Mish's Global Economic Trend Analysis

Irish Government Collapses, Six Cabinet Members Resign, Election March 11; How To Negotiate Haircuts
South Carolina Governor Sued by Unions Over Remarks About Boeing; Illinois vs. South Carolina; National Labor Relations Board Supports Coercion
Car Dealers Offer Cheap Financing, Losing Over $2,000 Per Car Loan
Illinois' First Tax Hike Victim: Jimmy John's Founder to Move to Florida, Corporate Headquarters May Follow
"Consensus Nonsense"; Is the Yuan Undervalued? Who Wins a Currency War?

Irish Government Collapses, Six Cabinet Members Resign, Election March 11; How To Negotiate Haircuts

Posted: 20 Jan 2011 09:11 PM PST

In a fitting tribute to a disgraceful performance by Irish Prime Minister Brian Cowen in which Cowen crammed losses of Irish banks down the throats of taxpayers, his government has at long last collapsed. Six cabinet members (40%) resigned representing justice, health, trade and enterprise, defense and transport. Earlier in the week his foreign minister resigned making the total six.

I have a wide selection of articles to choose from. Here is a representative sample.

Irish Central reports Irish leader Brian Cowen calls an election for March 11

Irish Prime Minster Brian Cowen has called an Irish election for March 11th.

Speaking to a packed parliament, Cowen stated that he was reassigning six cabinet portfolios after six of his ministers resigned.

The proceedings in Irish Parliament had been suspended as opposition leaders refused to move forward until Prime Minister Brian Cowen explained the six recent ministerial resignations.

Rumors of an impending collapse of the government and an immediate election were circulating as the Green Party met to decide whether they would withdraw support for the government.

Earlier today parliament was suspended after rowdy scenes. Opposition leader, Fine Gael's Enda Kenny demanded that proceeding be suspended until Cowen could explain what was going on within the Government.

Kenny said "This is the worst government in history…This would not have happened even in the days of great dictators. It is unprecedented, what you have done."

He continued "These are the last days of the worst government in the history of the state."

Minister for Enterprise, Trade and Innovation Batt O'Keefe tendered his resignation this morning. Wednesday saw Mary Harney from Health, Dermot Ahern from Justice, Noel Dempsey from transport and Tony Killeen from defense all resigned. These followed the resignation of Micheal Martin from foreign affairs who resigned after a failed leadership challenge.

Kenny said that the actions of Cowen had been a "cowardly, disgraceful act" and said he was "refusing to come in here today to tell the people of his country what is happening with a Government that has imploded, with a Government that is dysfunctional, that has disintegrated, and that had let our people down".

The Independent reports Irish government falls and calls 11 March poll

The Irish Government collapsed yesterday, with multiple ministerial resignations propelling Prime Minister Brian Cowen into setting 11 March as the date for a general election. His Fianna Fail party, which dominates the government, is widely expected to be largely wiped out in the contest, since under the Cowen leadership it has slumped to unprecedented depths in opinion polls.

In recent months he was damaged by "Garglegate", when he was judged to have performed badly in a morning radio interview after a late night of drinking with journalists and others. Next came "Golfgate" when we learnt that as finance minister he had played golf and had dinner with the banker Sean Fitzpatrick, regarded as possibly Ireland's most toxic figure, since he above all others is blamed for the economic disaster.

Many Fianna Fail members of the Dail, the Irish parliament, have announced they are not standing again, because they are unlikely to be re-elected or because they realise they will face years in opposition.

The election was precipitated during a day of turmoil after the small Green party, which has kept Fianna Fail in power, called for a contest in March. Four Fianna Fail ministers, plus a long-time supporter, then announced their resignations. In what is viewed in Dublin as an extraordinary move, Mr Cowen then redistributed their portfolios with some of his remaining ministers taking on extra responsibilities. Mary Hanafin, for example, has become Minister for Trade, Enterprise, Innovation, Tourism, Culture and Sport.

Fianna Fail has traditionally been the largest in the Irish Republic but recently hit a record low of 13 per cent in the opinion polls.

This has led to predictions that Fianna Fail could drop from more than 70 seats to fewer than 20, a result which would represent a seismic change in Ireland's political patterns. There are certainly obvious signs of a widespread loss of public confidence in Fianna Fail. A disaffected backbencher said recently: "The people just don't trust us. We got arrogant and got disconnected and wouldn't listen. The people are very angry and you can't blame them."

Yahoo! News reports Irish premier sets early election for March 11

Cowen's Fianna Fail party has fallen to record-low levels of support after leading the country from the Celtic Tiger boom to the edge of national bankruptcy. Adding to the sense of chaos, the prime minister managed to bring his own administration to the brink of collapse Thursday through an ill-calculated bid to inject his Cabinet with fresh blood.

Five ministers — a third of Cowen's Cabinet — resigned from the departments of defense, justice, health, transport and trade between Wednesday night and Thursday morning because they were not planning to seek re-election. Cowen hoped to promote five new lawmakers in their place to boost their pre-election profiles.

But the gambit provoked fury in parliament and a backlash from Cowen's coalition partners in government, the environmentalist Green Party. Cowen spent the morning pleading with the Greens to back the election of the new Cabinet ministers but they refused and demanded that he set an election date.
When Cowen finally appeared in parliament, he appointed five current Cabinet ministers to take on the additional departments for the next few weeks before parliament is dissolved in mid-February. The move avoided the need for a parliamentary vote that Cowen was sure to lose.

Fianna Fail lawmakers expressed dismay that their leader hadn't seen the Green opposition coming.

"I'm really infuriated by what's happened. ... Whatever his great plan was, it has totally backfired," said Fianna Fail lawmaker Tom Kitt. "I've never seen anything like it."

Ireland has nationalized four of the six Irish-owned banks and repaid tens of billions to foreign bondholders. It spent two years trying to fund the bank bailouts itself, but the cost drove Ireland's 2010 deficit to 32 percent of gross domestic product and forced the country to negotiate a euro67.5 billion ($91 billion) bailout loan with the European Union and the International Monetary Fund.

So far Ireland has received euro5 billion ($6.7 billion) of those funds. The two opposition parties expected to win the March 11 election and form the next coalition government, Fine Gael and Labour, have pledged to reopen negotiations with the EU and IMF.

The Mail Online reports Beleaguered Irish PM calls general election for March 11 after failing to push through Cabinet reshuffle

Irish Prime Minister Brian Cowen has set a date of March 11 for an general election that will provide a stern test for his deeply unpopular government.

The Taoiseach [Prime Minister] was forced into a humiliating climbdown in his plans to replace five Cabinet ministers with junior members of his Fianna Fail party.

Resignations: Justice minister Dermot Ahern (left) and health minister Mary Harney, seen here after being pelted with red paint) are among the five cabinet members to quit

How To Negotiate Haircuts

The two opposition parties expected to win the March 11 election and form the next coalition government, Fine Gael and Labour, have pledged to reopen negotiations with the EU and IMF.

I offer the following suggestions on how to negotiate.

The correct procedure is to announce intent to default with a statement something like "The Irish government refuses to bailout UK, German, French, and US banks too stupid to realize that Ireland was in the midst of a gigantic property bubble."

Now doubt EU, ECB, and IMF will offer to cut interest rates to 2% or some such number, perhaps even 0%.

The correct response to that sort of nonsense should be "This is not be a question of interest rates. This is a question regarding principal and principles. In regards to the latter, Irish taxpayers cannot and will not make whole foreign investors whole for their piss poor decisions. In regards to the former, and as a gesture of goodwill, we are prepared to offer 2 cents on the dollar for all debts owed."

That should set an appropriate tone for the "negotiations". It will also send bondholders a very badly needed message.

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

South Carolina Governor Sued by Unions Over Remarks About Boeing; Illinois vs. South Carolina; National Labor Relations Board Supports Coercion

Posted: 20 Jan 2011 06:45 PM PST

Congratulation go to South Carolina Governor Nikki Haley who made comments about South Carolina being a right-to-work state, and in the process essentially told unions to go to hell. She was a bit more polite than that, but not by much.

Please consider Union sues over Haley's remarks about Boeing plant

South Carolina Gov. Nikki Haley is facing her first big lawsuit after saying the state would try to keep unions out of the Boeing Inc. plant in North Charleston.

The lawsuit filed Thursday in U.S. District Court in Charleston by the International Association of Machinists and AFL-CIO asked for a court order telling Haley and her director of the Department of Labor, Licensing and Regulation to butt out and remain neutral in matters concerning union activities.

"There's no secret I don't like the unions," Haley said when asked about the litigation. "We are a right-to-work state. I will do everything I can to defend the fact we are a right-to-work state. We are pro-business by nature. I want us to continue to be pro-business. If they don't like what I said, I'm sorry, that's how I feel."

The lawsuit came after remarks Haley made last month as she nominated Catherine Templeton to run the state's labor agency. She said Templeton's union-fighting background would be helpful in state fights against the labor groups, particularly at Boeing.

"She is ready for the challenge," Haley said at the time. "We're going to fight the unions and I needed a partner to help me do it. She's the right person to help me do it."

For her part, Templeton said: "In my experience I have found there is not one company that operates more efficiently when you put another layer of bureaucracy in. ... We will do everything we can to work with Boeing and make sure that their work force is taken care of, that they run efficiently and that we don't add anything unnecessarily."

Machinists union spokesman Frank Larkin told The Associated Press the lawsuit is an attempt to make sure workers' constitutionally protected rights aren't harmed by South Carolina's governor. Larkin hadn't seen another governor be so plainspoken.

"This is practically unprecedented for a state to be so clear and so overt," Larkin said.

Meanwhile, the National Labor Relations Board has threatened a federal lawsuit against South Carolina, Arizona, South Dakota and Utah over constitutional amendments guaranteeing secret-ballot union elections. Unions want to also be able to organize workers through signature drives.

Illinois vs. South Carolina

South Carolina Governor Haley's spokesman Rob Godfrey: "If the machinists are offended that the Governor doesn't think unions are a good thing in South Carolina, they're just going to have to get used to it."

Illinois Governor Quinn Spokeswoman Marcelyn Love: "The temporary increase in the corporate income tax will help stabilize the budget, making Illinois more attractive to businesses."

If you were a business owner which would you choose?

To make it simple, please consider Illinois' First Tax Hike Victim: Jimmy John's Founder to Move to Florida, Corporate Headquarters May Follow

National Labor Relations Board Supports Coercion

I salute South Carolina Governor Nikki Haley. I also hope the National Labor Relations Board gets a much deserved kick in the ass. The only reason to not have secret ballots is so pro-union supporters can coerce and intimidate those who do not want to vote for union membership.

The only instance that I am not in favor of secret ballots regards to votes of lawmakers and other elected officials. The public has a right to know how their representatives vote on every bill.

What other reason than coercion can there possibly be for forcing votes to be in the open?

Of course coercion is nothing new by unions. They threaten, bully and bribe their way into power and want more every step of the way.

Conspiracy Against Taxpayers

Please play that video. Steven Malanga makes a powerful case as to how public unions are destroying cities and states.

For more, please see Point of No Return; Fiscal Shell Games; Texas to Cut 8,000 Jobs; Deep Layoffs in NJ; Mayor Recall Vote in Miami; Oregon Workers' Comp Bankruptcy

Support National Right-To-Work Laws

I support national right to work laws. It is time to end the grips unions have on states like Illinois, California, and New York, bankrupting them and hundreds of cities in the process.

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

Car Dealers Offer Cheap Financing, Losing Over $2,000 Per Car Loan

Posted: 20 Jan 2011 05:37 PM PST

Consumer loans have all but dried up at banks. This has forced auto dealers who want to sell cars to offer financing themselves. A few years back getting a loan at a car dealer was an act of desperation, and you got way above market rates, even if your credit was reasonable. Now, if you need credit the best place to get it from is the dealer.

Please consider Car Dealers Roll Out Cheap Financing

Today, with bank lending still tight, dealers' lending arms are stepping in with more of their own loans at much more attractive rates. The current average interest rate on a car loan is 5.9%, but the rates offered through dealers are much lower, at 4.2% on average, according to interest-rate trackers HSH Associates and Edmunds.com. Some dealers are offering loans at or near 0%. And unlike past low-interest financing offers, these rates are increasingly available on longer loans for a wider variety of cars, including luxury vehicles and across popular brands like Toyota and Honda.

On the 2011 Toyota Camry sedan, with a base model price of about $20,000, consumers can get 0% financing for up to 60 months at some dealers. Put $2,000 down on a five-year loan (the average length of most auto loans) at 5.9% and you'll shell out $840 more in interest over the duration of the loan than a dealer-financed borrower who locks in 4.2% and around $2,820 more than a buyer who scores a 0% interest rate.

Typically when dealers offer a loan, they do so at a rate several percentage points higher than what a bank or credit union might offer. The dealer isn't lending his own money, he's just a middleman -- the money for the loan comes from the lending arm of the dealer's associated automaker. And everybody makes money.

But now dealers are offering interest rates that are 0% or close to it -- for less than what it costs a financing arm to raise capital to lend. In this case, the dealer is not making money, and, because the automakers subsidize the loans to help dealers move cars that aren't selling, the automakers are losing money. On average, automakers lost $2,139 for each car they helped finance in 2010, slightly less than the $2,229 they lost per car in 2009, according to Edmunds.com.

Assuming GM's recent profit reports are legitimate, the dealers are not losing money overall even if they are losing on financing. Profit stems from debt writeoffs in bankruptcy and renegotiated union contracts. Inventories are rising, but so have sales. It will be interesting to see how GM fares in another consumer slowdown that I believe is coming.

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

Illinois' First Tax Hike Victim: Jimmy John's Founder to Move to Florida, Corporate Headquarters May Follow

Posted: 20 Jan 2011 12:39 PM PST

In the first of what is likely many Illinois business exoduses to come, Jimmy John's founder contemplates moving headquarters out of Illinois.

The founder of Jimmy John's said he has applied for Florida residency and may recommend that his corporate headquarters move out-of-state as a result of the Illinois tax increases enacted last week.

Jimmy John Liautaud told The News-Gazette on Tuesday that he is angry about the moves, which boosted the individual income tax from 3 percent to 5 percent and the corporate income tax from 7.3 percent to 9.5 percent.

"All they do is stick it to us," he said, adding that the Legislature and governor showed "a clear lack of understanding." "I could absorb this and adapt, but it doesn't feel good in my soul to make it happen," Liautaud said.

Champaign has been its corporate base, but Liautaud said it will not necessarily continue that way. Liautaud said he has been contacted by "multiple pro-business states" that made him feel "wanted and important."

"I enjoy being courted and the process," he said.

Once he collects information on alternative sites, he will present it to the company's board of directors and ask the board to decide.

As for himself, "my family and I are out of here," he said.

Jimmy John's employs 100 at the corporate office in Champaign and has 190 other employees who work elsewhere but come to Champaign every four weeks, Liautaud said.

Some people may not realize how many travel to Champaign-Urbana as a result of Jimmy John's being here – many of them for training. Liautaud said his business accounts for "350 motel nights a week in Champaign, 1,400 motel nights a month."

"They eat at Cheddars," get automotive service at Sullivan-Parkhill and "drink at Carlos (Nieto's) bars," he said.

Liautaud also lashed out at union protesters who demonstrated against a "low-cost" contractor his company is using to build a Jimmy John's in Urbana. That restaurant will provide 30 jobs, he said.

He said he's sick of being "pummeled."

Jimmy John's offices occupy 23,000 square feet on Fox Drive, and Liautaud said he had considered buying a 20,000-square-foot building just north of those offices. Those plans went out the window with the tax increase, he said.

He said he also planned to hire 80 more people at the executive level.

With regard to the tax increase, Liautaud criticized the way the Legislature "snuck it through" and called the procedure "sneaky."

When asked whether Illinois could do anything now to change his mind, he said "the state could say they made a mistake" and "apologize."

Marcelyn Love, a ~~spokeswoman~~ paid political parrot for the Illinois Department of Commerce and Economic Opportunity, said "the temporary increase in the corporate income tax will help stabilize the budget, making Illinois more attractive to businesses."

Excuse me parrot, but higher corporate tax rates will not make the state more attractive for businesses.

I expect to see businesses on the border of Wisconsin to move North and other businesses like Jimmy John's to move South. Illinois stepped over the line, pandering to public unions. It's time for businesses to respond, and one just did.

Others will follow. Unfortunately, most taxpayers are stuck. Their only recourse is to vote out every legislator who voted for these tax hikes. Let the revolution begin.

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

"Consensus Nonsense"; Is the Yuan Undervalued? Who Wins a Currency War?

Posted: 20 Jan 2011 11:24 AM PST

Inquiring minds are playing a pair of CNN Money videos with Jim Chanos regarding various aspects of the Chinese economy, China's huge property and credit bubbles, the Yuan, and commodities. Unfortunately there is no way to embed the videos, but here are links with a brief synopsis.

Yuan May Be Overvalued

Yuan May Be Overvalued

"Nobody wins a beggar-thy-neighbor devalue your currency race to the bottom. That we know. It simply does not work. We found that out in the 1920's. ... Any economist worth his salt will tell you tariffs add costs. Free trade is the cheapest of all, but politics interferes in these things. Politics can get out of control quickly. Currencies are a case of the tail wagging the dog. I do not think the Yuan is terrifically undervalued. In fact, I think it might be overvalued. The whole world thinks it's undervalued and everyone is positioned for it to be undervalued. When everyone is positioned on one side of the boat you might want to explore the other side. The yuan is overvalued because of China's credit problems, the amount of RMB regulators will have to flood in to refloat the system ...."

I side with Chanos.

China's Credit Bubble

China's Real Problem

Hedge fund manager Jim Chanos says China's credit grows 3 to 4 times as fast as its economy expands. China is in uncharted territory in the real estate bubble, debt, and 9.6% GDP growth.

"In an investment driven economy, once you finish putting up a building, you have to start all over again and put up another building. Anyone using common sense, this leads to its own set of problems. Everyone gets affected by China's Real estate bubble bursting. The US get affected least. The US is not dependent on resource exporters like Australia, Canada, and Brazil. Those will be the economies that will be hit the most. The real problem is China's credit growth is somewhere between 25 and 35% of the economy. They are expanding credit 3-4 times as fast as their economy which is growing at 9%. Bulls point out that individual purchasers of apartments are not highly leverage. What they are missing is the system, which is geared toward fixed investment is massively leveraged. The system is simply not stable. There will be a reversion to the mean pretty hard for some industrial commodities. ..."

Once again I side with Chanos.

China Acts Only Under Pressure

Here is a video of someone who gets it completely wrong.

China Acts Only Under Pressure

Economist Fred Bergsten says China only overcomes their opposition to a stronger yuan when they're pressured from the rest of the world. Bergsten thinks the Yuan is at least 20% undervalued against an average of global currencies and 25-30% against the US dollar.

Bergsten's view is what I call "Consensus Nonsense".

For further analysis, please see Shanghai Prepares for Property Tax to Curb 'Speculative' Buying; China Addresses Symptom NOT Problem

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

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Mish's Global Economic Trend Analysis

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