Home Refinance Calculator: January 2013

Thursday, January 31, 2013

Mish's Global Economic Trend Analysis

Funding for Naples Bus Service Cut 40% With Predictable Results: Buses Run Out of Gas
Ten Reasons for Declining GDP Growth Over Time; Analysis of Various GDP Deflators
Big Brother in Action: EU Wants Power to Sack Journalists; Prime Minister Rajoy Threatens Newspapers Following Corruption Articles

Funding for Naples Bus Service Cut 40% With Predictable Results: Buses Run Out of Gas

Posted: 31 Jan 2013 04:01 PM PST

A 40% funding cut to bus services in Naples, Italy had predictable results: Bus Service Grinds to Halt as Tanks Run Dry

Bus service in the southern Italian city of Naples has ground to a halt after the city transport company ran out of money for fuel.

Valeria Peti, of the ANM transport company, says only 30 of the usual 300 buses left the depot Wednesday morning, and they all had to return before their tanks ran dry.

Naples' municipal services have been in the news before, most notably when mountains of garbage have piled up. Peti says in this case, the company that provides gas for city buses refused to replenish them without payment guarantees.

ANM says government funding for Naples' bus service has been cut by 40 percent.

"Services Not Guaranteed"

Here is the public service announcement as described in Bus Operator Runs Out of Fuel.

"Due to a lack of fuel our services are not guaranteed," transport operator ANM announced on its website and at bus stops around the city, enraging commuters.

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

Ten Reasons for Declining GDP Growth Over Time; Analysis of Various GDP Deflators

Posted: 31 Jan 2013 10:07 AM PST

To compute "Real GDP" one has to adjust nominal GDP by a measure of inflation. Different measures of inflation provide different answers.

Doug Short at Advisor Perspectives has an excellent column following every GDP release showing what the reported GDP would look like with various deflators.

His latest report is Will the "Real" GDP Please Stand Up? (The Deflator Makes Big a Difference)

How do you get from Nominal GDP to Real GDP? You subtract inflation. The Bureau of Economic Analysis (BEA) uses its own GDP deflator for this purpose, which is somewhat different from the BEA's deflator for Personal Consumption Expenditures and quite a bit different from the better-known Bureau of Labor Statistics' inflation gauge, the Consumer Price Index.

The Lower the Deflator, the Higher the GDP

The BEA puts the latest compounded annual percentage change in the GDP deflator (i.e., the inflation rate) at 0.60%.

Interestingly enough, the Briefing.com consensus forecast was for the deflator to come in at 1.6%. Had the deflator indeed come in at the Briefing.com consensus of 1.6%, Real GDP would have been a percent lower at -1.13%. Had the deflator indeed remained unchanged from the previous quarter, today's Q4 real GDP would be two percent lower at -2.21%.

Question of the Day

Let's stop right there and ask: Does anyone out there possibly believe price inflation is a mere .60%?

With the GDP deflator (the official measure), the reported GDP was -.14%
Using PCE (personal consumption expenditures) as a deflator, GDP would have been -.77%
Using CPI (the consumer price index) as a deflator, GDP would have been -1.56%
Using ShadowStats CPI as a deflator, GDP would have been -4.3%

Here are a few charts courtesy of Doug Short.
click on any chart for sharper image

Real GDP with GDP Deflator

Real GDP with CPI Deflator

Wednesday evening I asked Doug Short for a chart using HPI-CPI as a deflator. It's a chart he normally does not produce but did so this time because we had the data.

Real GDP with HPI-CPI Deflator

HPI-CPI Discussion

For background and an explanation of the HPI-CPI please see Dissecting the Fed-Sponsored Housing Bubble; HPI-CPI Revisited; Real Housing Prices; Price Inflation Higher than Fed Admits

Using HPI-CPI as a deflator it hardly appears there was a recession in 2001 at all.

It's debatable which of the three charts best describes reality. However, I vote for the third believing that houses are consumed, even if very slowly (although the land on which the house sits is not). The current assumption is houses are a capital expenditure and people rent housing from themselves at an implied OER - Owners' Equivalent Rate (see preceding link for discussion).

Regardless, the current deflator of .60% is simply not believable, meaning GDP is overstated.

Regression Trends Show Lower GDP Growth Over Time

Notice the linear regression trendlines in the first and third charts. The middle chart would have looked similar if it had such a trendline.

Clearly the trend is toward lower and lower GDP readings. And I expect this trend to continue, likely accelerate to the downside.

Inquiring minds may be asking "Why?"

Ten Reasons for Declining GDP Growth

Changing social attitudes towards consumption and debt in all age groups
Demographics of an aging workforce
A severe lack of high-paying jobs for college graduates
Kids fresh out of college have delayed marriage, family formation, and home purchases
Many coming out of college are effectively debt slaves having no way to pay back student loans
Debt overhang from the housing bust
Boomers headed into retirement have insufficient savings
Shrinking middle-class plagued by declining real wages
Rapidly changing technology negates skills
Technology, especially robots, currently eliminates more jobs than it creates

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

"Wine Country" Economic Conference Hosted By Mish

I am hosting an economic conference in April, in Sonoma, California. Please consider attending.
Click on Image to Learn More

Big Brother in Action: EU Wants Power to Sack Journalists; Prime Minister Rajoy Threatens Newspapers Following Corruption Articles

Posted: 31 Jan 2013 12:21 AM PST

"Big Brother" in Action

In case you have not already realized it, 1984 has come and gone politically. All that remains is how fast we march down the path of "thought suppression". Here are a couple of articles that will make my point.

The Telegraph reports EU wants power to sack journalists

A European Union report has urged tight press regulation and demanded that Brussels officials are given control of national media supervisors with new powers to enforce fines or the sacking of journalists.

The "high level" recommendations that will be used to draft future EU legislation also attack David Cameron for failing to automatically implement proposals by the Lord Justice Leveson inquiry for a state regulation of British press.

A "high level" EU panel, that includes Latvia's former president and a former German justice minister, was ordered by Neelie Kroes, European Commission vice-president, last year to report on "media freedom and pluralism". It has concluded that it is time to introduce new rules to rein in the press.

"All EU countries should have independent media councils," the report concluded.

"Media councils should have real enforcement powers, such as the imposition of fines, orders for printed or broadcast apologies, or removal of journalistic status."

"The national media councils should follow a set of European-wide standards and be monitored by the Commission to ensure that they comply with European values," the report said.

Nigel Farage, the leader of Ukip, compared the proposals to "Orwell's 1984". "This is a flagrant attack on press freedom. To hear that unelected bureaucrats in Brussels want the power to fine and suspend journalists is just outrageous," he said.

Reflections on "European Values" and a UK Referendum

Financial transactions taxes and agricultural crop subsidies are bad enough. This proposal for "thought police" should scare everyone.

What the hell are "European values"?

Even if there was such a thing, it is absurd and scary to cram them down everyone's throat. If ever there was any justification for Cameron to tell the EU to "go to hell" this is surely it.

Conservatives in UK need to demand an in-or-out referendum now.

Prime Minister Rajoy Threatens Newspapers Following Corruption Article

Want to report on government corruption? Better think twice. "Big Brother" is always watching out (for himself).

Please consider the saga of bribes paybacks and corruption in Spain where the former treasurer of the People's Party, Luis Bárcenas, had amassed up to €22 million ($30 million) from dubious sources, and hid them in Switzerland. Regardless of how Bárcenas got the money, he handed party officials envelopes filled with banknotes worth between €5,000 and 15,000 every month.

Rajoy, opposition leader and head of the PP at the time of transgressions, protected Bárcenas. Now Rajoy wants the disclosures to stop.

How Powerful People React in Tight Spots

Der Spiegel reports Envelopes of Cash: Corruption Charges Put Madrid on Defensive.

The powerful reacted the way powerful people react when they are in a tight spot. Former Prime Minister José María Aznar instructed his attorneys to sue the newspaper El País.

Current Prime Minister Mariano Rajoy, a conservative like Aznar, threatened to sue anyone who leveled accusations at his People's Party (PP).

Bárcenas denies all accusations. And if he is sent to prison, he has threatened that an "atom bomb" will explode.

Reflections on the "Atom Bomb" Threat

It's rather curious how Bárcenas can deny all accusations while simultaneously threatening to set off a political "atom bomb". If everyone is innocent, then it is logically impossible for there to be a political bomb to explode.

In an attempt to sweep this under the rug, Prime minister Rajoy is now threatening newspapers or anyone else throwing charges against the PP.

However, the more they try and sweep under the rug, the bigger and faster the rug needs to grow.

Nineteen Eighty-Four

If you have not yet read Nineteen Eighty-Four, please do so because you are living it. Here is a synopsis from Wikipedia.

Nineteen Eighty-Four is a novel by George Orwell published in 1949. It is a dystopian and satirical novel set in Oceania, where society is tyrannized by The Party and its totalitarian ideology. The Oceanian province of Airstrip One is a world of perpetual war, omnipresent government surveillance, and public mind control, dictated by a political system euphemistically named English Socialism (Ingsoc) under the control of a privileged Inner Party elite that persecutes all individualism and independent thinking as thoughtcrimes. Their tyranny is headed by Big Brother, the quasi-divine Party leader who enjoys an intense cult of personality, but who may not even exist. Big Brother and the Party justify their rule in the name of a supposed greater good. The protagonist of the novel, Winston Smith, is a member of the Outer Party who works for the Ministry of Truth (Minitrue), which is responsible for propaganda and historical revisionism. His job is to re-write past newspaper articles so that the historical record always supports the current party line. Smith is a diligent and skillful worker, but he secretly hates the Party and dreams of rebellion against Big Brother.

As literary political fiction and as dystopian science-fiction, Nineteen Eighty-Four is a classic novel in content, plot, and style. Many of its terms and concepts, such as Big Brother, doublethink, thoughtcrime, Newspeak, and memory hole, have entered everyday use since its publication in 1949. Moreover, Nineteen Eighty-Four popularised the adjective Orwellian, which describes official deception, secret surveillance, and manipulation of the past by a totalitarian or authoritarian state. In 2005 the novel was chosen by TIME magazine as one of the 100 best English-language novels from 1923 to 2005. It was awarded a place on both lists of Modern Library 100 Best Novels, reaching number 13 on the editor's list, and 6 on the reader's list. In 2003, the novel was listed at number 8 on the BBC's survey The Big Read.

Wednesday, January 30, 2013

Mish's Global Economic Trend Analysis

Government Expenditures Plus Transfer Payments Equals 40% of GDP; GDP Shocking Downward Surprise; Don't Worry It's Transitory

Posted: 30 Jan 2013 04:26 PM PST

Inquiring minds are digging into the 4th Quarter and 2012 Annual GDP Advance Estimate.

Heading into the report, the WSJ Economists' GDP Forecasts were
+1.6% for Q4 2012 and +1.7% in Q1 2013.

"Shocking" Contraction

The GDP report was a shocker, coming in at an annual rate of negative 0.1%.

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 0.1 percent in the fourth quarter of 2012 (that is, from the third quarter to the fourth quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.1 percent.

Choice Comments From Consumer Metrics

Rick Davis at Consumer Metrics had some choice comments via email (also in the preceding link).

We have mentioned before that the BEA is notoriously poor at recording turning points in the economy in "real time." The first quarter of 2008 was a classic example, initially being reported in "real time" as yet another quarter of sustained growth before being revised downward several times over some 40 months to become the first quarter of contraction leading into what we now call the "Great Recession." We fully expect that ultimately the surprising economic upturn seen in the 3Q-2012 data will largely vanish in future revisions.

It is hard to look at these new numbers without at least some cynical thoughts about the reported numbers for the prior quarter. We were frankly astonished when the final numbers for the third quarter came in at a 3.09% "full recovery" growth rate, driven largely by unexplained increases in Federal spending, particularly in the Department of Defense (DOD) -- the timing of which was completely controlled by an Administration in serious need of positive pre-election economic headlines. The annualized rates of growth for defense spending rose to over 15% in 3Q-2012, only to magically reverse to a -15% annualized contraction rate in 4Q-2012 -- after the polls had closed.

To that last point: arguably the DOD was simply moving materiel acquisitions forward in anticipation/avoidance of "fiscal cliff" sequesters, with the economic impact of the contracting binge a mere side effect of bureaucratic hoarding. We should all hope that the context of any such timing shenanigans were more budgetary than political in nature.

Real GDP

Inquiring minds may want to further investigate the above comments, with a look at actual BEA data from the top link.

click on chart for sharper image

Note the highlights in yellow for Federal and defense spending, quarter by quarter. Now let's turn our attention to personal income.

Table 10. Personal Income and Its Disposition

click on chart for sharper image

Personal Transfer Receipts

I highlighted line 12, "Personal current transfer receipts". Those are social security payments, disability payments, Medicare, unemployment insurance, etc.

In spite of a falling unemployment rate, transfer payments go up and up.

More people are retiring of course, but much of that is involuntary. Simply put, many people of retirement age want a job and need a job, retired involuntarily to have some money coming in. Moreover, Disability Fraud is rampant.

In 4th quarter of 2012, $2.4 trillion went into "transfer payments".

From Table 3 of the BEA report (not shown) we see that nominal GDP for 4th quarter was $15.829 trillion. Thus personal transfer payments accounted for 15.16% of GDP.

In the 4th quarter of 2012 we also see that federal government spending added an additional $2.46 trillion to GDP.

Thus federal government spending + personal transfers (more government spending) was $4.86 trillion, 30.7% of the stated GDP.

State and local adds another $1.46 trillion to GDP. All totaled, government spending accounts for 40% of GDP.

Don't Worry It's Transitory

For those looking for sugar-coated thoughts, I offer soothing comments from the Fed from today's FOMC Statement.

Information received since the Federal Open Market Committee met in December suggests that growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors.

Yes, indeed. Let's blame hurricane Sandy for the rapid drop in military spending.

However, if it's not transitory (and I suggest it isn't), Bernanke will be tossing massive hints to Congress begging for more fiscal stimulus.

Here is a formula for measuring GDP.

GDP (Y) is a sum of Consumption (C), Investment (I), Government Spending (G) and Net Exports (X – M).

Y = C + I + G + (X − M)

G (government spending) is the sum of government expenditures on final goods and services. It includes salaries of public servants, purchase of weapons for the military, and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits.

Always remember: Government spending and government giveaways (regardless of how stupid or unproductive) add to nominal GDP, by definition.

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

Dissecting the Fed-Sponsored Housing Bubble; HPI-CPI Revisited; Real Housing Prices; Price Inflation Higher than Fed Admits

Posted: 30 Jan 2013 02:20 AM PST

In the wake of rising housing prices a reader asked if I would revisit my March 2102 article How Far Have Home Prices "Really" Fallen.

The reader specifically wanted an update on inflation as measured by the HPI-CPI (a measure of the CPI where actual home prices instead of rent is the largest CPI component).

Here is some background on the request: The CPI does not track home prices per se, rather the CPI uses a concept called "Owners' Equivalent Rent" (OER) as a proxy for home prices.

The BLS determines OER from a measure of rental prices and also by asking the question "If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?"

If you find that preposterous, I am sure you are not the only one. Regardless, rental prices are simply not a valid measure of home prices.

OER Weighting in CPI

OER has the single largest weight of any component in the CPI, at 23.957%.

Let's play "What If?" Specifically, "What if the BLS used actual home prices instead of OER in calculating the CPI?"

Home Price Data

Home price data in this post is courtesy of Lender Processing Services(LPS), Specifically the LPS Home Price Index (HPI).

I passed on an Excel spreadsheet of LPS HPI aggregate housing prices to Doug Short at Advisor Perspectives and he produced the following charts.

Notes

Click on any chart to see a sharper image
Current data is as of November
Annotations in purple by me

Let's start with a look at the rate of increase in home prices vs. the rate of increases in OER.

Comparative Growth in HPI vs. OER

From 1994 until 1999 there was little difference in the rate of change of rent vs. housing prices. That changed in 2000 with the dot.com crash and accelerated when Greenspan started cutting rates.

The bubble is clearly visible but neither the Greenspan nor the Bernanke Fed spotted it. The Fed was more concerned with rents as a measure of inflation rather than speculative housing prices.

Fed Funds Rate vs. CPI and HPI-CPI

The above chart shows the effect when housing prices replace OER in the CPI. In mid-2004, the CPI was 3.27%, the HPI-CPI was 5.93% and the Fed Funds Rate was a mere 1%. By my preferred measure of price inflation, real interest rates were -4.93%. Speculation in the housing bubble was rampant.

In mid-2008 when everyone was concerned about "inflation" because oil prices had soared over $140, I suggested record low interest rates across the entire yield curve. At that time the CPI was close to 6% but the HPI-CPI was close to 0% (and plunging fast).

As measured by HPI-CPI real interest rates were positive from mid-2006 all the way to 2010, even when the Fed Funds rate crashed to .25%. That shows the power of the housing crash.

Real rates went positive again in mid-2010 until early 2011.

CPI and HPI-CPI Variance From Fed Funds Rate

The above chart shows the "Real" (inflation adjusted) Fed Funds Rate as measured by the Fed funds rate minus the CPI, and a second time by the Fed Funds Rate minus the HPI-CPI.

With the recent rise in housing prices, the HPI-CPI is 2.78% while the CPI as stated by the BLS is 1.76% (both numbers from November).

In my estimation, the BLS and Fed now understate price inflation by a full percentage point. Inflation as measured by expansion of credit is another matter.

Variance Between the CPI and HPI-CPI

The above chart shows the difference between the CPI and HPI-CPI. Note that the largest negative discrepancy marked the exact top of the housing market in summer of 2005.

Some suggest the top was in 2006. However, 2006 is too late.

Massive housing incentives such as "free garages", "free landscaping", "free trips", etc., etc. started in summer of 2005. So did fraudulent kickbacks to the buyer. "Official" prices did not reflect those incentives and kickbacks.

Moreover, condo prices in many areas crashed in summer of 2005 and condos are not in the home price indices.

How Far Have Home Prices Crashed?

In nominal terms, home prices are about where they were in mid-2003. In "real" inflation adjusted terms, this time using the CPI and PCE (personal consumption expenditures) as a measure of inflation, home prices are about where they were in mid-1998. What a crash!

Credits

Data courtesy of Lender Processing Services (LPS)
Charts courtesy of Doug Short at Advisor Perspectives
Bubble and crash courtesy of the Fed, the banks, and Congress

Tuesday, January 29, 2013

Mish's Global Economic Trend Analysis

China Averts $482 Billion in Local Bank Defaults via Massive Rollover Scheme; Extend-and-Pretend Chinese Style

Posted: 29 Jan 2013 08:09 AM PST

The Chinese banking system is insolvent. Of course, the entire global banking system is insolvent, but today's spotlight is on China. Please consider China averts local government defaults.

Chinese banks have rolled over at least three-quarters of all loans to local governments that were due to mature by the end of 2012, an indication of the immense challenge facing China in working down its debt load.

Local governments borrowed heavily from banks to fuel China's stimulus programme during the global financial crisis and are now struggling to generate the revenue to pay them back, a shortfall that could cast a shadow over Chinese economic growth.

Banks extended at least Rmb 3tn ($482bn) – and perhaps more – of the roughly Rmb 4tn in loans plus interest that local governments were to have paid them by the end of last year, according to Financial Times calculations based on official data.

Extend-and-Pretend Chinese Style

Since details on refinancing and interest rates are lacking, the reported $482 billion is undoubtedly on the low side.

The key point is that massive rollovers were needed to stave off defaults.

"That's a correct observation and explanation," said Stanley Li, a banking analyst with Mirae Asset Securities. "Based on the payback period for the infrastructure projects [started by local governments], it will take more than 10 years to pay these loans back."

Ten years? How about never? Many of these projects were never economically viable, especially the housing and land schemes.

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

Monday, January 28, 2013

Mish's Global Economic Trend Analysis

"We Are Going To Kill The Dollar" Says Obama Senior Official; When, How, Asks Mish
Hard Times: Dijon France Sells Half of Prized Wine Collection to Help Those Appealing for Social Aid
France "Totally Bankrupt" Says Labour Minister; Inappropriate or Inaccurate?
Iceland Wins! "Icesave" Lawsuit Dismissed, Court Orders EC and EFTA to Pay Costs

"We Are Going To Kill The Dollar" Says Obama Senior Official; When, How, Asks Mish

Posted: 28 Jan 2013 10:56 PM PST

Infowars posted an interesting clip of a Kyle Bass interview regarding the fate of the US dollar. Let's take a look at the video.

Here's the article reference: Senior Obama Official: "We Are Going To Kill The Dollar".

Kyle Bass ...

"How do you solve a problem when you are running a 10% fiscal deficit. You are not going to get growth in the absence of private sector demand. So the government's idea now is we are going to export our way out of this. When I asked a senior member of the Obama administration last week, 'how are we going to grow exports if we do not allow nominal wage deflation?', and he just said we're going to kill the dollar. It's a dead answer but that's where we're headed".

How Realistic the Clip?

That video clip makes good copy. But how realistic is it?

Before answering, let me state that I am a Kyle Bass fan. Moreover, I do not doubt the conversation took place. However, I have to wonder about how serious the person was who said it, and I also have to wonder about how much influence that person has.

Nonetheless, let's assume the statement was not made jokingly. Let's also assume the person who made it can actually influence policy. Is that enough?

The answer is no, it isn't. QE is up to the Fed, not administration officials. Moreover, the QE point is moot, because if QE alone could destroy the dollar, the dollar would already be destroyed.

Spending money in large enough size could indeed sink the dollar, but that takes an act of Congress.

Problems do not stop there. For the US dollar to truly "be destroyed", the US would have to undertake actions well beyond those of the central banks and governments of Japan, China, UK, and Eurozone.

Japan seems dedicated right now to sink the yen. Will the US be more dedicated than Japan? Than China? than the UK? Maybe (let's even assume the US is more dedicated). In enough size to destroy? With this Congress? Will Obama be around long enough?

Those last three questions is an area where reasonable assumptions have to stop.

So, even with the many favorable assumptions I have made, color me skeptical on the notion the US is going to "destroy" the dollar vs. other fiat currencies any time soon.

However, given enough time, and at varying rates, all the central banks will destroy their currencies relative to gold.

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

I am hosting an economic conference in April, in Sonoma.
Please click on the image below for details.

"Wine Country" Economic Conference Hosted By Mish
Click on Image to Learn More

Hard Times: Dijon France Sells Half of Prized Wine Collection to Help Those Appealing for Social Aid

Posted: 28 Jan 2013 06:48 PM PST

Fresh on the heels of France's labour minister stating "France is a Totally Bankrupt State" comes news the city of Dijon needs to sell its prized wine collection to help those "appealing for social aid."

Please consider L'austérité à la française: city sells prized wines.

The city of Dijon has just sold off half of its prized municipal wine cellar to help fund local social spending – including a bottle of 1999 Burgundy knocked down at auction for €4,800 to a Chinese buyer.

In total, the capital of the Burgundy region raised €151,620 from the "historic sale" of 3,500 bottles that were part of a collection built up since the 1960s, it announced in a statement on Monday.

President François Hollande's Socialist government has spent most of its first eight months in office earning a reputation for ramping up taxes on the rich to cover the country's budget deficit.

But Mr Hollande has warned local authorities that they must also shoulder some of the burden by accepting a spending squeeze as the government seeks to cut €60bn by 2017.

François Rebsamen, the Socialist mayor who ordered Sunday's auction, explained: "We have overall a good budget this year, but the social action spending of the city just keeps going up. There are more and more of our co-citizens who are appealing for social aid."

The top attraction was a bottle of Vosne-Romanée Cros Parantoux, premier cru de 1999. Placed on a reserve of €1,000, it sold for almost five times that price.

The city said in its statement that 80 per cent of the proceeds would go towards funding the community social action programme. But the rest would pay for the cost of the auction – and to help replenish the now somewhat depleted municipal cellar.

Two-Time Shot at Best

For the curious minded, the buyer of the bottle of Vosne-Romanée Cros Parantoux was a "mysterious Chinese" named Wang Dongming, who waited patiently for the bottle to go under the hammer at the end of the auction.

Dijon just sold half its wine collection. Thus, Dijon can at best conduct one similar auction of the same size. Then what? Precisely what does the city sell then to help those "appealing for social aid"?

One final question: Does this look like a recovery?

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

France "Totally Bankrupt" Says Labour Minister; Inappropriate or Inaccurate?

Posted: 28 Jan 2013 01:39 PM PST

Sometimes the truth comes from the strangest of places (like ranking government officials). I must say it's refreshing to see a bit of honesty, even if it is immediately denied elsewhere.

Please consider France 'totally bankrupt', says labour minister Michel Sapin.

France's labour minister sent the country into a state of shock on Monday after he described the nation as "totally bankrupt".

Michel Sapin made the gaffe in a radio interview, which left French President Francois Hollande battling to undo the potential reputational damage.

"There is a state but it is a totally bankrupt state," Mr Sapin said. "That is why we had to put a deficit reduction plan in place, and nothing should make us turn away from that objective."

Pierre Moscovici, the finance minister, said the comments by Mr Sapin were "inappropriate".

Inappropriate or Inaccurate?

Forced to select one of those two choices, one would have to vote for inappropriate. However, it would be better yet to admit the truth, which labour minister Sapin clearly did.

Unfortunately, finance minister Moscovici was not content to step aside, allowing citizens to decipher the meaning of the word "inappropriate". Instead, he fired off a set of three blatant lies: "France is a really solvent country. France is a really credible country, France is a country that is starting to recover."

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

Iceland Wins! "Icesave" Lawsuit Dismissed, Court Orders EC and EFTA to Pay Costs

Posted: 28 Jan 2013 10:09 AM PST

Iceland is in an economic recovery thanks to its decision to not bailout banks at taxpayer expense during the great financial collapse. Iceland's decision upset the UK and Netherlands. Both countries foolishly decided to reimburse its depositors, then sue Iceland to pay.

The story goes back to 2010 and I have commented many times on Iceland and Icesave and how Iceland was doing the right thing.

Here are a couple links on Icesave if you need to refresh your memory.

Iceland Wins in Court

Here is an image clip of page 36 of the court decision completely exonerating Iceland.

.

The decision was delivered in open court in Luxembourg on 28 January 2013. Congratulations to Iceland.

EFTA

The EFTA is the European Free Trade Surveillance Authority.

The European Free Trade Association Surveillance Authority performs the executive role of the European Commission in the countries of the European Free Trade Association (EFTA) which are part of the European Economic Area (EEA).

The authority is tasked with ensuring laws and regulations are properly enacted by members, challenging them before the EFTA Court if necessary. The Authority has its headquarters in Brussels (Belgium) and its working language is English. Enterprises and individuals can, however, address the Authority in any official EEA language.

I picked this story up from the Daily Kos article Icesave: Today Iceland Learns Whether It Gambled Right On Refusing A Repayment Deal With The British.

Not only did Iceland win, but the European Commission which intervened has to pay all costs and all the money spent by the British and Dutch is unrecoverable. Wow!

Congratulations to Iceland!

Here is a link to Iceland won the Icesave issue. The article is in Icelandic, translation by Google.

Justice was served in the end, but it took a lot of trials and tribulations to get there. The Icelandic parliament voted twice to make Icelandic citizens responsible. The matter only went to referendum in the first place when Iceland's President, Ólafur Ragnar Grímsson insisted upon a referendum.

Voters rejected the first referendum by a 93 to 7 percent margin. Yet, Prime Minister Johanna Sigurdardottir vowed to make the referendum "obsolete".

For the amazing gall of the Icelandic prime minister in this regard, please see Iceland Rejects IceSave; Does No Mean No?

Once again, congratulations to Iceland (or rather Icelandic citizens, certainly not a Parliament that attempted to overturn a 93% no vote).

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

Sunday, January 27, 2013

Mish's Global Economic Trend Analysis

Australia Roundup: Hundreds of Restaurants Close Rather Than Pay 250% Holiday Rate; Massive Housing Incentive, Still No Buyers

Posted: 27 Jan 2013 09:09 PM PST

It's time once again to take a look at happenings down under. Restaurants are closing en masse rather than pay double time and a half to stay open on holidays.

Please consider Penalties blamed for taking high-end dining off menu.

The annual survey of the 7500- member Restaurant and Catering Australia reveals a 33 per cent jump since 2011 in the numbers of restaurateurs saying they cannot afford to open on public holidays.

Public holiday penalty rates require employers to pay double time and a half, equating to pay rates of at least $40 an hour.

Robert Marchetti, executive chef of Sydney's Icebergs Dining Room and Bar and North Bondi Italian Food and owner of highly acclaimed restaurants in Sydney and Melbourne, said some of his businesses - including Neild Avenue - would be closed today, while those that opened would be providing a "public service".

"The government are a bunch of monkeys who don't understand business," he said.

"We're not living in the 1960s anymore. Australia has its head stuck up its arse on IR.

Following ACTU Secretary Dave Oliver's Christmas Eve call for the Fair Work Act to be changed to enshrine penalty rates as a minimum entitlement, United Voice liquor and hospitality division Secretary Tara Moriarty said the issue was one the industry raised every public holiday.

"Penalty rates haven't made the sky fall in yet, despite them constantly making suggestions to the contrary," she said.

Shop, Distributive and Allied Employees Association national secretary Joe De Bruyn said the closure of some businesses on public holidays would simply mean more business for the restaurants that stayed open.

"Penalty rates have been part of workers' entitlements for decades," he said.

Unions were awaiting the outcome of a Fair Work Australia hearing on penalty rates. "While the unions put up a very strong case for preserving penalty rates, the employers' case was a pathetic performance," Mr De Bruyn said.

Double-Time and a Half Insanity

You have to love the mentality "the sky is not falling yet" mantra, especially when it clearly is.

Who pays for this absurdity? Consumers in general of course. Business owners and employees of businesses who cannot afford to pay double-time and a half, also get hit hard.

House and Land Incentives

Property Observer notes House-and-land incentive and discounts from $5,000 to $126,000

New housing finance and building approval figures suggest there will be no swift rebound in demand for new housing.

There was a 10.3% fall in home loan commitments for new dwellings and a 0.3% drop in building approvals for new houses in November, according to seasonally adjusted ABS figures.

New home buyers can secure discounts in the thousands and sometimes tens of thousands of dollars on select blocks of lands and new homes in Melbourne, the Gold Coast and Sydney.

There are also generous first-home buyer incentives on offer from NSW, Queensland, Tasmanian and South Australian state governments for those buying or building new homes.

$30,000

Listed residential developer Peet is offering savings of up to $30,000 on "certain lots" in residential communities on the outskirts of Melbourne.

$22,000

Listed developer Devine is offering to pay mortgage repayments for up to a year on behalf of approved purchasers who sign an unconditional contract to purchase a new Devine house and land package before February 28 2013 under its Devine Mortgage Break promotion.

Melbourne builder Carlisle Homes is offering a $30,000 discount off the retail price of double-storey homes and $22,000 off the retail price of single-storey homes in its luxury Affinity and T Range collections. There is currently no end date to this promotion.

$10,000

Up until February 25 2013, Stockland is offering approved purchasers a $10,000 VISA gift card to spend as they wish.

$76,000 - $126,000

Discounts of up to $126,000 are on offer for residential lots in The Highlands community in the Ecovillage, Currumbin Valley on the Gold Coast.

Massive Housing Incentive, Still No Buyers

Macrobusiness reports Developers Go Completely Mad.

Today, Property Observer has provided a comprehensive list of incentives being offered by developers in a bid to lift sales, which are in addition to generous incentives on offer in New South Wales, Queensland, Tasmania and South Australia.

Clearly, such developer incentives are failing to stimulate demand and could actually be precluding the new home market from functioning properly.

Australia's property development industry appears to be caught in a pincer. If they don't abandon incentives in favour of transparent land price deductions, financing of new house and land packages will remain problematic and sales will likely continue to struggle. At the same time, reducing the listed price by the same value as the bonuses and incentives being offered could lower their collateral value, potentially triggering the banks to call in more equity from bank-financed developers to bring their loans back to agreed conditions and/or loan terms. Straight price cuts are also more likely to aggrieve recent purchasers that paid higher prices.

How Fast the Collapse?

The housing bubble in Australia has clearly burst. All that remains to be seen is how fast things collapse.

Meanwhile, Australia's unions still cling to an already dead model, oblivious to the fact the boom is over.

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

"Libertarian Turned Keynesian" Responds

Posted: 27 Jan 2013 12:49 PM PST

In response to How to Debate Paul Krugman: "Ask Questions Like a Child", a self-proclaimed "Libertarian Turned Keynesian", a graduate of Columbia University, writes ...

Hello Mish

I want you to publish this rebuttal to your post.
You can use my first name if you'd like with Libertarian-turned-Keynsian in brackets.

Let's say there are 8 million healthy, unemployed people in US.

The Treasury can simply print 4 million pieces of IOU claiming that the holder of this piece of paper is entitled to a free massage or a free cleaning services or free haircut or free baby-sitting or free moving (basically any service worth $50 with negligible raw material) from another unemployed person and simply distribute it to unemployed people.

What happens? On Day 1, the 4 million who got the coupons tender their coupons and receive services (increase in daily GDP 4 million * 50 == 200 Million).

On Day 2, the opposite happens and this goes on quite a while. Now, lets say the economy improves and 2 Million get employed. Now essentially we have 1 Million extra coupons (inflation). Treasury will tax the lucky/rich people who have a job and a coupon and essentially retire them.

Or, let's say the economy deteriorates and 2 more more million get unemployed. Now there are few coupons and some may be willing to do the job for 3/4th of a coupon (deflation). Now essentially Treasury can print extra 1 million and distribute them.

Notes:

1) We need flexible money supply.
2) Having gold standard is stupid. What does amount of gold supply have to do with anything?
3) We increased GDP by simply printing pieces of paper.

Bonus:

Let's say someone comes with a brilliant idea that one unemployed can actually perform two jobs a day. Now instantly the capacity doubled and Treasury can print double the amount of IOUs.

So Ridiculous I Hardly Know Where to Start

I did not post the first name of "Libertarian Turned Keynesian" on purpose. His name was unusual enough that he could be found.

The above response is clearly absurd. I reply only because it is precisely the kind of "something for nothing" silliness that is frequently taught in higher education.

Any person with a modicum of common sense, at any education level beyond 7th grade, should understand what happens to demand as soon as free money stopped.
Any person with a modicum of common sense, at any education level beyond 7th grade, should understand costs of goods and services would soar if free money was handed out in any significant amount.
Any college graduate should understand the difference between nominal GDP and "real" inflation adjusted GDP.
Any college graduate should understand what happened in Zimbabwe and Weimar Germany.
Any person with any amount of common sense should understand it's what you get for your money, not how much you have, that matters.

Ignoring the typos, clearly the writer has absolutely zero sense of the difference between nominal GDP and wealth. In nominal terms (using the number of Zimbabwe dollars in circulation as "wealth"), Zimbabwe was economically the strongest country in the world.

Unfortunately, they cannot teach common sense in schools. Instead they teach Keynesian claptrap. Then economically illiterate graduates write me things similar to the above. This kind of thing happens all the time, frequently with emails ending in ".EDU".

Addendum: Spare the Monetarists?

Reader Ayal asks "You target your attacks at Keynes and Keynesians, but why do you spare the Monetarists?"

The simple answer is I don't. Bernanke is primarily a monetarist with some Keynesian tendencies as well. QE is 100% monetarism and I attack that all the time.

Countless times I have pointed out that Japan tried both monetary and fiscal stimulus and failed. One can also search my blog for Greg Mankiw, the high priest of monetarism to see what I have to say.

If I had to pick one of article in that search reference to read, it would undoubtedly be Modern Day Fairy Tale of 3 Economic Wizards (Except It's True)

Comment

It's quite shocking what comes out of our education system. Of course, what comes out is hugely influenced by economically illiterate teachers at the highest levels in education.

Addendum 2: Not a Hoax

Several people suggested the email was a hoax.

It's not. I have additional correspondence with this person thanking me for not using his name. And a Google check of his name with numerous references ties back to Columbia.

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

Saturday, January 26, 2013

Mish's Global Economic Trend Analysis

How to Debate Paul Krugman: "Ask Questions Like a Child"

Posted: 26 Jan 2013 04:33 PM PST

I received an interesting email the other day on debating Paul Krugman. I did a search on the topic and found a post with that exact name: How to debate Paul Krugman

Paul Krugman is the high priest of Keynesianism and modern interventionism, of economic improvement through inflation and budget deficits. As such he is bête noir among us libertarians and Austrian School economists. What makes him so annoying is his unquestioning, reflexive and almost childlike enthusiasm for state intervention, even in the face of its obvious failure, and his apparent unwillingness to probe any deeper into the real causes of our present economic problems or to show any willingness to investigate the effectiveness or ineffectiveness of his particular medicine. His Keynesian convictions are presented as articles of faith that no intelligent person can seriously question. A Krugmanesque argument is always built on a number of assumptions that are beyond doubt: ....

On and On

The above article goes on and on. Moreover, it appears to be 100% accurate. Unfortunately, it's not the correct way to debate Paul Krugman at all.

Economist Hans Hermann-Hoppe explains the Right Way To Debate Paul Krugman in the following video.

The video is a mere 63 seconds long. Here is the key snip.

"It is very important in replies to people like Paul Krugman, that we don't get involved in technical details. Ask some questions almost like a child. Explain to me how increases in paper pieces can possibly make a society richer. If that were the case, explain to me why is there still poverty in the world? Isn't every central bank in the world capable of printing as much paper as they want? I am sure the guy cannot answer this type of question. Nobody can answer this type of question. We always get bogged down in technical details of his argument instead of always repeating this question: Please explain to me how a piece of paper can make society richer."

Would that work?

Krugman would respond with incomprehensible gibberish "for wonks only" as well as typical Keynesian nonsense about how paying people to dig holes and other people to fill them up would start a chain reaction of growth.

A child would see the answer was preposterous, but not a trained economist, politician, or brainwashed academic. Paul Krugman, keynesian economists in general, politicians wanting a free lunch, and most academics are all incurable.

Nonetheless, Hans Hermann-Hoppe's answer is indeed the correct one. By asking questions a child will understand, some non-brainwashed people will see Keynesian and Monetary stimulus for what they really are: economic stupidity.

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

Debt Grows at Astonishing Rate Even in Texas; A Roadmap to Better; "It's Your Money"; Infinite Amortization Periods

Posted: 26 Jan 2013 01:36 PM PST

"It's Your Money"

Susan Combs, Texas Comptroller of Public Accounts says "Texas, It's Your Money".

At the Comptroller's office, we've long championed the importance of transparency — giving the Texans we serve the information they need to make informed decisions and hold their government officials accountable.

That's why our office launched the Texas, It's Your Money series of reports, which spotlights issues that hit Texans in their wallets: local taxes, government debt, education debt and public pension obligations. We're committed to keeping the state's books open, accessible and understandable for our citizens.

A Roadmap to Better

With that introduction lets dig deeper into one of the reports "A Roadmap to Better"
click on any chart for sharper image

Sales Taxes and Property Taxes

Since 1993, special purpose districts that levy sales tax have increased by more than 1,900 percent, which means that more entities are taxing you. In that same time period, the number of special purpose districts that levy property tax has grown by more than 45 percent, with the creation of more than 500 new districts of this type.

While local sales taxes increased by almost 170 percent from 1993 to 2011, property taxes grew by 188 percent from 1992 to 2010. Compare that to slightly more than 120 percent growth in combined population and inflation during those years.

Local Obligations

Our local governments more than doubled their debt load in the last decade, amassing more than $7,500 in debt for every man, woman and child in the state. Between 2001 and 2011, the outstanding debt of Texas local governments rose more than twice as fast as inflation and population growth rates combined.

Total Local Outstanding Debt

Local Debt - Where We Fall Short

New debt often is approved by a small percentage of voters, who must make vital decisions about new debt with little information about its implications. And a large share of local debt — totaling $12.7 billion since 2005 — is issued through "certificates of obligation," generally, without any voter approval.

Combined State and Local Debt

How Texas Can Do Better

You have a right to a full and complete disclosure of public debt. All government
entities should reveal all debt obligations on a public website, including the debt's original stated purpose, the total amount of debt authorized, the issued and unissued amounts of authorized debt, spent and unspent amounts of issued debt and the per capita debt burden on taxpayers. Any ballot for new debt should be accompanied by a similar
accounting.

You have a right to approve debt issued in your name. Texas should significantly narrow public governments' authority to issue debt without voter approval, and revise the petition process to make it easier for taxpayers to compel a public vote on proposed debt.

Education Debt

In fiscal 2011, our public school debt was $63.6 billion, or $13,530 for every Texas student in a school district carrying debt. And while state college and university debt is lower, at $12.5 billion, that debt rose nearly eight times faster than enrollment in the last decade.

College Debt vs Enrollment

The bulk of Texas' education debt supports the construction or renovation of school facilities. Yet Texas has no centralized source for information on current public school facilities, such as total square footage, square footage per student and total cost. To obtain such information, every district must be contacted individually. Construction costs also are not reported to any single entity, making it almost impossible to identify unreasonable costs on individual projects.

In addition—as with other debt—new debt often is approved by a small percentage of voters. It also is difficult for taxpayers to learn the full dimensions of debt in their area.

How Texas Can Do Better

You have a right to full and complete information on education debt. Every Texas school district should disclose on its website the cost and details of all construction and renovation projects, including actual square footage, total cost per student, total cost per square foot and square footage per student. Each district should also post an online inventory of all existing facilities, detailing available square footage, total student capacity and current student enrollment for each campus.

All ballots for new education debt should reveal all current and proposed debt obligations, including the amount of outstanding debt, existing debt service, amount of new debt and the average length of proposed debt obligations.

Pension Obligations

Too little public information on public pension finances is readily available. Many plans do not report their actual investment returns to the state's Pension Review Board.

Several of the state's largest pension plans also have "infinite amortization periods," meaning that they can never eliminate their unfunded liabilities as currently structured.

Texas public pension plans cover 2.3 million active and retired members. As with most other investments globally, Texas public pension program earnings fell during the recent recession. Although plan assets have rebounded since 2010, overall they are still below pre-recession levels.

Will Work to Pay Debt

The following image shows precisely what the current Ponzi scheme looks like.

The number of workers is shrinking dramatically compared to the number of retirees collecting Social Security or disability checks. Meanwhile state and local taxing bodies want still more debt and forever increasing taxes to keep the Ponzi scheme going longer.

This state of insanity is frequently described as being "Progressive".

Instead, I support the common sense proposals of Susan Combs, Texas Comptroller of Public Accounts.

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