Friday, July 19, 2013

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Japan Tells Firms "Stop Sitting on Cash", Ignore the Lack of Customers

Posted: 19 Jul 2013 09:40 PM PDT

If you are looking for idiotic policies in action, the theories of Japanese Prime Minister Shinzo Abe should be right in your spotlight.

Abe now tells Japanese firms "Stop Sitting on Cash"
Okuma, a Japanese machine-tool maker, has seen its stock price rise around 30% this year. Its customers have outdated machinery that needs replacing. But, for now, the company isn't investing. Instead, it is sitting on a pile of cash worth about $280 million—50% higher than its pile a decade ago, equivalent to one-fifth its annual sales, and more than twice the level required for the firm to be deemed loan-worthy by a bank.

Why? Senior director Chikashi Horie says the answer is simple. Okuma's clients "are not investing, not even to raise efficiency, so we are not investing either," he says.

Okuma's thinking embodies one of the key challenges for Prime Minister Shinzo Abe's ambitious growth plan: persuading Japan's famously stingy companies to stop stashing their earnings in the bank, and putting the money to more productive use, helping complete—rather than short-circuit—the virtuous economic cycle.
Blatantly Obvious Idiocy

What is with these central planning fools anyway?

Not only do they think they know better than the free markets, they want companies to produce what their customers clearly do not want.

The irony in this situation is that Abe is hell bent on producing inflation in Japan.

Here's a simple question: What happens to prices when more products are produced in the face of falling or static demand?

Abe is a fool in the first place for his inflation targets, but he is even more of a fool to think producing merchandise no one wants is the way to achieve that goal.

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

Avalanche of City Debt Downgrades and Eventual Bankruptcies Coming Up; Numerous Cities Bankrupt Over Pension Promises

Posted: 19 Jul 2013 10:15 AM PDT

Yesterday Moody's downgrades Chicago's credit rating, pension debt to blame.
Chicago's credit score is on the way down. The city is getting a small down grade from Aa3 to A3, because of the city's pension problem.

Moody's Investors Service says it's making the move because of "formidable legal and political barriers to pension reform" in the state. The downgrade affects $8.2 billion in debt and means it will cost the city more to borrow money.

According to Moody's Chicago has $19 billion in unfunded pension liability and faces a "tremendous strain" in meeting their budget and paying law enforcement.
Avalanche of City Downgrades Coming Up

With the bankruptcy of Detroit and numerous cities in California, it will not be long before the rating agencies downgrade city debt en masse.

Zombified Cities



There is absolutely no way Chicago, Oakland, Baltimore, Philadelphia, LA, Houston, and numerous other cities can meet pension obligations without a major restructuring of promises.

Given that public unions seldom if ever agree on even the smallest of pension concessions, expect many of those haircuts to happen in bankruptcy court.

This article regarding the bankruptcy of Stockton, California shows why bankruptcy is inevitable: Federal Bankruptcy Court Lets Stockton, California Cut Retiree Health Care Benefits

The bankruptcies in California cities and Detroit provide a backdrop of what's about to happen. In the meantime, expect an avalanche of city debt downgrades.

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

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