Mish's Global Economic Trend Analysis

---

Garbage Piles Up in Spain as Unpaid Municipal Bills Mount; Green Shoot of the Day: Cement Consumption Falls 34% Posted: 21 Nov 2012 05:39 PM PST As Spain attempts austerity by cutting back payments to regions, those regions run out of funds to pay bills. For an interesting case-in-point, please consider (via Google translate from El Economista) Municipalities Owed €2,000 Million, Companies Refuse Collection and Cleaning Defaults on local councils put back on the ropes to urban sanitation companies. No respite worth. If the final plan provider payment partially interrupted the problem, the situation again becomes serious. "Since the beginning of the year delinquencies has skyrocketed. In just eight months to August, the accumulated debt of the sessions with cleaning companies was around 1,680 million. This rise is worrisome for a sector in Spain employs over 120,000 people, "said the president of Aselip (Association of Public Cleaning), Francisco Jardón. The result is that today the municipalities pending bills with these companies together account for nearly 2,000 million euros.  As also in the pharmaceutical sector, the debt problem is that, far from disappearing, is regenerated by now. "When the government launched the provider payment plan in April the problem was corrected by 90 percent. Then consistories debt with sanitation companies was nearly 3,000 million euros and around 300 million were left payable "adds Jardón. Why? "For the Royal Decree which implemented that plan did not, do not know why, consortia or associations, which also have hired urban sanitation". Strike in Jerez Urbaser stars in these days one of the main problems related to the debts. The ERE submitted by the company, which includes 125 layoffs and pay cuts, has meant that employees call for a strike in garbage collection that has lasted 19 days. According to the City, more than 3,000 tons of garbage piled in the streets of the city of Cadiz, which last night had its second day of riots and burning container. Sources Provincial Fire Consortium reported traffic costs due to the garbage thrown by neighbors to the street as a barricade, and clashes with the police and firefighters who came to put out the flames. That is quite a choppy translation but I believe you get the gist. Green Shoot of the Day While reflecting on garbage, also consider via Google translate The green shoot of the day. Cement consumption falls by 34% through October. Cement consumption fell by 33.8% in the first ten months of the year, reaching 11.74 million tons, thus scoring one of the biggest percentage declines since the beginning of the crisis. The association warns that if this fall in consumption is not stopped "using government" not ruled out further adjustments in business capacity of a sector that has already lost one third (33%) of their jobs since the onset of the crisis. The Spanish cement industry currently employs 5,158 workers in Spain, compared to 7730 it had in 2007, pre-crisis period. With these settings, the industry is adapting its production volumes to the current demand for cement, affected by the housing slowdown builder and civil works. According to his data, registered until October consumption accounts for less than 40% of the sector's production capacity. Thus, in the first ten months of the year were made in Spain 13.84 million tons of cement, resulting in a decrease of 28.6%. Regarding last October, production fell by 33% compared to the same month in 2011, after consumption fell by 24.7% to 1.14 million tonnes. No Good Economic Outcome Possible There is no possible economic outcome that Europe will be happy with. There is roughly a 10 percent chance the eurozone does not break up. Moreover, should the eurozone not break apart, it will mean prolonged economic depression for Spain, Greece, and Portugal, and that depression in turn will hammer Germany and France. Can-kicking exercises hoping to hold the eurozone intact are a huge part of the problem. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Doorsteps of a Currency Crisis; Economic Illiterates Debate Monetary Policy; Monetarist Mush Posted: 21 Nov 2012 09:35 AM PST Japan's grand experiment of decades-long QE coupled with Keynesian foolishness is about to take one last gigantic leap forward before it plunges straight off the cliff into a massive currency crisis. Please consider the New York Times article A Call for Japan to Take Bolder Monetary Action For years, proponents of aggressive monetary policy have offered this unusual piece of advice as a way to end Japan's deflationary slump and invigorate the economy. Print lots of money, they said. Keep interest rates at zero. Convince the market that Japan will allow inflation for a while. Japan's central bankers long scoffed at such recklessness, which they feared would ignite runaway inflation. But now, the bank's hand could be forced by an unlikely alliance of economists and lawmakers who have argued for Japan to take more monetary action after more than a decade of weak growth and depressed prices. Championing their cause is the former prime minister Shinzo Abe, who is favored to return to the top job after nationwide elections next month. Otherwise deeply conservative, Mr. Abe surprised even his own supporters by calling for the Bank of Japan to be much bolder in tackling deflation, the damaging fall in prices, profits and wages that has choked Japan's economy for 15 years. In escalating remarks over the last week, Mr. Abe has said that he will press the Bank of Japan to act on government orders if his Liberal Democratic Party wins the Dec. 16 election and even rewrite Japanese law to reduce the bank's independence. In a speech in Tokyo on Thursday, Mr. Abe said he would call for the Bank of Japan to set an inflation target of 2 to 3 percent, far above its current goal of about 1 percent, with an explicit commitment to "unlimited monetary easing" — an open-endedness that has caused jitters among some economists. The bank's benchmark interest rate should be brought back to zero percent from 0.1 percent, Mr. Abe added. He went even further over the weekend, saying in the southern city of Kumamoto that he would consider having the bank buy construction bonds directly from the government to finance public works and force money into the economy, according to local news reports. That raises concerns, however, the bank may be called on to bankroll unrestrained spending on more roads and bridges that Japan does not need. Economists cite several missteps by the central bank that have entrenched Japan's deflationary mind-set and made consumers and businesses wary that the bank's policies will stick. In early 1999, as the country's economic woes deepened, the bank lowered a benchmark interest rate to virtually zero and said it would keep rates at zero until deflationary concerns disappeared. But an economic uptick in mid-2000 caused the bank to raise that rate to 0.25 percent despite protests from the government that the move was premature. Monetarist Mush Anyone who thinks an interest rate hike from 0% to .1% or even .25% has much influence on economic growth has "monetarist mush" for brains. Seriously. The NYT does not name the economists, but I have no doubt they exist. Highly respected (for no reason) Richard Koo is one of them. I have written about Koo on numerous occasions. From Japan's decade long experiment resulting in public debt of a 1,000,000,000,000,000 yen (a quadrillion yen), Koo reckons Japan failed to defeat deflation because it did not do enough! Japan is in a crisis alright, and it was entirely self-made, by politicians listening to clueless economists all begging Japan to do something. One Thing Worse Central banks are bad enough on their own, but history shows that one thing worse than central banks acting on their own is central banks acting under control of politicians. Committing to a little inflation will push stock prices higher, while a weaker yen will bolster Japan's exporters and strengthen corporate balance sheets. Incomes will rise, fueling consumption and raising tax revenue for the government, said Kozo Yamamoto, a lawmaker of Mr. Abe's Liberal Democratic Party. "Basically, it's what the Bank of Japan should have been doing for the past 15 years," he said. "A few percent of inflation is nothing to be worried about." US Populist Position It's not just Japan loaded up with populist fools. The US has its share of them as well. For example, Ellen Brown wants to end the Fed and put California politicians (state politicians in general) in charge of printing money to support "growth" as well as union causes. As I have said, the one thing worse than having a Fed in charge of monetary policy is having politicians in charge of monetary printing! For a discussion and an absurd video by Ellen Brown, please see Lawmakers Threaten to Take Over Monetary Policy Economic Nonsense Regarding Inflation, Consumption, Wages Kozo Yamamoto preaches widely believed economic nonsense. Inflation will not raise consumption. People do not stop buying things just because prices are falling. Computers are proof enough. Prices of computers and electronic goods have been falling for decades, yet every year the volume of merchandise sold reaches skyward. History suggests people buy things when they need to or want to not just because prices are rising. Government interference and tax breaks can shift demand forward by a few months (for no real economic benefit of course). There is only so much room to store things. How much food or clothing can you store? Will you buy a coat you do not need, just because prices are going up? US QE Example Take a look at the US. QE has put a floor (for now) on asset prices but it has not done a damn thing for wages. I discussed this at length with Lauren Lyster on Capital Account on November 3: Mish on Capital Account: Jobs, Real Wages, Income Distribution, Fiscal Stimulus I come in at about the 3:00 mark, but the first few minutes of Lauren are entertaining as usual. Average Hourly Earnings vs. CPI Average hourly earnings has been falling for years and lagging CPI inflation since September 2009. Simply put real wages have been declining. Add in increases in state taxes and the average Joe has been hammered pretty badly. If inflation and QE forces wages and hiring up, then why didn't it? The fear for Japan should be rising interest rates not deflation. If interest rates rise a mere 2%, interest on the national debt will consume 100% of government revenues. When that happens a currency crisis awaits. I have long stated a currency crisis would happen far sooner in Japan than the US, and I believe we are about to find that out soon enough. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com "Wine Country" Economic Conference Hosted By Mish Click on Image to Learn More Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

You are subscribed to email updates from Mish's Global Economic Trend Analysis To stop receiving these emails, you may unsubscribe now.	Email delivery powered by Google
Google Inc., 20 West Kinzie, Chicago IL USA 60610