| Meaningless Partial Government Shutdown in Progress; What's Affected, What's Not Posted: 30 Sep 2013 10:47 PM PDT A partial government shutdown is now underway. I am unimpressed, and so are the futures. U.S. futures are up slightly, and so are global futures in general. Gold and the dollar are flat. Given this is the 18th partial government shutdown, there is nothing at all to be excited about this evening. History of 18 Government Shutdowns | Year | Start date | End date | Total days | Explanation |
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| 1976 | September 30 | October 11 | 10 | Citing out of control spending, President Gerald Ford vetoed a funding bill for the United States Department of Labor and the United States Department of Health, Education, and Welfare (HEW), leading to a partial government shutdown. On October 1, the Democratic-controlled Congress overrode Ford's veto but it took until October 11 for a continuing resolution ending funding gaps for other parts of government to become law. | | 1977 | September 30 | October 13 | 12 | The Democratic-controlled House continued to uphold the ban on using Medicaid dollars to pay for abortions, except in cases where the life of the mother was at stake. Meanwhile, the Democratic-controlled Senate pressed to loosen the ban to allow abortion funding in the case of rape or incest. A funding gap was created when disagreement over the issue between the houses had become tied to funding for the Departments of Labor and HEW, leading to a partial government shutdown. A temporary agreement was made to restore funding through October 31, 1977, allowing more time for Congress to resolve its dispute. | | 1977 | October 31 | November 9 | 8 | The earlier temporary funding agreement expired. President Jimmy Carter signed a second funding agreement to allow for more time for negotiation. | | 1977 | November 30 | December 9 | 8 | The second temporary funding agreement expired. The House held firm against against the Senate in its effort to ban Medicaid paying for the abortions of victims of statutory rape. A deal was eventually struck which allowed Medicaid to pay for abortions in cases resulting from rape, incest, or in which the mother's health is at risk. | | 1978 | September 30 | October 18 | 18 | Deeming them wasteful, President Carter vetoed a public works appropriations bill and a defense bill including funding for a nuclear-powered aircraft carrier. Spending for the Department of HEW was also delayed over additional disputes concerning Medicaid funding for abortion. | | 1979 | September 30 | October 12 | 11 | Against the opposition of the Senate, the House pushed for a 5.5 percent pay increase for congress members and senior civil servants. The House also sought to restrict federal spending on abortion only to cases where the mother's life is in danger, while the Senate wanted to maintain funding for abortions in cases of rape and incest. | | 1981 | November 20 | November 23 | 2 | President Ronald Reagan pledged that he would veto any spending bill that failed to include at least half of the $8.4 billion in domestic budget cuts that he proposed. Although the Republican controlled Senate passed a bill that met his specifications, the Democratic House insisted on larger cuts to defense than Reagan wanted and for congressional and civil servant pay raises. A compromise bill fell $2 billion short of the cuts Reagan wanted, so Reagan vetoed the bill and shut down the federal government. A temporary bill restored spending through 15 December and gave Congress the time to work out a more lasting deal. | | 1982 | September 30 | October 2 | 1 | Congress passed the required spending bills a day late. | | 1982 | December 17 | December 21 | 3 | The Democratic controlled House and the Republican controlled Senate wished to fund jobs, but President Reagan vowed to veto any such legislation. The House also opposed plans to fund the MX missile. The shutdown ended after Congress abandoned their jobs plan, but Reagan was forced to yield on funding for both the MX and Pershing II missiles. He also accepted funding for the Legal Services Corporation, which he wanted abolished, in exchange for higher foreign aid to Israel. | | 1983 | November 10 | November 14 | 3 | The Democratic controlled House increased education funding, but cut defense and foreign aid spending, which led to a dispute with President Reagan. Eventually, the House reduced their proposed education funding, and also accepted funding for the MX missile. However, the foreign aid and defense cuts remained, and oil and gas leasing was banned in federal wildlife refuges. Abortion was also prohibited for being paid for with government employee health insurance. | | 1984 | September 30 | October 3 | 2 | The House wished to link the budget to both a crime-fighting package President Reagan supported and a water projects package he did not. The Senate additionally tied the budget to a civil rights measure designed to overturn Grove City v. Bell. Reagan proposed a compromise where he abandoned his crime package in exchange for Congress dropping theirs. A deal was not struck, and a three-day spending extension was passed instead. | | 1984 | October 3 | October 5 | 1 | The three-day spending extension expired, forcing a shutdown. Congress dropped their proposed water and civil rights packages, while President Reagan kept his crime package. Funding for aid to the Nicaraguan Contras was also passed. | | 1986 | October 16 | October 18 | 1 | A dispute over multiple issues between the Democratic controlled House and President Reagan and the Republican Senate forced a shutdown. The Democratic controlled House dropped many of their demands in exchange for a vote on their welfare package, and a concession of the sale of then-government-owned Conrail. | | 1987 | December 18 | December 20 | 1 | Democrats, who now controlled both the House and the Senate, opposed funding for the Contras, and wanted the Federal Communications Commission to begin reenforcing the "Fairness Doctrine". They yielded on the "Fairness Doctrine" in exchange for non-lethal aid to the Contras. | | 1990 | October 5 | October 9 | 4 | President George H.W. Bush vowed to veto any continuing resolution that was not paired with a deficit reduction package, and did so when one reached his desk. The House failed to override his veto before a shutdown occurred. Congress then passed a continuing resolution with a deficit reduction package that Bush signed to end the shutdown. | | 1995 | November 13 | November 19 | 5 | In the shutdown of 1995 and 1996 President Bill Clinton vetoed a continuing resolution passed by the Republican-controlled Congress. A deal was reached allowing for 75 percent funding for four weeks, and Clinton agreed to a seven-year timetable for a balanced budget. | | 1995 | December 16 | January 6, 1996 | 21 | Subsequently the Republicans demanded President Clinton propose a budget with the seven-year timetable using Congressional Budget Office numbers, rather than Clinton's Office of Management and Budget numbers. However, Clinton refused. Eventually, Congress and Clinton agreed to pass a compromise budget. | | 2013 | October 1 | Ongoing | Ongoing | Due to disagreement regarding inclusion of language delaying the Affordable Care Act,[10] the Government has not passed a funding bill. Negotiations have come to a stop and government shutdown is in progress. See also United States federal government shutdown of 2013. | What's Affected, What's Not In contrast to a ridiculously overhyped mainstream media summation of what might happen (Please see More Government Shutdown Hype), inquiring minds might wish to consider a more realistic assessment. If so, please consider What's changing, what's not, in a shutdown. Here's a brief recap: Campers in national parks with entrance gates will have to leave, a zoo panda-cam will be turned off, the airline consumer complaint-line will be shut down (but not air traffic control), routine food inspections will be off (but not meat inspections or high-risk inspections), some SNAP services may be shut down (but not school lunch programs), there will be delays in handing disability claims, and Friday's jobs report may or may not be delayed. Servicemen will be paid, homeland security personnel will stay on duty, Fannie Mae will keep on issuing mortgages with a full staff, but the FHA which handles about 15% of mortgages will have a reduced staff. The critical date when more serious cutbacks would happen is somewhere around October 17 or perhaps October 22 (I have seen both dates). I expect this mess to be resolved by then. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Strawberry Fields Forever; Is a Higher Minimum Wage Really the Answer? To What? Posted: 30 Sep 2013 05:05 PM PDT Japan Times reports the Latest Robot can Pick Strawberry Fields Forever Fruits of ingenuity: Agricultural machinery maker Shibuya Seiki and the National Agriculture and Food Research Organization demonstrate a robot that can pick ripe strawberries at the annual Auto-ID and Communication Expo at the Tokyo Big Sight convention center Wednesday. | AFP-JIJI
The device, unveiled Wednesday, can pick a piece of fruit every eight seconds by using three cameras to determine which strawberries are ready to pick. A mechanized arm then darts out to snip each one free and place it into its basket.
The 2-meter robot moves on rails between rows of strawberries, which in Japan are usually grown in elevated greenhouse planters.
It "calculates the degree of ripeness from the color of the strawberry, which it observes with two digital cameras," said Mitsutaka Kurita, an official at Shibuya Seiki, the developer of the machine.
"It also uses the images from the two cameras to calculate the distance from the target, then approaches the strawberry it is aiming at," he said.
A third camera takes a detailed photo of the fruit, which it uses for the final calculation before moving in to snip it.
Strawberry farming is highly labor-intensive, requiring 70 times the work of rice farming and twice that of tomatoes and cucumbers, according to the National Agriculture and Food Research Organization, which helped develop the robot.
The robot will go on sale early next year for about ¥5 million. Strawberries are available all year round in Japan and typically fetch ¥500 for a small basket. Forever? In his December 2012 Outlook, Pimco's Bill Gross also wrote Strawberry Fields – Forever? It's worth a recap now.
Whoever succeeds President Obama, the next four years will likely face structural economic headwinds that will frustrate the American public. "Happy days are here again" was the refrain of FDR in the Depression, but the theme song from 2012 and beyond may more closely resemble Strawberry Fields Forever, as Lennon laments "It's getting hard to be someone but it all works out." Why is it so hard to be someone these days, to pay for college, get a good-paying job and retire comfortably? That really was the economic question of the 2012 election towards which very few specifics were applied from either side.
There are numerous structural headwinds that may reduce real growth even below the New Normal 2% rate that Bernanke has just confirmed, not only in the U.S. but in developed economies everywhere.
They are:
1) Debt/Delevering
Developed global economies have too much debt – pure and simple – and as we attempt to resolve the dilemma, the resultant austerity should lower real growth for years to come. There are those that believe in the "Brylcreem" approach to budget balancing – "a little dab'll do ya." Just knock a few percentage points off the deficit/GDP ratio, they claim, and the private sector will miraculously reappear to fill the gap. No such luck after 2–3 years of austerity in Euroland, however. Most of those countries are mired in recession and/or depression.
2) Globalization
Globalization has been an historical growth stimulant, but if it slows, then the caffeine may wear off.
3) Technology
Technology has been a boon to productivity and therefore real economic growth, but it has its shady side. In the past decade, machines and robotics have rather silently replaced humans, as the U.S. and other advanced economies have sought to counter the influence of cheap Asian labor.
Erik Brynjolfsson and Andrew McAfee at MIT have affirmed that workers are losing the race against the machine. Accountants, machinists, medical technicians, even software writers that write the software for "machines" are being displaced without upscaled replacement jobs. Retrain, rehire into higher paying and value-added jobs? That may be the political myth of the modern era. There aren't enough of those jobs. A structurally higher unemployment rate of 7% or more is the feared "whisper" number in Fed circles. Technology may be leading to slower, not faster economic growth despite its productive benefits.
4) Demographics
Demography is destiny, and like cancer, demographic population changes are becoming a silent growth killer. Numerous studies and common sense logic point to the inevitable conclusion that when an economic society exceeds a certain average "age" then demand slows. Typically the dynamic cohort of an economy is its 20 to 55-year-old age group. They are the ones who form households, have families and gain increasing experience and knowhow in their jobs. Now, however, almost all developed economies, including the U.S., are gradually aging and witnessing a larger and larger percentage of their adult population move past the critical 55-year-old mark. Yen vs. U.S. Dollar  At What Cost Does It Pay to Hire Robots to Pick Berries? A strawberry fields robot sells for 5 million yen. The cost in US dollars is 5,000,000/98.35 or $50,838. The minimum wage in the US is $7.25/hour. A picker at minimum wage (counting corporation Social Security contribution of 6.2%) would cost $15,080 + $935, or about $16,015 per year (plus Obamacare, plus benefits, if any). At minimum wage, the robot would pay for itself in three years (assuming a robot replaced one person working full time for a year). At a $15.00/hour wage that unions are clamoring for, the robot would pay for itself in half that time. Is a Higher Minimum Wage Really the Answer? To What? The higher the minimum wage, the higher the benefit level, and the lower the interest rate (thank Bernanke for that one), the more it pays to hire robots. The math is simple enough, and it is happening now. Of course, a single robot may replace more than one human worker, and without griping about minimum wages. With that, I offer a musical tribute. Beatles Musical Tribute Link if video does not play: The Beatles Strawberry Fields Forever Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Record $217 Billion Corporate Bond Issuance in September; Verizon Leads the Way With Largest Bond Deal Ever at $49 Billion Posted: 30 Sep 2013 12:53 PM PDT Corporations are scrambling to raise cash to complete buyouts or simply because they can. Barron's reports September Sees Record $217 Bln Corporate Bond Issuance September isn't completely finished just yet and it's already produced a record $217 billion in U.S. corporate bond issuance, an 18% bump from the previous single-month record, according to Janney Montgomery Scott. The secondary market fed off the activity of the primary market, translating to $394 billion in total trading, about 70% of which was in investment grade credits. Five days ago Bloomberg reported Verizon and Sprint Lead Record Month for U.S. Bond Issuance. Sales of corporate bonds in the U.S. reached an all-time high this month, with phone companies Verizon Communications Inc. and Sprint Corp. leading offerings of about $193.7 billion.
Verizon issued $49 billion on Sept. 11 in the biggest corporate bond deal ever while Overland Park, Kansas-based Sprint raised $6.5 billion on Sept. 4 in the largest high-yield sale since 2008, according to data compiled by Bloomberg. Offerings broke the previous monthly record of $177.3 billion set in September 2012.
Following the Fed's surprise decision to leave the program untouched, yields on the Bank of America Merrill Lynch U.S. Corporate & High Yield Index dropped to a six-week low of 4.05 percent yesterday.
"Issuers are saying 'let's strike now because we have the wind at our back,'" Timothy Cox, executive director of debt capital markets at Mizuho Securities USA Inc. in New York, said in a telephone interview. "There's no reason to wait."
Yields from the most creditworthy to the riskiest U.S. borrowers declined from a 15-month high of 4.37 percent on Sept. 5, index data show. Yields touched an unprecedented low of 3.35 percent on May 2. Largest Bond Deal Ever Also consider Verizon Raises $49 Billion in Largest Corporate-Bond Sale. Verizon Communications Inc. (VZ) sold $49 billion of bonds in eight parts in the biggest company debt offering ever.
The second-biggest U.S. telephone carrier issued fixed-rate debt with maturities ranging from three to 30 years as well as two portions of floating-rate securities, according to data compiled by Bloomberg.
The deal, which is about the size of all outstanding obligations of the Slovak Republic, is helping to fund New York-based Verizon's buyout of partner Vodafone Group Plc. (VOD)'s 45 percent stake in the largest and most profitable U.S. wireless carrier, Verizon Wireless. The sale is more than double the previous issuance record of $17 billion from Apple Inc. sold in April.
The 30-year securities, the biggest corporate bond ever issued, traded as high as 107.6 cents on the dollar as of 1:12 p.m. in New York from an issue price of 99.883 cents, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The bubble in corporate bonds is massive. And it's one of the things that has helped lift the stock market as well. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Berlusconi Faces Party Revolt; Collapse of Italian Government Hangs in Balance; Rush For Votes is On Posted: 30 Sep 2013 10:48 AM PDT Late last week, former prime minister Silvio Berlusconi ordered five ministers to resign from Italy's government. They did, and as a result, current prime minister Enrico Letta's coalition government is on the verge of collapse. Mr Berlusconi, leader of the centre-right Forza Italia party, said the resignations were a response to the government's decision on Friday to increase in sales tax from next month.
Mr Letta, prime minister, rejected Mr Berlusconi's explanation as an "enormous lie", and called the decision "mad and irresponsible and aimed exclusively at covering up his personal affairs" – a reference to Mr Berlusconi's criminal conviction for tax fraud which is likely to lead to a ban on holding public office.
Beppe Grillo, the comic-activist leader of the movement, who has ruled out supporting a government led by the Democrats, on Saturday night called for snap elections. But his autocratic style of leadership and a purge of several parliamentarians who refused to toe Mr Grillo's line have fuelled speculation that the Democrats might just be able to put the numbers together to form an alternative majority, including centrists led by former prime minister Mario Monti. Equally it is not clear whether all Mr Berlusconi's MPs will remain loyal to their billionaire leader of the past two decades who turns 77 this weekend and is facing a year of house arrest or performing community service.
Mr Napolitano, who holds the constitutional power to dissolve parliament, has repeatedly expressed his opposition to holding snap elections. But if Mr Letta's government were to fall and no alternative majority was in sight, then Italy could be faced with the unprecedented and extremely worrying prospect of staging elections before the end of the year at the risk of derailing the 2014 budget. Rush For Votes is On Today the rush for votes is on. Berlusconi, who has a long history of winning close votes may have overplayed his hand this time and Berlusconi faces party revolt over coalition collapse. "Who is not with me is out," declared a headline in Monday's Il Giornale, a Milan daily owned by the Berlusconi family, as the former prime minister arrived in Rome to ensure party unity ahead of a crucial senate vote expected late on Wednesday.
The numbers game has begun in earnest as Enrico Letta, centre-left prime minister, prepares to address both houses of parliament in a last-ditch effort to keep his government in office after Mr Berlusconi pulled his five ministers out of their five-month-old coalition at the weekend.
Mr Letta's Democrats control the lower house but alone they are 54 votes short of an absolute majority in the senate following last February's deadlocked elections. With the likely support of leftist allies, four recently appointed life senators and 20 centrists led by former prime minister Mario Monti, that deficit is reduced to a dozen or so.
Mr Letta is openly banking on wooing disaffected members of Mr Berlusconi's Forza Italia party after all five ministers perfunctorily ordered to resign by Mr Berlusconi publicly expressed their misgivings and then slammed Il Giornale for running a front-page editorial that came close to accusing them of betrayal.
Although few doubt Mr Berlusconi's powers of persuasion and his tenacity, the prospect of their 77-year-old leader being banned from holding public office and serving one year under house arrest, or performing community service, has reinforced the sense that the centre-right is entering a post-Berlusconi era. The nannycrats in Brussels do not want snap elections because it opens up all kinds of budget battles. The vote is going to be close. And the closer it is, the more pressure president Napolitano will apply on a few holdouts to sway the election. Italy 10-Year Bond Yield  Yield on the 10-year Italian bond spiked 24 basis points today to 4.66% but closed at 4.43%, up only 2 basis points (0.02 percentage points) Perhaps this is a sign Letta has the votes. We will find out on Wednesday. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Spain's Retail Sales Fall 4.2%, 38 Consecutive Negative Months Posted: 30 Sep 2013 02:57 AM PDT Somewhere along the line the economic situation in Spain will bottom, but there are no real signs yet that a recovery is underway. Courtesy of El Confidencial, via translation, please consider Retail sales fell by 4.2% and totaling 38 months in negative Retail trade sales fell by 4.2% in August compared with the same month in 2012, expanding by 2.5 points year July's decline of 1.7%. The National Statistics Institute (INE) reports 38 months of consecutive annual decreases.
Employment in the retail sector fell by 1.9% in the eighth month of the year, two percentage points less than in July, with declines in all modes of distribution. The largest decreases were scored small chains and department stores, where employment contracted by 4.7% and 3.7%, respectively.
Retail sales fell in August in 15 autonomous communities. The largest annual declines occurred in Castilla y León (-9.2%), Basque Country (-8%) and Aragon (-7.7%), while only Balearics managed to increase its sales, with increases of 3 , 2% and 2.7%, respectively.
Employment in retail trade decreased by 13 communities during the eighth month of 2013, mainly in Madrid (-5.7%), Castilla y Leon (-3.6%) and Murcia (-3.1%). The only the recorded progress Balearic Islands and Valencia, with increases of 1%, 0.9% and 0.7%, respectively, while La Rioja remained unchanged in their occupancy. The Spanish government has been talking recovery for several months, so where is it? Eventually there will be a positive month or more, but after this decline, it will hardly constitute "recovery" Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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