German Tour Operator Prepares for Greek Euro Exit; Greece to Become Tourist Mecca as Soon as it Scraps the Euro

Inquiring minds will note that the German tour operator Tui is taking measures to protect itself from a Greek exit from the Euro and subsequent currency meltdown.

Please consider Tui prepares Greek hoteliers for possible euro exit

German tour operator Tui has asked hotels in Greece to sign new contracts spelling out how the company will pay its bills if Greece leaves the eurozone and starts using a new currency.

A spokesman for the company confirmed it had written to hoteliers after the letter had been reported in German newspaper Bild.

In the letter, Tui said it was entitled to pay in whatever currency was in use.

But the Greek Tourist Board said that no hotelier would agree to that.

Bild quoted the latter as saying: "If the euro should no longer be the currency... Tui is entitled to pay the sum of money in the new currency. The exchange rate shall be made at the exchange rate set by the government."

Tui spokesman Robin Zimmermann confirmed the letter had been sent to hoteliers, saying: "As a responsible company, we should protect ourselves for a potential exit of Greece from the eurozone."

But Andreas Andreadis, president of the Greek Tourist Board, told Bild that Tui could not pressure hoteliers into signing such a contract.

More than two million Germans traveled to Greece last year, making them the biggest group of visitors there.

Greece to Become Tourist Mecca as Soon as it Scraps the Euro

Would you risk going to Greece now with all the strife, strikes, missed flights, and violence?

Some might but I wouldn't. What if everything in Greece is suddenly 60% lower? Your answer might change (or not) but many answers will change. Yet until it does change, Greece will see cancellation after cancellation of tour operators unwilling to take the chance on Greece.

I do not know what Tui will do. However, if I was Tui, I would immediately cancel all tour operation in Greece. If that happens and other tour companies follow suit, pressure will mount inside Greece to tell the IMF, EMU, and ECB to go to hell.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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History Suggests Greece Will Freeze Bank Deposits, Exit Euro by Christmas; Spain and Portugal to Follow Next Year; What's the Rational Thing to Do?

Michael Pettis at China Financial Markets asks the question "Will Greece unravel by Christmas?"

Pettis then makes a historical case for exactly that while stating "I don’t think Europe can postpone Greece’s exit much longer."　

From Pettis, via Email, with Permission ....

Will Greece unravel by Christmas?

President Hu left the G20 meeting in Cannes Saturday without committing China to very much, merely saying:　 “We believe Europe has the wisdom and ability to solve the debt problem.”　 At this point, however, regardless of the amount of wisdom floating around Brussels I think it is pretty unrealistic to expect a happy solution.

We’re well past that stage.　 By now, it seems to me, neither wisdom nor cooperation among world leaders is going to get us out of the debt and currency problems we face.　 Rather than try to prevent a major disruption the policy goal now should be to engineer as quickly as possible the least disorderly and disruptive unraveling of financial markets in the peripheral countries.　 And while it may help relieve frustration to excoriate European leaders for having made poor decisions, we shouldn’t assume that there really is a set of “right decisions” that will lead us out of this mess.　 I think there isn’t.

In Athens, the refusal by New Democracy yesterday to join Pasoc in a coalition government indicates just how difficult political cooperation is likely to become, and how drastically political horizons have shortened.　What’s more, by forcing Papandreou to cancel the referendum just days after he announced it – in the face of white-knuckled threats from an enraged France and Germany – Athens has pretty much made clear just how desperate things are and how little room the leadership has to maneuver.

Indeed the whole issue of sovereignty has become fuzzy.　 Since France and Germany have basically exercised direct power over Greek’s electoral politics without assuming responsibility for solving Greece’s domestic problems, I can’t imagine that this won’t stoke even more resentment in Greece.

But it’s worse than just an issue of fuzzy sovereignty.　 Last week something new happened which cannot help but affect the near-term outlook.　 By openly speculating for the first time on Greece’s leaving the euro, Europe’s leaders have ensured that there is almost no chance now of preventing it from happening, and sooner even than most pessimists expected.

A country CAN leave the euro?

Not that there ever really was much of a chance, in my opinion, to keep Greece in the euro, but I assumed that European leaders would do whatever they could to postpone the day of reckoning until after the major elections this and next year. They would find ways, I thought, even if that meant putting more unemployment pressure on the middle and lower classes in Greece for another year or two.　

But now I don’t think Europe can postpone Greece’s exit much longer.　 Statements by France and Germany may have transformed the dynamics of the crisis affecting Greece.　

By openly acknowledging that Greece could abandon the euro, Europe’s leaders may have set in motion events that will automatically force Greece to leave.　 Here is the logic.　 If Greece is ever forced to leave the euro, it will first have to redenominate domestic corporate and household liabilities into the new currency – let’s call it the drachma – or else domestic borrowers will be wiped out by the fall in the value of revenues relative to debt as the drachma immediately depreciates against the euro.

But it doesn’t end there.　 If a bank’s assets – its outstanding loans – are to be redenominated into drachma, then its liabilities, i.e. deposits, must be redenominated too, or else the balance sheet mismatch will bankrupt the bank.

And there is where the problem lies.　 As soon as any depositor realizes that bank deposits are likely to be redenominated into drachma, he will pull his deposits out of the banks so as to protect the value of his savings.　 But obviously only a few depositors will be able to do this before forcing the bank into closing.　 In order to prevent the resulting collapse in the banking system, the only thing Athens can do is to freeze bank deposits long before most depositors have had a chance to cash out.

But depositors know this.　 As the probability of Greece’s leaving the euro rises – and clearly it rose dramatically this past week – anxious depositors eager to prevent their deposits from being frozen and redenominated in a weaker currency know that they will have to speed up their withdrawal of deposits from banks.　 And of course as anxious depositors withdraw their deposits, the likelihood of a banking crisis rises, and with it the likelihood of Greece’s being forced to freeze deposits and leave the euro.　

A Bagehot intervention?

We are caught, it seems, in one of those self-reinforcing loops that almost always presage a collapse.　 Rational behavior by individual agents leads towards a catastrophic event the threat of which reinforces the behavior.

I don’t see any way to get out of this loop except with a Bagehot-style intervention – a very unlikely but immediately credible announcement by Germany and France that they are prepared to guarantee all deposits in the Greek banking system.　 I call it a “Bagehot intervention”, but of course Walter Bagehot would never have recommended bailing out an insolvent borrower.

Without a credible intervention this process almost always ends the same way.　 There is in my opinion a very high probability that within weeks, or months at most, Greece will be forced to freeze bank deposits as a prelude to leaving the euro.　 Mexico in 1994 and Argentina in 2001 chose the Christmas/New Year holiday season to announce their devaluations.　 Will Greece follow suit?　 "If history repeats itself,” footballer Andrew Demetriou once pointed out, “I should think we can expect the same thing again.”

And it probably won’t end there.　 In my opinion the real risk for Europe in that case becomes a contagion of deposit withdrawal, not immediately, but at the first sign of trouble in their home countries.　 As households from Italy, Spain, Ireland, Portuguese, and other vulnerable countries read every day about hardships faced by Greek families (and those, it will be noted, who trusted the authorities were the worst hit), what will they do?

I know what many of my wealthy Spanish friends are already doing.　 They are moving their deposits to safer havens.　 I suspect that in other countries too anyone who can afford to withdraw money from the domestic financial system is at least thinking of doing so.　 If this process accelerates it may be very hard to maintain domestic confidence in the local banking systems anywhere.

If Greece gets worse in the next few weeks, Europe had already better have a plan about what steps it will take to defend banks in peripheral Europe.　 Once Greece goes, even the least sophisticated households in other countries will know what the consequences for depositors will be.　 Deposit withdrawals, after all, are one of the kinds of actions that different sectors of the economy will take to protect their interests in the face of a crisis, even though this behavior increases the likelihood of the crisis.

This is simply part of the logic of sovereign financial distress – declining credibility causes stakeholders to act in ways that reduce credibility further.　　What’s more, deterioration in the political process is part of financial distress at the sovereign level. Remember, as Keynes pointed out back in 1922, that resolving these kinds of crises is always political – it is about which sector of the economy (or class) ends up paying for the adjustment.　

Workers can pay in the form of high unemployment and declining wages, the middle class can pay by having its savings inflated away, private businesses can pay in the form of confiscatory taxes and expropriation, creditors can pay through forced debt forgiveness, and so on, but ultimately someone must pay.　 Politics becomes about deciding which groups will be forced to foot the bill.　 Historical precedents suggest that political fault lines are likely to develop as different groups organizes politically to protect themselves.

We will probably see this happen, for example, in Spain.　 On November 20 Spain will hold elections.　 For now it looks like the conservative PP will sweep out the Socialists and take nearly 200 of the 350 seats in Parliament.　 This will give them a clear mandate and the power to enact any legislation they want.　

Unfortunately, as I suggested earlier in this newsletter, this doesn’t mean that they can resolve the crisis if only they figure out the “right decisions”.　 Although it is unlikely they will mismanage the crisis to the same extent as the Socialists under Zapatero, who seemed to place a little too much importance on charm and cleverness over leadership, I am not sure there is a whole lot the PP will be able to do better than the Socialists.　

Both parties after all face the same problem.　 They must drive the economy back into competitiveness, but aside from tinkering at the margins with tax and structural changes, really the only two ways Madrid can make Spain competitive is to drive wages down or devalue the currency.　 The options for the PP, in other words, are the same as for the Socialists: either abandon the euro or accept extremely high levels of unemployment for the rest of the decade.　 It is unlikely that any government facing those two options can maintain popularity for very long.

Risk of Bank Run Rising

Allianz Global Investors chief investment officer says Risk of Greek Bank Run, End of Euro Rising

The risk of a run on Greek banks and an end to the euro has increased as the sovereign debt crisis continues to shake markets, according to Allianz Global Investors, a fund-management unit of Europe’s biggest insurer.

A bank run in Greece is a “real danger” and the country’s plan for a referendum on the European bailout package is a “very serious threat” to the currency, Andreas Utermann, the firm’s chief investment officer, said at a press event in Frankfurt today. “An uncontrolled insolvency of Greece and an end of the euro would unleash a tsunami that would make the collapse of Lehman Brothers seem like a small problem.”

While Utermann said he doesn’t expect Greece to exit the euro, leaving the fate of the decision in unpredictable voters’ hand boosts the risk. Allianz Global Investors isn’t preparing for a breakup of the euro area because even if Greece leaves, the common currency could be sustained by the remaining countries, he said.

What's the Rational Thing to Do?

The rational thing to do if you live in Spain, Portugal, or Greece is to take all of your money out of banks while it's still denominated in Euros, while you still can. If a majority, or even a significant minority of depositors act rationally, it will be all over in days.

Thus, I believe Pettis has this called precisely, while Utermann has missed the mark. Given that the German Supreme Court would not allow a "Bagehot Intervention", once a run of sufficient size starts it will be all over in days.

Please see Bagehot’s Rule, Central Bank Incentives and Macroeconomic Resilience for further discussion of the "Bagehot Rule".

Please see Germany's Top Judge Throws Major Monkey Wrench Into Leveraged EFSF Machinery, Demands New Constitution and Popular Referendum for Further Powers for reasons why a "Bagehot Intervention" is not going to happen.

Right now, Greece wants to hang on until the next Tranche of money comes in. EMU leaders want to prevent a Greek exit at any and all costs (without doing an analysis of the costs). Thus, the EMU, ECB, and IMF "Troika" have made matters much worse for themselves when the inevitable finally happens.

This is out of the hands of Greece, Germany, Merkozy, the Troika, President Obama, and everyone else who thinks they are in control.

End of the Line when Depositors Act Rationally

The end of the line comes when Greek citizens act rationally and pull their deposits. From my perspective, the sooner that happens the better as sending more money to Greece does nothing but squander more European taxpayer's money.

To that end, the Troika would be advised to not send the next tranche of money and instead coordinate an exit strategy for countries that are inevitably going to exit.

Unfortunately, EMU bureaucrats will not be bright enough to figure this out. Expect a very disorderly, disruptive, and unplanned exit accompanied by bank closures.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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EFSF Conducts Bond Sale it Canceled Last Week, Spread at 104 Basis Points, Existing Spreads Widen to 167 Basis Points; Blind Faith

Today the EFSF went ahead with the bond sale it canceled last week. The spreads are not pretty, and they will get worse.

Please consider EFSF Bailout Fund Revives 3 Billion-Euro Bond Sale Amid Deepening Crisis

The European Financial Stability Facility revived the 3 billion-euro ($4.1 billion) bond sale it pulled last week even as the region’s sovereign crisis deepened.

The bailout fund priced the bonds due February 2022 to yield 104 basis points more than the benchmark swap rate, according data compiled by Bloomberg. That compares to the facility’s existing 3.375 percent bonds due in 2021 that were priced to yield 17 basis points, or 0.17 percentage point, more than swaps when they were sold on June 15, Bloomberg data show. A basis point is 0.01 percentage point.

The relatively high spread on the new issue “is a complete level-changer, a completely new world for the EFSF,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “This will be the new reference point” for any future 10-year deal, he said.

The EFSF’s existing notes have underperformed European benchmark debt, with the extra yield over governments on its 3.375 percent 2021 bonds widening to 167 basis points, the most since the notes were sold, Bloomberg Bond Trader prices show.

Blind Faith

Bear in mind no one knows how this new EFSF even works, how much leverage it will use or how big the guarantee is. Why anyone would want to buy it is a mystery.

"You’re being asked to invest in something that could change shape relatively radically" said Richard McGuire, a senior fixed-income strategist at Rabobank International in London.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Italy Prime Minister Still in Power (Not for Long as Rats Jump Shift); Mish's Rule of Junkyard Politics

Italy's Prime Minister Silvio Berlusconi's days are numbered. He will likely be gone in a week. When it happens it will be a case of 2 down with Merkozy (France and Germany), Spain, and Portugal (thus 4) to go.

Bloomberg reports Berlusconi’s Majority Unravels as Allies Turning

Prime Minister Silvio Berlusconi’s majority is unraveling before a key parliamentary vote tomorrow, with allies pressuring him to step aside after contagion from the region’s sovereign debt crisis pushed Italy’s borrowing costs to euro-era records.

Two Berlusconi allies defected to the opposition last week, and a third quit last night. Six others called for Berlusconi to resign and seek a more broadly backed government in a letter to newspaper Corriere della Sera. More than a dozen more are ready to ditch the premier’s coalition, Repubblica daily reported yesterday, without citing anyone. Berlusconi said yesterday he was confident he still had a majority.

The desertions may deprive Berlusconi of a majority in the lower house for tomorrow’s vote on the 2010 budget report. The Chamber of Deputies failed to rubber-stamp the routine measure in an initial ballot last month, prompting Berlusconi to call a confidence ballot, which he won with 316 votes, barely a majority in the 630-seat body. A second defeat on the budget law would likely lead to another confidence vote, with the defections threatening the outcome.

The premier urged the opposition to back his economic revamp because rejecting it amounts to “betrayal” of Italy. Calls on him to resign are just “gossip,” Berlusconi said.

Calls Real, Not Gossip

One does not respond to gossip, begging for votes. The calls for his resignation are very real and Berlusconi knows it. Bold lies are a clear sign of weakness and do him no good.

Rats Jump Ship

CNBC reports Italy's Berlusconi at Mercy of Party Rebels, Markets

Italian Prime Minister Silvio Berlusconi has one day left to win over waverers and see off a group of party rebels threatening to bring down his government in a backlash over its failure to adopt reforms to defuse a dangerous debt crisis.

Estimates vary widely over how many centre-right deputies will jump ship in a crunch vote on public finance in the Chamber of Deputies (parliament) on Tuesday. Berlusconi's message to potential "traitors" is clear: you have nowhere else to go and you will be rewarded if you stay.

"We have checked in the last few hours and the numbers are certain, we still have a majority," he told party followers on Sunday.

"Berlusconi is bluffing in a last desperate attempt to save himself. He no longer has a majority in the Chamber," said Dario Franceschini of the main opposition Democratic party.

Newspapers have estimated the number of potential defectors at between 20 and 40, which would be more than enough to topple the government, but in previous narrow escapes Berlusconi has proved his powers of last-minute persuasion.

A deputy from his ruling coalition said after meeting Berlusconi that the premier was ready to reward doubters with "well-deserved jobs" in government. Berlusconi said on Friday defectors would be "betraying the government and the country".

It is entirely fitting and expected for rats to offer other rats bribes for votes. This is what politics is all about.

Mass Rally Calls for Berlusconi’s Departure

Please consider Mass Rally Calls for Berlusconi’s Departure

Tens of thousands of demonstrators gathered in Rome Saturday for a rally organised by the main left-wing party to demand Prime Minister Silvio Berlusconi's resignation.

"Silvio out" was the rallying cry for the large crowd that took part in the rally organised by the Democratic Party, the country's main opposition movement.

Some demonstrators poured scorn on the prime minister after G-20 leaders humiliatingly put Italy's struggling economy under surveillance, amid a lack of trust in Berlusconi's reform pledges.

At the summit in Cannes, the billionaire prime minister played down the gravity of the economic crisis with a trademark quip, claiming that "restaurants are full and the planes fully booked."

"I go to restaurants... to do the washing up," read one banner at Saturday's mass demonstration.

"The sooner we send them to the junkyard the better," read one large placard at the rally, plastered with the pictures of Berlusconi's ministers, as pressure mounted on the 75-year-old leader's government.

Berlusconi's popularity ratings have hit a record low of 22 percent, according to the latest poll released on Wednesday.

Mish's Rule of Junkyard Politics

Sending politicians to the junkyard is one thing. Replacing them with someone better is another. The former is extremely difficult. The latter is nearly impossible. Careful analysis of the long-term historical trend will prove my point.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Italian Debt Yields Soar to Euro-Era Record; 2-Year Yield Surges 70 Basis Points to 6.17%

Italy 10-Year Government Bond Yield



Italy 2-Year Government Bond Yield



Charts courtesy of Bloomberg.

That is one amazing move in the 2-year yield in and of itself, but even more so in relation to the move in the 10-year yield.

Once again I point out that the Bloomberg charts on the right do not match the quotes on the left. The quotes appear to be accurate. However, the charts reflect the previous day's close.

I will repeat this message until Bloomberg is humiliated enough to fix this blatant error.

That said, I appreciate the fact that Bloomberg offers these charts at the bargain basement deflationary price of zero.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Greece 1-Year Debt Yield "Improves" to 235.35%

I have good news to report. The sovereign debt crisis in Greece is improving as shown by the following chart.



Word of caution for my many non-US readers: Sarcasm does not translate well.

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

Does Black Friday Arrive at Midnight or is this the Death of Black Friday?

The day after Thanksgiving is traditionally known as "Black Friday" because that is when Christmas season starts and many stores go into the green for the year.

However, in recent years, stores opened earlier and earlier, with people lining up at 4:00AM to ensure being the first in the store for "hot specials" or items expected to be in short supply. On occasion, people have been trampled to death in the mad rush to get into stores.

This Thanksgiving, many stores have pushed up the clock to open at Midnight instead of 5 or 6 AM.

Please consider More Retailers Attack at 'Black Midnight'

Best Buy Co. is joining the list of big store chains opening at midnight after Thanksgiving this year in hopes of getting a jump on the competition, following recent announcements by Target Corp., Macy's Inc. and Kohl's Corp.

Best Buy's move—significant since the retailer specializes in big-ticket electronics likely to lure shoppers in the predawn hours—leaves Wal-Mart Stores Inc. as one of the last mass merchants that has not announced it is offering "door-buster" specials as soon as the clock strikes 12 on Nov. 25.

Wal-Mart wouldn't disclose its plans for this year, a spokesman said. But it has typically held off on selling its most hyped specials until 5 a.m. the morning after Thanksgiving, on what is known among retailers as "Black Friday."

Some retail experts say that store chains are fighting a losing battle to prolong a shopping rite that looks increasingly antiquated compared with the daily deals and flash sales offered by online rivals such as Amazon.com Inc.

"Once one retailer goes early, the rest feel obligated to follow, and you have to wonder what gain there is for any of them," said Joel Bines, managing director of the global retail practice at consultancy AlixPartners.

Many Wal-Mart stores are open 24 hours, and others opened at midnight on Black Friday last year to sell toys. But the company has thus far postponed selling its discounted flat-screen televisions and other mega deals until just before dawn.

Toys "R" Us Inc. last year opened its doors on Thanksgiving night at 10 p.m. The toy retailer hasn't announced when it is starting Black Friday sales this year. Walt Disney Co., which has opened some Disney Store locations at midnight on Black Friday for several years, said it is expanding early openings this year to 150 stores. Several retailers now open on Thanksgiving Day itself, including Gap Inc. and Sears Holdings Corp., and the moves by others to start the official Black Friday scramble at midnight mean that more deal seekers will now leave families and start lining up hours earlier on turkey day.

Best Buy, which hopes to reverse five consecutive quarters of sales declines at U.S. stores open at least 14 months, said its early Black Friday activities would actually begin late Thanksgiving night at 9 p.m. with what Mr. Dunn said will be a movie screening of "Harry Potter and the Deathly Hallows—Part 2," which will be released on video Nov. 11.

Death of Black Friday?

Does Black Friday starts at midnight or if this is simply the death of Black Friday? I believe something in between.

Black Friday is on the death-bed but has not yet died. It will. This whole charade is becoming pointless with so many pre-sales and pre-pre-sales and of course pre-pre-pre-sales that eventually no one is going dive a damn.

Unprecedented Drop in Port Traffic

Yet traditions die hard, and people like to shop the day after Thanksgiving. However, a huge drop in port traffic suggests this Christmas season will not be very robust.

I have written about that three times recently.

• October 12, 2011: Unprecedented Drop in Port Traffic: A Sobering Omen for Holiday Sales or Should we Listen to Analysts?


• October 14, 2011: More Alarming Shipping News and Charts: Railfax Railroad, Ceridian Trucking, Harper-Petersen Shipping; Reader Anecdotes


• October 26, 2011: Holiday Price Wars Begin Because "Price Matters"

To what extent is this "Black Midnight" about the need for each retailer to outdo each other vs. the need to do something because all the retailers are scared to death of another miserable shopping season?

The question is moot. Black Friday is on the deathbed, the prognosis for retailers this season does not look good, nor does the prognosis for Black Friday itself in the years to come.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Swiss Central Bank Threatens More Action to Ward off Deflation; Swiss Real Estate Overheating; Don't Worry, It's Not a Bubble (It Just Looks Like One)

The Swiss National Banks "expects" the Franc to depreciate, and if it doesn't it will flood the world with more Francs, if necessary, to stave off deflation.

Bloomberg reports SNB Is Ready to Act on Franc If Gains Risk Deflation, Hildebrand Tells NZZ

Swiss central bank President Philipp Hildebrand said policy makers remain ready to act in case the franc’s strength increases the risk of deflation and threatens the country’s economy.

The Swiss National Bank expects the franc “to depreciate further,” Hildebrand told NZZ am Sonntag newspaper in an interview conducted Nov. 2 and published today. “Should that not be the case, it could lead to deflationary developments and weigh heavily on the economy. We are ready to take further measures in case economic prospects and a deflationary development should require it.”

Asked whether the SNB would increase its cap on the franc versus the euro, the president said that the central bank “monitors the data and would take further measures if needed.”

The SNB’s past efforts to stem the franc’s advance, including 15 months of currency sales, contributed to the central bank’s record $21 billion loss in 2010, prompting calls by lawmakers for Hildebrand to resign. The SNB more than quadrupled its currency holdings over 15 months beginning in March 2009, before suspending interventions in June last year.

The central bank is monitoring developments in the Swiss real-estate market “with a certain concern,” Hildebrand told NZZ am Sonntag. Still, it’s possible that with the economy cooling and unemployment rising the property market may calm, he said.

Check out that last comment by Hildebrand. He is worried about a property bubble and wants to prevent deflation by printing Francs, which (until the Swiss property bubble bursts), will further inflate its property bubble, placing more deflationary pressures on Switzerland when it pops.

Don't Worry, It's Not a Bubble (It Just Looks Like One)

UBS says Swiss Property Market Booming In 3Q, But Not In Bubble

Switzerland's property market continued to boom in the third quarter, though the chance of a downward price correction remains low, according to an index measuring risk in the market.

"Strikingly, loan applications for real estate purchased for leasing increased further despite being at a high level already, and neither is any trend reversal in sight for Swiss household mortgage debt," UBS said. Still, "the relatively small increase in nominal house prices has had a cooling effect on the market."

The Zurich, Geneva and Lausanne metropolitan regions remain Switzerland's most risky regions on account of to their economic importance, but Zug, Vevey and the tourist region of Davos have now been added to the list, it said.

The Swiss central bank warned this year on the dangers of the residential real-estate market overheating, and has said it and the Swiss financial market regulator Finma are watching developments closely.

Increases in Swiss house prices, especially in some lakeside locations in Zurich and Geneva, have been driven largely by robust economic growth, historically low mortgage rates, and the influx of high-earning immigrants.

Mad Mad Recap

UBS says Switzerland real estate is not a bubble even though it is acting like one and even though the Swiss central bank and Swiss regulators are worried about it.

Moreover, the Swiss central bank is ready to stave off deflation yet is counting on the "economy cooling" to calm the property market, while attempting to prevent the economy from cooling by flooding the world with Francs.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Burning the Piigs in Effigy

Every Autumn, my neighbor has an "effigy party" and guests are invited to burn a symbol of what ails them in a display of public odium.

One of the guests was Alex Sirois, Director of Strategy of Motorola, who chose to burn a ceramic Piig. Others burnt symbols of the Chicago Cubs, the Ohio State coach, a giant cigarette by someone who was quitting smoking, and other such worthy symbols.

I arrived with the action already in progress but I did manage to catch a few burning images. Click on any shot for sharper image.

Ceramic Piig, Complete with Symbol of Euro







Lifesize replica of Ohio State football coach going up in flames. The head is an image taped on a balloon. How that balloon lasted so long in a fire is rather amazing.



No effigy burning party would be complete without burning a figure of the most futile team in all of sports history, the Chicago Cubs.







If by some miracle the Chicago Cubs win next year, please thank my neighbor's associates for properly exorcising the demons that haunt the Cubs.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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In Act of Desperation, G20 Asks Germany to Pledge its Gold for EFSF Rescue Fund, Bundesbank Refuses; Grateful for the Arrogance

The gall and arrogance of the G20 and Euro-nanny finance minister clowns is staggering.

German newspapers report that the G20 discussed asking Germany to pledge its gold to bail out Greece and the Piigs, and to fund the EFSF.

The Bundesbank, Germany's central bank said "We know this plan and we reject it."

One might think that would be enough to stop such idiotic talk, but one would be wrong. In spite of Bundesbank opposition, euro zone finance ministers will discuss the idea next week.

Please consider Bundesbank: central bank reserves will not help fund EFSF

The Frankfurter Allgemeine Sonntagszeitung (FAS) reported that Bundesbank reserves -- including foreign currency and gold -- would be used to increase Germany's contribution to the crisis fund, the European Financial Stability Facility (EFSF) by more than 15 billion euros ($20 billion).

The European Central Bank (ECB) would own the reserves, according to the paper, citing sources at the G20 meeting held in Cannes this week.

The Welt am Sonntag newspaper, citing similar plans, said 15 billion euros would come from special drawing rights (SDR) that the Bundesbank holds.

G20 leaders in Cannes discussed the idea that the European System of Central Banks could pawn their total foreign exchange reserves of 50-60 billion euros to a trust of the European crisis fund in the form of special drawing rights from the International Monetary Fund (IMF), the newspapers said.

"We know this plan and we reject it," a Bundesbank spokesman said.

The newspapers had said the issue was taken off the agenda at the G20 following Bundesbank opposition but that it would be debated on Monday at a Eurogroup meeting of euro zone finance ministers.

Grateful for the Arrogance

In spite of the stupidity of discussing something that is not going to happen, here are three reasons to be grateful they did.

1. The proposal highlights the desperation, blatant arrogance, and sheer pig-headedness of the G20 and Eurozone finance ministers.
2. The proposal shows that gold is money.
3. Sooner or later, one of these asinine proposals will will cause Germany to realize the EMU is a lost cause. The sooner Germany realizes that, the better off everyone will be.
   

ZeroHedge addresses the question "why will this be debated?"

Why will it be debated? Because when at first you don't succeed, try, try again. Germany may be crossed off the list, but here is who is next in order of appearance. Sooner or later, Europe will stumble on that one "leader" whose gold is less valuable than their political stability.

If France and Italy want to expand the EFSF, why don't they pledge their own gold rather than asking Germany to pledge its gold?

One possible answer is that any country dumb enough to pledge its gold will very quickly lose its AAA rating. However, the Euro-nanny finance minister clowns are probably not bright enough to figure that out.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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ECB Threatens to Halt Italian Bond Purchases; Italy Prime Minister Pressured to Resign; Bond Buyer's Strike Coming Up?

In yet another attempt to pressure prime minister Silvio Berlusconi into promised reforms ECB debates ending Italy bond buys.

The European Central Bank often discusses the possibility ending the purchase of Italian government bonds if it concludes Italy is not adopting promised reforms, ECB Governing Council Member Yves Mersch said.

"If we observe that our interventions are undermined by a lack of efforts by national governments then we have to pose ourselves the problem of the incentive effect," Mersch said according to extracts of an interview with Italian daily La Stampa to be published on Sunday.

Asked if this meant the ECB would stop buying Italy's bonds if it did not adopt reforms it has promised to the European Union, Mersch, who heads Luxembourg's central bank, replied:

"If the ECB board reaches the conclusion that the conditions that led it to take a decision no longer exist, it is free to change that decision at any moment. We discuss this all the time."

Mersch said the ECB did not want to become a lender of last resort to help the euro zone solve its debt crisis and said it was concerned that its job could be made more difficult by governments that "don't meet their responsibilities."

"Our job is not to remedy the errors of politicians," he said.

For starters, the ECB is already the lender of last resort. Moreover, one look at Portugal and Italy suggests the ECB is not having the intended effect.

"Our job is not to remedy the errors of politicians" said Mersch. How true, if only they would practice what they preach. By the way, whose job is it to remedy the errors of central banks?

Finally, does anyone find the ECB's bond threat credible? I don't.

Italy Prime Minister Pressured to Quit

Every other week or so, someone puts pressure on scandal ridden Silvio Berlusconi to resign.

Pressure rose on Italy's besieged Prime Minister Silvio Berlusconi to quit on Thursday, as rebel deputies from his own centre-right party threatened to oppose the government in a vital parliamentary vote next week.

Six former parliamentary loyalists wrote to Berlusconi calling for a new government in a letter published in the daily Corriere della Sera.

"Be the backer of a new political phase and a new government," the deputies wrote.

One of the deputies, Isabella Bertolini, said the rebels could oppose Berlusconi in a parliamentary vote next Tuesday to sign off the 2010 budget.

"We are convinced that a strong political signal will come, otherwise we will see how we will act," she told reporters.

The vote could bring more rebels from the ruling PDL party out into the open, she added, if the 75-year-old premier does not change course.

Berlusconi has repeatedly rejected calls to stand aside and make way for an interim government, saying the only alternative would be to hold early elections next spring, a step he says would be irresponsible while the crisis continues.

A government source told Reuters Berlusconi had informed his European partners at a G20 summit in Cannes on Thursday he would call a confidence vote within 15 days on new measures to face the economic crisis.

Yields on 10-year BTP bonds hit more than 6.3 percent, creeping closer to the level of 7 percent which many analysts believe could lead to a so-called "buyers' strike" where investors take fright and refuse to buy the paper.

Bond Buyer's Strike Coming Up?

Reuters has the buyers strike idea backwards. It's a buyer's strike that pushes yields higher as opposed to a buyer's strike kicking in at some magic number.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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52% of Unemployed No Longer Receive Benefits; Average Duration of Unemployment is 40 Weeks

Yahoo!Finance reports Most of the unemployed no longer receive benefits

Early last year, 75 percent were receiving checks. The figure is now 48 percent -- a shift that points to a growing crisis of long-term unemployment. Nearly one-third of America's 14 million unemployed have had no job for a year or more.

Congress is expected to decide by year's end whether to continue providing emergency unemployment benefits for up to 99 weeks in the hardest-hit states. If the emergency benefits expire, the proportion of the unemployed receiving aid would fall further.

Congress has extended the program nine times. But it might balk at the $45 billion cost. It will be the first time the Republican-led House will vote on the issue.

Average Unemployment Duration



Extending the program will not do any good for those who have already used up 99 weeks. The maximum is still 99 weeks. At the state level, the number of weeks varies.

Participation Rate



The participation rate is the percentage of working-age persons in an economy who are employed (or unemployed and actively seeking a job).

Demographics (the aging workforce) affects the number, as does those going to college (or staying in college) because they cannot find a job. Those in school and not working are not considered unemployed as they are not part of the work force.

Interestingly, if the students (or anyone else) work as little as 1 paid hour per week, they are considered employed.

I believe a significant number of those who do use up all their unemployment benefits drop out of the labor force to collect retirement benefits. Such persons want a job but stop looking and go on early retirement just to have some money coming in.

There are no official statistics on the early retirement idea that I just stated.

The falling participation rate and the not counting as unemployed of those who want a job but gave up looking for jobs out of frustration has artificially suppressed the reported unemployment rate.

Table A-15

Table A-15 of the monthly jobs report is where one can find a better approximation of what the unemployment rate really is.



The official unemployment rate is 9.0%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

While the "official" unemployment rate is an unacceptable 9.0%, U-6 is much higher at 16.2%.

For more details of the latest jobs numbers, please see US Payrolls Rise by 80,000, Unemployment Rate Drops .1% to 9%; Recap and Analysis.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Italian Bond Yields and Spreads at Euro-Record High; Massive and Growing 2-10 Inversion a Sign of Pending Portuguese Implosion

Following Threats of Troika Surveillance and Inspectors Headed to Italy to Verify the Italian Books it should be no surprise to find Italian bond spreads and yields surging to new highs.

Italy 10-Year Government Bond Yield




Italy 2-Year Government Bond Yield



Germany 10-Year Government Bond Yield



Germany 2-Year Government Bond Yield



European Sovereign Debt Spread Table 10-Year Bonds

Country	10-Yr Yield	Spread vs. Germany
Germany	1.82	0.00
France	3.05	1.23
Belgium	4.38	2.56
Spain	5.58	3.76
Italy	6.37	4.55
Ireland	8.21	6.39
Portugal	11.88	10.06
Greece	26.77	24.95

European Sovereign Debt Spread Table 2-Year Bonds

Country	2-Yr Yield	Spread vs. Germany
Germany	0.40	0.00
France	1.08	0.68
Belgium	2.69	2.29
Spain	4.25	3.85
Italy	5.46	5.06
Ireland	9.19	8.79
Portugal	20.14	19.74
Greece	97.97	97.57

Inquiring minds might be interested in what European spreads look like over time. Chris Puplava at Financial Sense graciously put together a few charts at my suggestion that shows this action. Thanks Chris!

10-Year Spreads vs. Germany Over Time


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Recent Record Highs: Italy, Belgium, France

1-Year Spreads vs. Germany Over Time



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Recent Highs: Portugal, Italy, France, Belgium, Spain

Note: Portugal does not have 1-year bonds. 2-year bond yield substituted

10-Year Minus 2-Year Yields, by Country



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That massive inversion in Portuguese bonds with the 10-Year bond yield at 11.88% and the 2-year bond yield at 20.14% is a sign Portugal may blow sky high any time. Ireland recovered from a similar setup, Portugal failed to do so.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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US Payrolls Rise by 80,000, Unemployment Rate Drops .1% to 9%; Recap and Analysis

Jobs Report at a Glance

Here is an overview of October Jobs Report, today's release.

• US Payrolls +80,000
• US Unemployment Rate 9.0%
• Unemployment rate in narrow range from 9.0 to 9.2 percent since April.
  
• Participation Rate steady at 64.2%
  
• Actual number of Employed (by Household Survey) rose by 277,000
• Unemployment fell by 95,000
  
• Those not in the labor force increased by 17,000
• Civilian population rose by 198,000,
  
• Civilian Labor Force rose by 181,000
  
• Average Weekly Workweek was unchanged 34.3 hours
  
• Average Private Hourly Earnings rose 5 Cents to $23.19
  
• Government employment decreased by 24,000
  

Recall that the unemployment rate varies in accordance with the Household Survey not the reported headline jobs number, and not in accordance with the weekly claims data.

For the second month the labor force rose. This is a welcome sign. However, were it not for people dropping out of the labor force for the past two years, the unemployment rate would be well over 11%.

October 2011 Jobs Report

Please consider the Bureau of Labor Statistics (BLS) October 2011 Employment Report.

Nonfarm payroll employment continued to trend up in October (+80,000), and the unemployment rate was little changed at 9.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment in the private sector rose, with modest job growth continuing in professional and businesses services, leisure and hospitality, health care, and mining. Government employment continued to trend down.

Unemployment Rate - Seasonally Adjusted



Nonfarm Employment - Payroll Survey - Annual Look - Seasonally Adjusted



Notice that employment is lower than it was 10 years ago.

Nonfarm Employment - Payroll Survey - Monthly Look - Seasonally Adjusted



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Between January 2008 and February 2010, the U.S. economy lost 8.8 million jobs.

In the last year of the weakest recovery on record, 2+ years old, the economy averaged about 125,000 jobs a month.

Statistically, 127,000 jobs a month is enough to keep the unemployment rate flat.

Nonfarm Employment - Payroll Survey Details - Seasonally Adjusted



Average Weekly Hours



Index of Aggregate Weekly Hours



Average Hourly Earnings vs. CPI



"Success" of QE2

Over the past 12 months, average hourly earnings have increased by 1.8 percent. The consumer price index for all urban consumers (CPI-U) was up 3.9 percent over the year ending in August.

Not only are wages rising slower than the CPI, there is also a concern as to how those wage gains are distributed.

BLS Birth-Death Model Black Box

The BLS Birth/Death Model is an estimation by the BLS as to how many jobs the economy created that were not picked up in the payroll survey.

The BLS has moved to quarterly rather than annual adjustments to smooth out the numbers.

For more details please see Introduction of Quarterly Birth/Death Model Updates in the Establishment Survey

In recent years Birth/Death methodology has been so screwed up and there have been so many revisions that it has been painful to watch.

The Birth-Death numbers are not seasonally adjusted while the reported headline number is. In the black box the BLS combines the two coming out with a total.

The Birth Death number influences the overall totals, but the math is not as simple as it appears. Moreover, the effect is nowhere near as big as it might logically appear at first glance.

Do not add or subtract the Birth-Death numbers from the reported headline totals. It does not work that way.

Birth/Death assumptions are supposedly made according to estimates of where the BLS thinks we are in the economic cycle. Theory is one thing. Practice is clearly another as noted by numerous recent revisions.

Birth Death Model Adjustments For 2011



Birth-Death Notes

Do NOT subtract the Birth-Death number from the reported headline number. That is statistically invalid.

Household Survey Data



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In the last year, the civilian population rose by 1,739,000. Yet the labor force rose by a mere 238,000. Those not in the labor force rose by 1,501,000.

Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

Table A-8 Part Time Status



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Part-time status is essentially right where it was a year ago.

Table A-15

Table A-15 is where one can find a better approximation of what the unemployment rate really is.



click on chart for sharper image

Distorted Statistics

Given the total distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is hard to discuss the numbers.

The official unemployment rate is 9.0%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

While the "official" unemployment rate is an unacceptable 9.0%, U-6 is much higher at 16.2%.

Things are much worse than the reported numbers would have you believe.

Encouraging Signs

The one encouraging factor is that for the second consecutive month the household survey was significantly stronger than the payroll survey.

A significant number of workers are looking for and finding jobs. Also for the second consecutive month, the labor force rose a significant amount, this month by 181,000.

However, I wonder how much of this increase is "forced employment" fueled by expiring unemployment benefits. Regardless, the jobs still have to come from somewhere.

Yet, the entire setup is on very thin ice given the clear slowdown in the global economy.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Pimco El-Erian Video: "Unfortunately it's a Mess" in Europe, Credibility Declines, Merkozy Cannot Even Agree on the "Easy Part"

Here is an interesting interview between Mohamed El-Erian, CEO of PIMCO, and Bloomberg Television's Betty Liu and Michael McKee this morning regarding the situation in Europe and the global economy.

El-Erian said that it's "striking" that German Chancellor Angela Merkel can't agree on the "easy part" and that "unfortunately it's a mess" in Europe.



Link if video does not play: http://www.youtube.com/watch?v=-erklhXVv80

I agree with 60% of what El-Erian says. Yet once again, "non-solutions" coming from Pimco are nothing but Keynesian claptrap.

Here is a complete transcript ...

El-Erian on the situation in Europe and the G20 meeting in France:

"It is both disappointment and concern. It is striking that Ms. Merkel came out this morning and said they could not agree on the easy part, and the easy part was enhancing the IMF resources to help Europe. I am both worried and disappointed so far. Hopefully something will happen in the next day or so, but the signals are not good."

"We need four things. We need an agreement on Europe. We need to stabilize the European situation. Second, the world has to come together and agree on a growth and employment pact. Just like it did in April 2009 when there was a financial crisis, today we have an economic crisis and an employment crisis. We need to see different countries coming together with a common purpose. Third, let's not forget the hot spots in the world like North Africa. We need something there. Finally, there are longer term issues that are just as important, like climate change. That would have been an original agenda, but the G20 got hijacked by Europe."

On recently returning from Europe and his assessment from having been there:

"Unfortunately, it is a mess. There are three parties to a solution and all three are unraveling. There are the debtor countries and they are starting to have even bigger political issues. There are the official creditors and they cannot agree on providing support. And then there are the private creditors. It is not sure that they will get all of the banks to agree on the 50% reduction for Greece, which is the minimum Greece needs. So I'm afraid it's a bit of a mess out there."

On whether Europe is worse off now having gone through the agreement on Greek debt last week:

"We are [worse off now], because every time you get to an agreement and it unravels, the credibility of the process is undermined. Keep the image in your of the snowball rolling downhill. The problems get bigger and it becomes even more difficult to control the snowball. We cannot afford disappointment after disappointment. Europe needs to turn a corner and start building the basis for a solution."

On European leaders questioning whether or not they should belong in the euro:

"You are getting leaders saying strange things. It started with Mr. Sarkozy last Thursday saying Greece should not be in the euro zone. Now you have questioning left, right, and center. The leaders need to get on the same page. The narrative is important here. When there are difficulties that there is a conflict between regional priorities and national realities. That is what we're seeing in Italy. That is what we're seeing in Greece, countries like Germany and France as well. This is a very delicate period."

On today's jobs report:

"The good news is that the report in relative terms is better than expected mainly because of the revisions to August and September. The bad news is that we are still in this unemployment crisis, so no, it does not do enough to remove the risk of stall speed, which is growth but not fast enough growth. We need to see much higher employment creation to get over this issue."

On what it will take to achieve faster growth in the U.S.:

"We have fundamental structural problems in the labor market, housing market, credit market. We don't have enough infrastructure. These are a series of structural issues. We also have to reconcile medium-term fiscal reform with short-term stimulus. There are some big issues that are not as yet addressed sufficiently, certainly not addressed in a comprehensive manner."

On whether there is an increasing risk that the U.S. is losing control of its own economy because of the crisis in Europe:

"The reality is that we live in a globalized economy. Europe is a major economic area. It is an important trading partner. European banks are an important part of the financial situation. No country, whether it is the U.S. or China, is totally immune from what is happening in Europe. The important thing is to be able to navigate it and that depends on your internal dynamics. We are not immune from Europe. Nobody is in the world, but different countries are better or less able to navigate it."

On how central banks have been handling the situation so far:

"They have been doing heavy lifting. The Fed in particular has been the only policymaker really in play. The problem is they don't have enough instruments. You must always remember that central banks are monetary institutions. They can only be a bridge to somewhere. In order to be a bridge to somewhere good, you need other policymakers to also contribute. That is what has failed Europe and the U.S. so far."

On the October market rally and whether we won't see activity like that for a long time:

"This is an incredibly headline-driven market, a macro-driven market, as opposed to a bottoms up market. What we should expect is enormous volatility. We suggest to investors to play general defense and selective offense. I think it's important to be generally defensive because the world is very fluid, but there are values out there."

On whether there's more value in the U.S. than in Europe right now:

"I see value where balance sheets are strong, where companies are exposed to growth in emerging markets and where they're relatively immune to erratic policymaking. That's where value is and it's all over the world."

No Magic Wands

There are no magic wands, Keynesian or otherwise.

El-Erian 's idea that global leaders and central bankers can snap their fingers, "agree on a growth and employment pact" fueled by more stimulus and "heavy lifting" by central banks to produce growth is simply Keynesian claptrap.

Certainly structural issue need to be fixed. However, the Fed and Central bankers need to stop printing, governments everywhere need to stop deficit spending, the US needs to let housing bottom naturally, and public sector employment needs to shrink globally.

In short, there will be no gain without more pain, and that has Keynesian clowns howling at the thought.

El-Erian offered a realistic viewpoint of what is happening. Unfortunately, he is essentially clueless about what needs to be done to fix things.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Canada Loses Most Jobs Since 2009 as Jobless Rate Rises to 7.3%; Meaningful Miss Sends Loonie Lower

More proof the entire global economy is cooling rapidly comes from North of the border where Canada Loses Most Jobs Since 2009 Recession as Jobless Rate Rises to 7.3%

Canada’s economy lost the most jobs since the 2009 recession during October, led by declines in the manufacturing and construction industries, cementing projections that the recovery is slowing.

Employment fell by 54,000 after an increase of 60,900 jobs in September, Statistics Canada said today in Ottawa, in the biggest monthly decline since February 2009. The unemployment rate rose to 7.3 percent from 7.1 percent. Economists surveyed by Bloomberg News had forecast an increase of 15,000 jobs and a 7.1 percent jobless rate in October.

“The headline was bad, and the underlying numbers don’t look great either,” said Rudy Narvas, senior economist at Societe Generale in New York, by phone. “It’s not pretty.”

The world’s 10th-largest economy shrank in the second quarter, two years after its last recession. Finance Minister Jim Flaherty told lawmakers Nov. 1 the global economic recovery remains fragile, and that too many Canadians remain unemployed.

The monthly decline in Canada was led by the loss of 48,400 jobs in the manufacturing sector and 20,100 jobs in construction. Natural resources posted the biggest gain, adding 12,100 jobs.

“Essentially, we have created no net new jobs in the past three months,” said Sal Guatieri, senior economist at Bank of Montreal’s Capital Markets unit, referring to Canada. Between August and October, the economy added only 1,400 jobs, according to Statistics Canada figures.

Full-time employment dropped by 71,700 in October, while part-time jobs increased by 17,700. Self-employed workers declined by 18,100, while workers classified as employees fell by 35,900.

Employment in the private sector slid by 32,000, while public-sector jobs dropped by 3,800.

“Suddenly, the jobs market doesn’t look quite so rosy in Canada,” Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce in Toronto, said in a note to clients. The monthly decline suggests economic growth could be “much weaker” in the fourth quarter than in the third, he said.

"Meaningful Miss" Sends Loonie Lower

Bloomberg reports Canadian Dollar Declines as Jobless Rate Unexpectedly Increased in October

Canada’s dollar dropped against most of its major counterparts after a government report showed the jobless rate unexpectedly increased in October as the nation’s employers eliminated positions.

The Canadian currency slid for the first time in three days versus its U.S. counterpart on reduced demand for risk after Germany’s Chancellor Angela Merkel said Group of 20 leaders were unable to agree on International Monetary Fund resources. The Canadian dollar headed for its first weekly decline since September on increased speculation the Bank of Canada will lower borrowing costs following the jobs report.

“It’s a miss in a very meaningful way,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, in a telephone interview. “This is likely to contribute to some Canada lagging.”

The loonie, as the Canadian currency is nicknamed for the image of the aquatic bird on the C$1 coin, depreciated 1.2 percent to C$1.0193 per U.S. dollar at 11:09 a.m. Toronto time, extending its weekly drop to 2.7 percent. It touched C$1.0229, the weakest level since Oct. 20. One Canadian dollar buys 98.16 U.S. cents.

Expect more weakness in the Canadian economy and the Loonie in the coming months. No major countries will escape the global slowdown. The commodity currencies of Canada and Australia may be in for considerable declines as both countries head for recession.

My report on the US jobs situation will be out shortly.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Italy Threatened with Troika Surveillance; Merkozy Sends Inspectors to Italy to Verify the Italian Books; Berlusconi Under Intense Pressure to Resign

Angela Merkel and Nicolas Sarkozy were more than a little ticked off when Italian Prime Minister Silvio Berlusconi showed up for the Cannes summit "empty handed". In response. Merkozy proposed a new Troika for Italy and sent inspectors to pour over Italy's books.

Courtesy of Google translate, please consider Europe puts Italy under surveillance

While outside the world has their eyes on Greece, Italy is to be found in the line of sight of the negotiators inside the palace in Cannes.

"The subject is no longer Greece: the real goal is to stabilize Italy," says one side of Brussels. European leaders were particularly incensed to see Silvio Berlusconi land at Cannes without any concrete steps to ensure the fiscal trajectory of his country, providing a return to balanced public accounts in 2013. At the summit of 27 October, the Italian Prime Minister promised to present to the G20 a new package of measures.

Proposed new troika

Greece - which weighs 2% of GDP in the euro area - is a manageable issue. However, an implosion of Italy and its 1.9 trillion of debt would be far more dramatic. To reassure the markets, it is imperative that each country meets its commitments attacked. To this end, several officials in Brussels would have gone to Rome to check the progress of previous reforms.

And now, the Commission does more to go beyond, strengthening the role of the monitoring team. This would create a kind of troika, on the model of regularly examining Ireland, Portugal and Greece. With one difference: there is no question at this stage to lend money to Rome.

Moreover, Berlusconi is under intense pressure from his own cabinet and he will likely be the next Prime minister to fall.

Please consider Italy PM faces more pressure to resign

The calls on Berlusconi to resign come a day after he failed to win support at a cabinet meeting on comprehensive reforms to stimulate growth and cut the European country's massive debt.

Meanwhile, six of the Italian premier's former parliamentary loyalists are calling for a new government.

The deputies, three of whom have already left Silvio Berlusconi's crumbling coalition, wrote to the prime minister that Italy needed a "new political phase and a new government," Reuters reported.

"We are asking you to take an initiative which is appropriate to the situation," the deputies said.

Opinion polls show Berlusconi's popularity is at an all-time low. He is also facing charges of bribery, tax fraud and abuse of power.

Flush with a Pyrrhic victory over Greece (but not recognized as such just yet), Merkozy is stepping up the pressure on Italy. Expect more pressure on Spain and Portugal as well.

Although reforms are badly needed, Greece, Spain and Portugal are already imploding and budget targets will be increasing hard to meet the more austerity measures are crammed down taxpayer throats.

Recovery timelines and haircuts are both insufficient, and budget expectations are outright preposterous across the board.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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In Cabinet Revolt, Papandreou Ordered to "Calmly Step Down", and He Obliged; What about the Next Tranche of Aid?

It's the end of the line for Greek Prime Minister George Papandreou.

In a cabinet revolt led by his finance minister, Papandreou was ordered to "leave calmly in order to save his party". He obliged, having no real choice in the matter because otherwise he would have been ousted in a vote of confidence.

He may survive the vote, but it will do him no good as part of the agreement.

Please consider Greek PM ready to go, dump referendum, for euro deal

Intense European pressure forced debt-stricken Greece to seek political consensus on a new bailout plan instead of holding a referendum after EU leaders raised the prospect of a Greek exit from the euro to preserve the single currency.

Fast-moving events in Athens overshadowed the first day of a summit of the Group of 20 major economies on the French Riviera on Thursday, with anxious world leaders urging Europe to act to stop contagion from its sovereign debt crisis.

Greek Prime Minister George Papandreou bowed to cabinet rebels and agreed to step down and make way for a negotiated coalition government if his Socialists back him in a confidence vote on Friday, government sources told Reuters.

"He was told that he must leave calmly in order to save his (PASOK) party," one source said on condition of anonymity. "He agreed to step down. It was very civilised, with no acrimony."

Papandreou's Plan Backfired?

It may look that way but his days were already numbered. He was gone anyway. It is safe to say his strategy did not work. I supported the strategy because I support democracy.

Members of his own cabinet did him in, not demands from Merkozy.

What about the Next Tranche of Aid?

Radio New Zealand discusses the question of the next tranche of money in Greek PM to stand down

Finance Minister Evangelos Venizelos has warned the country needs the next €8 billion tranche of aid within the next 12 days.

But Chancellor Angela Merkel of Germany has reiterated her threat the cash will be not be available unless Greece accepts the terms of the bailout.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Opposition Leader Rejects Co-Government, Demands Resignation of Papandreou; Basking in the Clouds of Denial

It is exceptionally difficult to keep up with news stories in Europe. Every minute there is a new twist. What's clear is that no one is in charge, of anything.

Via Email from Steen Jakobsen at Saxo bank ....

Leader of opposition [Antonis Samaras] just finished talking in parliament

1. He rejects any co-government, short, medium or long-term with the ruling Pazok party
2. He demands PM resigns at once (which the PM says he will not) and creation of a new short-term emergency government - to calm the Greek people and the rest of Europe.

An emergency government that will first and foremost secure the 6th payment to Greece, the realization of the latest debt package, Greece' membership in EUR and Eurozone and then once the waters have calmed ( most likely within 3 months) to hold elections

The Finance Minister takes the stand after Samaras, asking if he is truly ready to do what he says, i.e. accept every single detail of the debt package, which is a must to ensure not only the 6th but also future payments to Greece.

That he cannot pick and choose within the package- that it is an all or nothing package.

This because Samaras has clearly in previous week said he agrees with the haircut but not with the specific austerity measures defined in the package.

Greek opposition leader walks out of parliament

CTV reports Greek opposition leader walks out of parliament

Greece's Opposition leader Antonis Samaras is continuing his calls Thursday for Prime Minister George Papandreou to resign, even going so far as to lead his party in a dramatic walkout during a parliamentary debate on government confidence.

Papandreou was said to be ignoring the calls for his resignation, after scrapping his plan for a referendum on the European bailout deal.

CTV's London Bureau Chief Tom Kennedy said Papandreou outlined his plans during an impassioned emergency cabinet meeting Thursday.

"He described all Greeks as soldiers in an army that must fight for the salvation of the country, so you can see the rhetoric he's using," Kennedy told CTV News Channel.

Basking in the Clouds

The market is still basking in the clouds of a canceled referendum and the defeat of democracy, and has not reacted to this latest news. Thus we have to wait and see what the vote of confidence looks like tomorrow.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Eurozone's Waterloo; Papandreou Forced to Cancel Referendum; Democracy Dies to Protect Banks; Germany's Dilemma: The Eurocratic Nanny Zone Vote

Cowards Win For Now

We will not get to see the precise wording of Prime Minister George Papandreou's referendum because enough cowards in the Greek parliament in conjunction with blackmail by Merkel and Sarkozy have put an end to Papandreou's regime.

Thus, the on-off on-off Greek referendum is once again set to "off" this time permanently.

Equity markets reacted positively to the referendum cancellation and also to the surprise rate cut by the ECB, but the euphoria will not last (except perhaps for gold).

Please see ECB Cuts Rate .25 to 1.25% in Surprise Move; Draghi Says Exit of Any Nation From Euro ‘Not in the Treaty’; Half-Truths and Blatant Lies; Case for Gold for a a discussion.

Grand Plan Becomes Eurozone's Waterloo

Steen Jakobsen, chief economist at Saxo Bank says The Grand Plan for Europe became the Waterloo of the Eurozone

The pre-Cannes meeting between Merko-zy and Papandreou did not change the mind of the Greek Prime Minister. The vote of confidence or more precisely the lack of it, is still going ahead and will probably culminate tomorrow, Friday.

This morning the Greek Finance Minister is indicating his displeasure with the PM by publicly opposing Papandreou - this is political posturing developing into a contention for the leadership of the political party PASOK. There is a brief rally in the market based on the idea, wrongly in my opinion, that the finance minister can and will take over and win a confidence vote, but the facts remains the same:

• Greece has been pushed too far and has not complied with the austerity it promised
• We are beyond any proper solution for this mess and only the 'blame game' remains with Greece potentially leaving the EURO inside of the next three months.

Note also that the influential newspaper Bild Zeitung this morning is calling for Greece to be thrown out of the EU and to have a German referendum on the bailouts.

Waterloo of EU

Last week's EU Summit looks more and more like the Waterloo of the EU.

The EU has overstretched its ability and resources and the next 48 hours is yet again about saving the concept of the Eurozone as a powerful, pragmatic way of conducting fiscal and monetary policies, but in reality we have become saturated with debt, empty promises, and a political system which is reduced to producing plans for later plans.

Weak Economies, Weak Leaders, and Greece on the Brink

I have not agreed with much in the New York Times recently, but today's editorial Greece on the Brink is nearly flawless. Here are a few snips.

Europe’s leaders should have paid more attention to the distress of ordinary Greeks and less to the distress of well-heeled European bankers. Rather than trying to punish the “profligate,” they should have thought about the consequences of condemning Greece to years of negative growth, soaring unemployment and rising taxes with nothing promised in return except that maybe, a decade from now, its ratio of debt to gross domestic product might get back down to the problematic levels of 2008-9.

Greece needs to make serious, painful reforms, including doing away with antiquated labor rules, streamlining a bloated public sector and selling off poorly managed state assets. Mr. Papandreou was already making real progress. But it was becoming impossible to keep laying off thousands of state workers while austerity choked off any realistic possibility of their finding private sector jobs or to keep slashing social benefits and services while the numbers of poor and unemployed surged.

It is late but, we hope, not too late to avert a full meltdown. Europe’s leaders need to renegotiate the pending Greek bailout deal to emphasize reform and growth over unremitting austerity and offer other bailout applicants the same approach. If they want any of the money lent to Greece paid back, Athens needs room to grow and earn.

Chancellor Angela Merkel of Germany, President Nicolas Sarkozy of France and others are now rushing to blame the Greeks for the summit package’s rapid unraveling. They need to take their own full share of responsibility for this crisis — and finally fix it.

Democracy Dies to Protect Banks

The spot-on sentence is "Rather than trying to punish the 'profligate', they should have thought about the consequences of condemning Greece to years of negative growth, soaring unemployment and rising taxes with nothing promised in return except that maybe, a decade from now, its ratio of debt to gross domestic product might get back down to the problematic levels of 2008-9."

Indeed, resolution of this mess has been 100% about how to bail out banks at taxpayer expense even though banks brought this mess on to themselves by treating sovereign debt as if it had zero risk.

Worse yet, banks plowed into sovereign debt trades with massive leverage.

Eurozone is Unfixable

My one quibble with the article is the Eurozone is not fixable.

Merkozy and the EMU ought to be spending time on developing a full blown Euro exit strategy for nations because there has never been a currency union in history that has survived without a fiscal union in place at the same time.

Germany is Last Hope for Sensible Democratic Referendum

EMU officials and political opportunists like Merkozy may have been able to ram through some sort of forced agreement in a majorly undemocratic fashion but fortunately the German supreme court has insisted on a referendum for major treaty changes.

Please see Germany's Top Judge Throws Major Monkey Wrench Into Leveraged EFSF Machinery, Demands New Constitution and Popular Referendum for Further Powers for details.

Today, democracy died in Greece. The last hope for a sensible democratic action culminating in a relatively sanguine breakup of the Eurozone rests with Germany.

German voters will get their chance sooner or later. Here is the choice German voters will face:

• German citizens agree to join a full-blown Eurocratic Nanny Zone (ENZ) giving up sovereignty on nearly everything that matters.
• The Eurozone breaks apart.

There are no other choices, only half-way proposals to temporarily forestall the inevitable. Either way, there will be much pain for Germany.

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