Mish's Global Economic Trend Analysis

Global Crisis in Leadership Nearly Everywhere You Look
Wild Moves in Yen; Best Move for Japan is to Not Intervene; Yen Hits Record High; Carry Trade Blows Up
US Calls Radiation "Extremely High" Suggests 50-Mile Evacuation Area; Japan Promises "Less" Information
Plutonium, MOX, and Chicken Little
Portugal Warns of Political Crisis and Need for Bailout
Miami-Dade Mayor Recalled; Union Concessions in Canada; Annapolis Ends Binding Arbitration; San Jose Targets Pensions; Mentality of Union Fools

Global Crisis in Leadership Nearly Everywhere You Look

Posted: 16 Mar 2011 09:49 PM PDT

Is there a crisis in leadership in Japan? That's what New York Times writers Hiroko Tabuchi, Ken Belson and Norimitsu Onishi say.

I think a leadership crisis goes far beyond Japan. I make my case below. First, please consider Flaws in Japan's Leadership Deepen Sense of Crisis

Never has postwar Japan needed strong, assertive leadership more — and never has its weak, rudderless system of governing been so clearly exposed or mattered so much.

Japan faces the biggest challenge since World War II, after an earthquake, a tsunami, and a deepening nuclear crisis struck in rapid, bewildering succession. Japan's leaders need to draw on skills they are woefully untrained for: improvisation; clear, timely and reassuring public communication; and cooperation with multiple powerful bureaucracies.

Postwar Japan flourished under a system in which political leaders left much of its foreign policy to the United States and its handling of domestic affairs to powerful bureaucrats. Prominent companies operated with an extensive reach into personal lives; their executives were admired for their role as corporate citizens.

But over the past decade or so, the bureaucrats' authority has been eviscerated, and corporations have lost both power and swagger as the economy has foundered. Yet no strong political class has emerged to take their place. Four prime ministers have come and gone in less than four years; most political analysts had already written off the fifth, Naoto Kan, even before the earthquake, tsunami and nuclear disaster.

The absence of a strong leader capable of rallying the nation has never been more obvious than in the management of the efforts to contain the growing nuclear crisis.

"In the past, bureaucrats would have been issuing orders without even consulting with politicians," said Takeshi Sasaki, a political scientist at Gakushuin University. "Now the bureaucrats are no longer involved, and the government keeps holding news conferences, but there is no evidence I can see that it is doing anything beyond that. Japan has never experienced such a serious test. At the same time, there is a leadership vacuum."

Global Leadership Vacuum

Can someone please tell me where there is leadership?

President Obama has no leadership qualities, nor does the Republican Congress. Chancellor Angela Merkel is rapidly losing her grip on Germany and is unlikely to survive the next election.

Look at the feud between ECB president Jean-Claude Trichet and German central bank president Axel Weber. Look at the battles between Ireland and the EU. Look at the crisis in confidence of the EU itself.

Look at suppression of uprisings in China. Money supply and credit creation are wreaking havoc in China. They have one of the worlds largest property bubbles and they ignore it, even foster it for political expediency.

Look at how miserably President Bush handled of Katrina and look at the Obama administration handling of the Gulf Oil spill.

Look at failed trade negotiations year after year. The G-20 requires agreement from 20 nations to approve anything. It is therefore useless.

The US spends more on its military than the rest of the world combined. Where is the leadership to do anything about that?

Where is the leadership on pension reform at the national level?

Look at actions by president Bush, Barney Frank, and Alan Greenspan combined. They provided a stunning display of "leadership" to promote financial bubbles.

Look at leadership by both the Bush and Obama administrations to bailout the banks and screw the taxpayers. That is "leadership" we certainly could have done without.

What about a $1.6 trillion budget deficit damn near all of it "untouchable" because neither Congress nor Obama have any propensity to look at anything beyond tiny earmarks?

The one area that President Bush did provide ramrod leadership on, just happened to take the US into a preposterously stupid war in Iraq.

Indeed, it is far better to have no leadership than the kind that sent the US into three of the stupidest wars in history: Vietnam, Iraq, and Afghanistan.

It is also better to have no leadership than what we have from the Fed and ECB.

None of the above excuses inaction by Japan or the lack of information. However, the NYT article paints a misleading if not outright hypocritical picture as if Japan is unique in lack of leadership.

The world is on the brink of credit, currency, derivative, and housing related disasters in numerous countries and all any of the leaders want to do is bail out the banks and the bondholders.

Except for a few brave governors willing to take a stand on solving union-related messes, a crisis in leadership is nearly everywhere you look, especially Washington D.C. and Brussels.

Reflections on Japan Leadership from Japan

Shortly after I wrote the above I received an email from Mike in Tokyo Rogers that inquiring minds will want to read. Please consider Nuclear Melt-Down? The Government to the Rescue

The nuclear power plant failures and explosions near Fukushima, Japan are an excellent case example of the failure of government. Here, the Japanese government has been horribly derelict before, during and after this incident. This freak occurrence would be a tragedy of comical proportions if only it weren't so grotesque and a real-life horror show. It has been a brutal tragedy of errors that makes me wonder why anyone would trust or believe anything the government says.

I am not talking about just the Japanese government here. I am talking about all governments. All governments lie all the time. It is the nature of government to do so.

As of the writing of this article, the situation at the nuclear power plants keeps getting worse as it has been reported that after the first nuclear power plant's dome cracked, exploded and is now experiencing at least a partial nuclear meltdown, a second reactor is now in danger of the same.

Interestingly, as of the writing of this article, there were reports that the Japanese government still has not admitted that there has been an explosion at the first reactor plant even though there is video evidence of the event.

Like I said, that anyone would trust what the government says is simply astounding to me.

The nuclear accident is a good example of how a government lies. It shows in undeniable proof of how a bureaucrat changes their story every few hours. Of course, after things gets bad and people die, the politicians always have the excuse that they, "Didn't want people to panic" so they use this as justification for their fibs. Though they will never admit that they lied or were wrong.

...

Who knows what's best for you and your family's safety more than you do? I've worked in mass media. I've seen the lies. All I can say is that you must gather all the available information you can – remembering that there are those who have certain motivations for what they pronounce – and judge what's best for yourself by yourself.

Your life and your children's lives depend upon it. Take this opportunity to teach your children well... If you don't teach them, the government will.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Wild Moves in Yen; Best Move for Japan is to Not Intervene; Yen Hits Record High; Carry Trade Blows Up

Posted: 16 Mar 2011 05:13 PM PDT

Currency traders are watching amazing moves in the Yen today as shown in following chart 10-minute chart.

Yen 10-Minute Chart

click on chart for sharper image

The Yen spiked over 4 cents in little over 10 minutes. It is now well below the opening spike. This can easily be an exhaustion gap, but it may takes weeks to know for sure.

Fundamentally there is absolutely no reason to like the yen here except for short-term repatriation moves.

Carry Trade Blows Sky High

Bloomberg reports Yen Reaches Record High Against Dollar on Repatriation Demand

The yen rose to a post-World War II high versus the dollar as risk of radiation leaks from crippled nuclear plants in Japan added to speculation insurers and investors will redeem overseas assets to pay for damages.

"Speculators are becoming increasingly confident about pushing the currency pair around," said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world's largest custodial bank, with more than $20 trillion in assets under administration. "Everyone is curious to find out why they chose not to defend the 80 level. Wow. That's all I have to say, just wow."

"We've breached 79.75 and there was enormous support there initially and that's given way with stop losses on a New York close in extremely thin conditions with absolutely no signs of the Bank of Japan and the selling has just snow-balled," said Kurt Magnus, executive director of currency sales at Nomura Holdings Inc. in Sydney.

"There are real concerns that if it's a disorderly move down in dollar-yen, the BOJ may start to intervene," said Paresh Upadhyaya, head of Americas G-10 currency strategy at Bank of America Corp. in New York. "This time around there will be support for unilateral intervention. In order for Japan to regain competitiveness, they need a weaker yen. They can now build an economic case for that."

In an attempt to slow the yen's 15 percent appreciation last year, the Bank of Japan sold 2 trillion yen ($25 billion) in Sptember in the nation's first currency market intervention since 2004. Governments and central banks intervene by selling or buying currencies to influence prices.

The yen may continue to strengthen as investors unwind carry trades amid reduced demand for assets from higher-yielding countries. In a carry trade, investors borrow where yields are low, such as in Japan, to fund purchases in higher-returning countries.

The carry trade of borrowing in yen and selling it to buy the currencies of Australia, Norway, New Zealand and Brazil has lost 45 percent this month, according to data compiled by Bloomberg. That compares with a loss of 22 percent using the U.S. currency and return of 8.3 percent in the yen in January and February.

Foolish Cries For Intervention

Please consider G7 to discuss Japan on Thursday as yen soars

The Group of Seven rich nations will discuss on Thursday possible steps to calm volatile financial markets roiled by fears about the deepening crisis in Japan.

A French government source said earlier on Wednesday that the telephone talks would take place before the weekend.

In a sign of the degree of concern among top policymakers, one G7 central banker, who asked not to be identified, said he was "extremely worried" about the wider effects of the crisis in Japan, the world's third largest economy.

"I think the world economy is going to go right down and it has happened at a time when financial markets are still very fragile," he said.

The dollar fell more than 4 percent against the yen to as low as 76.25 yen on trading platform EBS, breaching a previous record low of 79.75 set on April 19, 1995.

"Apart from intervention, there isn't much to stop this slide, and the dollar doesn't look like it's coming back soon," said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey.

Best Move for Japan is to do Nothing

Currency intervention has not worked ever. Pray tell what good did it do Japan to throw $25 billion at the Forex market in September?

The answer is none.

History has proven time and time again that fighting currency trends is futile. Thus, the best thing Japan can do with the Yen is to not do anything at all. Yet, foolish cries for intervention still persist.

If that gap fills quickly with no intervention from the Bank of Japan, the blast higher is quite likely to be an exhaustion gap, signifying the end of the trend.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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US Calls Radiation "Extremely High" Suggests 50-Mile Evacuation Area; Japan Promises "Less" Information

Posted: 16 Mar 2011 02:28 PM PDT

What some call hype, others call precaution. You can easily find a nuclear expert who will say what you want to hear about Japan except "everything is OK".

For example, should the evacuation area in Japan be 12 miles or 50? I don't know, but I can report both positions, including an update from the chairman of the United States Nuclear Regulatory Commission who suggests more caution is warranted.

Please consider U.S. Calls Radiation 'Extremely High' and Urges Deeper Caution in Japan

The chairman of the United States Nuclear Regulatory Commission gave a significantly bleaker appraisal of threat posed by the Japanese nuclear crisis than the Japanese government, saying on Wednesday that the damage at one crippled reactor was much more serious than Japanese officials had acknowledged and advising to Americans to evacuate a wider area around the plant than ordered by the Japanese government.

Gregory Jaczko, the chairman of the commission, said in Congressional testimony that the commission believed that all the water in the spent fuel pool at the No. 4 reactor of the Fukushima Daiichi Nuclear Power Station had boiled dry, leaving fuel rods stored there completely exposed. As a result, he said, "We believe that radiation levels are extremely high, which could possibly impact the ability to take corrective measures."

If his analysis is accurate and Japanese workers have been unable to keep the spent fuel at that inoperative reactor properly cooled — covered with water at all times — radiation could make it difficult not only to fix the problem at reactor No. 4, but to keep workers at the Daiichi complex from servicing any of the other crippled reactors at the plant.

Mr. Jaczko said radiation levels may make it impossible to continue what he called the "backup backup" cooling functions that have so far prevented full nuclear meltdowns at the other reactors. Those efforts consist of dumping water on overheated fuel and then letting the radioactive steam vent into the atmosphere.

The emergency measures are all that has prevented the disaster at Daiichi from becoming a full blow meltdown.

Mr. Jaczko's testimony came as the American Embassy, on advice from the Nuclear Regulatory Commission, told American to evacuate a radius of "approximately 50 miles" from the Fukushima plant.

The advice represents a far more grave assessment of the situation at the stricken reactors than the decisions made by the Japanese themselves, who have told everyone within 20 kilometers, about 12 miles, to evacuate, and those between 20 and 30 kilometers to take shelter. And the recommendation comes as the Japanese government has said it will be giving less information about the situation.

Did you catch that last sentence? Here it is again "the Japanese government has said it will be giving less information about the situation"

If you want to end speculation the way to do it is give full, accurate, information as best you can. I believe a promise of "less information" is an admission things are worse than previously disclosed. How much worse? No one knows.

Emperor Delivers Rare Address on Nuclear Crisis

The New York Times reports Emperor Delivers Rare Address on Nuclear Crisis

Emperor Akihito of Japan, in an unprecedented television address to the nation, said on Wednesday that he was "deeply worried" about the ongoing nuclear crisis at several stricken reactors and asked for people to act with compassion "to overcome these difficult times."

An official with the Imperial Household Agency said that Akihito had never before delivered a nationally televised address of any kind, not even in the aftermath of the Kobe earthquake in 1995 that killed more than 6,000 people. The address was videotaped.

The remarks on Wednesday afternoon were the first public comments from Akihito, 77, since a devastating earthquake and tsunami struck northern Japan last Friday, and they underscored the urgency of multiple crises confronting the country. Akihito expressed his concern for the survivors of the disaster and thanked the rescue teams working under difficult conditions in the north.

An estimated 440,000 people are living in makeshift shelters or evacuation centers, officials said. Bitterly cold and windy weather compounded the misery as survivors endured shortages of food, fuel and water.

Weather forecasters predicted a cold front moving into the region would send the overnight temperatures in northeast Japan below freezing, and the government said the cold posed a health risk for evacuees.

Lack of Water, Shelter, an Immediate Concern

The immediate threat to 440,000 evacuees and countless more stranded is lack of shelter and water.

My friend Mike in Tokyo Rogers thinks far more will die from exposure to the elements and lack of water than from nuclear fallout.

Assuming those reactors don't spew sufficiently toxic radiation, Rogers is most likely correct. Let me state it more optimistically: I believe he is correct.

However, should a MOX reactor suffer a complete meltdown and spew plutonium dust, we could be hugely wrong.

I cannot assess the odds and if officials in Japan can, they are not mentioning them.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Plutonium, MOX, and Chicken Little

Posted: 16 Mar 2011 12:05 PM PDT

Yesterday someone called me a "Chicken Little" regarding events Japan. This brave soul bragged about living near 3-Mile Island as if it was some sort of badge of honor, yet simultaneously admitting it was no big deal.

Events in Japan go far beyond 3-Mile Island and it is well beyond foolish to think this is no big deal. None of us knows how it will play out, yet this is a major crisis with the potential to be a Chernobyl-type disaster if a MOX reactor blows.

Please consider MOX fuel rods used in Japanese Nuclear Reactor present multiple dangers

The mixed oxide fuel rods used in the compromised number three reactor at the Fukushima Daiichi complex contain enough plutonium to threaten public health with the possibility of inhalation of airborne plutonium particles. The compromised fuel rods supplied to the Tokyo Electric Company by the French firm AREVA.

Plutonium is at its most dangerous when it is inhaled and gets into the lungs. The effect on the human body is to vastly increase the chance of developing fatal cancers.

One of the unique characteristics of mixed oxide fuel is that relatively little of the plutonium in the fuel rods is used up in the fuel cycle in a reactor. "When the plutonium in the fuel rods goes into a reactor for commercial power, a very little of it is going to be consumed. I don't know what percentage, maybe half percentage or something like that, but it's going to generate an extraordinary amount of contamination throughout the fuel rods…," says William Lawler, an expert on radioactive waste.

The damaged number three reactor was undergoing its first fuel cycle using MOX at Daiichi. MOX fuel was first used in a thermal reactor in 1963, but it did not come into commercial use until the 1980s. One reason proponents of MOX reactor fuel support its use is because, once the fuel is burned in a reactor, it is so hot that terrorists would not be able to steal a fuel assembly.

Lawless, who worked at the DOE's Savannah River Site and first exposed massive contamination there in the early 1980s, says MOX being used as a way of controlling weapons proliferation is a myth: "You will decrease the amount of plutonium minutely but you will increase the amount of waste inside the fuel rod greatly into something that is very contaminated for a long period of time and they think is that it would be too deadly to handle for a terrorist…This is not necessarily following the best scientific plan or the best engineering decision; this is more a political decision, the MOX."

Plutonium Isotopes

If one of those MOX reactors blows, spewing plutonium dust across Japan and elsewhere, it is lights out via cancer for anyone who breathes the stuff.

The half-life of various plutonium isotopes ranges from minutes to 80 million years. Plutonium-239, has a half-life of 24,100 years.

Japan's MOx Reactor Fuel

With the above information at hand, inquiring minds are reading about Japan's MOx Reactor Fuel

In every nuclear reactor there is both fission of isotopes such as uranium-235, and the formation of new, heavier isotopes due to neutron capture, primarily by U-238. Most of the fuel mass in a reactor is U-238. This can become plutonium-239 and by successive neutron capture Pu-240, Pu-241 and Pu-242 as well as other transuranic isotopes (see page on Plutonium). Pu-239 and Pu-241 are fissile, like U-235. (Very small quantities of Pu-236 and Pu-238 are formed similarly from U-235.)

"Normally, with the fuel being changed every three years or so, about half of the Pu-239 is 'burned' in the reactor, providing about one third of the total energy. It behaves like U-235 and its fission releases a similar amount of energy. The higher the burn-up, the less fissile plutonium remains in the used fuel. Typically about one percent of the used fuel discharged from a reactor is plutonium, and some two thirds of this is fissile (c. 50% Pu-239, 15% Pu-241). Worldwide, some 70 tonnes of plutonium contained in used fuel is removed when refuelling reactors each year.

Please consider Japan nuclear plant faces new threat

Shaun Burnie, an independent nuclear energy consultant and former head of nuclear campaigns at Greenpeace, said the presence of a percentage of fuel core loaded with plutonium Mox fuel in the No 3 reactor posed a grave threat to the surrounding area.

"Plutonium Mox fuel increases the risk of nuclear accident due the neutronic effects of plutonium on the reactor," Burnie told the Guardian. "In the event of an accident - in particular loss of coolant - the reactor core is more difficult to control due to both neutronics and higher risk of fuel cladding failure. In the event of the fuel melting and the release of plutonium fuel into the environment, the health hazards are greater, including higher levels of latent cancer."

The Mox fuel was delivered in 1999 and was loaded into the reactor by Tepco only last year after sitting in Fukushima storage ponds amid opposition and delays from the prefecture's governor, Burnie said.

As I mentioned earlier, accurate information is difficult to come by. Moreover, I get the distinct impression that the full story regarding the risks is not being disclosed for fear of panic.

Regardless, the odds one of these reactors completely melts spewing radioactive particles is not only non-zero but sufficiently high such that those mocking this series of events as if it was chicken little material are complete fools.

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

Portugal Warns of Political Crisis and Need for Bailout

Posted: 16 Mar 2011 10:21 AM PDT

With all eyes focused on Japan, it's easy to miss significant events elsewhere.

For example, the sovereign debt crisis is still unfolding in Europe, and the "agreement" in Brussels last week solved nothing even though one might not know it from looking at the Euro.

Please consider Portugal yields rise, government warns of political crisis

Portugal's government blamed higher rates paid at a debt auction on Wednesday on the opposition's refusal to back its latest austerity plans, warning a political standoff could force it to seek a bailout.

Portugal's plight has become yet more complicated by the fact that the main opposition Social Democrats have refused to back the government's latest austerity plans, which are aimed to ensure the country meets its budget goals.

"Failure to approve the new measures in the budget plan would push the country to external help," Finance Minister Fernando Teixeira dos Santos told parliament's budget committee. "Current market conditions are unsustainable in the medium- and long-term."

Prime Minister Jose Socrates warned on Tuesday that his minority government would be unable to continue if the country's long-term economic strategy, which includes the latest austerity measures, was not passed in parliament.

"Yield levels in Portugal still trade above their snowball level -- where the level of interest charged means their level of debt stock is going up -- and that means that longer-term the situation, despite their best efforts, is getting worse not better," said rate strategist Charles Diebel at Lloyds Bank.

The Portuguese, who are facing higher taxes, lower social benefits and a likely return to recession this year, have stepped up protests against austerity. But it was not clear they want a change of government.

Moody's cut Portugal's sovereign debt rating by two notches to A3 late on Tuesday and said it might have to downgrade again given the impact of high borrowing costs and the difficulty of meeting tough fiscal targets.

The yield on Portugal's 10-year bonds was at 7.67 percent while the spread to safer German Bunds stood at 456 basis points, up from Tuesday's 446 basis points. Risk premiums hit euro lifetime highs last week.

Portugal 10-Year Government Bond Yields

Yields are about 20 basis points below the levels reached last week, but these rates will sink Portugal in due time. Portugal will need a "bailout" whether or not the country gets it political act together.

However, it's important to note that is it not really Portugal that will be bailed out, but rather German, French, and UK banks (just as with Ireland and Greece).

How long these countries are willing to put up with this remains to be seen. For more on the meeting in Brussels, please see European "New Deal" Debt Agreement is Same Useless Peer Pressure Model

Not a thing has been solved. Structural problem in Europe are immense.

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

Miami-Dade Mayor Recalled; Union Concessions in Canada; Annapolis Ends Binding Arbitration; San Jose Targets Pensions; Mentality of Union Fools

Posted: 16 Mar 2011 01:10 AM PDT

Miami-Dade mayor Carlos Alvarez and Commissioner Natacha Seijas were ousted in recall votes. Both voted for huge tax hikes that will saddle county taxpayers for years to come.

This should serve as a warning shot to union sympathizers that taxpayers have had enough.

Please consider Alvarez, Seijas trounced in Miami-Dade recall election

With almost all precincts reporting results, Miami-Dade Mayor Carlos Alvarez and Commissioner Natacha Seijas have been ousted from office.

Results from the recall election, including absentee and early votes, show a vast majority of voters, around 88 percent, want to kick out the two politicians.

Both politicians kept a low profile as results came in, but billionaire auto magnate Norman Braman, who championed the recall effort along with political action committee Miami Voice, celebrated with supporters at a news conference.

"Today is the first day of a new day for Miami-Dade County. County voters have demonstrated by their ballots that they are tired of unaccountable officials, of being ignored, and of being over-taxed in this very difficult recessionary time," he said. "I say, 'congratulations Miami-Dade voters!'"

"I knew the decision was not going to be popular," Alvarez told WURN-Actualidad 1020 AM. Alvarez said his budget preserved "basic" services.

"If I had done what Mr. Braman wanted me to do...I would be facing a recall by the other people" whose funding for arts and social services was cut, Alvarez said.

Look at the self-serving arrogance of Alvarez's statement. He was ousted 88-12 and has the gall to claim he would have faced a recall for making a different choice.

The New York Times reports Miami-Dade County Mayor Is Removed

Mayor Carlos Alvarez of Miami-Dade County was removed in a recall election on Tuesday as voters punished him for raising property taxes and increasing the salaries of his closest aides at the height of the recession.

Walking out of polling stations, irate voters said Mr. Alvarez's greatest offense was his effrontery: Two years ago, with Miami sinking under foreclosures and a housing bust, he called on residents and county workers in a speech to brace themselves for "tough times." But he gave his own top aides hefty raises, including his former chief of staff whose salary climbed to $206,783 from $185,484.

Last year, he pushed through a budget that raised property taxes for 40 percent of homeowners, despite plummeting property values, to avoid laying off firefighters and other public employees. Yet, most county workers are getting raises this year.

And then there is the car. The mayor shuttles around Miami in a sleek BMW 500i Gran Turismo, which taxpayers help subsidize.

The recall campaign was spearheaded by Norman Braman, a billionaire car dealer, philanthropist and onetime owner of the Philadelphia Eagles, who said he was outraged by the property tax increase and the "erosion in the quality of life" in Miami. Mr. Braman spent more than $1 million hiring consultants to collect signatures to call for the recall election. He collected 114,000, more than double the required number. A frequent guest on Spanish-language radio here, Mr. Braman, who does not speak Spanish, succeeded in energizing Hispanics who said they felt betrayed by their county mayor.

Voters favored removing the mayor by 88 percent to 12 percent.

Union Hardball in Canada

In Penticton, Canada, Mayor Dan Ashton forced union to accept two-tier wage system

Penticton has wrested wage concessions from the union representing workers at a new community centre, threatening to turn the facility over to a private operator unless employees agree to a two-tier pay system.

The city laid off 36 employees when the old centre closed for construction last spring. Most were lifeguards making about $23 an hour.

The city offered to bring those employees back at the same pay once the new centre opens, but there was a catch. The city demanded the union accept a two-tier wage system that would see newly hired lifeguards paid a reduced rate of $14.50 an hour. If the union didn't agree, the city said it would hire a private contractor to run the facility, who in all likelihood would have used cheaper, non-unionized workers.

It backed up its position by issuing a request for proposals that netted two responses.

Mr. Ashton says his community of 33,000 has no choice but to trim its wage bill. In the fall, the city slashed services and eliminated 30 positions – about 10 per cent of its work force – as part of an effort to slay a $1.7-million deficit without raising taxes.

The proper thing to do would have been to outsource the entire operation and be done with it. Nonetheless, Ashton did set a reasonable tone and precedent for a two-tier system. That's a start.

Annapolis County Council Ends Binding Arbitration of Public Safety Unions

In another vote of common sense, Binding arbitration for public safety unions nixed

Before a packed crowd last night in Annapolis, the County Council voted unanimously to curtail the bargaining rights of the county's public safety unions.

If a union cannot negotiate a contract with the county, an independent third party will no longer be able to definitively settle the dispute. Under the new law, all decisions will be subject to the council's approval.

"This is a win for the taxpayers of Anne Arundel County," said Councilman Derek Fink, R-Pasadena. "The council should decide how every taxpayer dollar should be spent, no one else."

The 7-0 vote drew an immediate rebuke last night from several county union leaders, who promptly announced plans to challenge the new law in court.

Poison Pill Nixed

The original bill contained a "poison pill" mandating that if the unions challenged the legality of the new law and succeeded in overturning any part of it, the county's entire binding arbitration process would be repealed.

Unfortunately the poison pill provision was stricken by an agreement. In reality there is no need for the poison pill. The correct procedure from the outset would have been to kill the entire binding arbitration process of every union right up front.

Nonetheless, progress is clearly being made.

San Jose mayor targets pensions in budget

Inquiring minds note good news continues in California where Mercury News reports San Jose mayor targets pensions

San Jose Mayor Chuck Reed said Friday the city cannot afford to pare its work force any further to close chronic budget deficits.

Upon taking office in 2007, Reed vowed to end the city's chronic budget deficits, driven chiefly by employee costs outpacing revenues. Since 2000, revenues grew 22 percent while employee costs rose 77 percent and staffing fell 17 percent. But employee unions have fought his calls for concessions, even after a national recession worsened the city's financial woes.

Last year, when a record $118.5 million deficit threatened layoffs and budget shortfalls loomed far into the future, a half-dozen city unions grudgingly accepted the city's demand to reduce their pay and benefits 10 percent, a level matched by the council and top officials.

The city imposed 5 percent cuts on one small union, and police agreed to 4 percent reductions to save 70 officers from layoffs. Firefighters couldn't reach agreement on concessions with the city, and 49 were laid off. Two other unions still under contract continued receiving raises. Still, the city cut 800 jobs and demoted or laid off more than 150 employees.

This year, the deficit has climbed to $105.4 million, driven chiefly by pension costs that are projected to grow from $156 million to $256 million next year and top $400 million in four years.

Several unions have stepped forward with offers to accept the 10 percent cuts city leaders had called for last year to ease the ongoing budget woes, most notably firefighters, who reached a tentative agreement with the city that will be voted on March 22.

But Reed noted that the worsening budget picture means employees will have to give up much more to avoid further layoffs. The 10 percent cuts would save only $38 million. About 480 jobs would have to be axed to cover the balance.

Reed said the city already is thinly staffed and can't afford to lose more employees. The city, he added, can't afford to keep "fiddling around the edges" of the pension reforms he's sought.

Reed said employees need to reduce pensions not only for future hires but existing workers, including raising retirement ages, reducing automatic pension increases and bonus checks. Eliminating other perks like a provision that pays retiring workers for unused sick leave can also save millions of dollars, he said.

Councilwoman Herrera said shrinking current workers' pensions is the "800-pound gorilla" that the city must confront to avoid the recurring "Groundhog Day" of budget woes. She also applauded Reed for sparing programs serving kids, including children's health care and school crossing guards.

"Our children shouldn't have to pay the price," she said, "for past bad decisions by previous councils."

There are a lot more details in the article that may interest California readers.

The actions in San Jose constitute progress, but it's also like pulling teeth. The correct move is to end defined benefit plans for all new hires and curtail benefits for existing workers as well.

San Jose is in trouble with a $105 million deficit now, yet pension costs are expected to go up anoyther $250 million in the next 4 years. Most likely that assumes rates of returns that will not happen.

Union Jackasses Threaten Wisconsin Businesses

In Wisconsin, unions have not yet gotten the message that taxpayers have had enough. In the wake of much needed legislation signed by Governor Walker, Unions Threaten Wisconsin Businesses.

Here is a snip of a letter sent to Mr. Tom Ellis, President of Marshall & Ilsley Corporation:

Dear Mr. Ellis:
As you undoubtedly know, Governor Walker recently proposed a "budget adjustment bill" to eviscerate public employees' right to collectively bargain in Wisconsin. ...

The undersigned groups would like your company to publicly oppose Governor Walker's efforts to virtually eliminate collective bargaining for public employees in Wisconsin. While we appreciate that you may need some time to consider this request, we ask for your response by March 17. In the event that you do not respond to this request by that date, we will assume that you stand with Governor Walker and against the teachers, nurses, police officers, fire fighters, and other dedicated public employees who serve our communities.

In the event that you cannot support this effort to save collective bargaining, please be advised that the undersigned will publicly and formally boycott the goods and services provided by your company. However, if you join us, we will do everything in our power to publicly celebrate your partnership in the fight to preserve the right of public employees to be heard at the bargaining table. Wisconsin's public employee unions serve to protect and promote equality and fairness in the workplace. We hope you will stand with us and publicly share that ideal.

Here is the group threatening Marshall & Ilsley

James L. Palmer, Executive Director Wisconsin Professional Police Association
Mahlon Mitchell,President Professional Fire Fighters
Jim Conway, President International Association of Fire Fighters Local 311
John Matthews, Executive Director Madison Teachers, Inc.
Keith Patt, Executive Director Green Bay Education Association
Bob Richardson, President Dane County Deputy Sheriffs Association
Dan Frei, President Madison Professional Police Officers Association

Marshall & Ilsley is a financial services organization.

Marshall & Ilsley, a diversified financial services company based in Wisconsin, provides comprehensive financial products and services and unparalleled customer service to personal, business, corporate and institutional customers nationwide.

Mentality of Wisconsin Union Fools

I suspect the public unions have some money invested in strategies at Marshall & Ilsley. If so, note the foolish mentality of the unions.

The union concern ought to be how well their pension funds are managed as opposed to extorting a meaningless statement out of Mr. Ellis.

However, that is not the way fools think or act.

I know nothing about Marshall & Ilsley, one way or the other. However, it's crystal clear that union fools would leave a pension fund, no matter how well run it might be, if they could not extort a meaningless political statement from the president of a company.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Wednesday, March 16, 2011

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