Mish's Global Economic Trend Analysis

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US Economic Confidence Sinks to 2011 Low; 55% Say Economy Still in Recession or Depression Posted: 28 Apr 2011 02:13 PM PDT A pair of recent Gallup Polls shows distinct loss of confidence in the US economy. The first poll shows Americans' Economic Confidence at the 2011 Low. A second poll shows 55% still think the economy is in a recession, or worse. Please consider Americans' Economic Confidence Declines Further Gallup's Economic Confidence Index dropped to -39 in the week ending April 24 -- a new weekly low for 2011. This continues a downward trend that began in mid-February. The current deterioration of confidence contrasts sharply with the improving trend found at this time a year ago. click on chart for sharper image Optimism About Economic Outlook Drops to 2011 Low Slightly more than one in four Americans said the economy is "getting better" last week. This measure has been declining since mid-February, and is now at its 2011 low. Far fewer Americans currently feel the economy is improving than held that expectation a year ago, when 41% said things were getting better. click on chart for sharper image Just 12 months ago, economic confidence was improving and there was talk of "frugality fatigue." The U.S. saw a sharp spike in spending -- particularly among those with higher incomes -- during May 2010. Things were looking up for the nation's retailers and the economy as a whole until the debt crisis in Europe surfaced. This year, economic confidence is going in the opposite direction. There is an increasing danger of stagflation as prices surge and the economy slows. As a result, retailers and the economy could find it difficult to match last May's sales performance in 2011. Survey Respondents Think US Still In Recession For example, please consider More Than Half Still Say U.S. Is in Recession or Depression More than half of Americans (55%) describe the U.S. economy as being in a recession or depression, even as the Federal Open Market Committee (FOMC) reports that "the economic recovery is proceeding at a moderate pace." Right now, do you think the economy is growing, slowing down, in a recession, or in an economic depression? click on chart for sharper image Although economists announced that the recession ended in mid-2009, more than half of Americans still don't agree. These ratings are consistent with Gallup's mid-April findings that 47% of Americans rate the economy "poor" and 19.2% report being underemployed. In another possible disconnect with monetary policymakers, many Americans may not see the trade-off Bernanke suggests between promoting a stronger economy and experiencing higher inflation. Right now, prices are soaring, yet the latest Gallup Daily tracking data show that 67% of Americans say the economy is "getting worse." Majority Do Not See A Recovery Is there a recovery? The answer is in the eyes of the beholder. Turn on mainstream media and the answer would likely be a resounding yes. Take a poll of average citizens and the answer is clearly different. The one bright spot in the Gallup survey is 27% of respondents now think the economy is growing. This is up from 3% in September of 2008. However, there are more who think the US is in a depression than a recession, and more who think the US is a depression than think the economy is growing. With rising gas prices, rising food prices, falling real wages, and falling nominal wages for many households, it should not be difficult to figure out reasons for declining sentiment. Recovery is a Mirage There is no real recovery, at least in any meaningful sense. Unemployment is down, but employment is not up. The economy is finally adding jobs, but at snail's pace compared to any normal recovery. Mean Unemployment Duration Weeks ' click on chart for sharper image If you lose your job, good luck finding another one quickly. You will need it. Civilian Employment click on chart for sharper image Does that depict a recovery? Before you answer, bear in mind that Bernanke estimates that it takes 125,000 jobs a month just to hold the unemployment rate flat. The only reason the unemployment rate has fallen is 2.3 million workers dropped out of the labor force in the last year alone, smack in the midst of an alleged recovery. Take away government spending, unemployment insurance, and food stamps and you have a widespread economic depression. Gallup respondents realize that; The average commentator on mainstream media doesn't. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Radical Plan to Cut Military Spending and Help Balance the Budget Posted: 28 Apr 2011 12:01 AM PDT My long held belief is the US cannot afford to be the world's policeman. Moreover, I question whether it is wise to pursue such a policy even if we could pay for it. Regardless, it is beyond absurd to leave cuts in defense spending off the table when the budget deficit is $1.5 trillion. The US has troops in 140 countries. Admittedly many of those are small operations. However, why should the US be meddling in the affairs of those countries in the first place? The US has 150,000 troops in Europe and Asia. Why? The cold war is over, the odds Europe will be invaded by Russia close to zero, and even if the odds are higher, why should it be US troops and US expense protecting Europe? The question I have had is what would a massive pullback in troop levels save? Courtesy of Foreign Policy magazine, today I have an answer. Please consider A Radical Plan for Cutting the Defense Budget and Reconfiguring the U.S. Military by retired Col. Douglas Macgregor. In the spirit of spending wisely, here is my plan to reconfigure the military for the demands and threats of the 21st-century world and, in doing so, dramatically cut the Pentagon budget: Today, there are more than 317,000 active-duty U.S. military personnel stationed or deployed overseas. In the Central Command theater of operations, encompassing Iraq and Afghanistan, there are approximately 180,000 active-component personnel as well as over 45,000 reservists. Approximately 150,000 active-component U.S. military personnel are officially assigned to Europe and Asia. And some estimates note that there are two civilians and supporting contractors for each service member in certain locations. The United States long stayed secure without this kind of sprawling imperial apparatus. But as the Cold War drew to a close, instead of adjusting force structure and spending to a strategic environment newly friendly to U.S. and allied interests, the U.S. military began a dramatic expansion of its overseas presence into areas where, historically, it had been episodic at best. America's Cold War commitments, meanwhile, continued without interruption. After expelling the Iraqi Army from Kuwait in 1991, the U.S. military was directed to stay in the Persian Gulf and build massive facilities. And following the 9/11 attacks, the global war on terror resulted in major new Army and Air Force installations from Europe to Central Asia. Why does America need all these facilities? The original Cold War goal of protecting European and Asian societies from communist threats and internal subversion has long ago been met, and many overseas U.S. bases are now redundant. What better time than now, when the United States faces fiscal calamity but few real military threats, to judiciously sort those that are truly needed from those the Pentagon can live without? It's time to declare victory and go home. U.S. troops remained ashore in Europe and Asia long past the point when it was clear that a military presence was a needless drain on American resources. Today, new technology and a different mix of forces enables a lighter, less intrusive footprint. For instance, area control is no longer a mission that demands a large surface fleet on the World War II model. The U.S. nuclear submarine fleet augmented with fewer surface combatants employing long-range sensors, manned and unmanned aircraft, communications, and missiles can dominate the world's oceans, ensuring the United States and its allies control access to the maritime domain that supports 91 percent of the world's commerce. In the Islamic world, the U.S.-led interventions were and remain speculative investments with questionable returns on taxpayers' investments. For the moment, operations in Afghanistan and Iraq, and more recently over Libya, have resulted in less and less funding available to reorganize and replace obsolescent, unsustainable, or worn-out Cold War-era forces designed for aerospace, maritime superiority, and ground combat -- one more reason to end or drastically reduce U.S. involvement in those conflicts as soon as possible. Other Worthy Ideas In a four page article Mcgregor goes on to highlight a number of areas where the US can and should save money. Here are his ideas. Estimated annualized savings resulting from withdrawals from overseas garrisons and restructuring the United States' forward military presence: $239 billion Estimated annualized savings from reorganizing the Army and Marine Corps: $18 billion Estimated annualized savings from reductions in naval surface forces and Marine fixed-wing aviation: $10 billion Estimated annualized savings from eliminating the F-35B: $2.5 billion Estimated annualized savings from reducing the number of unified commands and single service headquarters: $1 billion Estimated annualized savings from eliminating the Department of Homeland Security and restructuring national intelligence and the Army National Guard: $7 billion Total Savings: $279 Billion I agree with all of Macgregor's points. His total savings: $279.5 billion a year. Note that would be $2.79 trillion over 10 years if the savings could be made at once. That is not practical but it should be possible to make those changes over a 5 or six year period. Balancing the Budget We are not going to balance the budget unless that is the goal. Thus, I have a simple proposal: Balance the budget by 2022 come hell or high water Moreover, we are not going to balance the budget unless Ryan and the Republicans agree to huge reductions in military spending or raise taxes. Otherwise it cannot be done. I continue to suggest the need to cut military spending dramatically and am pleased to see Col Macgregor agree. Next, if we could get rid of the Department of Education and Department of Energy, end student loans, and adopt other ideas of Paul Ryan we would be well on the way to balancing the budget. Add in some pro-growth policies like a national right-to-work law and scrapping Davis-Bacon and all prevailing wage laws, then whatever remains to be done can be done with minimal tax hikes. As the plans sit right now, neither President Obama nor Paul Ryan has come close to balancing the budget. For details, please see Interactive Map: Paul Ryan vs. Obama Budget Details; Path of Destruction Footnote: Col. Douglas Macgregor (ret.), a decorated combat veteran, writes for the Committee for the Republic in Washington, D.C. His most recent book is Warrior's Rage Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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