Mish's Global Economic Trend Analysis

63% Think Congress Can Always Make Things Worse (the Other 37% are Wrong)
Windows 8 Adoption at Standstill; Microsoft Slashes OEM Bundle Price to $30 from $120
Clowns Never Learn
What's Next for Italy? No Working Government for 7 Months, Then Elections in September
In Praise of Theft and Fraud (But Not Deceit)

63% Think Congress Can Always Make Things Worse (the Other 37% are Wrong)

Posted: 07 Mar 2013 10:04 PM PST

An amusing poll by Rasmussen shows 63% Think Congress Can Always Make Things Worse.

Poll Questions

Generally speaking how do you rate the way that Congress is doing its job? Excellent good fair or poor?
Over the past year, has Congress passed any legislation that will significantly improve life in America?
What is a more important role for Congress – passing good legislation or preventing bad legislation from becoming law?
Who does the average congressman listen to the most — the voters they represent or party leaders in Congress?
Do you agree or disagree with the following statement: No matter how bad things are, Congress can always find a way to make them worse?

Results

9% of Likely U.S. Voters think the average member of Congress listens to the voters he or she represents more than to congressional party leaders. 81% believe the average member listens most to his or her party's leaders in Congress. 10% are not sure.
63% Think Congress Can Always Make Things Worse. [The rest are obviously wrong - Mish]

The article did not give the answers to the first three questions. A related article shows 8% Think Congress Is Doing A Good or Excellent Job

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

Windows 8 Adoption at Standstill; Microsoft Slashes OEM Bundle Price to $30 from $120

Posted: 07 Mar 2013 03:54 PM PST

Four months after rollout, Microsoft has achieved an anemic 2.67% market share for Windows 8. Growth does not even keep up with natural attrition.

In the month of February, according to Net Applications, Windows 8 gained 0.4% of the desktop market, moving from 2.26 to 2.67%. In comparison, Windows 7 had a market share of over 9% after four months of public availability. A growth rate of 0.4% is absolutely horrendous, and — if we assume that PCs are replaced every five years — actually below the natural attrition/replacement rate. If growth of 0.4% wasn't bad enough, it's also worth pointing out that it's down from 0.5% in January — yes, Windows 8 adoption is slowing down. Windows 7, after a small dip last month, actually gained market share in February.

It's a bitter pill to swallow, but Windows Vista actually enjoyed faster growth than Windows 8 — and we know all too well how the Vista story played out. Despite selling Windows 8 at a massively discounted price of $40 for three months (it's now $200), and sales boosts from Black Friday and Christmas, it's clear that Windows 8 has failed to take off. Short of giving away Windows 8 for free, there isn't a whole lot that Microsoft can do — and even then, there are still millions of consumers and business customers that are perfectly happy with Windows 7 and leery of Windows 8′s Metro Start screen.

Windows and Office are cash cows for now, but the desktop market has started to contract — slowly at first, but it will accelerate. With the mobile market exploding, Windows Phone failing to grab significant market share on the smartphone, and minuscule tablet market share for Windows 8, it doesn't look good for Microsoft.

Microsoft Slashes OEM Bundle Price to $30 from $120

ExtremeTech reports Microsoft cuts the price of Windows 8 and Office 2013.

In a double whammy of bad news, it seems that Microsoft has been forced to cut the price of Windows 8 and Office 2013 licenses to spur the adoption of Windows 8 — and Samsung, citing lack of consumer interest, has pulled its Windows RT tablet from Germany and "additional European countries."

According to the Wall Street Journal's anonymous sources, Microsoft has been offering a dual pack of Windows 8 and Office to OEMs for $30 since late February, for touchscreen devices under 10.8 inches. The previous price was $120.

We still don't know exactly how many touch-enabled Windows 8 devices are actually being used by consumers, but the mere fact that Microsoft hasn't shared any figures — either in general, or specifically for its Surface tablets — is a strong indicator that things aren't going to plan. The only real indication we've had is from retailers such as Newegg, which said that sales of Windows 8 tablets had been very slow, and that most Windows 8 devices sold had been laptops or tablets.

Which leads us neatly onto the second tidbit: Samsung is pulling the Windows RT Ativ Tab out of Germany and "additional European countries" (Samsung hasn't yet specified which ones). This follows on from Samsung's decision to not release the Ativ Tab in the US, citing a lack of consumer interest and confusion over what Windows RT actually is.

Moving forward, we should also remember that Microsoft is working on Windows Blue, which will reportedly be very cheap — or possibly free. It isn't yet clear whether Blue will be a standalone version of Windows that you can buy off the shelf, or the code name for Microsoft's internal shift towards annual releases, instead of every two or three years. It is possible that Microsoft's slashing of Windows 8 and Office license costs is simply a precursor to Windows Blue. Considering how Windows and Office bring in the lion's share of Microsoft's profits, though, this certainly seems like a dangerous game for Microsoft to be playing.

Should some form of OpenOffice ever gain a big corporate following in the US, it will be the end of Microsoft as we know it. With the new emphasis on tablets and phones, perhaps the end is here regardless.

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

Clowns Never Learn

Posted: 07 Mar 2013 12:57 PM PST

President Obama said the sequester cuts would be "catastrophic".

Reader Tim Wallace pinged me with a few comments to help put those catastrophic cuts in perspective.

Tim asks: If you were making $50,000 per year in 2007 and you income went up to $70,000 (a 40% increase in six years), would a $1,750 pay cut to $68,250 be catastrophic?

Apparently it would be for the Obama administration. The federal budget is up 40% from 2007 and the Democrats and President are telling us they cannot afford to cut spending 2.5%.

Not that the "cuts" are real in the first place. All that is really being cut is a decrease in the projected increase. A chart of Federal Spending from PJMedia will add another perspective.

Federal Spending in Inflation-Adjusted Terms

Backing Away From Catastrophic Talk

For obvious reasons (shown above) Larry Kudlow notes The 'Catastrophic' Sequester Narrative Dies a Quick Death

However you calculate the sequester spending cuts, and however uneven they may be, the reality is that the sequester at least moves the ball in the right direction. I maintain that by reducing the government spending share of GDP, the sequester is pro-growth.

The White House and the CBO are predicting a 0.5 percent to 0.7 percent decline in GDP, post-sequester, and a loss of 750,000 jobs. All this from a spending reduction of roughly 2.4 percent over the next ten years, in which Uncle Sam's spending growth will be $44.8 trillion rather than $46 trillion.

Fed chairman Ben Bernanke and other demand-siders have called for a slow, gradual federal-spending reduction. Well, that's exactly what they're going to get. The first fiscal year of sequester will see $44 billion in spending cuts, which is about one quarter of 1 percent of GDP. That's pretty gradual.

And compare that $44 billion 2013 spending cut (most of which is slower baseline growth, not a cut in spending levels) to a roughly $150 billion 2013 tax hike. Hmm, let me get this right: It's okay to raise taxes, because that won't hurt the economy, but it's not okay to cut spending, because that will lower output?

And while the business sector has survived to become highly profitable, the federal sector has become bloated, edging ever closer to debt bankruptcy.

Oh, regarding Team Obama's doom-and-gloom economic forecast, hearken back to 2009 when the White House economic gurus predicted 3 to 4 percent real economic growth in recovery, with unemployment dropping below 6 percent. That, presumably, would have been driven by a roughly $1 trillion spending increase. But instead we got the weakest recovery in modern times going back to 1947 -- an anemic 2 percent economy and unemployment just a shade below 8 percent. The trillion-dollar stimulus never panned out.

If Keynesian spending was going to work, it would have already worked.

So maybe we should try something new. Let's lower spending and free up resources for the innovative private sector, and then let's see if the results are better. I'm betting, as did deceased Nobel-prize winners Milton Friedman, Friedrich Hayek, and James Buchanan, that as the government sector shrinks, private economic growth expands.

The Republicans are right to stick to their guns on budget cuts. And if President Obama expects to point his finger at the GOP for an economic-sequester catastrophe, he's going to be mistaken.

Keynesian and Monetarist Clowns Never Learn

Kudlow says "If Keynesian spending was going to work, it would have already worked."

Indeed. Yet clowns want more and more, even though Japan proved in spades how foolish Keynesian and Monetarist policies are. See In Praise of Theft and Fraud (But Not Deceit).

Bernanke (a known QE Monetarist clown) now proudly wears two clown hats with his intrusion into the fiscal policy debate. Clowns never learn, they just keep trying bigger and bigger doses of what clearly doesn't work.

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

What's Next for Italy? No Working Government for 7 Months, Then Elections in September

Posted: 07 Mar 2013 09:16 AM PST

Pier Luigi Bersani has twice ruled out the possibility of a grand coalition with Silvio Berlusconi's centre-right coalition, and Beppe Grillo's Five Star Movement wants no part of overtures from Bersani.

There is insufficient support for another technocrat. So, the logical conclusion is new elections are forthcoming. But when?

Reader "AC" who is from Italy but now lives in France explains ...

Hi Mish,

Now that elections are over and declarations have been made by the three major party leaders, we can look at what's ahead for Italy. In a nutshell: It's highly likely that no empowered government will be in charge for six months or longer, and in September Italy will be voting again.

The first session of the Parliament will take place on 3-15. By 3-20, the presidents of the Chamber and Senate will be elected. The President will then meet with parliament groups to see if a government can be formed. Based on statements made by the key political parties, no grand coalition is possible.

By 4-15 the Parliament will seek to elect a new President because the mandate of Napolitano expires on 5-15 and Napolitano has already said he will not accept another term. Outgoing presidents at the end of their term are forbidden by the constitution to call new elections. Therefore, Italy has to wait for the new president to be elected. This process may take until the end of May.

It is unlikely that the first act of a newly elected president would be to dissolve the Parliament without any attempt to merge some sort of temporary solution. Look for the new President to seek another technocrat PM who can garner enough support in parliament. Garnering sufficient support in parliament for another technocrat PM also seems impossible. The only choice left would be to call new elections.

The problem is that at this point we will likely be at the middle of June. A new election could take place at the end of July or mid-August, but that is the middle of the summer holiday season. I think very unlikely that a President will call elections during that period. So, the earliest month that elections would likely take place is September (with an electoral campaign in August, not exactly the right month for that either).

The end result is likely to be a delay of at least 6 months, without a real government able to make significant decisions in the interim.

Matteo Renzi, the Mayor of Florence, may be a game-changer in the next elections. I believe he will be the next PM candidate for the Center-Left. A lot of people thinks that if Renzi had been the Center-Left candidate things would have been much different.

Let's see.

Regards

AC

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

In Praise of Theft and Fraud (But Not Deceit)

Posted: 07 Mar 2013 12:25 AM PST

Some people are in favor of theft and fraud as long as it's not deceitful. Financial Times columnist Martin Wolf is one of those people.

Let's take a look some of Wolf's ideas to "save" Japan with a campaign of forced inflation as presented in "Risky Task of Relaunching Japan".

Here are some snips by Wolf followed by my immediate rebuttal.

Wolf: The question is whether inflation can be achieved and managed.

Mish: There is no question a policy of inflation for Japan is seriously misguided. If maintained, the policy will blow up in a spectacular currency crisis.

Wolf: According to economic advisers Smithers & Co net debt of non-financial companies has fallen from 150 per cent of equity in 1995 to 30 per cent. But government net debt has jumped from 29 per cent of gross domestic product at the end of 1996 to 135 per cent at the end of 2012. These facts have deep implications. First, ending deflation is going to be far harder than it would have been in the late 1990s.

Mish: The moral of the story is how futile (and how ridiculous) it was for Japan to try to "beat deflation". Japan was once the world's largest creditor. Japan now has debt approaching 250% of GDP, accumulated in a ridiculous attempt to defeat deflation.

Wolf: Second, it would be helpful if higher inflation also made real interest rates negative, which would encourage people to spend.

Mish: Wolf implies "saving is bad" and spending is good. The idea is nonsensical. Savings allow banks to lend to credit-worthy customers without the need to inflate money supply. There can never be too much saving.

Wolf: Third, negative real rates would also redistribute wealth from the state's creditors towards future taxpayers.

Mish: Exactly why should governments or central banks be in charge of redistributing anything? It is certainly not taxpayers who benefit from currency wrecking schemes, but rather those with first access to money, the banks and the already wealthy.

I offer conclusive evidence in Top 1% Received 121% of Income Gains During the Recovery, Bottom 99% Lose .4%; How, Why, Solutions.

Also see my follow-up article Reader Asks Me to Prove "Inflation Benefits the Wealthy" (At the Expense of Everyone Else).

Wolf: Such negative real rates can be achieved either by making inflation higher than expected or by capping interest rates. It is not, in fact, clear whether the Japanese authorities want to create strongly negative real rates of interest. But they should, even though this would also create the risk of a political backlash.

Mish: Once again, policies of deliberate inflation destroy those on fixed income (and much of Japan's elderly are on fixed income), for the benefit of banks and those with first access to money. Quite frankly this is theft. There is no better word than "theft" to describe the deliberate destruction of taxpayer savings. For further discussion, please see Hello Ben Bernanke, Meet "Stephanie".

Wolf: How should this be done and how transparently? The BoJ could insist that it is aiming at 2 per cent inflation, but follow policies likely to bring higher inflation than this. That would be risky deceit.

Mish: Wolf obviously believes that greater than 2% theft is OK as long as it is not accompanied with deceit.

Wolf: The current price level is 30 per cent below where it would have been if annual inflation had been 2 per cent since 1997.

Mish: That sounds like tremendous news to me. Who in the US would not like to see gasoline prices 30% lower? Food prices 30% lower? Education prices 30% lower?

For a look at "hockey stick inflation" please consider Is Inflation the Legacy of the Federal Reserve?

Wolf: If the BoJ sought to return to the level of nominal GDP implied by 3 per cent annual growth from 1997, it would be committing itself to annual increase of close to 9 per cent a year over the next decade. That could surely reduce the real burden of debt!

Mish: Wolf is disingenuous. The real burden of debt is a function of real interest rates and real growth not nominal GDP growth. Should Japan succeed in causing a currency crisis (and it may do just that if it follows Wolf's nonsensical prescription, who knows where interest rates will be? Even if Japan did successfully reduce its debt burden, it would be at taxpayer expense. And why is there a debt burden in the first place? The answer is economic imbeciles fought deflation with a combination of Keynesian and Monetarist ideas over the course of decades, and none of it worked.

Wolf: At the limit, Japan might use "helicopter money", as discussed in my column of 12 February. If the BoJ uses fiat money it does not wish to withdraw, it will also have to impose explicit reserve requirements on commercial banks.

Mish: Wolf's article The case for helicopter money starts off with a preposterous straw man idea "I fail to see any moral force to the idea that fiat money should only promote private spending". In reality, there is nothing moral about using fiat money to promote any spending, ever. By its very nature, fiat money, created out of thin air, is immoral.

Wolf: The traditional view at the BoJ has been that monetary policy cannot raise inflation. This shows a surprising lack of imagination. In principle, the BoJ can use its fiat money to buy everything in the world, at any price it wanted. This would certainly lower the purchasing power of the yen.

Mish: Buying anything at any price is purposeful fraud to the benefit of those who were overpaid. And because it's blatant and purposeful fraud, Wolf displays a surprising abundance of over-imagination. There are indeed limits on what central banks can do. They may step over the line by a bit, but not to the absurd heights Wolf suggests they easily can.

Wolf: The policy shift must be both credible and credibly contained.

Mish: Wolf obviously has learned nothing from central planning efforts in Russia, the housing bubble in the US, or Japan's multi-decade attempt to destroy savers in Japan. What Wolf seeks is a set of central planners who will be wise enough at implementing what is tantamount to a stupid policy. If the central planners were that wise, they would not attempt something so ludicrous in the first place.

Wolf: One can envisage two big and clearly interrelated dangers. First, the new approach might be seen as a deliberate attempt at beggar-my-neighbour policies and would, as a result, cause dangerous retaliation. Second, it might stimulate flight from the holders of yen and so a currency collapse and soaring inflation.

Mish: Those are the first and only ideas Wolf presented in his article that make complete sense. Of course he goes on to ignore the ideas.

Wolf: Maybe, working to a 2 per cent inflation target will deliver what is needed. But I suspect that a more radical target, for levels of prices or nominal GDP, may be needed, at least for a while. The new team at the BoJ will have to avoid doing too little, even though it risks ending up doing too much. It will need much judgment and some luck. The world should wish it well.

Mish: Heaven forbid Japan does too little. My gosh, just look at the results. Why Japan actually has some semblance of price stability! Who wants that? Obviously not Wolf who suspects that "a more radical target may be needed".

Final Thoughts

Wolf concludes with "Japan will need much judgment and some luck".

If Japan had any judgment it certainly would not be doing what Wolf suggests. So yes, Japan will need "some luck" (but a miracle is more like it).

Wolf is willing to let Japan risk "doing too much" even though it might cause serious inflation, destroy the Yen, risk a political backlash, or cause "dangerous retaliation to beggar-my-neighbour policies".

And he admits he does not know if a more radical target is needed! (which of course it isn't).

I will be polite. Wolf is nuts.

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

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Mish's Global Economic Trend Analysis

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