and other distinctly non-presidential venues.

Such stunts will have media fools fawning all over her, but in crunch-time it won't win elections. 2008 is proof enough.

I am no Hillary Clinton fan. I believe she lost the nomination to Obama because she would not admit her mistakes in supporting the war in Iraq. Until I read the above article, I have not agreed with her on anything substantial that I can recall.

I did not vote for Obama in 2008 nor did I vote for McCain. I would not have voted for Hillary Clinton either. And I still would not vote for Hillary Clinton.

I vote for policies, not parties, and Hillary has far too much baggage.

However, I will tell you this: Her calm statements on this very emotional issue show that Hillary is far more qualified to be president of the United States than media-grubbing Palin, dancing with the stars, hoping to get attention.

Regardless of what you think about WikiLeaks, anyone who compares Assange to Bin Laden has mush for brains. Moreover, it's not this one incident I am talking about, it's a series of media gaffs a mile long that made Palin the laughingstock of the Republican party that I am talking about.

If Republicans know what is good for them, they will abandon Sarah Palin before she ruins their chances in 2012.

Independents overwhelmingly went for Obama in 2008. They overwhelmingly went for Republicans in 2010. If Republicans are dumb enough to nominate Palin in 2012, we may easily see President Obama back in the Whitehouse for another term, and that is something this country clearly cannot afford.

Chris Christie, would you please run for president? Independents would flock to you.

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

Meaning of "Compromise"

Sometimes the word to fear most out of congress is "compromise". Typically it means both parties load up a bill with massive amounts of spending while simultaneously preaching the need for deficit reduction.

Once again that is the unsustainable path down which we are headed now that Obama signals possible tax compromise.

On the heels of the U.S. Senate’s rejection of his tax-cut plan, President Obama has signaled he is willing to compromise, according to media reports Sunday.

The Senate on Saturday turned back bids by Democrats to permanently extend middle-class tax cuts enacted during the Bush administration, while ending the rate reductions for the wealthy. The Senate move had been expected.

Later Saturday, Obama called the votes “very disappointing” but told Democratic leaders he would be open to discussions on extending tax-cuts for the wealthy in return for concessions from Republicans, The Wall Street Journal reported.

Divide and Conquer Fails

I discussed this setup on November 30, in Critical Middle-Class Tax Cut Vote Coming Up: Will Democrats Divide and Conquer Strategy Work?

Divide and Conquer

The Democrat strategy is to divide and conquer. Dare the Republicans to veto middle-income tax cuts, while delaying votes on everything else.

With procedural issues in the Senate the overriding factor, the question comes down to which party would get most of the blame if nothing passes. Sadly, that's what's become of politics.

There are several of ways this could progress:

1. Congress passes a bloated, unaffordable bill with every favor either side wants
2. Nothing passes at all
3. Something in between.

Let's assess the odds of each scenario.

The Bloated, Unaffordable Option

Senator Durbin may cave into Republican wishes as long as he gets everything he wants (earned-income tax credit, the childcare tax credit, the ‘Making Work Pay’ credit, and extension of unemployment benefits).

Should that happen, expect one hell of a bloated tax bill which would prove the Republicans are hypocrites about reducing the deficit. It would also test Obama's mettle given that he has stated the country can’t afford to borrow $700 billion to extend lower tax rates for top earners.

Would the president then veto the legislation?

I doubt it, and that would make Obama a hypocrite for signing the bill and the Republicans hypocrites for passing it. Unfortunately, neither side really cares about the "hypocrites label" given that hypocrisy is an everyday occurrence in both parties.

Thus, I believe passage of a bloated bill that both sides agree we cannot afford is the most likely possibility. Assume something like a 45% chance.

The Nothing Passes Option

It is certainly possible that nothing gets passed because of Senate infighting. Should that prove to be the case, it would be a forerunner of something that is all but guaranteed to happen in the next Congress.

If "nothing passes" expect a huge jump in bankruptcies and foreclosures and the economy to veer back towards recession, with everyone pointing the finger at everyone else.

Also expect Bernanke to go ape-sheet in unpredictable ways.

Bear in mind a huge jump in bankruptcies and foreclosures may be coming anyway, but passing noting will provide the opportunity for more political finger-pointing.

I rate "nothing passes" as the least likely possibility with something like a 15% chance.

The In-Between Scenario

In-between covers so much ground that it's hard to address every case. Should this happen, I would think it would be closer to the "one hell of a bloated bill" than not.

Congressional Meaning of Compromise

To congress, the word "compromise" does not mean giving up anything you want. Instead, it means giving the other guy something you do not want him to have, in return for a similar favor.

The process is much like asking a group of kids at a birthday party if they want cherry pie, chocolate cake, or fudge for desert and if there is no consensus winner, everyone gets a full slice of each, with chocolate chip cookies thrown in for good measure because that’s what cousin Susie likes. It’s irrelevant whether or not cousin Susie is even at the party.

Is it any wonder there is never any lasting progress on reducing the deficit?

Some Real Compromises

I would gladly trade extending unemployment benefits for a ground-breaking compromise such as scrapping Davis-Bacon or ending Collective Bargaining for public unions. Indeed, that kind of innovative compromise would have me singing hallelujah from the top of Sears Tower.

Much less enthusiastically, I would accept extending unemployment benefits if the compromise was to cut military spending to pay for it. However, a compromise to extend unemployment benefits for a doubling of reductions anywhere else would be a very good deal, although light-years away from the ground-breaking deal I mentioned above.

The same applies to extending the tax cuts for the wealthy. Fine, I am all in favor of extending tax cuts, but the Republicans should have to give up something they want to get it if they are serious about deficit reduction. Again, I would suggest a big enough reduction in military spending to cover it or better yet doubling a reduction in military spending to cover it.

There is amazingly fertile ground for real compromises. Unfortunately, another "green shoot" opportunity for genuine compromise is about to wither on the vine.

If this "compromise" farce passes as now expected, Obama and the Republicans are both hypocrites. So what else is new?

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

Sunday Funnies 2010-12-05 Bernanke Discusses Groupon

Mid-speech Bernanke has sudden inspirational flash of brilliance regarding Groupon.



The idea for the first cartoon above came from reader "Everett". I came up with the second one. If you have suggestions please send them my way.

Bear in mind, two two things:

1. They need to be current events
2. I may get far more suggestions than I can possibly use.

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

Obama Signs Trade Agreement with South Korea

It had to happen eventually. By signing a trade agreement with South Korea, President Obama did something I generally support. However, the devil is in the details, so please consider Obama hails South Korea trade as victory for US workers

President Barack Obama on Saturday praised a newly sealed trade deal with South Korea as a landmark agreement that promises to boost the domestic auto industry and support tens of thousands of American jobs.

The pact, which requires congressional approval, would be the largest since the North American Free Trade Agreement with Canada and Mexico in 1994. Obama said the South Korean deal would support at least 70,000 American jobs -- welcome news with the latest unemployment figures showing nearly stagnant job growth. The president said that jobs report showed more needed to be done.

Representatives from both countries broke through a stalemate Friday morning on issues related to the automobile industry.

South Korea would allow the U.S. to lift a 2.5 percent tariff on Korean cars in five years, instead of cutting the tariff right away. Each U.S. automaker could export 25,000 cars to South Korea as long as they met U.S. safety standards; disputes over safety standards had effectively stood as a barrier to U.S. auto exports into Korea. A U.S. tariff on Korean trucks would be phased out and South Korea would eliminate its tariff on U.S. trucks immediately.

South Korean President Lee Myung-bak praised the deal as bringing huge economic benefits to both countries and further boosting the two nations' alliance.

"The accord is significant because it lays the groundwork for a 'win-win' relationship by reflecting the national interests of Korea and the United States in a balanced manner," Lee said in a statement posted on the presidential website.

The overall agreement would eliminate tariffs on more than 95 percent of industrial and consumer goods within five years. The U.S. International Trade Commission estimated that would increase exports of U.S. goods by at least $10 billion. The deal would also open up South Korea's vast $560 billion services markets to U.S. companies.

My one complaint is the deal phases in over 5 years. It should be immediate.

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

Euro Infighting Continues as Belgium Breaks Ranks with Germany and France; Pressure Cooker Gauge on Red

Infighting over the size of the bailout fund has broken out as the Belgian Finance Minister Breaks Rank with German Chancellor Merkel

Belgian Finance Minister Didier Reynders said the euro region could increase the size of its 750 billion-euro ($1 trillion) bailout fund, breaking ranks with German Chancellor Angela Merkel and France’s Nicolas Sarkozy.

Reynders told reporters in Brussels that the current cash pool could be increased if governments decide to create a larger fund as part of a permanent crisis mechanism in 2013. “If we decide this in the next weeks or months, why not apply it immediately to the current facility?”

While Sarkozy and Merkel rejected expanding the fund on Nov. 25, European Central Bank President Jean-Claude Trichet yesterday indicated governments should consider just such a move.

The International Monetary Fund also supports increasing the facility after 2013, said Reynders at the end of a week that saw Belgian bond spreads jump to the highest in at least 17 years.

“The difficulty we have is like other countries in Europe: we need to solve the problem of contagion coming from Greece, Ireland and maybe now Portugal,” Reynders said. “We don’t have any real problem in Belgium for the moment like that.”

“The permanent mechanism must be with a huge amount of money -- if you don’t organize, you always have speculation if it is enough for one, two or more countries,” Reynders said. “For the moment the discussion next week will be about approving the plan for Ireland and then to have some information about the situation in Portugal.”

Pressure Cooker Gauge on Red

Would it matter if Trichet announced tomorrow a willingness to extend $20 trillion?

I suggest that if such an announcement mattered at all, it would be in the opposite manner these clowns think. If anything, it would cause an emperor-has-no-clothes moment that would spook the market and crash the Euro.

Greece and Ireland are insolvent. Spain, Portugal, and Belgium are under sever stress. The proper way to alleviate the stress is to admit a need for haircuts on senior bonds, and take those haircuts.

For a discussion, please consider Barbershops Open in 2013, Market Screams for Haircuts Today; European Crisis Spreads to Core as Belgian Bond Yields Surge; Another "Stress Test" Scam

Unfortunately, instead of considering haircuts on senior bonds, ECB president Trichet, Christian Noyer (the governor of the Bank of France), and Belgian Finance Minister Didier Reynder, all insist there will be no haircuts.

The instruction manual says the cooker will explode if the pressure is too great, yet Trichet, Noyer, and now Reynder keep increasing the pressure. The longer they attempt to walk this irresponsible line, the more the pressure will build.

How much more pressure the cooker can take is anyone's guess, but the gauge is clearly in the red zone and the cooker is liable to explode at any time.

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