Media Hype Over Sequester Cuts

President Obama is playing the media like a fiddle (more accurately like the fools they are). Countless mainstream media articles talk about the devastation that is sure to follow if the sequester cuts take place. Obama has even hyped this up with threats of cuts on vaccinations for children.

Here is one example of the hype: New crisis looms as budget cuts hit US on Friday.

Billions of dollars in harsh budget cuts are hitting the U.S. government on Friday, and officials are conceding that last-minute moves by both Democrats and Republicans in Congress to soften the blow are doomed.

Economists and lawmakers alike agree that the cuts, the potential shutdown and the country's series of fiscal crises overall are hurting the country's shaky comeback from the Great Recession, and the effects will be felt around the world. Both political parties have said the cuts — of 5 percent to domestic agencies and 8 percent to the military— could inflict major damage to government programs and the economy at large.

Obama, speaking to a group of business executives Wednesday night, said the cuts would be a "tumble downward" for the economy, though he acknowledged it could takes weeks before many Americans feel the full impact of the budget shrinking.

Domestic agencies would see their budgets frozen almost exactly as they are, which would mean no money for new initiatives such as cybersecurity or for routine increases for programs such as low-income housing.

"We're not going to do that," said Sen. Tom Harkin, a Democrat.

Budget Freeze Oh My!

My friend Tim Wallace pinged me today with a few thoughts. ...

Hi Mish

In 2006 the Federal spending was $2.6 trillion. In 2008 the budget had gone up to $2.9 trillion, an increase of "only" 12.2% in two years. Then, the "financial crisis" hit and a "one time" increase in the budget was put in place to bail out all the political cronies.

That "one time" increase ballooned the budget to $3.5 trillion, an increase of 18% over 2008, but an increase of 32.6% over 2006!

So, what happened to this "one time" increase? Did it go away the next year? Of course not!

Federal spending has remained above $3.5 trillion since, and is even up again to about $3.6 trillion. This is 33% more than 6 years ago.

Suppose inflation was the basis for budget increases. Then let's use the joke of a 2% a year inflation rate that Bernanke claims. On that basis, spending based on 2000's numbers would be $2.3 trillion! If you double the rate of inflation to 4% a year since 2000, spending would be $2.9 trillion ($600 billion less - each year than the current budget).

Clearly the problem is spending yet allegedly mere decrease of $85 billion (most of it back-loaded) is too much for Obama and Bernanke.

Tim

This media hype over sequestration is ridiculous.

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

Did Obama Tax the US Into Recession?

Here's the question of the day: Did president Obama tax the US into recession?

Trim Tab's Charles Biderman makes that exact claim in U.S. Entered Recession in January Yet Fed Fix Keeps Stocks Pumped.

Welcome to the new recession. TrimTabs tracking of real-time wages and salaries shows that the United States has entered into a recession this year. I had been predicting a slowdown after the big bump in December incomes due to the hike in taxes. It has taken a while for us to get a handle on income this year given all the changes in tax rates. But now enough time has passed that I can say I was right. The U.S. economy has slowed enough to enter into recession.

This is how I know we have entered into a recession. After-tax wages and salaries net of inflation have been shrinking year over year since the second week in January. What has been growing dramatically in real time this year is income and employment tax payments. Withheld income and employment taxes have been running about 8.3% higher year over year, comparing the same 33 business days between Tuesday, January 8 and Monday, February 25.

Checking with our favorite official Washington economist, we now know that higher employment taxes accounted for 6% and new soak-the-rich taxes 2% of that 8.3% gain. That means that, before inflation, after-tax wages and salaries grew by only 0.3% for the 135 million Americans that have jobs subject to withholding.

After inflation? Well, what is inflation now? If you believe the Fed, around 2%. Others say higher. Regardless, there is no doubt that the Obama Administration has taxed us into a recession. Congratulations.

Inquiring minds may wish to read the rest of Biderman's article for some interesting thoughts on insider selling, stock buybacks, and Trim Tabs' employment projections vs. BLS reporting.

When Did the Recession Start?

Biderman claims the recession started in 2013. I suggest the US has been in recession since last  June or July but the recession was masked over by four identifiable factors.

1. Obamacare was responsible for huge hiring of part-timers in the third and fourth quarter, distorting unemployment statistics.
2. Tax policy and Obamacare policy further shifted expenses and salaries into 4th quarter, yet nominal GDP was still negative for the quarter.
3. Electioneering games, particularly in regards to military spending, distorted the third quarter statistics.
4. Blatantly dishonest GDP deflators have overstated Real GDP for all of 2012 but especially the second half of the year.

Let's assume I am wrong about recession timing, and Biderman is correct. The initial question remains.

Is Obama to Blame?

The answer is no, not really. If the US was not in recession before and is now, the tipping factor is likely to be 2% payroll tax hikes that started in January and secondarily state tax hikes such as Proposition 30 Tax hikes in California, not specifically Obama's tax-the-wealthy policies.

Certainly Governor Brown and union fearmongering is responsible for the hikes in California.

Who is to blame for the payroll tax hikes? I suggest both parties. There never should have been a cut in the first place with these preposterous budget deficits.

It's not that I am against tax cuts. Rather I am against preposterous budget deficits and both parties are certainly to blame for that.

This does not detract from Biderman's overall analysis, just the finger-pointing about who is to blame.

Ultimately, Fed policies, fractional reserve lending, and Congressional spending are the real culprits in this mess, and I bet if Biderman gave it a second thought, that he would agree (regardless of which of us is correct on timing).

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

Walmart Slow to Stock Shelves as Consumer Sales Slump

Looking for strong evidence a consumer slowdown is in progress? Look no further than a Bloomberg reports that shows Wal-Mart’s Slowness to Stock Shelves Worsens, Sales Slump.

Wal-Mart Stores Inc (WMT), already struggling to woo shoppers constrained by higher taxes, is “getting worse” at keeping shelves stocked, the retailer’s U.S. chief told executives, according to minutes of an officers’ meeting obtained by Bloomberg News.

“We run out quickly and the new stuff doesn’t come in,” U.S. Chief Executive Officer Bill Simon said, according to the minutes of the Feb. 1 meeting. Simon called “self-inflicted wounds” Wal-Mart’s “biggest risk” and said an executive vice president had been appointed to fix the restocking problem, according to the minutes.

Once a paragon of logistics, the world’s largest retailer has been trying to improve its restocking efforts since at least 2011, hiring consultants to walk the aisles and track whether hundreds of items are available. It even reassigned store greeters to replenish merchandise. The restocking challenge emerged as Wal-Mart was returning more merchandise to shelves and reducing staff in many stores.

Wal-Mart’s inability to keep its shelves stocked coincides with slowing sales growth. Same-store sales in the U.S. for the 13 weeks ending April 26 will be little changed, Simon said in the company’s Feb. 21 earnings call.

There's Something Happening Here

In case you missed it, please consider Walmart Senior VP Asks "Where are All the Customers? And Where’s Their Money?"; "February MTD Sales a Total Disaster"

With a tribute to Buffalo Springfield (sorry I cannot find a decent musical video) ...
There's something happening here. What it is, is exactly clear ...

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

Is Inflation the Legacy of the Federal Reserve?

In testimony to Congress on February 27, Bernanke bragged that inflation under his and Greenspan's watch was a mere 2% a year.

Of course Bernanke ignored a housing boom and bust. He also ignored a a dotcom boon and bust, a global financial crisis, numerous bank bailouts, and a policy of "too big to fail" that is now "even bigger".

Fed Inflation

A Bloomberg video exposes Bernanke as nothing but a charlatan. Please consider Hockey Stick Inflation.



Inflation Targeting at 2% Per Year

Bernanke brags about a 2% inflation rate as if it is something to brag about. It's not. This is what it looks like over time.

Inflation Targeting at 2% a Year

click on any chart for sharper image

Hockey Stick Inflation



Real Disposable Personal Income Per Capita



See the Problem?

Hopefully so, because it's obvious. The moment (for any reason) wages stop rising at the rate of inflation, the system is in stress. Why might wages stop rising? Global wage arbitrage is certainly one reason.

Even if that did not happen, income skew comes into play. Wages of the top 10% rise far faster than the wages of everyone else. As proof, I present Top 1% Received 121% of Income Gains During the Recovery, Bottom 99% Lose .4%; How, Why, Solutions

Also consider "Too Big To Fail" and other inept government policies as noted in Obama's Infrastructure Mania; Why It's Not Justifiable (And What To Do About It)

The Source of Inflation

If you are looking for "THE" source of inflation, look no further than the Fed, fractional reserve lending, and government policies that benefit those with first access to money (namely the banks and the already wealthy).

Bernanke has the gall to brag about his 2% inflation fighting "achievement", ignoring numerous boom-bust cycles, bank bailouts, and income skew.

The ultimate irony is the Fed and its inflationary policies is the primary reason inflation exists at all.

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

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What Bernanke Didn't Say About Housing (And Everything Else); Bernanke's Ploy

Caroline Baum had some interesting comments about Bernanke's testimony before Congress in her writeup What Bernanke Didn't Say About Housing.

One of the more interesting exchanges at Ben Bernanke's testimony to the Financial Services Committee today was the one between the Federal Reserve chairman and Representative Scott Garrett, a Republican from New Jersey.
    
Citing Bernanke's assertion that one of the benefits of QE had been the rise in home prices, Garrett said the following: "Previously you have said that the Fed's monetary policy actions earlier this decade, 2003 to 2005, did not contribute to the housing bubble in the U.S. So which is it? Is monetary policy by the Fed not a cause of inflationary prices of housing, as you said in the past? Or is it a cause of inflating prices of housing? Can you have it both ways?"

"Yes," Bernanke said, much to Garrett's surprise. The increase in home prices now is justified by the low level of mortgage rates, he said. On the other hand, those rates averaged 6 percent in the early part of the last decade and "can't explain why house prices rose as much as they did."
    
What he didn't say was that the percentage of adjustable- rate mortgages soared to a record 37 percent of total mortgage volume in 2005. From mid-2003 to mid-2006, ARM volume averaged 30 percent. The interest rate on ARMs is priced off the Fed's overnight rate. It was this type of loan that witnessed the most egregious underwriting abuses and the highest delinquency and foreclosure rates. Garrett 1, Bernanke 0. ....

Bernanke's Ploy

Bernanke's ploy (as with every central banker) is to absolve themselves of blame for the problems they inevitably cause. Earlier I noted an exchange between Bernanke and Elizabeth Warren that caught Bernanke off guard (see Elizabeth Warren Grills Bernanke on "Too Big to Fail" Policy).

Baum mentioned another one above, and I have a third below.

Sparks Fly: Bernanke Asked to Cut the "Ton of Fat"

Please consider this interesting video where Representative Sean Duffy, a Republican from Wisconsin, confronts Federal Reserve Chairman Ben Bernanke about cutting the `fat' in the budget.



Link if video does not play Sparks Fly: Bernanke Asked to Cut the "Ton of Fat"

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

Elizabeth Warren Grills Bernanke on "Too Big to Fail" Policy

Inquiring minds are watching Bernanke squirm under pressure from Senator Elizabeth Warren who complains "Too Big To Fail" is now bigger than ever before.



Partial Transcript

Warren: These big financial institutions are getting cheaper borrowing to the tune of $83 billion in a single year, simply because people believe government would step in and bail them out. And, I'm just saying, if  they're getting it, why aren't they paying for it?

Bernanke: I think we should get rid of it.   

Warren: Alright. I'll ask the other question. You were here in July, and you said you commended Dodd-Frank for providing a blueprint to get rid of "Too Big to Fail". We've now understood this problem for nearly five years, so when are we going to get rid of "Too Big to Fail"?

Bernanke: Well, some of the you know uh as we've been discussing, some of these rules take time to develop. Uh, uh. ...."

It's safe to say Bernanke was not prepared for this line of questioning.

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

Nobody Can't See Nothin'

As expected (in this corner but certainly not from economic cheerleaders masquerading as economists), eurozone retail sales are plunging across the board, even in Germany. Let's take a look at a few key reports.

France

The Markit France Retail PMI shows sharpest drop in sales for six months.

Key Points:

• Sales down markedly on both monthly and annual measures
• Targets missed to greatest extent in series history
• Purchasing activity falls at sharpest rate since July 2012 

Summary:

The French retail sector was caught in a deepening downturn during February. Sales fell sharply on both a monthly and annual basis, while there was a survey-record shortfall versus previously set plans. Retailers’ gross margins continued to be squeezed by a combination of higher purchasing costs and strong competitive pressures. Stock levels and employment meanwhile both declined. The headline Retail PMI® registered 44.3 during February. The latest reading was down from 47.0 in January, and signalled the steepest month-on-month drop in sales since August 2012.

Gross margins in the French retail sector decreased further in February. The rate of contraction was marked and the sharpest since last October. Survey respondents indicated that margins had been squeezed by a combination of intense competitive pressures and higher purchasing costs.

Italy

The Markit Italy Retail PMI shows Retail sector remains firmly in contraction.

Key points:

• Monthly rate of decline in sales slowest since last September, though still steep overall
• Slowest decline in employment for two-and-a-half years
• Further substantial drop in stock levels

Summary:

The seasonally adjusted Markit Italian Retail PMI® climbed to a five-month high of 40.6 in February, from January’s reading of 37.5. This signalled that the monthly rate of decline in sales eased since the start of the year, but nevertheless still remained sharp overall.

Compared with the situation 12 months previously, Italian retail sales were down sharply in February. The year-on-year rate of decline was well in excess of the long-run series average, and slightly faster than in the preceding survey period. Retailers recorded a marked degree of underperformance during the latest survey period, with sales in February well down on levels previously planned for. Moreover, the difference between actual and targeted sales was greater than in the opening month of the year.

Germany

The Markit Germany Retail PMI shows Renewed decline in German retail sales.

Key Points:

• Retail PMI below 50.0 level for second time in three months
• Sharpest year-on-year sales decline since April 2010
• Sales fall short of plans by widest margin since January 2012

Summary:

The seasonally adjusted Germany Retail PMI dipped back below the neutral 50.0 value in February. At 47.6, down from 51.0 in January, the latest reading matched that seen in December and was the joint-lowest for ten months. Survey respondents commented on subdued household demand and lower consumer footfall in relation to unfavourable weather conditions in February.

Sales down sharply on a year-on-year basis

February data indicated that like-for-like sales were down sharply compared to one year earlier. The index measuring retail sales on an annual basis in Germany pointed to the fastest pace of contraction since April 2010. Around 40% of survey respondents noted a drop in sales compared to February 2012, while just one-in-four signalled an increase.

Targets missed to greatest extent in just over a year

Retailers in Germany signalled that their sales in February fell short of targets, and to the greatest degree since January 2012. Over three times as many respondents (46%) reported that sales were below expectations as those that exceeded their initial targets (13%). Although sales disappointed in February, retailers are optimistic on balance about the prospects for sales in one month’s time.

Eurozone Composite

The Markit Eurozone Retail PMI shows Record year-on-year fall in Eurozone retail sales in February.

Key points:

• Fastest annual drop in revenues in nine-year survey history
• Broad-based weakness by country
• Retailers’ stocks of goods fall at strongest rate in over three years

Summary:

Markit’s Eurozone retail PMI® data for February signalled a record year-on-year fall in retail sales revenues in the single currency area. Sales were also down sharply compared with January, as signalled by a PMI reading of 44.5, down from 45.9.



Retail Sales Germany, France, Italy



Germany registered a fourth decline in sales in the past seven months, while French retail sales fell for a survey-record eleventh consecutive month and at the fastest pace since last August. Italy continued to show the strongest overall decline, albeit the weakest since last September. All three countries registered stronger year-on-year falls in retail sales in February. The annual rates of decline in Germany, France and Italy were the
sharpest in 34, nine and two months respectively.

Abysmal (And Going to Get Worse)

I certainly see no reason to change my forecast that eurozone GDP will contract far greater than economists foresee, led by France and Germany.

As noted a month ago, the "Core" of Europe was down to Germany. Analysts and economists will soon discover "Europe is Rotten to the Core"

Mario Draghi did not save Europe with his LTRO program, all he did was delay the inevitable, and at a huge cost too.

One cost can be seen in the Italian elections where voters have had enough of Super Mario Monti, sweeping the technocrat prime minister out of office in a massive rout led by a surge in eurosceptic vote for Beppe Grillo. (See Youth Vote Propels Five Star Movement Into First Place as Largest Political Party in Italy).

In France, and also as expected in this corner Unemployment Highest Since 1997. French GDP estimates have been twice revised lower. They will be revised lower yet again.

How much more pain Greece, Italy, and Spain are willing to take remains to be seen, but it isn't infinite.

Eventually Will Come a Time 

I repeat my November 23, 2011 warning Eventually, Will Come a Time When ....

Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the "bail out" debt foisted on their country to be null and void. That person will be elected.

All it will take, is for one charismatic person, timing social mood correctly, to say precisely one right thing at exactly the right time. It will happen.

When that does happen, expect to hear "Nobody could possibly have seen this coming!"

Clearly we need a new definition of "nobody" because "nobody" saw the rise of Beppe Grillo's Five Star Movement, and of course "nobody" saw the housing crash coming either.

Clearly, nobody can't see nothin'.

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

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France Unemployment Highest Since 1997

In the easy to see coming category (thanks to the socialist policies of French president Francois Hollande) French unemployment level hits 15-year high.

Unemployment numbers in France rose by 43,000 in January to 3.16 million, an increase of 10.7 percent from last year, the labour ministry revealed on Tuesday. The figure is at its highest since January 1997, when it reached 3.19 million.  

Rising unemployment is a setback for Socialist President Francois Hollande, who has pledged to curb the unemployment rate from the current level of more than 10 percent to a single-digit figure by December.

But mounting economic problems have already forced Hollande to abandon a goal to reduce the fiscal deficit to 3 percent in line with European Union norms after slashing this year's growth forecast.

His government is struggling with weak growth, poor competitiveness, thousands of layoffs and general economic gloom.

This is going to be a bleak year for Europe, with France leading the way.

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

Less Than Useless: Goldman Sachs Lowers Gold Forecast Following Plunge (Purposely Late?); Downside Risks

In the less than useless category, Goldman Sachs lowered its gold price targets by over $200 an ounce following the recent plunge. Goldman now says Gold’s Cycle Seen Turned.

The cycle for gold prices, which climbed for 12 straight years, has probably turned as the recovery in the U.S. economy gathers momentum and investment holdings collapse, according to Goldman Sachs Group Inc., which reduced forecasts for the metal.

The bank cut its three-month target to $1,615 an ounce from $1,825 and lowered the six- and 12-month forecasts to $1,600 and $1,550 from $1,805 and $1,800. Goldman reversed an assumption exchange-traded products holdings will expand in 2013, analysts Damien Courvalin and Jeffrey Currie wrote in a Feb. 25 report.

Soros Sells

Billionaire investors George Soros and Louis Moore Bacon cut their stakes in gold ETPs last quarter, while John Paulson maintained his share, government filings showed this month. Global holdings reached a record 2,632.5161 tons on Dec. 20.

Gold futures fell to $1,554.30 on Feb. 21, the lowest since June 29, after minutes from the U.S. Federal Reserve’s January meeting showed debate over the pace of asset purchases.

“Our economists believe that the downside risks to their forecasts have diminished while the uncertainty about the size of QE3 is high,” the Goldman report said. “We believe that a shift has occurred over the past few months with conviction in holding gold waning quickly.”

Downside Risks and QE Uncertainty

In contrast to the opinion of Goldman, I would like to note there is little uncertainty about QE. Bernanke is insanely committed to the idea.

In regards to downside risks to the economy I will also take the other side.

Downside Risks

• The 2% payroll tax hike is going to take a far bigger bite out of the economy than most think.
• The "sequester effect" will be small, yet larger than most think
• Europe is an absolute basket case and will get worse
• China is slowing down and overheating at the same time from an inflation standpoint (See China Overheating? Biggest Weekly Cash Drain in History; Questions Surface Over Chinese Growth Numbers)
• Global rebalancing in general is not off to a good start
• US budget cuts are anemic and far more should come. The only upside is if none come, and that effect would be a temporary sideways push because more stimulus is not in the cards, even if needed.

It is incredulous for Goldman to state diminished downside risks.

Gold Action

With Soros and others selling, and with Goldman (and/or JP Morgan) likely front-running the trade by shorting futures at illiquid times, perhaps we have already seen the bottom at $1554.

Unlike others who believe gold is constantly manipulated lower, I believe manipulation is equal in both directions. Look at it this way: In contrast to what GATA says, Goldman and JP Morgan do not care which direction gold (or silver) is going, only that they make a profit by front-running the surge in volume.

After a rebound in price, expect Goldman to change its forecast again, telling everyone why they should buy gold. This is the way Wall Street parasites work (even if in this example I am early with this forecast).

A quick check now shows gold has already rebounded to $1616, up $30 on the day. Where to from here? I don't know, but with Soros and other big sellers out of the way, and with Goldman and other market makers front-running the trades lower, I like my chances here, quite a lot.

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

Youth Vote Propels Five Star Movement Into First Place as Largest Political Party in Italy

By a very slim margin Beppe Grillo's Five Star Movement is the largest political party in Italy. Young voters and first-time voters are responsible for the surge (see comments from "AC" below).

Here are the official election results.

Chamber

• GIUSEPPE PIERO GRILLO - MOVIMENTO 5 STELLE - 8,689.168 - 25.55%
• PIER LUIGI BERSANI - PARTITO DEMOCRATICO - 8,644,187 Votes - 25.42%   
• SILVIO BERLUSCONI - IL POPOLO DELLA LIBERTA' - 7.332.667 Votes - 21.56%
• MARIO MONTI - SCELTA CIVICA CON MONTI PER L'ITALIA - 2,824,001 Votes - 8.30%

Bersani gets 55% of the Chamber seats because his center-left coalition barely beat Berlusconi's center-right coalition by a 29.54% to 29.18% margin otherwise Berlusconi would be courting Beppe Grillo (likely to no avail) to form a coalition.

Senate

• PIER LUIGI BERSANI - PARTITO DEMOCRATICO - 8,399,991 Votes - 27.43%
• GIUSEPPE PIERO GRILLO - MOVIMENTO 5 STELLE - 7,285,648 - 23.79%
• SILVIO BERLUSCONI - IL POPOLO DELLA LIBERTA' - 6,829,135 Votes - 22.30%
• MARIO MONTI - SCELTA CIVICA CON MONTI PER L'ITALIA - 2,797,451 Votes - 9.13%

The center-left received a higher percentage of votes than the center-right by a 31.63% to 30.72% margin. However, Senate seats are assigned based on regional totals and the result will be something like a 119 to 117 spit with the Five Star Movement picking up 54 Seats. A majority takes 158 so no coalition is likely.

Comments From "AC"

Reader "AC" who is from Italy but now lives in France writes ...

Final result are now available: M5S is the first political party at the Chamber of representatives, by a mere 46k voters. The Center-Left coalition scored first as coalition and therefore received a 55% majority of seats in the Chamber. There is no majority in the Senate and no possible majority even combining Bersani with Monti, so the result is a hung Parliament, exactly the forecast I made months ago.

In the Senate M5S is not the first party and scored a little bit less (23.79%). The main differences in the voters between Chamber and Senate is that to vote for the Chamber you must be eighteen, for the Senate you need to be 25 years old. This means that youngest part of the population and first-time voters voted massively for M5S.

Regards

AC

Flashback June 29, 2012: Time-Lapse Interactive Graph Shows Stunning Rise in Anti-Euro Sentiment in Italy led by Beppe Grillo Five Star Movement.

Flashback June 27, 2012: Reader from Italy Explains Why Early Elections Might Lead to "Deadlock"

Explaining Italian Politics

Reader "AC" who is from Italy but now lives in France, has some observations and comments on Italian politics in response to Monti Threatens to Resign if No Eurobonds; Specter of Early Elections

Monti's days are indeed numbered because he will step down at the end of legislature (spring 2013) and he will not seek for renewal of his mandate in the new one. However, his term could be even shorter.

There could be early elections before the natural term. ... the most likely outcome of the next election in Italy is a deadlock ... the Senate will most likely be fragmented with no majority at all. To govern, you need majority on both.

Explaining the Surge for Grillo

1. Youth unemployment of 27%
2. People in general tired of austerity
3. People in general fed up with corruption in the major political parties

There were early elections and the result was indeed a deadlock.

Thanks to "AC" I have been following Beppe Grillo since early 2012. Mainstream media mostly ignored Beppe Grillo until after the election, shocked by a result we predicted long ago.

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

China Overheating? Biggest Weekly Cash Drain in History; Questions Surface Over Chinese Growth Numbers

In December I suggested the modest bounce in China PMI would not last. It didn't. The allegedly sustainable recovery in China is already in question.

The HSBC Flash China Manufacturing PMI™ shows manufacturing conditions barely above contraction.

Key points

• Flash China Manufacturing PMI™ at 50.4 (52.3 in January). 4-month low.
• Flash China Manufacturing Output Index at 50.9 (53.1 in January). 4-month low

Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: "The Chinese economy is still on track for a gradual recovery. Despite the moderation of February’s flash PMI, the index recorded the fourth consecutive reading above the 50 critical line. The underlying strength of Chinese growth recovery remains intact, as indicated by the still expanding employment and the recent pick-up of credit growth."

Questions Surface Over Chinese Growth Numbers

Those expecting China to be in some sort of sustainable recovery with Europe in a major recession and the US in a big slowdown if not outright recession are a bit delusional.

Please consider China’s Premature Overheating.

China began this year with an off-the-charts explosion in credit issuance. Last week, it broke records again, this time for the amount of cash drained from its banking system. The record credit issuance of 2.5 trillion yuan ($400 billion) in January — comprising both bank lending and non-bank financial institutions’ credit — always looked as if it was verging on the reckless.

The surprise perhaps is that this reversal came so early. The central bank withdrew 910 billion yuan from the economy via open-market operations last week, its biggest weekly cash drain ever.

This action coincided with warnings from Beijing for local governments to keep a tight reign on property-market speculation, amid fears of bubbles reappearing. On Friday, the government further extended its existing battery of property taxes to try to take the heat out of the market. The new measures target non-residential property and buyers of second homes.

In recent weeks, the Chinese capital has literally ground to a halt due to smog worsened by traffic and factories. Nomura says in a new report that pollution has got so bad, it may force policy change on the government, which will inevitably reduce growth in the short term. An unusual appendix in the report was a nationwide map of Particulate Matter (PM) readings.

 It has always been hard to square away China’s position as a low-cost manufacturing hub, while at the same time having some of the highest-priced real estate in the world. Some economists have an explanation: The numbers are plain wrong.

Standard Chartered Bank’s Stephen Green questions if China’s growth in 2012 might have only been 5.5%, even as the official figure was 7.8%.

And if China’s inflation has been running at a higher pace than we thought, reining it in could prove more difficult. How soon before investors need to worry again about what landing lies ahead for China’s overheating economy?

No one really knows the true state of China's GDP, but many of us do realize it's overstated, perhaps by a large amount. GDP is not a good measure of the true state of the economy anyway, with fiscal stimulus everywhere you look.

Realistic Outlook

• July 18, 2012: "China Rebalancing Has Begun"; What are the Global Implications? Michael Pettis on China Rebalancing, Chinese Price Deflation, and Spain Exit from Euro; Target 2 Revisited
 
• August 16, 2012: Pettis on Debt, Currency Wars, Commodity Prices and Capital Flight; China FDI Contracts 8.7% YoY, 8th Drop in 9 Months
 
• December 27, 2012: Michael Pettis on China Reforms, Ponzi Schemes in Wealth Management Programs, Rebalancing Implications

GDP aside, global rebalancing has just begun, and it may take a decade to finish. Expectations that the worst is behind us in China and in Europe is about to be shattered on the hard rocks of reality.

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

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Rand Paul Keynote Speaker in Palatine, Illinois Monday, March 4th

Senator Rand Paul is the keynote speaker for a dinner fundraiser on Monday, March 4th, 2013 at 6PM at The Cotillion in Palatine Illinois.

Tickets are $100. I picked up a couple of them. If anyone would like to join me at my table for dinner and drinks after, you can get tickets through EventBrite.

Money goes to support Northwest Suburban Cook County Republican Township Organizations. Tuesday, February 26 is the last day for ticket sales, so please immediately

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

Beppe Grillo's Five Star Movement On Verge of Being Largest Political Party in Italy; Italy Stock Market Futures Plunge 3.5%

As the vote totals wind down, Beppe Grillo is the symbolic winner in the election. His MoVimento 5 Stelle (MS5 - Five Star Movement) is on the verge of becoming the largest party in Italy by popular vote.

As of 4:00 PM...

The center-left coalition of four political parties has 29.7% of the vote, but Bersani's party, Partito Democratico (Pd), has 25.5% of the vote.

Beppe Grillo has no coalition. His MoVimento 5 Stelle (M5S) party is in a dead tie with 25.5% of the vote.

The center-right coalition of nine political parties received 29.0% of the vote, but Berlusconi's party, Il Popolo della libertà (Pdl), received 21.4% of the vote.

On an Actual Party (Not Coalition Basis)

• Pier Luigi Bersani - Partito Democratico (Pd) - 25.5%
• Beppe Grillo - MoVimento 5 Stelle (M5S) 25.5%
• Silvio Berlusconi - Il Popolo della libertà (Pdl) - 21.4%

Those totals are as of 4:00 Central. I have been watching the totals for a half hour. M5S has been inching up steadily. A half hour ago M5S was down by .5%. Momentum suggests M5S will overtake Partito Democratico (Pd).

Italy MIB Stock Market Futures Plunge

From the Guardian Election Blog



Update As of 4:20 PM

Grillo move into a vote lead for the first time I have been watching. Percentages still locked at 25.5% each.

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

Italy Senate "Ungovernable"; No Coalition Possible

La Republica confirms what we long thought highly likely: The Italian Senate is Ungovernable.

A Senate majority takes 158 seats and no party has more than 123 at the moment. The current results look like this:

Senate Seat Projections

• Bersani 104
• Berlusconi 123
• Grillo 57
• Monti 17

There are 315 total seats and the total above is only 301. Although 14 seats remain, not even a Monti-Bersani coalition in addition to those 14 seats would bring Bersani's total to 158.

Curiously, it appears Bersani received a plurality of the Senate popular vote with 32% compared to Berlusconi's 30.2%. Grillo weighs in with 23.9%, and Monti at 9.1%.

If 123-104 in favor of  Berlusconi over Bersani sounds strange, it is not unlike a presidential election in the US where one candidate wins the popular vote and another candidate wins the election based on  state-by-state electoral votes.

Chamber Comparison to US

In Italy, both houses of parliament share duties equally. In the US, financial bills originate in the House, and only the Senate has a say in approval of judges and cabinet-level positions.

"AC" writes ..."Most likely Italy will go back to vote within a couple of months, probably after changing the electoral law."

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

Real Time Italian Election Data and Projections; TV Projections Show Berlusconi Coalition Leading in Italy Senate

Reader Lorenzo sent a link where one can watch Italian Election Results (actual vote totals, not exit poll predictions).

Click on "Camera" to see Chamber results (lower house of parliament).
Click on "Senato" to see Senate results (upper house of parliament).

As of this time, Results look like this

Chamber

• Bersani 34%
• Grillo 27%
• Berlusconi 24%
• Monti 9%

Senate

• Bersani 33%
• Berlusconi 28%
• Grillo 24%
• Monti 9%

Recall that senate races are regional not national. What matters is how the key regions turn out. Berlusconi can easily win the Senate with small wins in key areas while losing by big margins elsewhere. That appears to be what is happening.

Berlusconi Coalition Leading in Italy Senate

Yahoo! Finance reports TV Projections Show Berlusconi Coalition Leading in Italy Senate.

The centre-right coalition led by former prime minister Silvio Berlusconi was leading in the race for the Italian Senate, according to updated projections from television stations after vote counting began on Monday.

Polls from La 7, SkyTG24 and state television RAI put the coalition between Berlusconi's People of Freedom party and the pro-devolution Northern League ahead in the overall national vote count.

The projections from La 7 also put the coalition ahead in the key regions of Lombardy, Sicily and Campania.

Hung Parliament on the Way

The key vote is in the Senate where in spite of losing the popular vote, it appears Berlusconi will win. Recall there is an 8% threshold requirement in the Senate for a candidate to get any seats. Unless Monti hangs on to that 9%, he will be out, making a senate coalition impossible even if Bersani does mange to pull this off.

A hung parliament is likely on the way.

This was a poor showing for Bersani's Center-Left party and a fantastic second place finish for Grillo in the Chamber.

No mainstream media outlets projected the combination of a hung parliament combined with a second-place finish for Grillo, but reader "AC" did just that on my blog.

Comments From "AC"

"AC" just pinged at 11:00AM Central with these thoughts ...

As expected: Initial exit polls forecasts for center-left win were not correct. The first reliable adjusted data based reversed that forecast to a hung parliament projection, with Bersani and Berlusconi close in the Senate, and Grillo at an astonishing 24%.

Grillo's overall totals put him in second place. If this percentage for the Five Start Movement is confirmed, media will label it "unbelievable".

Monti is given below 10% a very poor result. Ingroia (far left) below 4% (also a very poor result).

Regards

AC

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

"Great Rebalancing" Book Review: Two Thumbs Up; Investment Ideas for Unconventional Times

With much pleasure, I highly recommend Michael Pettis' newest book "The Great Rebalancing".

Pettis' book covers global trade issues with a focus on current events in Asia, Europe, the United States, and the commodity producing nations.

Read the book and you will see that much of the "common wisdom" espoused by others on global trade issues is not "wisdom" at all.

For example, in a chapter called "The Exorbitant Burden", Pettis debunks the nearly universal misconception that the United States receives a great benefit from having the world's reserve currency. That chapter alone, is well worth the price of many books.

Want to understand why the Eurozone is doomed as it now exists? Read Pettis' chapter "The Case For Europe".

Other reviews of "The Great Rebalancing" (all favorable) primarily focused on Pettis' predictions. Although I agree with most of his predictions, what's really important are the fundamental driving issues, not the predictions per se.

As far as solutions go, I prefer a return to a gold standard (a topic Pettis discusses while favoring something else). However, his book is primarily devoted to trade fundamentals, not global solutions, so disagreements (or agreements) on solutions are easily overlooked.

Michael Pettis has taught me most of what I know about global trade. I also happen to believe he is the world's foremost expert on China in relation to trade and global macro events.

I give two thumbs up to "The Great Rebalancing".

Investment Ideas for Unconventional Times

Michael Pettis will be a speaker at an economic conference I am hosting on April 5th in Sonoma, California. For details, please see Wine Country Conference.

World-class speakers at the conference include John Hussman, Michael Pettis, Jim Chanos, John Mauldin, Mike "Mish" Shedlock, and Chris Martenson.

Yahoo! Finance Joins the Conference

I'm pleased to announce that Yahoo! Finance is joining the conference as our media partner. The wonderful Lauren Lyster, of Yahoo! Finance's Daily Ticker, will be moderating several of the panels for the day.

This is an experience not to be missed. The access you will have to these speakers and their insights doesn't happen easily. This is the first time many of these speakers have ever appeared together.

The event is made possible in part by a generous $100,000 matching grant by the John P. Hussman Foundation for the benefit of ALS Research.

For my personal experiences with ALS, please see My Wife Joanne Has Passed Away; Stop and Smell the Lilacs.

Hope to see you at the conference.

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

EU Doesn't Like Its Forecasts, So It Removes Them From Its Site

With thanks to Yogi Berra, making predictions is hard, especially about the future. And with constantly revised forecasts for the EU, the European Commission decides the safe safe thing to do is Eliminate Forecasts for 2015.

Via Google Translate from El Economista ...

This morning you could see the data for 2012, 2103, 2014 and 2015, but now can only see the figures from 2011 to 2014 and there is no trace of the catastrophic 2015 numbers (see the screenshots attached below).

Although there is no official communication in one way or another, hypothetically could be a real blunder produced after being released by mistake, or any type of computer failure, a former forecasts for 2012 under the 2015 column.'s say, that would have mistakenly announced as 2015 forecast estimates released earlier this year to last year.

Forecasts of Discord

Those European Commission forecasts envisage a general improvement in economic scenario for 2014. However, estimates for 2015, this morning hidden behind an interactive graphic , pointed for a few hours, before being erased-a brutal relapse. In fact, Germany would grow 2% in 2014 to only 0.8% in 2015, would UK from 1.9% to 0.3%, France 1.2% and Spain 0.2% from 0.8% to -1.4%.

Sooner or Later

El Economista has some interesting snapshots of the removed estimates. To be completely fair, the original posting may have been a simple mistake.

Regardless, I suggest the EU forecast for 2014 is too optimistic.

Will the EU 2014 estimates be revised lower as well? If not soon, then expect revisions later, with France leading the way lower.

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

Quadrocopter Pole Acrobatics

Here is an interesting video that came my way via reader "Nino". It's a look at some rather amazing technology that is developing right now, and I suspect very few are aware of it.



Link if video does not play: Quadrocopter Pole Acrobatics

The video shows a quadrocopter capable of dynamically balancing an inverted pendulum (a stick weighted at the bottom), but also flipping the stick to another quadrocopter that determines the optimal position to catch it without losing balance.

Technology marches on whether anyone is aware or not. People do become aware as markets for technology develop.

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

Italians Head to Voting Booths, Election Ends 9:00AM EST Monday; Surge for Grillo and "The Apathy Factor" Will Doom Bersani Coalition

Voting booths are open in Italy though 3:00PM Monday (9:00AM EST). Exit polls will trickle in soon after but early exit polls could be misleading. If the result is close we may not know for over a day.

The Wall Street Journal offers this Italian Election Guide.

Italian voters can cast ballots Sunday and until 0900 ET  Monday, after which exit polls will provide quick but approximate insight into the probable result of the election.

The center-left coalition led by Democratic Left leader Pier Luigi Bersani was five percentage points ahead of Silvio Berlusconi’s center-right coalition according to the average of polls before a blackout on such surveys kicked in two weeks ago, giving it clear front-runner status.

Exit polls in 2006 and 2008 underestimated votes cast for Mr. Berlusconi, but unless Italy’s 51 million eligible voters shifted dramatically in recent days, Mr. Bersani should  – even with fewer than a third of the ballots cast – win a plurality, meaning his coalition will be awarded a majority of seats in the 630-seat lower legislative chamber.

Shift Has Taken Place

The Journal says "unless Italy’s 51 million eligible voters shifted dramatically in recent days, Mr. Bersani should  win a plurality."

I suggest such a shift has taken place. The open question regards turnout and apathy, not a shift, per se.

Loser's Penalty

In the Chamber (the lower House of parliament) the party with the largest plurality in the national vote gets a majority (54%) of the seats. In the Senate (the upper chamber of parliament) each of  Italy's 17 regions operate independently. The winner of each region gets a majority (55%) of the region's seats.

There are 315 seats in the Senate. Lombardy, Italy's largest region gets 49 seats and the winner will take 27 seats (55%). The other parties will split the remaining 22. Second place may only get 10.

The Journal sums it up this way.

"If Mr. Bersani wins all 17 regions, his coalition will have 178 seats and a commanding upper-house majority. However, if he loses Lombardy, the most populuous region, he will have only 162 seats. If he wins Lombardy but loses Veneto – a near certainty given polling trends – and also loses Sicily – to Mr. Grillo rather than Mr. Berlusconi – the center-left will have 159 Senate seats, a razor-thin majority."

Not So Fast

I am not convinced Bersani wins the Chamber, let alone the Senate. Some 22-25% of Italians were undecided in the election polls before blackout two weeks ago. Since then, I suggest (based on crowd turnout and social media comments) that there has been a surge for Beppe Grillio and Silvio Berlusconi.

The last election polls before the blackout look like this:

• Bersani center-left 34.5%
• Berlusconi center-right 29%
• Beppe Grillo’s Five-Star Movement 19%
• Monti Civic Choice 12%.

Given the number of undecided voters, Bersani can easily drop 3% or more (and I suspect more). If Berlusconi and/or Grillo gets a huge percent of the undecided votes, Bersani can easily drop  to second or even third place.

Senate Coalition Unlikely

Monti is a lost cause and I doubt he gets more than 10%, making a Senate coalition unlikely if not impossible.

I commented on the possibility of a win by Berlusconi or Grillo in Germany Warns Against "Silvio the Savior" (And That May Backfire); Fake Horse Race Odds Get Around Blackouts.

Reader "AC" who is from Italy but now lives in France writes ...

Hi Mish

After a hung parliament, the next most likely outcome may very well be the Five Star Movement (M5S) getting an absolute majority. Rage against the political class is extremely high in Italy, everything that looks "new" is getting votes. Grillo was able to catch the sentiment shift with extremely populist proposals even though his economic program is quite incoherent if not blatantly preposterous.

Grillo support comes from the youngest part of the population.

Undecided voters may not vote at all (in Italy you do not have to register to have right to vote, you are registered by default) or they will probably shift massively to Grillo. The outcome will depend on whether the undecideds stay home.

How Grillo's parliament members will react as newly elected officials is a real unknown. Grillo himself will not be in the Parliament, and his party will be quite young. None of them have much political experience, even not in smaller city councils.

What they will do? How they will react? Nobody knows. That's the most "fascinating" thing of M5S, completely new people of a completely new party managed in a completely new way. Grillo and his candidates never did a single minute of TV interview during the whole campaign. They decided to ignore completely TV (but TV has not completely ignored them). This also is completely new, probably new in the modern world.

I do not think Berlusconi will be able to win this time. He has definitely lost a part of his voters, those that expected from him to keep his past promises.

The hung parliament is the most likely outcome, as I said months ago, and I do not even think that Bersani and Monti together will have majority.

Last but not least: Monti has declared yesterday that Merkel was not comfortable with Bersani as Prime Minister, but Merkel officially denied the minute after. Really a strange declaration from a man like Monti that made of international credibility its main "value proposition".

Regards

AC

The Apathy Factor

I expect a surge of voter enthusiasm for Grillo that will take votes away from Bersani and Berlusconi. Somewhat paradoxically, I also expect a surge in apathy where voters stay home.

The apathy I refer to is not on the Grillo or Berlusconi side, but apathy for Bersani and Monti. Certainly the campaign by Monti is anemic. Thus, unless there is a late surge of energy for Bersani (and I highly doubt there is), Bersani is going to come up short.

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

Robots Don't Commit Suicide (and Other Robot Advantages)

Robots don't eat, drink, demand coffee breaks, or protest working conditions. And they certainly don't commit suicide.

Following a wave of suicides in China, one at Foxconn where a worker twice attempted to kill himself and succeeded the second time, Foxconn suspended hiring, deciding to use more robots.

Electronics manufacturer Foxconn has halted recruitment in China, which it claims is due to plans to further automate processes, amid speculation of a reduction in production demand by its key client Apple.

In fact, the recruitment freezes among Foxconn this time is due to its long pronounced plans to install million robots to replace human, Chinese newspaper Beijing News reported on Wednesday, citing unidentified employees.

Foxconn chairman Terry Gou had ordered all factories in China earlier this year to beef up automated manufacturing processes by using more robots. According to the report, if any factories plan to conduct large-scale recruitment, it will need his personal approval.

In June 2011, Gou announced the company would deploy one million robots across factory assembly lines within three years.

The move will improve production efficiency and combat rising labor costs, and is also believed to be in response to a spate of suicides and criticism over working conditions at the company.

Get rid of a million workers, replace them with a million robots, and you get rid of a million complaints about working conditions, as well as unwanted, high-profile, work-related suicides.

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

Half of Detroit Properties Have Not Paid Taxes; Update on Detroit Bankruptcy

The hollowing out of Detroit is nearly complete. All that's left is a bankrupt shell of a city with no services and scattered citizens that do not pay taxes.

The Detroit News reports Half of Detroit Property Owners Don't Pay Taxes

Nearly half of the owners of Detroit's 305,000 properties failed to pay their tax bills last year, exacerbating a punishing cycle of declining revenues and diminished services for a city in a financial crisis, according to a Detroit News analysis of government records.

The News reviewed more than 200,000 pages of tax documents and found that 47 percent of the city's taxable parcels are delinquent on their 2011 bills. Some $246.5 million in taxes and fees went uncollected, about half of which was due Detroit and the rest to other entities, including Wayne County, Detroit Public Schools and the library.

Delinquency is so pervasive that 77 blocks had only one owner who paid taxes last year, The News found. Many of those who don't pay question why they should in a city that struggles to light its streets or keep police on them.

"Why pay taxes?" asked Fred Phillips, who owes more than $2,600 on his home on an east-side block where five owners paid 2011 taxes. "Why should I send them taxes when they aren't supplying services? It is sickening. … Every time I see the tax bill come, I think about the times we called and nobody came."

Update on Detroit Bankruptcy

Detroit is financially and morally bankrupt yet the governor refuses to make that declaration. A Review team says Detroit faces financial crisis, has no plan to fix it so why won't the governor act?

For the second time in a year, a state review team has found Detroit is in a financial emergency that requires Gov. Rick Snyder to intervene in City Hall.

But this time, if Snyder agrees that a financial emergency exists, the governor's choices are more limited. He could appoint an emergency manager to keep Michigan's largest city from plunging into bankruptcy, experts say, or he could continue state financial supervision through a new consent agreement, which seems a faint possibility.

State Treasurer Andy Dillon ruled out a bankruptcy filing at this time.

The six-member review team unanimously concluded in a report released Tuesday that the city failed to restructure its debt-laden bureaucracy under the financial consent agreement signed in April and that Detroit's financial crisis requires Snyder's intervention "because no satisfactory plan exists to resolve a serious financial problem."

Chapter 9 bankruptcy is "always a possibility but I don't think the city should go through (Chapter) 9 to cure its ailments," he added.

The review team said the city's charter adds "numerous restrictions" and hurdles for closing departments, canceling contracts and the type of wholesale restructuring financial experts say is necessary to make city government live within its means.

Restrictions? Who Cares?

In bankruptcy, restrictions go out the window. So do union contracts and pensions. Since all of that needs to go out the window, what's holding the governor back?

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

Beppe Grillo Surges in Last Minute Rush; Is That a Good Thing?

Reader "AC" who is from Italy but now lives in France informs me that the Italian elections this weekend are getting even more interesting.

Specifically, "AC" writes "Grillo claims 800,000 assisted at his closure meeting in Rome with another 150,000 via streaming. My feeling is that there will be a huge turnout for Grillo in the election".

Joe Weisenthal on the Business Insider writes "I Have Seen The Scariest Chart In Europe".

The chart Weisenthal refers to is from Google Trends. It shows a surge in searches on Beppe Grillo. Weisenthal says ...

Grillo is a comedian-turned-politician who is doing shockingly well the Italian elections (coming up this Sunday and Monday) by running on an aggressive anti-bank, euro-skeptic platform.

He's capitalizing on the deep frustration that exists in Italy due to the weak economy, and the perception that the current government is too corrupt and cozy with banks. Were he to gain a sizable block in the upcoming parliament, he represents a pretty serious threat.

A threat? A Threat to What?

Grillo wants Italy to vote on whether or not to stay in the Eurozone. On that score I happen to agree. The sooner the eurozone splinters the better. Greece would be better off if it left four years ago and Spain would be better off if it left now.

That does not mean I endorse all the policies of Grillo, and indeed I don't. My point is that huge change is desperately needed.

As I have stated on many occasions "Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the "bail out" debt foisted on their country to be null and void. That person will be elected."

The scare should not be that a breakup happens, but rather that the inevitable is delayed with grave consequences.

Scariest Chart Ever?



Weisenthal calls that the scariest Europe chart ever. Assuming the chart does represent an increasing interest in Beppe Grillo, I call it a necessary trend on the path to rebalancing Europe.

For more on the election in Italy, an explanation of Beppe Grillo's "5 Star Movement" and some election predictions, please see European Reader Offers Insights on Upcoming Italian Election

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

Bankrupt San Bernardino Hires Twice Bankrupt Manager for Annual Salary of $222,000

The woes of twice bankrupt Allen J. Parker, age 71 may be over.

The bankrupt city of San Bernardino Hires the Twice Bankrupt Allen Parker as City Manager based on his "experience".

The bankrupt city of San Bernardino has hired a new city manager who, according to court filings, has twice declared personal bankruptcy and was recently ousted from the board of a small community's water company after being sued by shareholders.

The city council voted unanimously on Tuesday night to hire Allen J. Parker, 71, as its city manager on an annual salary of almost $222,000. He replaces an interim city manager who resigned last month because, according to friends, she was exasperated by the city's internal divisions.

Pat Morris, the mayor of the city in California, praised Parker's "wealth of city management experience" and expressed "great confidence" in his ability to oversee the city's affairs.

The California newspaper The Press-Enterprise reported on Thursday that Parker filed in 2011 for personal bankruptcy. In comments to the paper, Parker said that his bankruptcy and his ability to handle the city's fiscal problems were "apples and oranges."

The bankruptcy of San Bernardino, a city 65 miles east of Los Angeles, is a national test case as to whether the pensions of government workers take precedence over other payments in a municipal bankruptcy - a high stakes issue for pension plans and their beneficiaries, and for the Wall Street bondholders who lend money to governments.

Parker's first bankruptcy was in 1991 and his second in 2011. Apparently he is the best person available for the job.

But what job is that?

I strongly suspect the "job at hand" is to protect the interests and the pensions of the city council members and perhaps the unions (at the expense of taxpayers of course).

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

Obama's Infrastructure Mania; Why It's Not Justifiable (And What To Do About It)

Inquiring minds are watching an excellent video on The Kudlow Report between Larry Kudlow and David Harkin.

Harkin is the author of a study on US infrastructure and a professor at the university of North Carolina Charlotte.



Partial Transcript

Kudlow: President Obama wants to spend another $50 billion on repairs to our infrastructure. Do we really need it? That would be on top of the over $100 billion for the nonshovel ready projects back in the 2009 stimulus. Remember that? There's a new study that says we may not need it. Our roads and bridges are not crumbling and are much better than they were 20 years ago. How about that good news? David Harkin is the lead author of that study. David, thank you for coming on. I read the reports. Throughout the country in real terms adjusted for inflation, state control, highway spending has increased by 60%. 177% in nominal terms. 60% in real terms. They had good results.

Harkin: We were quite surprised when we looked at the numbers. The highway system has gotten better on all seven measures we looked at. Accidents rates are down. Even the pavements have been improved particularly for the interstate system. Even congestion is down too. This isn't, I think, generally common knowledge. Most people think the infrastructure is crumbling or falling apart. We found just the opposite.

Kudlow: Why is Washington then, so manic and obsessive about pouring more and more infrastructure money? Why?

Harkin: Well, the fundamental problem here is that the states control how that money will be spent. Some of it comes from the federal government and some of it from the states. So the feeling in the states and in Washington is that we just need more and more and more. But in fact the numbers don't support that. The numbers suggest that we're making progress and that's very good news for the public. So, in terms of where the issue should go here we ought to look very carefully at whether these requests are really needed.

Kudlow: David, here's one of my big beefs. This is highway money and bridge money. Davis-Bacon, the prevailing union wick, once you use federal dollars and it's true for these big union states like New York, New Jersey and California, Once do you that you have to pay the Davis-Bacon prevailing union wage rate which is at least a third higher than if you did it privately. That's my biggest beef about spending all this money.

Harkin: In our study we showed the cost for doing this work are much higher in a few states compared with the rest of the country like California, New Jersey, New York are very high cost states relative to the other states. To go back to the earlier question regarding whether this is just a problem of the interstate system or whether the civil engineering report is correct, you know, let's remember the civil engineering report looks at only one year and is based on opinions from local experts. But it doesn't look back in time to see whether we made progress. David Harkin thank you ever so much. congratulations on your study which blows the lid off all this infrastructure money proposal coming out of Washington.

End Transcript

Davis-Bacon Background

I have discussed Davis-Bacon on many occasions. Inquiring minds interested in a background on the original purpose of the act should read My Thoughts on the Davis-Bacon Act.

"... while the sponsors and supporters of the Act also intended it to disadvantage immigrant workers of other races, these thinly veiled references make it clear that the Act was primarily intended to discriminate against blacks."

The Davis-Bacon Act as amended, requires that each contract over $2,000 to which the United States or the District of Columbia is a party for the construction, alteration, or repair of public buildings or public works shall contain a clause setting forth the minimum wages to be paid to various classes of laborers and mechanics employed under the contract. Under the provisions of the Act, contractors or their subcontractors are to pay workers employed directly upon the site of the work no less than the locally prevailing wages and fringe benefits paid on projects of a similar character. The Davis-Bacon Act directs the Secretary of Labor to determine such local prevailing wage rates.

There are 117 classifications of jobs for which some set of bureaucrats must determine "prevailing wages".  Here is a partial list:

ASBE = International Association of Heat and Frost Insulators and Asbestos Workers
BOIL = International Brotherhood of Boiler Makers, Iron Shipbuilders, Blacksmiths, Forgers and Helpers
BRXX = International Union of Bricklayers, and Allied Craftsmen
(bricklayers, cement masons, stone masons, tile, marble and terrazzo workers)
CARP = United Brotherhood of Carpenters and Joiners of America
ELEC = International Brotherhood of Electrical Workers
(electricians, communication systems installers, and other low voltage specialty workers)
ELEV = International Union of Elevator Constructors
ENGI = International Union of Operating Engineers
(operators of various types of power equipment)
IRON = International Association of Bridge, Structural and Ornamental Iron Workers
LABO = Laborers' International Union of North America
PAIN = International Brotherhood of Painters and Allied Trades
(painters, drywall finishers, glaziers, soft floor layers)
PLUM = Operative Plasterers' and Cement Masons' International Association of the United States and Canada
PLAS = United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of the United States and Canada
ROOF = United Union of Roofers, Waterproofers and Allied Workers
SHEE = Sheet Metal Workers International Association
TEAM = International Brotherhood of Teamsters

Even FDR Understood the Problem

Public unions get into bed with management and politicians and work out sweet deals for themselves at taxpayer expense. No one looks out for the taxpayer. Even FDR understood the problem.

Message From FDR

Inquiring minds are reading snips from a Letter from FDR Regarding Collective Bargaining of Public Unions written August 16, 1937.

All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations when applied to public personnel management.

The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations.

Particularly, I want to emphasize my conviction that militant tactics have no place in the functions of any organization of Government employees.

A strike of public employees manifests nothing less than an intent on their part to prevent or obstruct the operations of Government until their demands are satisfied. Such action, looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable.

Time to Scrap Davis-Bacon, End Public Union Collective Bargaining

Before any project can be economically viable, labor costs must be addressed, and that is exactly why we need to scrap Davis-Bacon and all prevailing wage laws. We also need to eliminate collective bargaining of public unions.

Unless and until we do that, we will dramatically overpay for infrastructure projects and taxpayers will pay through the nose for them.

Government should strive to provide the most services at the least cost. Public unions strive to provide the fewest services at the most cost. Is it any wonder cities and states are broke?

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

Millennials, the Stressed (Screwed by Obama, the Unions, the Fed) Generation

Those looking for a reason for sluggish housing, weak retail sales, and low family formations rates, need only look at the plight of millennials (those aged 18-33).

Many millennials have no job, high student debt with no way to pay the debt off, and few job opportunities beyond part-time employment in food services or retail.

Millennials are the ones who Obama targeted to pay for Obamacare. Indeed, the forced inclusion of youth (who will overpay for health care) is supposedly what made Obamacare "affordable".

Yet, even with the screw job on youth, the "Affordable Health Care Act" is so unaffordable that Companies Opt of Obamacare, Not Even Labor Unions Want It.

Speaking of labor unions, the odds millennials get the same benefit packages going forward that public unions receive today are roughly zero percent. Nonetheless, expect tax rates on millennials to rise so that ungracious, unappreciative boomers get ridiculous benefits they do not deserve and did not earn.

The Stressed Generation

Is it any wonder a study of of Stress in America by the American Psychological Association shows millennials to be the most stressed generation.

Both Millennials and Gen Xers report an average stress level of 5.4 on a 10-point scale where 1 is “little or no stress” and 10 is “a great deal of stress,” far higher than Boomers’ average stress level of 4.7 and Matures’ average stress level of 3.7.



The four generations are defined as following: Millennials (18- to 33-year-olds), Gen Xers (34- to 47-year-olds), Boomers (48- to 66-year-olds) and Matures (67 years and older).

Thirty-nine percent of Millennials say their stress has increased in the last year, compared to 36 percent of Gen Xers, 33 percent of Boomers and 29 percent of Matures.

More than 52 percent of Millennials report having lain awake at night in the past month due to stress, compared to 48 percent of Gen Xers, 37 percent of Boomers and 25 percent of Matures.

Additionally, 44 percent of both Millennials and Gen Xers report experiencing irritability or anger due to stress, compared to 36 percent of Boomers and 15 percent of Matures.

America's Most Stressed Generation

The Huffington Post comments on the above study in Millennials Come of Age as America's Most Stressed Generation

Not surprisingly, work is one of the biggest causes of stress, with 76 percent of Millennials reporting it as a significant stressor, compared to 62 percent of Boomers and 39 percent of Matures. "Many of these young people have come out of college or graduate school with horrendous student debt into a job market where there are not very many jobs," said Katherine Nordal of the APA. "This has put their life plans, probably, on hiatus."

The job numbers are indeed grim. According to Generation Opportunity, the unemployment rate for Millennials rose to 13.1 percent in January, up nearly 2 points from December. Among young African-Americans, it's a whopping 22.1 percent. And if you count those 18-29 year-olds who have given up and dropped out of the labor force, the overall youth unemployment rate stands at 16.2 percent.

And even for the lucky ones who are working, the picture remains bleak. According to the Economic Policy Institute, between 2000 and 2011 wages adjusted for inflation fell by over 11 percent for young high school grads and by 5.4 percent for young college grads. It doesn't help that, as a study by the Center for College Affordability found, 48 percent of working college grads are in jobs that don't require a college degree and 38 percent are in jobs that don't require a high school diploma. The report concluded that from 2010 to 2020, while 19 million college grads will be hitting the job market, the economy will add fewer than 7 million jobs requiring a college degree. That's a pretty serious -- and stress-producing -- gap.

And any of those heavily indebted, heavily stressed-out Millennials listening to President Obama's State of the Union speech would not have gotten much stress relief. He did acknowledge the increasingly untenable cost of higher education -- "Today, skyrocketing costs price too many young people out of a higher education, or saddle them with unsustainable debt" -- and declared that he would "ask Congress to change the Higher Education Act so that affordability and value are included in determining which colleges receive certain types of federal aid."

Not Promising at All

In regards to Obama's plans for education, Arianna Huffington misses the mark completely.

She says "Obama's push for colleges and universities to increase enrollment and the number of degrees they grant is a great goal." She also says changes to the higher education act "sounds promising if it ever happens".

Affordable education won't happen under Obama because neither Obama nor Huffington address the fundamental problems.

Fundamental Reasons College Costs Soared

• Guaranteed student loans
• Student loans cannot be discharged in bankruptcy
• Untenable wage and benefit structures of teachers and administrators
• Too much push for everyone to go to college whether they are suited or not
• Federal grants and other costly programs designed to make college affordable but do the opposite
• Outright lies and fraud by for-profit schools that lure students into believing they can become a chef or a Java programmer
• Lack of enough accredited online universities
• No competition in general

The millennials were screwed by all of the above. They were also screwed by Fed policies that punish savers to the benefit of the already wealthy.

Millennials became debt slaves in the process, to the benefit of the banks, the school administrators, and the teacher's unions.

Stressed by that? You bet. Screwed is more like it.

For an explanation of how millennials were screwed by the Fed, please see ...

1. Reader Asks Me to Prove "Inflation Benefits the Wealthy" (At the Expense of Everyone Else).
2. House Subcommittee on Economic Growth Demands Answers From Bernanke on Fed's Exit Strategy; Fed Must Reply by March 5

 
Screwed Generation

The Daily Beast asks Are Millennials the Screwed Generation?

How has this generation been screwed? Let’s count the ways, starting with the economy. No generation has suffered more from the Great Recession than the young. Median net worth of people under 35, according to the U.S. Census, fell 37 percent between 2005 and 2010; those over 65 took only a 13 percent hit.

The wealth gap today between younger and older Americans now stands as the widest on record. The median net worth of households headed by someone 65 or older is $170,494, 42 percent higher than in 1984, while the median net worth for younger-age households is $3,662, down 68 percent from a quarter century ago, according to an analysis by the Pew Research Center.

Quick prospects for improvement are dismal for the younger generation. One key reason: their indebted parents are not leaving their jobs, forcing younger people to put careers on hold. Since 2008 the percentage of the workforce under 25 has dropped 13.2 percent, according to the Bureau of Labor Statistics, while that of people over 55 has risen by 7.6 percent.

The screwed generation also enters adulthood loaded down by a mountain of boomer- and senior-incurred debt—debt that spirals ever more out of control. The public debt constitutes a toxic legacy handed over to offspring who will have to pay it off in at least three ways: through higher taxes, less infrastructure and social spending, and, fatefully, the prospect of painfully slow growth for the foreseeable future.

In the United States, the boomers’ bill has risen to about $50,000 a person. In Japan, the red ink for the next generation comes in at more than $95,000 a person. The huge public-employee pensions now driving many states and cities—most recently Stockton, California toward the netherworld of bankruptcy represent an extreme case of intergenerational transfer from young to old. It’s a thoroughly rigged boomer game.

More maddening still, the payback for this expensive education appears to be a chimera. Over 43 percent of recent graduates now working, according to a recent report by the Heldrich Center for Workforce Development, are at jobs that don’t require a college education. Some 16 percent of bartenders and almost the same percentage of parking attendants, notes Ohio State economics professor Richard Vedder, earned a bachelor’s degree or higher.

The "Last" Generation

My friend "BC" has a few thoughts on the screwed generation. "BC" writes ...

Millennials suffer from ...

• Lack of durable paid employment
• Contingent low-wage, part-time employment
• Few (if any) opportunities for occupational/career trajectories
• Low or no income and purchasing power
• Heavy debt burden
• No ability to save
• Few options to overcome individually or collectively the cumulative socioeconomic, fiscal, and distributional structural constraints bearing down on them

The generation coming of age does not have the paid employment and after-tax purchasing power necessary to support the growth of a debt-based mass-consumer economy, big mortgages, the crushing costs of parenting, discretionary spending, Obamacare, and elder transfer programs for the Boomers nor for themselves.

In this sense, the Millennials are the "Last" Generation.

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

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