Mish's Global Economic Trend Analysis

Torture Never Works; Ron Paul on Torture and Secret Prisons; "Torture is What the Nazis Did"
True Finns Party Chairman: Greece, Ireland and Portugal Ruined; Gangrene Spreads; Enron Looks Simple; Spain Next Zombie
S&P Cuts Greek Debt 2 Notches Deeper in Junk, Cites 50% to 70% Haircuts; CDS at Record High, Probability of Default is 68%
Digging Still Deeper In Friday's Jobs Report; What's the Real Unemployment Rate?

Torture Never Works; Ron Paul on Torture and Secret Prisons; "Torture is What the Nazis Did"

Posted: 09 May 2011 04:00 PM PDT

In response to Kidnapping, Torture, and Reflections on Alleged "American Values" I received many emails thanking me for my position. Here is one from Percy, whose father was an Army interrogator in WWII.

Percy writes ...

Hello Mish,

That was an excellent piece on torture. My dad, a German Jewish refugee, became a US Army interrogator during WWII. Torture was never even on the table; torture was what Nazis did. Moreover, he and his colleagues found that they got the best information through careful, often calculated, always humane questioning. His interrogations were effective and earned him promotions. He was appalled at the introduction of torture into American warfare and policy.

Percy Angress

Torture Doesn't Work

Andrew J. Prasow, a senior counterterrorism counsel at Human Rights Watch, addresses the question "Does Torture Work?" in his report How Illegal Interrogations Hurt the U.S.

Whether torture can produce some truthful information has never been the right question. It can. But even if the victim of torture does provide some accurate information, there is no way to sift the truth from lies produced as the detainee merely tries to get interrogators to stop. There's no way to know which lead is worth pursuing–risking human life and limited resources – and which should be disregarded. And by resorting to torture, experienced interrogators report, less truthful information can be produced than if traditional, lawful techniques were used. Results also come more slowly because detainees buckle down and resist. Former FBI interrogator Ali Soufan, who interrogated Abu Zubaydah among others, testified before Congress that the so-called enhanced interrogation techniques "are ineffective, slow, and unreliable, and as a result harmful to our efforts to defeat al Qaeda."

National security is diminished by the false leads torture can produce, and devastating consequences may ensue. When Ibn Sheikh al Libi was tortured while in CIA custody, he claimed a link to Iraq and weapons of mass destruction that then-Secretary of State Colin Powell used in his speech to the United Nations to justify the US invasion of Iraq in 2003. Of course, as we now know, that information was utterly false.

Each time the U.S. has strayed from core values there have been national security consequences. Senior military officials report that foreign fighters joined the war in Iraq following the release of the Abu Ghraib abuse photos, and the continued existence of Guantanamo has been used as a recruiting tool for al Qaeda. Earlier this year when a detainee died at Guantanamo of apparently natural causes, the fact that it happened at Guantanamo made it a major focal point for anti-U.S. and militant propaganda. The Taliban issued a statement condemning the U.S. for violating international law and thousands attended his funeral in Afghanistan.

We will never know how much information the U.S. lost because it failed to use time-tested, effective, and humane methods of interrogation. We will never know how many years earlier bin Laden could have been captured and how many lives spared if, instead of whisking them off to a prison outside the law, the U.S. had instead charged Mohammed and al Libi in federal courts and treated them properly and in accordance with due process.

The best way to guard against future attack is by rejecting the use of torture outright and staying faithful to the rule of law and basic tenets of decency. This is true not only because it is the right thing to do, but because it works.

Liberty Defined

A close high-school friend, Dave, thanked me for my article a day after I wrote it. Dave wrote ...

Your article is truly excellent. I am proud of you for writing it. It comes on a day when I have thought quite a lot about this subject and you have written much of what I have been thinking needs to be said.

I just finished listening to Ron Paul's book Liberty Defined: 50 Essential Issues this morning. Although I do not agree with Paul on many things, his comments on torture and aggressive foreign policy are excellent. You should read the book and recommend it to your readers.

I replied to Dave that I had only received favorable responses to my article. One person even went so far as to say, "I generally hate it when you stray into politics and away from economics, but thank you for writing this".

A Single Twisted, Tortured Email Response

Unfortunately, I spoke too soon regarding me receiving no unfavorable comments.

Shortly after I responded to Dave, one completely twisted mind, wrote a lengthy email calling me names and went on to say ...

Torture is just what it is supposed to be. A method of getting information in a hurry. Waterboarding is for ******. Cut off a finger, fry his ****, stick a needle up his ****, jerk off some fingernails like the Chinese and Koreans and Japanese did (probably still do). That'll get results damn fast.

Man up Mish and get some cojones! Having a SPINE and enough gumption TO TORTURE a bad guy IS the AMERICAN WAY!

Steve R

Negative Results From Torture and Warmongering

I came close to posting Steve's full name but his last name is common enough that I do not want everyone with the same name to stand accused. Certainly Steve deserves public ridicule.

Suffice it to say that Steve and his ilk are one of the many things wrong with this country today.

We wasted trillions of dollars fighting a senseless war in Iraq based on incorrect information gathered by torture. How stupid is that?

Results? We have enormously negative results from torture and war-mongering and quite literally we are on the road to fiscal ruin because of such tactics.

Those Who Condone Torture are a Disgrace to the Constitution

I replied to Steve ...

"You are a disgrace to the constitution and everything it stands for. It's precisely because of fools like you that Bin Laden attacked us in the first place."

Ron Paul on Torture and Secret Prisons

Please consider Ron Paul in the 5/5/2011 Presidential Debate.

Ron Paul: "We do not need secret prisons, nor do we need the torture that goes on in these secret military prisons"

Ron Paul is correct and that is precisely the side of Ron Paul my friend and many like him admire.

In contrast, Steve R and those like him are hypocritical wimps who see torture as a means of strength, protesting when other countries use it, yet condone tortures when the US uses it. In reality, torture does nothing but bring you to the level of the opponent you are fighting.

Torture is what the Nazis did. It also helps Al Qaeda recruit. Al Qaeda wants the US to adopt the policy of Steve R so they can use it against us. Sadly that is exactly what has happened.

Torture should be no part of US policy, officially or unofficially.

I call on Congress to pass a law expressly prohibiting torture, with severe consequences for anyone who steps over the line.

Taking the high moral stand against torture is not only the right thing to do, it also works. Thus, the US should set a standard for human decency, not stoop to methods of those we are fighting. To do otherwise proves we are no better than they are.

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

True Finns Party Chairman: Greece, Ireland and Portugal Ruined; Gangrene Spreads; Enron Looks Simple; Spain Next Zombie

Posted: 09 May 2011 10:43 AM PDT

True Finns party chairman, Timo Soini launched the most scathing and accurate attack yet against Jean-Claude Trichet, Jean-Claude Junker, and the ECB for its policy raping taxpayers of various countries to pay back German, French, UK, and US banks that made stupid loans for stupid reasons.

Please read the Wall Street Journal article Why I Won't Support More Bailouts by Timo Soini. There is much more than this somewhat lengthy snip that follows.

When I had the honor of leading the True Finn Party to electoral victory in April, we made a solemn promise to oppose the so-called bailouts of euro-zone member states. These bailouts are patently bad for Europe, bad for Finland and bad for the countries that have been forced to accept them. Europe is suffering from the economic gangrene of insolvency—both public and private. And unless we amputate that which cannot be saved, we risk poisoning the whole body.

At the risk of being accused of populism, we'll begin with the obvious: It is not the little guy that benefits. He is being milked and lied to in order to keep the insolvent system running. He is paid less and taxed more to provide the money needed to keep this Ponzi scheme going. Meanwhile, a kind of deadly symbiosis has developed between politicians and banks: Our political leaders borrow ever more money to pay off the banks, which return the favor by lending ever-more money back to our governments, keeping the scheme afloat.

In a true market economy, bad choices get penalized. Not here. When the inevitable failure of overindebted euro-zone countries came to light, a secret pact was made.

Instead of accepting losses on unsound investments—which would have led to the probable collapse and national bailout of some banks—it was decided to transfer the losses to taxpayers via loans, guarantees and opaque constructs such as the European Financial Stability Fund, Ireland's NAMA and a lineup of special-purpose vehicles that make Enron look simple. Some politicians understood this; others just panicked and did as they were told.

The money did not go to help indebted economies. It flowed through the European Central Bank and recipient states to the coffers of big banks and investment funds.

Further contrary to the official wisdom, the recipient states did not want such "help," not this way. The natural option for them was to admit insolvency and let failed private lenders, wherever they were based, eat their losses.

That was not to be. As former Finance Minister Brian Lenihan recently revealed, Ireland was forced to take the money. The same happened to Portuguese Prime Minister José Sócrates, although he may be less forthcoming than Mr. Lenihan about admitting it.

Jean-Claude Trichet, Jean-Claude Junker Both Liars

ECB President Jean-Claude Trichet and Jean-Claude Juncker, Luxembourg PM and Head Euro-Zone Finance Minister are both blatant liars when it comes to who benefits from these bailouts.

At least Junker has the decency to admit he is a liar. For details please see Jean-Claude Juncker, Euro-Zone Head Finance Minister says "When it becomes serious, you have to lie"

Ireland Forced to Take Money

Timo Soini makes the claim, denied by the ECB, that "Ireland was forced to take money".

Soini is not the only one making that claim. Former Irish Finance Minister Brian Lenihan, ousted in the most recent election also makes that claim.

Of course Trichet dismisses Lenihan's claims of 'betrayal'

Bank chief Jean-Claude Trichet has dismissed claims by former minister for finance Brian Lenihan that the bank betrayed Ireland immediately before the EU-IMF bailout.

Mr Trichet said the facts showed that the ECB had sided with Ireland in its difficulties and that the bank's support for the State's financial system was without parallel.

A high-level euro zone source said Mr Lenihan's remarks were deemed "unfair" within the ECB, which is supporting Ireland's banks to the tune of some €150 billion. This was particularly so given pressure from "powerful governments" against the provision of such extraordinary support for banks, the source said.

A further reflection of the bank's commitment was that its backing for Irish financial institutions "could be seen as going beyond the ECB's legal mandate". The source said it was known that Mr Lenihan made his remarks some time before they were reported over the Easter weekend. His comments were therefore perceived as "election rhetoric" so the reaction in Frankfurt is "calm".

Beyond ECB's Legal Mandate

Please read that last paragraph closely. The ECB readily admits it went beyond its legal mandate to screw the citizens of Ireland, forcing them to bear the brunt of stupid loans made by greedy German, French, UK, and US banks to Ireland, Portugal, and Greece.

No Respect for Lenihan

Lenihan deserves no respect. He should have stepped forward to say something when he had the chance.

Only after his party was forced out of office in a crushing election defeat did Lenihan bother to say anything.

Enda Kenny Sells Irish Citizens Down the River

Enda Kenny, Ireland's new Prime Minister had a chance to tell the ECB and EU to stuff it. Instead of taking advantage of voter sentiment that ousted former Brian Cowen in a massive landslide, Kenny sided with the thugs who want to rape Irish citizens.

As long as we are discussing liars and the lies they tell we may as well point out this whopper: Ireland's Prime Minister Kenny Says Nation Can Handle Debts

That was written on May 5.

Today we see the headline Ireland ramps up push for better bailout deal

Ireland warned on Monday it would need more favorable terms to rid itself of its debt troubles and said it was confident of securing a cut in the interest it pays for its EU aid without conceding ground on tax rates.

"We carry a heavy burden of debt. Without strong growth, questions of sustainability will remain," Prime Minister Enda Kenny told a special meeting of Ireland's parliament in celebration of Europe Day.

Kenny said he was confident that Europe would give Ireland a cut in the interest rate it is charging for its loans. Athens got a 1 percentage point cut in March.

Edna Kenny is a Liar Too

Four days ago Kenny said "the nation can handle its debts".

Today Kenny says "questions of sustainability remain"

Which is it?

Actually, there is no question. Here's the real deal: what cannot be paid back won't.
There should be no cut in interest rates. Ireland should default and the sooner it does the better off it will be.

Irish taxpayers should not suffer from voting out one set of clowns in a landslide election only to have the new set of clowns adopt the identical policy.

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

S&P Cuts Greek Debt 2 Notches Deeper in Junk, Cites 50% to 70% Haircuts; CDS at Record High, Probability of Default is 68%

Posted: 09 May 2011 08:05 AM PDT

Last week Trichet reiterated for the nth time "restructuring is not on the agenda". This follows his February pronouncement the "whole world" approves the bailout program.

Today, once again, the market refuses for the nth time to believe Trichet's nonsense, and Credit Default Swaps on Greek debt and Irish debt hit a new record high. Greece is now the lowest rated country in Europe.

S&P Cites Principal Reductions of 50 Percent or More

Please consider Greek Debt Rating Cut to B by S&P on Restructuring Concerns

Greece's credit rating was cut two levels to B from BB- by Standard & Poor's, which said further reductions are possible as the risk of default rises.

Another cut would make Greece the lowest-rated country in Europe as today's move left it even with Belarus after the fourth reduction by S&P since April 2010. The yield on Greek 10- year bonds rose 12 basis points to 15.6 percent, more than twice the level of a year ago when Greece accepted a bailout.

The S&P decision came on the first business day after an unannounced Friday evening meeting of European finance ministers May 6 in which they agreed Greece needed more help to avoid a restructuring. Extended repayment terms and demands for collateral may be part of a new aid plan.

"The downgrade reflects our view of increasing sentiment among Greece's key euro-zone official creditors to extend the debt payment maturities of their 80 billion euros ($115 billion) of bilateral loans pooled by the European Commission," S&P said in an e-mailed statement.

Greece missed its deficit target for last year, reporting a shortfall of 10.5 percent, versus a target of 9.6 percent. Achieving 2011 targets "is uncertain" and the government "may see a restructuring of official and commercial debt as the best way forward," S&P said.

"Our projections suggest that principal reductions of 50 percent or more could eventually be required to restore Greece's debt burden to a sustainable level, given trend growth potential of the Greek economy," S&P said. The company left its recovery rating on Greece unchanged at 4, indicating investors would recover 30 percent to 50 percent in a default.

CDS Rise to Record, Suggest 68% Probability of Default

Bloomberg reports Greek Bonds Lead European Slide, CDS Rise to Record, After S&P Downgrade

Credit-default swaps on Greek debt rose 19 basis points to a record 1,360, according to CMA, signaling a 68 percent probability of default within five years. Swaps on Ireland reached an all-time high of 676 basis points, and contracts on Portugal also rose.

German 10-year bonds rose for a third day, pushing the yield on the securities back below that on similar-maturity U.S. Treasuries. They yielded three basis points less than their American counterpart, after exceeding them last week for the first time since 2009.

Germany may consider more help for Greece under stringent conditions to avoid a restructuring, which would risk an "even bigger problem than we have already," Michael Meister, the parliamentary finance spokesman for Merkel's Christian Democratic Union, said in an interview in Berlin today.

Greece Joins Belarus as Lowest-Rated Country in Europe

Inquiring minds note that Greece Joins Belarus as Lowest-Rated in Europe After S&P Cut

Greece's credit rating was cut two levels to B from BB- by Standard & Poor's, which said further reductions are possible as the risk of default rises.

Another cut would make Greece the lowest-rated country in Europe as today's move left it even with Belarus after the fourth reduction by S&P since April 2010.

Ireland and Portugal followed Greece in seeking bailouts as investors shunned the debt of the region's other high-deficit nations, driving up their borrowing costs. Credit-default swaps on Ireland also reached an all-time high of 676 basis points and contracts on Portugal rose.

"One by one, they will all need to renegotiate," said Bill Blain, co-head of strategy at broker Newedge in London. "As Europe's most peripheral economy, Greece is just a canary in the coal mine."

ECB Wants Collateral For More Aid

Whatever the emergency meeting was supposed to accomplish last Friday, it clearly didn't. For more details, please see ...

EU Seeks Collateral for More Greek Aid; Trichet Reiterates Restructuring "Not on the Agenda", Market Reiterates "Trichet is a Pompous Fool"

Jean-Claude Juncker, Luxembourg PM and Head Euro-Zone Finance Minister says "When it becomes serious, you have to lie"

That the ECB is discussing collateral is a sure sign that regardless of what they say, they realize Greece is going to default.

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

Digging Still Deeper In Friday's Jobs Report; What's the Real Unemployment Rate?

Posted: 09 May 2011 01:21 AM PDT

Every month the government posts the unemployment rate yet few know where the unemployment rate comes from, how it is determined, and the relationship between the unemployment rate and the monthly reported jobs total.

For a quick recap, the unemployment rate comes from a "Household Survey" while the reported headline jobs total comes from the "Establishment Survey". The former is a monthly phone survey, the latter is a sample of actual business employment.

The reason for the "Household Survey" is that it will pick up new business formation, especially small businesses that might not be on the radar of the "Establishment Survey" sample. Even if the "Establishment Survey" sample size was 100%, unless duplicate names were weeded out, it would double-count those holding multiple jobs.

The "Household Survey" attempts to determine five key items.

Do you have a job?
Is so was it full or part-time?
If not, do you want a job?
If you do not have a job and want a job, did you look for a job in the last 4 weeks?
Are you in school, on leave, etc.

The BLS does not ask the questions like that, instead the BLS attempts to determine those answers by a detailed list of questions.

For a discussion of exactly what questions the BLS asks to determine the unemployment rate, please see Reader Question Regarding "Dropping Out of the Workforce"; Implications of the Falling Participation Rate

Definition of Unemployed

Logically, one might think one would be unemployed if they want a job and do not have a job.

However, the official definition of unemployed is you do not have a job, you want a job, and crucially, you have looked for a job in the last 4 weeks.

Every month the government reports "alternative" numbers but even though many of the alternate numbers are a more accurate representation of the unemployment rate, the media focuses on the headline number, ignoring millions who have "dropped out of the labor force" simply because they stopped looking for work.

Millions more are in "forced retirement", which I define as someone over 60 whose unemployment benefits ran out so they retired to collect Social Security even though they really want a job.

244,000 Jobs Added Last Month, So Why Did the Unemployment Rise?

Last month many were surprised to see the jobs report claim 244,000 jobs were added yet the unemployment rate ticked up 2 tenths from 8.8% to 9.0%.

The widely proclaimed reason from mainstream media was that jobs were more plentiful and because more people were looking for jobs.

That explanation makes sense on the surface in light of the official definition of unemployment (you had to have looked for a job in the last 4 weeks to be counted as unemployed). However, the explanation does not stand up to scrutiny.

The fact is, employment fell by 190,000 according to the Household Survey and another 131,000 people dropped out of the labor force last month or the unemployment would have been even higher. Fewer people (131,000 to be precise) wanted a lob and looked for jobs in April than in March.

The Obama administration as well as mainstream media wants to play job numbers both ways, that is to say they want to use the Household Survey when it suits their purpose and the Establishment Survey otherwise.

Regardless, close scrutiny of the details in the report shows the headline numbers were far worse than they looked.

I commented on that in my Friday post BLS Jobs Report: Nonfarm Payroll Headline Number Looks Good, Beneath the Surface, Awful where I said ...

In the last year, the civilian population rose by 1,817,000. Yet the labor force dropped by 1,099,000. Those not in the labor force rose by 2,916,000. In January alone, a whopping 319,000 people dropped out of the workforce. In February another 87,000 people dropped out of the labor force. In March 11,000 people dropped out of the labor force. In April, 131,000 dropped out of the labor force. The 4-month total for 2011 is 548,000 people dropped out of the labor force.

Many of those millions who dropped out of the workforce would start looking if they thought jobs were available. Indeed, in a 2-year old recovery, the labor force should be rising sharply as those who stopped looking for jobs, once again started looking. Instead, an additional 548,000 people dropped out of the labor force in the first four months of the year. Were it not for people dropping out of the labor force, the [U3] unemployment rate would be well over 11%.

Ilargi at Automatic Earth Blog in Trojan Lies picked up on my post and commented "Indeed, I'd venture that if you add in all those who've left the work force since 2008, you'd end up way above 11%. All in all, the total number of people in the working age population who are not in the labor force hit a new all time high of 86.248 million in April. And Wall Street likes that."

Unemployment Math

The math is simple enough, so let's see if Ilargi is correct.

From the latest BLS Jobs Report Table A1 Household Data

Civilian Labor Force: 153,421,000
Unemployed: 13,747,000
Not in the Labor Force (April 2011 vs April 2010): 85,725,000 - 82,809,000 = 2,916,000

If those who dropped out of the labor force in the past year were added back into the labor force (adding 2,916,000 to both the labor force and the number of unemployed) the totals would look like this:

Revised Civilian Labor Force: 156,337,000
Revised Unemployed: 16,663,000
Revised Unemployment Rate = 16,663/156,337 = 10.6%

Unemployment Math Since April 2008

The above number is just for the past year. Ilargi wanted to go back to 2008.

Those not in the labor force as noted in the April 2008 Employment Report = 79,241,000
Those not in the labor force today = 85,725,000
Since April 2008 6,484,000 dropped out of the labor force.

If we add those back into the labor force and to the unemployed, the math look likes this:

Civilian Labor Force: 159,905,000
Unemployed: 20,231,000
Revised Unemployment Rate = 20,231/159,905 = 12.7%

So Ilargi was correct to assume "way above 11%".

Unemployment Math Take III

Bear in mind some of those people retired because they wanted to, some died, some are too sick to work, some are in prison etc. However, I strongly suspect at least 60% of those people who dropped out of the labor force since April 2008 want a job and do not have a job.

Math at 60%

60% of 6,484,000 = 3,890,000
Civilian Labor Force: 153,421,000 + 3,890,000 = 157,311,000
Unemployed: 13,747,000 + 3,890,000 = 17,637,000
Unemployment Rate = 11.2%

If you want a range, assume 10.6% to 11.6%

Table A-15 Alternative Measures

Note that the Government reports "Alternative Measures" of unemployment every month in Table A-15.

If you take a look at line "U-5" above you will see the government adds back in "marginally attached" workers defined as those who want a job but did not look in the last 4 weeks.

U-5 is 10.4% which is in the ballpark of my 10.6% to 11.6% seat-of-the-pants calculation made above.

However, U-5 does not include those hiding out in school when they really want a job, and I rather doubt it includes "forced retirement" either. Thus, my number should be a bit higher than U-5, which it is.

What About Part-Time Workers?

The BLS says those who worked as little as 1 hour last week are considered employed.

According to the BLS, there are now 8,600,000 workers who want a full-time job but instead are working part-time. The BLS labels this group "part-time for economic reasons".

The number of rose by 167,000 last month.

Before companies hire full-time workers, many of those working part-time will see their hours rise first.

If you factor in those working part-time for economic reasons the unemployment rate rises to 15.9%, and if you factor in students and those in forced retirement who really would rather be working, it is likely another 1-2 points higher still.

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

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