Mish's Global Economic Trend Analysis

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• US Hits Debt Ceiling Limit on December 31; Geithner Unveils Treasury Plan to Buy More Time
• Mad, Mad World; Japan Prime Minister Unveils "Crisis Beating" Cabinet With Pledge to Increase Spending; Yen Sinks to Two-Year Low
• Good News for Consumers: Holiday Sales Barely Rise; Worst Shopping Season Since 2008

US Hits Debt Ceiling Limit on December 31; Geithner Unveils Treasury Plan to Buy More Time Posted: 26 Dec 2012 07:48 PM PST On December 31 the US will once again hit the debt limit and Treasury Secretary Tim Geithner is working on an emergency plan to deal with the situation. Here's the kicker. If the Fiscal Cliff hits (which it likely will), the increased tax revenue and spending cuts would automatically buy the Treasury some time. Please consider Geithner's plan to buy time under debt ceiling. The Treasury on Wednesday announced the first of a series of measures that should push back the day when the government will exceed its legal borrowing authority as imposed by Congress by around two months. Without any action, Treasury said the government is set to reach its $16.4 trillion debt ceiling on December 31. To cut government spending and delay bumping up against the debt ceiling, the Treasury will suspend issuance of state and local government series securities -- known as "slugs" -- beginning on December 28. Investments in a government employee pension fund will also be suspended, along with some other measures, although Treasury did not give dates for when these other measures will begin. "These extraordinary measures ... can create approximately $200 billion in headroom under the debt limit," Treasury Secretary Timothy Geithner wrote in a letter to congressional leaders. Normally, these measures would buy the Treasury about two months time before hitting the debt ceiling, Geithner said in the letter. But a series of planned tax hikes and spending cuts due to take effect in early January could give Treasury further time if they take effect as scheduled, he said. True Fiscal Cliff The true Fiscal Cliff is years down the road and will be similar to the crisis about to hit Japan in 2013 or 2014. The way to address the problem is to balance the budget, exactly the opposite of what Obama and nearly everyone in Congress other than Ron Paul and Rand Paul want to do. The term "Fiscal Cliff" as currently used is simply preposterous. The ultimate irony is the alleged "Fiscal Cliff" happens to be the most fiscally responsible plan currently under discussion. 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.

Mad, Mad World; Japan Prime Minister Unveils "Crisis Beating" Cabinet With Pledge to Increase Spending; Yen Sinks to Two-Year Low Posted: 26 Dec 2012 12:22 PM PST The Keynesian and Monetarist clowns in Japan are going all out in Japan with pledges to ignore debt caps and implement "bold monetary policy". Please consider Japan signals rise in borrowing. Japan's new finance minister has signalled that the government will borrow to boost the struggling economy, as Prime Minister Shinzo Abe unveiled a "crisis beating" cabinet on Wednesday. At a press conference following his appointment as finance chief, Taro Aso announced he would issue bonds and lift a cap on new debt for the 2012 fiscal year. "We will not stick to the debt cap of Y44tn ($514bn) [for the year through to March]," Mr Aso said. The debt limitation was introduced by the previous Democratic party administration, which was defeated in a landslide by Mr Abe's Liberal Democratic party two weeks ago. Mr Abe on Wednesday unveiled a cabinet of close allies and policy experts to push his agenda of economic recovery, just hours after being formally appointed as the country's seventh prime minister in six years. He has vowed to create a "crisis beating government" to tackle the deflation that has dogged Japan for more than a decade and also the strong yen. Mr Abe said he had instructed his cabinet to do their utmost to achieve economic recovery and reconstruction after last year's devestating earthquake, and to ensure national security. "I will direct the energies of my entire cabinet towards implementing bold monetary policy, flexible fiscal policy and a growth strategy that encourages private investment, and aim to achieve results with these three pillars," Mr Abe said. He has pledged to reflate the economy through fiscal stimulus and monetary easing. He has also called on the Bank of Japan to carry out "unlimited" easing and warned that the central bank risks losing its independence – through legislative changes – if it does not introduce a 2 per cent inflation target. Nature and Origin of Japan's Crisis Japan's crisis is not deflation as the economic illiterates suggest. Rather, Japan's problem is a debt-to-GDP ratio of 230%, caused by economic illiterates attempting to defeat deflation. Mad, Mad World It's a mad, mad world with monetarist fools in complete control of the Fed, the Bank of England, and the ECB. If prime minister Shinzo Abe gets his way (and I suggest he will), Japan will lead the way with fiscal lunacy and the Bank of Japan will follow suit with massive monetary recklessness. The Yen is at a two-year low in response to these events, and a currency crisis is now baked in the cake. Exact timing is all that's left in doubt. 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.

Good News for Consumers: Holiday Sales Barely Rise; Worst Shopping Season Since 2008 Posted: 26 Dec 2012 10:25 AM PST I am always suspicious of early holiday season reports of glowing sales around Thanksgiving and especially Black Friday. Then, right after Christmas I always wonder if retailers lowball estimates so they can beat-the-street on same-store-sales reports. That said, because of the souring economy I am not surprised by reports of Lackluster Holiday Sales. The 2012 holiday season may have been the worst for retailers since the financial crisis, with sales growth far below expectations, forcing many to offer massive post-Christmas discounts in hopes of shedding excess inventory. While chains like Wal-Mart Stores Inc and Gap Inc are thought to have done well, analysts expect much less from the likes of Barnes & Noble Inc and J. C. Penney Co. The latest sign of trouble came from MasterCard Advisors Spending Pulse, which reported holiday-related sales rose 0.7 percent from October 28 through December 24, compared with a 2 percent increase last year. The estimates are still preliminary and focus on sales, not profits. A handful of retailers will post sales data next week, but most, including heavyweights like Wal-Mart, will not report results at the register until they release financial results in mid-February. Analysts and industry groups already expected sales to grow at a slower pace than in 2011 and 2010. The National Retail Federation predicted 4.l percent sales growth, versus a 5.6 percent increase a year earlier. But growth of less than 1 percent is weaker than even some of the most pessimistic forecasts. INVENTORY CRUSH One concern for retailers is that weak sales will mean an excess of inventory that will force some to slash prices. Among other brands, Barnes & Noble offered 50 percent discounts in stores via email promotions on Wednesday, while Ann Inc had half-off at its Loft stores, and Bloomingdale's promoted discounts of up to 75 percent in some cases. "Retailers are no longer chasing sales, they are chasing inventory management. That means the discounts that they would have liked to be at 50-60 (percent) off have climbed to 75 to even 80 (percent) off," said Marshall Cohen, chief industry analyst at The NPD Group. Erica Ayala, 31, a mother of four who lives in New York's Harlem neighborhood, waited until the day after Christmas to shop for that very reason, saving more than $150 on kids' clothes alone at Gap's Old Navy chain. "You can't go wrong with that," she said. Live Well Within Your Means You can never go wrong by living well within your means. And with the unemployment rate massively understating the true state of affairs, "within your means" is a lot lower than the predicted 4.1% growth right after Thanksgiving. Indeed, I suspect sales growth would have been negative if everyone shopped in a common-sense manner, ignoring the Fiscal Cliff Jackasses who wanted everyone to spend more and blamed Congress for the poor holiday sales. My comment on Saturday still stands... As far as I am concerned, people spending less for Christmas is a side "benefit" of the fiscal cliff. The Government needs to tighten its budget and consumers do as well. Consumers cutting back spending is a good thing. In the next set of retail reports, we will get a better idea how much consumers really cut back. 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.

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