Mish's Global Economic Trend Analysis

SpendingPulse: Retail Sales Led by Apparel, Consumer Electronics and Appliances Down
Former Canadian Prime Minister Adviser Calls for Assassination of WikiLeaks Founder Assange; Assinity from Sarah Palin
State Secrets or Blazing Stupidity? US a Pawn for Oil Producers? Next Stop "Secret Police"
ECB Offers "Unlimited Cash" for 3 Months at 1%, Buys Government Bonds to Fight Acute Tensions; Ireland, Take the Money and Buy Gold
Challenger Reports Planned Layoffs Highest in 8 Months; ADP Reports Strongest Job Gains in 3 Years; Impact of State Budget Deficits on Jobs
Wayne County Michigan (Detroit + 35 Cities) Imposes Huge Wage Cuts on AFSCME Union Workers

SpendingPulse: Retail Sales Led by Apparel, Consumer Electronics and Appliances Down

Posted: 02 Dec 2010 10:29 PM PST

Retail sales are way up year-over-year and apparel is leading the way. I have this email from SpendingPulse to share:

Michael McNamara, Vice President, Research and Analysis for MasterCard Advisors SpendingPulse, observes, "Industry sales generally did well in November, building on the positive momentum first observed in September that carried through the early fall. The November retail sales gains indicate a solid start to the 2010 Holiday season for most categories, with some recording significant year-over-year gains."

McNamara continued, "Regarding Black Friday, it is important to keep in mind that this 24-hour period generally represents 5-6% of total retail sales, ex-auto, for the month of November, although there is significant variation by category. Sales tactics that have been developed over the past several years have been increasingly effective at driving sales to make it an almost $19 billion day, ex-auto. But it is becoming harder to post significant year-over-year growth rates for total sales on that specific day. This year, a number of factors such as earlier online and brick-and-mortar promotions may have further diluted the importance of the day itself, distributing sales over a longer period of time."

Year-over-year Total Apparel sales in November saw another sharp monthly increase. At 9.6% this was the largest year-over-year growth in 2010 for that sector following the previous record in October. Total apparel has enjoyed 8 out of 11 months of year-over-year gains so far in 2010. In November, all of the sub-sectors posted year-over-year growth.

For the second consecutive month, the Consumer Electronics and Appliances segment posted a year-over-year decline, although at -1.1%, it was not as severe as October's decline. The Consumer Electronics sub-category was down by 1% while the Appliance sub-sector fell by 1.6% year-over-year.

eCommerce was back in double-digit year-over-year growth in November as consumers took advantage of free shipping offers and online-only specials. The category posted a year-over-year increase of 12.0%, the first double-digit growth rate since July, and the largest increase since May. The Apparel sub-category did very well at 22.2%, increasing by double digits for the 12th consecutive month, led mainly by Children's Apparel at +33.3%, and Footwear at 32.7%. This was the first time since March that growth was over 20% and it was the largest growth rate for the year. Online sales of electronics were up 6.0%, back to the solid growth in September, with growth particularly strong during the Thanksgiving week.

The SpendingPulse Luxury ex-Jewelry Index, which encompasses sales at high-end restaurants, food stores, department stores and general apparel categories, posted positive results in November, although not as robust as October, growing 1.6% year-over-year. While mixed results in the financial markets put pressure on the sector, relatively easy comparisons with last year's performance helped keep the growth rate positive.

Please Note: SpendingPulse estimates total U.S. retail sales across all payment forms, cards, cash and check. It is not a measure of MasterCard transactions or MasterCard financial performance.

Pent Up Demand For Clothes

The SpendingPulse report shows a pent-up demand, not for junk, electronics, or appliances, but for specifically clothes.

The deflation squeeze is even pressuring grocery stores as noted by the MarketWatch report Kroger takes supermarket shares down

Kroger Co. and shares of U.S. supermarket chains slid early Thursday after Kroger's third-quarter earnings report didn't show much improvement on the pricing front. Kroger shares tumbled 9% to $21.57. Safeway fell 5% to $22.25. Supervalu lost 1% to $8.78. Kroger and Safeway were the worst performers on the S&P 500 Index.

In a conference call, Kroger Chief Executive David Dillon said shoppers continue to be cautious on spending. "Overall, the economic recovery is a slower and weaker than we anticipated it would be at this point in the year," Dillon said. He said deflation persists, except for meat, dairy and produce items in the company's stores.

It's nice to see shoppers focus on real needs instead of electronic garbage. However, pent-up demand for apparel cannot last forever, nor can apparel sales form the foundation for a lasting recovery.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Former Canadian Prime Minister Adviser Calls for Assassination of WikiLeaks Founder Assange; Assinity from Sarah Palin

Posted: 02 Dec 2010 06:21 PM PST

It's rather disgusting to see hypocrites spouting about the rule of law call for the assassination of WikiLeaks founder Assange before he is even arrested and officially charged.

Tom Flanagan, a professor at the University of Calgary and former adviser to Canadian prime minister Stephen Harper is such a hypocrite. Flanagan has openly called for the assassination of Assange.

If calling for the assassination of a private citizen is not a crime in and of it self it ought to be. The University of Calgary should fire Flanagan tomorrow.

I encourage you to phone University of Calgary president Elizabeth Cannon at 403-220-5617 and demand the resignation of Professor Tom Flanagan.

Please Email president@ucalgary.ca to speak your mind.

For more on this story please see Professor Tom Flanagan: Glib about Murdering Julian Assange

Sarah Palin Compares Assange to Bin Laden

Tom Flanagan joins media darling Sarah Palin who thinks Assange is like an Al Qaeda terrorist

Sarah Palin has demanded that WikiLeaks founder Julian Assange is hunted down like Osama bin Laden. In an extraordinary outburst on Facebook, the former Alaska governor attacked the White House for 'incompetent handling of this whole fiasco.'

Assange is not a "journalist," any more than the "editor" of al Qaeda's new English-language magazine Inspire is a "journalist."

'He is an anti-American operative with blood on his hands.

'His past posting of classified documents revealed the identity of more than 100 Afghan sources to the Taliban. 'Why was he not pursued with the same urgency we pursue al Qaeda and Taliban leaders?'

Excuse me for asking but since when does exposing corruption and hypocrisy make one an al Qaeda' terrorist? Is the whole world supposed to stand up and salute our illegal wars, our torture of civilians, our holding of prisoners in Cuba with no charges being filed. Are we supposed to salute or simply look away from fraud by our banks and coverups in our Treasury department?

By the way, it took about two days to find Assange. If only we could find Bin Laden so quickly.

Could Sarah Palin Find Spain on a Map?

I seriously doubt Sarah Palin could find Spain on a globe if someone flipped the labels for Spain with France.

She certainly does not know the difference between North and South Korea having spouted to Glenn Beck "Obviously, we gotta stand with our North Korean allies." She had to be corrected by Beck.

Sarah Palin is currently leading the Republican candidates, but of the major candidates she performs worst against President Obama. She may be the one person Obama could beat.

According to the latest ABC Poll 67% say she is not qualified to be president.

Said George Will "After the 2008 campaign she had two things she had to do. She had to go home to Alaska and study. She had to govern Alaska well. Instead she quit halfway through her first term and shows up in the audience of Dancing With The Stars and other distinctly non-presidential venues.

Such stunts will have media fools fawning all over her, but in crunch-time it won't win elections. 2008 is proof enough.

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

State Secrets or Blazing Stupidity? US a Pawn for Oil Producers? Next Stop "Secret Police"

Posted: 02 Dec 2010 12:45 PM PST

The blazing stupidity of some of the ridiculous schemes hatched by US diplomats is staggering.

Take a look at Wikileaks Docs Reveal Secret Scheme To Wean China Off Of Iranian Oil Supply by Joe Weisenthal at the Business Insider, and I will show you exactly what I mean.

Very interesting nugget from the WikiLeaks dump showing how the world of economics, security, and energy collide.

Specifically, the documents reveal a plan, hatched by the US, whereby Saudi Arabia would guarantee China ongoing supply of oil in exchange for China weaning itself off Iran.

A Selection From the Cache of Diplomatic Dispatches

Weisenthal points to A Selection From the Cache of Diplomatic Dispatches and uncovers this gem.

FM SAUD: CHINA NEEDS TO MORE ACTIVELY COUNTER IRANIAN NUKES

9. (C) Deputy Foreign Minister Dr. Prince Torki told visiting NEA A/S Feltman on January 26 (ref C) that FM Saud had pressed the Chinese Foreign Minister hard on the need to be more active in working with the rest of the international community and the UN Security Council to counter the threat of Iran developing a nuclear weapon. FM Saud told FM Yang that Saudi Arabia was convinced Iran intended to develop anuclear weapon, despite its assurances, and that only concerted international action could stop that.

While no explicit bargain was discussed, Dep FM Torki explained that Saudi Arabia understood China was concerned about having access to energy supplies, which could be cut off by Iran, and wanted to attract more trade and investment. Saudi Arabia was willing to provide assurances on those scores to China, but only in exchange for tangible Chinese actions to restrain Iran's drive for nuclear weapons.

COMMENT:
...try and leverage their economic relationship with China for political gain with respect to sensitive regional issues, such as Iran and the Israeli-Palestinian conflict, are significant and growing. After patiently focusing on building the economic relationship since 2006, FM Saud's public and private prodding of FM Yang indicates the Saudis are ready to try and cash in some political chips. End comment.
SMITH

Global Economic Illiteracy

Because oil is fungible, the entire conversation is an exercise in blatant stupidity. It does not matter one bit if Iranian oil goes to China or not, as long as it goes somewhere. Oil that does not go to China may go to Europe or Japan and any price changes would quickly go away as supplies were re-routed.

Of course if Iranian oil was shutoff altogether, you have a different situation, one in which the only guarantee would be enormously higher prices for everyone, not a guaranteed supply to China.

Negative Effects of Mountains of Stupidity

That such conversations occur at all is a testament to global economic illiteracy. Did anyone in the US or Saudi Arabia benefit from this stupidity?

The answer of course is no. In fact, there is negative benefit from accumulating mountains of stupidity in that someone might look at it, think it's important, and try and act on it.

For example, I can easily imagine diplomatic idiots starting to worry about oil going to China because of "guarantees" arising from those comments. This in turn would necessitate a need to work out our own "guarantees" that allegedly would supersede any Saudi "guarantees" to China.

In fact, I would be shocked if such conversations did not occur, even though the idea that any "guarantees" would be honored in the face of a real crisis with oil supplies is more than a bit foolish.

The solution is to fire every one of these secret deal-makers because they are doing more harm than good. Indeed the best way to prevent leaks is to not have moronic conversations in the first place.

Meltdown in US Foreign Policy

Inquiring minds are reading Spiegel Online's commentary A Superpower's View of the World

251,000 State Department documents, many of them secret embassy reports from around the world, show how the US seeks to safeguard its influence around the world. It is nothing short of a political meltdown for US foreign policy.

What does the United States really think of German Chancellor Angela Merkel? Is she a reliable ally? Did she really make an effort to patch up relations with Washington that had been so damaged by her predecessor? At most, it was a half-hearted one.

The tone of trans-Atlantic relations may have improved, former US Ambassador to Germany William Timken wrote in a cable to the State Department at the end of 2006, but the chancellor "has not taken bold steps yet to improve the substantive content of the relationship." That is not exactly high praise.

And the verdict on German Foreign Minister Guido Westerwelle? His thoughts "were short on substance," wrote the current US ambassador in Berlin, Philip Murphy, in a cable. The reason, Murphy suggested, was that "Westerwelle's command of complex foreign and security policy issues still requires deepening."

Such comments are hardly friendly. But in the eyes of the American diplomatic corps, every actor is quickly categorized as a friend or foe. King Abdullah of Saudi Arabia? A friend: Abdullah can't stand his neighbors in Iran and, expressing his disdain for the mullah regime, said, "there is no doubt something unstable about them." And his ally, Sheikh bin Zayed of Abu Dhabi? Also a friend. He believes "a near term conventional war with Iran is clearly preferable to the long term consequences of a nuclear armed Iran."

A Political Meltdown

Such surprises from the annals of US diplomacy will dominate the headlines in the coming days when the New York Times, London's Guardian, Paris' Le Monde, Madrid's El Pais and SPIEGEL begin shedding light on the treasure trove of secret documents from the State Department. Included are 243,270 diplomatic cables filed by US embassies to the State Department and 8,017 directives that the State Department sent to its diplomatic outposts around the world.

There is much more in the Spiegel article including a nice interactive map showing a time lapse of 251,287 documents, where the majority of the cables originated from, and where they had the highest level of classification.

That interactive map will take a while to load. Speigel also discusses specifics about Turkey, Yemen, Afghanistan, Iraq, and even Germany.

Hillary Clinton said there would be minimal damage from this. It would be amusing to hear her private explanations of that on WikiLeaks.

US a Pawn for Oil Producers

Speigel concludes with an interesting suggestion that the US is nothing but a pawn for the oil producing countries, not the other way around.

On the whole, the cables from the Middle East expose the superpower's weaknesses. Washington has always viewed it as vital to its survival to secure its share of energy reserves, but the world power is often quickly reduced to becoming a plaything of diverse interests. And it is drawn into the animosities between Arabs and Israelis, Shiites and Sunnis, between Islamists and secularists, between despots and kings. Often enough, the lesson of the documents that have now been obtained, is that the Arab leaders use their friends in Washington to expand their own positions of power.

US embassy cables: browse the database

The Guardian also has an Interactive Map of 250,000 US Embassy Cables that inquiring minds may wish to peruse.

Joe Weisenthal at the Business Insider points out these tidbits.

Iran has fortified its weapons cache with the help of Russian-designed missiles and North Korea.

Saudi King Abdullah can't stand Iran. In fact, the entire Middle East is basically uncomfortable with Iran right now.

The US has been involved in a dangerous standoff with Pakistan regarding nuclear fuel since 2007 (not surprising at all)

Under Hillary Clinton, us diplomats have been urged to help spy on the UN.

Afghanistan is seen as corrupt (shocking!)

US officials have been wargaming a North Korea collapse (again, not surprising).

Vladimir Putin and Sylvio Burlesconi have an unusually close friendship (amusing).

The Moral Standards of WikiLeaks Critics

New York Times writer Joe Klein writes "If a single foreign national is rounded up and put in jail because of a leaked cable, this entire, anarchic exercise in 'freedom' stands as a human disaster. Assange is a criminal. He's the one who should be in jail."

Glenn Greewald smashes the blazing hypocrisy of Joe Klein right out of the ballpark with his rebuttal The Moral Standards of WikiLeaks Critics.

Do you have that principle down? If "a single foreign national is rounded up and put in jail" because of the WikiLeaks disclosure -- even a "single one" -- then the entire WikiLeaks enterprise is proven to be a "disaster" and "Assange is a criminal" who "should be in jail." That's quite a rigorous moral standard. So let's apply it elsewhere:

What about the most destructive "anarchic exercise in 'freedom'" the planet has known for at least a generation: the "human disaster" known as the attack on Iraq, which Klein supported? That didn't result in the imprisonment of "a single foreign national," but rather the deaths of more than 100,000 innocent human beings, the displacement of millions more, and the destruction of a country of 26 million people. Are those who supported that "anarchic exercise in 'freedom'" -- or at least those responsible for its execution -- also "criminals who should be in jail"?

How about the multiple journalists and other human beings whom the U.S. Government imprisoned (and continues to imprison) for years without charges -- and tortured -- including many whom the Government knew were completely innocent, while Klein assured the world that wasn't happening? How about those responsible for the war in Afghanistan (which Klein supports) with its checkpoint shootings of an "amazing number" of innocent Afghans and civilian slaughtering air strikes, or the use of cluster bombs in Yemen, or the civilian killing drones in Pakistan? Are those responsible for the sky-high corpses of innocent people from these actions also "criminals who should be in jail"?
I'm not singling out Klein here; his commentary is merely illustrative of what I'm finding truly stunning about the increasingly bloodthirsty two-minute hate session aimed at Julian Assange, also known as the new Osama bin Laden. The ringleaders of this hate ritual are advocates of -- and in some cases directly responsible for -- the world's deadliest and most lawless actions of the last decade. And they're demanding Assange's imprisonment, or his blood, in service of a Government that has perpetrated all of these abuses and, more so, to preserve a Wall of Secrecy which has enabled them.

Secret Police Tactics

My only problem with Glenn Greenwald's article is that I want to excerpt the whole thing. Since I won't do that, and since there is much more to see in his excellent article, please click on the link and read the whole thing.

Hopefully it will leave you with a different perspective about the crazies and their secret police Tactics.

Finally I want to share an email from reader "SB" in response to my article Amazon Drops WikiLeaks on Request of Sen. Lieberman; Lie of the Day from Hillary Clinton; How NOT to Stop Leaks; Why we have Leaks.

"SB" Writes...

Hello Mish

Thanks for your post. I am 100% in agreement. I'm 65, and as a youngster worried almost daily about being called up for the draft for Vietnam.

Imagine what might have happened to the Vietnam war effort if the whole mess had been made public from the start.

I was supportive of the war, and would have gone if called, but the revelations about it over the past 50 years have definitely called that into question. It sure would have been nice to know what folks in the Federal Government were hiding.

Those who are in favor of prosecuting Mr. Assange need to remember the words, "Secret Police," and contemplate how close we are coming to that concept in our nation, and in our actions throughout the world.

We need someone like this to shine the light of day on what passes for proper behavior now.

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

ECB Offers "Unlimited Cash" for 3 Months at 1%, Buys Government Bonds to Fight Acute Tensions; Ireland, Take the Money and Buy Gold

Posted: 02 Dec 2010 10:22 AM PST

In a move ECB President Jean-Claude Trichet says is NOT Quantitative Easing, ECB Delays Exit of Emergency Measures, Buys Bonds to Fight 'Acute' Tensions

The European Central Bank delayed its withdrawal of emergency liquidity measures and bought more government bonds as President Jean-Claude Trichet pledged to fight "acute" financial market tensions.

Trichet said the ECB will keep offering banks as much cash as they want through the first quarter over periods of up to three months at a fixed interest rate. As he spoke, ECB staff embarked upon a new wave of purchases, triggering a surge in Irish and Portuguese bonds.

"Uncertainty is elevated," Trichet told reporters after the ECB's Governing Council left its benchmark interest rate at 1 percent today. "We have tensions and we have to take them into account."

Bond purchases will continue to be offset to keep the money supply unchanged, in contrast to the Federal Reserve and the Bank of England, he said. "It's not quantitative easing, we're withdrawing all the liquidity," he said.

President Axel Weber, a leading contender to replace Trichet at the bank's helm next year, opposed the decision to start buying bonds in May and has since called for the program to be cancelled. He says it poses "stability risks" and that there is no evidence it works.

Move Will Fail

I don't know when this move fails, it could be a day or week, but fail it will, just as all the other ECB moves have failed.

Loading up the central bank's balance sheet is a risky move because it does not address the core issue that Ireland, Portugal, Greece, and Spain cannot possibly pay back all that is owed.

Take the Money and Buy Gold

If Ireland wants to get creative, it should take Trichet up on the offer right now for "unlimited cash" at 1%, and put the whole shebang on gold.

In a few of months when the payment is due, Ireland can tell the ECB that it will keep the gold to start a new gold-backed currency and the ECB can keep the IOUs. That would get the ECB and IMF talking about haircuts in short order.

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

Challenger Reports Planned Layoffs Highest in 8 Months; ADP Reports Strongest Job Gains in 3 Years; Impact of State Budget Deficits on Jobs

Posted: 02 Dec 2010 04:43 AM PST

Inquiring minds are investigating divergences between Challenger planned layoffs (the highest in 8 months) and the ADP payroll report that shows +93,000 jobs added last month, the largest private-sector job gains in 3 years.

Planned Layoffs Highest in Eight Months

Please consider Employers in U.S. Announce Most Job Cuts in Eight Months

Employers in the U.S. announced plans in November to cut 48,711 jobs, the most in eight months, as government agencies trimmed payrolls.

"Job cuts that have been concentrated at the state and local level could expand to include federal workers in the new year," John A. Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement. "Other sectors have seen significant declines in job cuts this year and, at the moment, there is little evidence of a possible resurgence in 2011."

Today's report also showed that employers announced plans in November to hire 26,012 workers, down from 124,766 the prior month. Retail businesses led the gains, planning to add 15,900 workers.

Government and non-profit agencies have announced plans to let go of 138,979 workers this year, which is 177 percent more than the 50,168 firings by the pharmaceutical industry, the next biggest job cutter, according to Challenger.

Obama earlier this week proposed freezing the pay of about 2 million federal workers this fiscal year and next as a step toward reining in the budget deficit. The president's deficit- cutting commission, which proposes reducing the government workforce, will vote Dec. 3 on whether to send a plan to Congress.

Staff reductions are expected at state and local government agencies. New York City, facing a $3.3 billion deficit in next year's budget, will cut its workforce by more than 10,000 over the next year-and-a-half, Mayor Michael Bloomberg's budget office said Nov. 18. More than 6,200 workers will be fired, and the remainder of the cuts will be made through attrition, his office said.

Hiring Plans Sharply Lower

Challenger reports that hiring plans crashed from 26,012 workers, down from 124,766 last month. Some of that dropoff is reflective of seasonal hiring patterns. The key question is how many of those hired last month survive into the new year.

However, the answer to that question depends on whether or not we have sustained pickup in consumer demand or merely pent-up demand for another nice Christmas before consumers return to more frugal patterns.

The start of the holiday shopping season was certainly brisk, but black-Friday itself was a huge disappointment. See "Seems Like Old Times" as Black Friday Shoppers Storm Malls, But Do They Buy Anything? In Black Friday Bust, Sales Increase .3% for a full report.

A seasonal ramp that fades into the sunset just as states and federal workers are laid off would quickly have the unemployment rate back above 10 percent.

ADP Reports +93,000 Jobs Added Last Month

The BLS jobs reports comes out Friday, but the ADP report is out now. Please consider the ADP November 2010 National Employment Report

Private-sector employment increased by 93,000 from October to November on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from September to October was revised up from the previously reported increase of 43,000 to an increase of 82,000.

This is the tenth consecutive month of gains, which have averaged 47,000 during that period. Nevertheless, employment gains of this magnitude are not sufficient to lower the unemployment rate, which likely will remain above 9% for all of 2011.

Furthermore, given modest GDP growth in the second and third quarters, and the usual lag of employment behind GDP, it would not be surprising to see several more months of only moderate gains in employment even as the economic recovery gathers momentum.

ADP's caution is merited, even more so in light of Challenger data. Moreover, there are numerous wildcards, all with risks to the downside.

Government Workforce Reductions

President Barack Obama's deficit-cutting commission proposed a 10 percent reduction in the federal workforce. Excluding postal workers there are 2.1 million executive branch civilian employees. A 10% reduction would be 210,000 jobs.

Looking at the broader picture, there are 20 million government employees at all levels (city, state, local, federal, county, etc). A 10% reduction across the board would be a reduction of 2 million jobs, and I would call that a start. However, even a 1% decline would take away 200,000 employees and that number is reasonably close to what Challenger reported.

Will the President and Congress get rid of those employees? If so, factoring in city and state cutbacks, some 400,000 government jobs would go up in smoke in 2011. That's a fair amount of jobs, but only a start as to what needs to happen.

Two Million With Jobless Benefits About To Expire

The second wildcard pertains to unemployment benefits. Yahoo!Finance reports Holidays about survival as jobless benefits end

Benefits that had been extended up to 99 weeks started running out Wednesday. Unless Congress approves a longer extension, the Labor Department estimates about 2 million people will be cut off by Christmas.

The average weekly unemployment benefit in the U.S. is $302.90, though it varies widely depending on how states calculate the payment. Because of supplemental state programs and other factors, it's hard to know for sure who will lose their benefits at any given time.

Congressional opponents of extending the benefits beyond this month say fiscal responsibility should come first. Republicans in the House and Senate, along with a handful of conservative Democrats, say they're open to extending benefits, but not if it means adding to the $13.8 trillion national debt.

U.S. Rep. Mike Pence, R-Ind., the No. 3 Republican in the House, said extended benefits must be paid for now, rather than later, if they're going to win support from fiscal conservatives. "The fact that we have to keep extending unemployment benefits shows that the economic policies of this administration have failed," said Pence spokeswoman Courtney Kolb.

I still expect a compromise will extend those benefits, but if so, for the very last time. The next Congress will be far tougher.

Middle Class Tax Cuts

A third wildcard is Critical Middle-Class Tax Cut Vote Coming Up: Will Democrats Divide and Conquer Strategy Work?

Tax cuts and unemployment benefit extensions are related. I expect a compromise will extend both tax cuts and unemployment benefits.

Neither tax cuts nor unemployment benefits directly impact jobs, but people can't spend money they do not have. If people do not spend money then what are stores going to do with all the recent hires?

Yet, Congress cannot give away free money forever. Hill it be higher taxes or reduced budgets? The latter means lower wages or fewer jobs. Long term it has to be done. Short term there is going to be a lot of pain.

States Investigate Ending Medicaid

Some state budgets are in such dire straits that States Weigh Unthinkable Option: Ending Medicaid

Huge budget shortfalls are prompting a handful of states to begin discussing a once-unthinkable scenario: dropping out of the Medicaid insurance program for the poor.

Elected and appointed officials in nearly a half-dozen states, including Washington, Texas and South Carolina, have publicly thrown out the idea. Wyoming and Nevada this year produced detailed studies of what would happen should they withdraw from the program. Wyoming found that Medicaid accounts for 63% of the state's nursing-home revenue.

The idea of abandoning Medicaid as a solution is so extreme that even proponents don't expect any state will follow through, but officials are floating the discussions because dire budgetary pressures have forced them to at least look at even the most drastic options.

Medicaid has become one of the biggest items on state budgets, and states complain they don't have enough flexibility to pare it without losing their federal matching funds. The federal government, on average, covers 57% of the cost of the program for states. In exchange, states must keep Medicaid open to all who qualify.

Some states, in particular those led by Republicans, are calculating whether they'd be better off giving up the federal funding and replacing Medicaid with a narrower program of their own. Texas Gov. Rick Perry has proposed that his state get out of Medicaid in favor of a state-run system unburdened by federal mandates—including the one that prohibits states from reducing eligibility for the program if they want to qualify for the federal matching funds.

"We feel very comfortable that we could come up with a more equitable, a more efficient, and obviously a more cost-effective way to deliver health care," he said.

Unfunded Federal mandates are killing states. If states opt for Texas Gov. Rick Perry's solution, there will be cutbacks somewhere. Once again, there would be short-term pain for long-term gain if states act this way.

30 States Have Deficits Totaling $127 Billion

The Wall Street Journal reports State Tests Limits of Spending Cuts

Mississippi Gov. Haley Barbour hailed the Republican wave at the polls this month as a sign that voters want politicians who can cut spending and reduce taxes. It's just the kind of image that Mr. Barbour is trying to cultivate as he weighs a run for the 2012 GOP presidential nomination.

"Anyone who says there isn't a part of state government that can't save money doesn't know what he's talking about," Mr. Barbour told his fellow governors at the Republican Governors Association meeting in San Diego on Thursday. "There is no department—the highway patrol, the crime lab, the highway department—that can't save money."

Yet as states nationwide confront budget shortfalls—more than 30 are facing deficits totaling more than $127 billion over the next two fiscal years, according to the National Association of State Budget Officers.

Other governors also are hacking away at their budgets. In Minnesota, Republican Gov. Tim Pawlenty ordered a series of cuts, including lowering funds for local governments and higher education, and his popularity has eroded. Indiana Gov. Mitch Daniels, another potential 2012 candidate, shrank his state's budget, including pushing students to get college degrees in three years, from four. Democratic Colorado Gov. Bill Ritter, who was facing a tough re-election battle, said earlier this year he would not run again so he could be free to make "tough and unpopular" decisions. Political watchers said his budget cuts had hurt his chances to win.

"We don't have in America a $13 trillion national debt because we tax too little. It's because we spend too much," he said. He contends any department or agency can save money without reducing its effectiveness or cutting services. His goal, he said, is to leave office with a budget surplus.

Haley Barbour's fiscal track record is rather spotty. The Cato institution give him a grade of C. However, times and sentiment have changed.

Voters have said "hell no" to more taxes. That means some combination of lower wages, lower benefits, or higher unemployment is coming up. There is no other way out.

Nightmare In Europe, Slowdown in Asia

The fiscal bickering on Europe and imposed austerity plans on Ireland, Greece, Spain, and Portugal are going to spill over globally. The US will not be immune.

Nor will the US be immune to China and India acting to reduce their overheating economies.

Serious Headwinds in 2011

All of the above factors put huge headwinds on any chance of strong sustainable job growth.

I don't know what Friday's job number will show, (I am actually slightly inclined to take the under), but regardless of how strong the number is, it would be a serious mistake to extrapolate job growth we see now throughout 2011.

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

Wayne County Michigan (Detroit + 35 Cities) Imposes Huge Wage Cuts on AFSCME Union Workers

Posted: 02 Dec 2010 01:37 AM PST

Wayne County Michigan, fed up with two years of failed negotiations on wages and benefits for public union workers, has decided to impose wage cuts on AFSCME union employees.

The Wayne County News Release states "Wayne County will implement a 10% reduction the union refused to take in budget year 2009-2010, as well as the 10% reduction for the current 2010-2011 budget year."

The wording is somewhat ambiguous as to whether the cut is 10% or 20%. The Detroit News reports 10% while the Detroit Free Press reports 20%.

The Detroit News reports 10% pay cut for Wayne Co. union workers

Wayne County Executive Robert Ficano said he's left with no choice but to implement cuts to pay and benefits for union workers effective today.

The American Federation of State County and Municipal Employees will take a 10 percent cut after refusing to do so for nearly two years, Ficano said in a released statement. The sides are at an impasse on several issues, including key economic and benefit issues, he said.

The Detroit Free Press reports Wayne Co. imposes 20% wage cuts on workers

Wayne County Executive Robert Ficano today imposed what amounts to a nearly 20% wage reduction on 1,400 employees in the county's largest union after two years of failed negotiations.

Employees' checks will be reduced 10% for not accepting wage cuts for the last budget year and an additional 10% for the 2010-11 budget.

"Our efforts have been tireless, and unfortunately, it's painfully clear this action must be taken due to the fiscal reality we're all living in," Ficano said. "These decisions are neither easy, nor taken lightly. We've continued to act in good faith throughout this process, which included rescinding layoffs, hoping proposed concessions would be accepted by the membership. Unfortunately, time and time again, they were not, and we're left with a disappointing and devastating situation."

The Correct Approach

1. Establish a budget.
2. Tell the union what the budget is.
3. Refuse to give in on the budget.
4. If negotiations fail, impose wage cuts whether the union likes it or not.
5. To prevent such headaches in the first place, outsource every job possible to the lowest qualified bidder.

The importance of point 5 cannot be over-emphasized. It will help limit the budget and end the haggling with unions on points 1-4. If there is money left over, that money should be returned to the taxpayers via lower property taxes, not wasted on frivolous services.

City, county, state and federal governments have a duty to be fiscally responsible public servants. It's time they behave that way. That means doing everything possible to get taxpayers the most for their money, not the least.

Mayors, city councils, state representatives, and governors, as well as Congress and the president of the United States all need to read the preceding paragraph and act on it.

At the Federal level, Congress needs to abolish Davis Bacon, abolish public union collective bargaining, and abolish all prevailing wages laws. States need to do the same. This in turn will allow cities to do their job, many of which are bankrupt because of regulations imposed by state and federal governments.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Thursday, December 2, 2010

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