Mish's Global Economic Trend Analysis

Grossly Distorted Procedures: Mish Proposal to Raise GDP Calculation
Legal Basis for War in Syria? Amazing Three-Point Logic!
Blue Ribbon for Sanction Craziness: Italy Seizes Hotel of Putin Ally; Russia Threatens Law Allowing Seizure of Foreign Assets
Housing Early Warning Stress Indicator On Rise

Grossly Distorted Procedures: Mish Proposal to Raise GDP Calculation

Posted: 25 Sep 2014 10:15 PM PDT

Here's the question of the day: Does GDP stand for Gross Domestic Product or Grossly Distorted Procedures?

One of the reasons I ask is the latest push by countries to include prostitution and drugs sales in GDP calculations.

Italy: Cocaine Sales to Boost Italian GDP in Boon for Budget.
USA: The Fiscal Times reports How Hookers and Drug Dealers Could Boost US GDP.
Spain: economists estimate that prostitution, illegal drugs, and adjustments will increase GDP since 2010 by 2.42%. That's cumulative, not additive. Methodological changes, such as counting weapons as an "investment" represents 1.55 percentage points of the change.
France: Here's a shocker ... France says No Sex, Please, We're French. In short, France will not include sex or illegal drugs in its measure of GDP.
UK, Ireland, Italy: The WSJ mentions the UK, Ireland, Italy, and even the United Nations in its report Sex, Drugs and GDP: the Challenge of Measuring the Shadow Economy.

From the preceding link, the WSJ reports ...

The U.K. could add as much as $9 billion to the value of its GDP by including prostitution and about $7.4 billion by adding illegal drugs, by one estimate, enough to boost the size of its economy by 0.7%. Not to be outdone, Italy will include smuggling as well as drugs and prostitution.

Other nations in Europe are also poised to fall in line with a European Union call to standardize and broaden GDPs. The EU is following a "best practices" directive laid out in 2008 by the United Nations.

Best Practices Directive

The "best practices" push is on to count sex, except in France (where perhaps it would send GDP soaring to unbelievable heights).

Yet, no one counts people raising their own vegetables, a genuine product.

Teen Sex

As long as we are counting prostitution, why not count consensual sex? What about sex between husbands and wives? What about teen sex?

Isn't the product the same? Are we counting products and services or not?

If husbands did not get sex from their wives, wouldn't some of them pay to get sex elsewhere?

Is or isn't sex a service?

Some might argue that prostitution is a service because it's paid for, but teenage sex is not a service because it isn't paid for.

OK, but that leads to a discussion on imputations.

Imputations

The average person has heard of GDP. The average person has not heard of the imputations that go into calculating GDP.

Q: What are GDP imputations?
A: They are an assumed value of goods and services that trade at no price.

The biggest example of imputed GDP is the alleged value derived from living in your own home.

The government figures that if you did not own your own home, you would pay someone rent. It adds the presumed amount of rent you would pay to rent your home from yourself to GDP.

Another US GDP imputation is the "value" of "free" checking accounts. Government assumes that since you do not pay for your free checking account GDP is underestimated by the value of the "free" account.

Never mind that banks take your checking account deposit, lend it out overnight, earn interest on it, and your money really isn't there at all.

Government imputes a value on the practice.

Imputation Totals

Inquiring minds may be wondering how much imputations add to US GDP. The following figures are from 2013. They calculate these things in arrears to allow for any needed GDP smoothing.

GDP: $16.7681 trillion.
Imputations: $2.6935 trillion
GDP Minus Imputations: $14.0746

Imputation Contribution to GDP = $2.6935 / $16.7681 = 16.06%

Here are a few specifics.

Owner-occupied housing

The imputed valued of people renting houses from themselves is $1.21 trillion.

Imputed Interest

If I loan you $100 and you pay me back a month later and I don't report it, that's a no-no. Perhaps the government also factors in credit card purchases paid off each month on which no interest is paid.

However, it's calculated, the total in this category is $932 billion.

The Fed provides numerous Imputation Charts including imputed interest paid to the rest of the world, imputed health and life insurance, and imputed personal savings.

Mish Proposal

As long as we are imputing the above, why not impute the value of free sex, mowing your own lawn, and scratching someone's back?

Seriously, if I scratch your back and you scratch mine, why doesn't that add to GDP just as prostitution, free checking accounts, and paid massages add to GDP?

Think how much we can raise GDP calculations if we just get each other to scratch each other's backs 15 minutes a day! Add in some extra sex and drugs and the economy will be booming in short order.

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

Legal Basis for War in Syria? Amazing Three-Point Logic!

Posted: 25 Sep 2014 02:30 PM PDT

The hypocrisy of the US is on full display. We have imposed preposterous sanctions on Russia following its takeover of Crimea.

Given that Crimea actually had a vote, and the vote was overwhelming, one can legitimately argue the Crimea takeover was democracy in action. Rigged or not, it's 100% certain the vote would have gone in favor of Russia.

Votes? Constitutions? Who Gives a Damn?

Who gives a damn about votes?

Some claim the vote was illegal by Ukraine's constitution. But what good are constitutions anyway?

The US doesn't give a damn about the US constitution let alone the constitution of any other nations (unless of course it serves our purpose).

Legal Basis for Troops in Iraq?

On September 5th, the Guardian commented on the legality of US troops in Iraq: Legal basis for Iraq troop deployment called into question as days wear on.

The legal basis for the recent introduction of more than 1,000 US ground troops in Iraq was called into question on Friday, after the White House confirmed that it does not consider itself bound by time limits that usually constrain such deployments.

Under the terms of the 1973 War Powers Resolution, troop deployments into war zones may not last longer than 60 days, unless Congress explicitly authorises military force.

As no congressional authorisation yet exists – Congress returns from its August recess next week – lawyers have wondered about the solidity of the legal grounding for the latest US war in Iraq.

Obama's ISIS Plan Legal?

On September 12, Salon asked: Is Obama's ISIS plan legal?.

President Obama's legal basis for "destroying ISIS" is a stretch. But who's going to stop him? Congress? Ha!

"Moderate" Collateral Damage

It's tough distinguishing friends from enemies, especially when allies don't agree who the enemies are, and our enemies have the same primary goal as us!

For example, the Financial Times note Syria Rebels Dismayed by US Air Attacks on Non-Isis Groups.

In the course of Syria's nearly four-year civil war, Ahmed Hamadi an anti-regime rebel, often hoped western intervention would help his cause. But when it finally came, it killed his neighbours and their children.

Door Number One or Door Number Two?

When you go about killing moderates and their kids, do you think the remaining moderates and kids will love us for our freedom-fighting ways?
Or do you think we created more extremists?

Hitting Oil Targets

Today the Financial Times reports US took out Syria's Oil Refineries.

US-led coalition strikes targeted at least six oil refineries held by militants from the Islamic State of Iraq and the Levant (Isis) in eastern Syria overnight, hitting at one of the group's main sources of financing.

Did Blasting Oil Refineries Help?

"This was a really important strike because of oil's significance to Isis," said an activist who uses the nom de guerre Thaer al-Khalidiya. "But unfortunately its impact is diminished by how unpopular the strikes are becoming, and by how little it seems to be affecting the group's military operations in Syria."

Strikes Becoming Unpopular

Civilian casualties were also reported in strikes on southeastern Hassaka countryside, which could increase the negative popular sentiment. According to the Syrian Observatory for Human Rights, around seven non-Isis fighters and civilians were killed, including one child and several women. It said 15 Isis militants were killed. It is impossible to independently verify the figures.

Gee - Who coulda thunk that killing innocent kids might become unpopular? Besides, why aren't these ingrates happy with our fantastic hit ratio? We killed 15 ISIS members and only 7 innocent victims.

The cost of hundreds of tomahawk missiles and bombs per ISIS member killed is clearly irrelevant. The US Has plenty of money. If we run out, we can always print more.

What about ISIS weapons?

Inquiring minds may be asking "What about ISIS weapons?" That's a good question given nearly all of them are US made, confiscated by ISIS in Iraq.

Here's the answer:

Redur Xelil, a spokesman for Syria's main Kurdish force, known as the People's Protection Units (YPG), said some coalition strikes had hit the area but targeted Isis bases far from the front lines, many of which had already evacuated. He pleaded for more strikes near the front to help the YPG win the battle.

"The bases of ISIL and all their heavy weapons, vehicles and equipment are in the open air and visible to everyone," he said, using an alternative acronym for Isis. "But they have not yet been targeted by the air strikes."

There you have it. We don't target weapons, instead we cripple Syria's infrastructure.

Mistakes Bound to Happen

Unfortunately, such mistakes happen when you Drop a Month of Bombs in Two Days on Syria. Strikes.

Rationale for Fighting ISIS

One rationale for the bombings is that an ISIS cell threatened the US.

Exactly how credible was that? The Guardian reports US officials unclear on threat posed by obscure al-Qaida cell in Syria.

Three days after the United States unexpectedly launched air strikes against an al-Qaida cell in Syria, officials are offering varied and conflicting explanations on the precise nature of the threat posed by the group.

Hours after Tomahawk missiles slammed into buildings near Aleppo believed to be used by Khorasan, an obscure group said to be focused on exporting terrorism from Syria, the US military described it as involved in "imminent attack plotting" against western targets.

Yet it is unclear what Khorasan was planning, how far that planning advanced, and whether the US itself was a target. Nor is the US confident as yet that it has either killed Khorasan's leaders or significantly degraded any threat Khorasan may pose.

Bomb First, Ask Questions Later

A senior US official briefing reporters the day after the strike said that Khorasan was "nearing the execution phase" for an attack "in Europe or the homeland". Hours before the strike, however, a different senior official had told the Guardian there was no indication of an imminent domestic threat from the group.

Yet on Thursday, the Pentagon's chief spokesman dismissed questions about how mature any attack planning was, saying it was "near the end stages of planning an attack a western target".

"I don't know that we can pin that down to a day or a week or a month or six months. Doesn't matter. Far better to be the left of a boom than the right of it," said Rear Adm John Kirby, using military jargon about periods before and after an attack.

Aspirations vs. Reality

Leaks to the New York Times and the Washington Post cast doubt on the maturity of an attack emerging from Khorasan.

Anonymous officials were cited as saying it was unclear if Khorasan had picked out targets, deployed operatives to execute them or otherwise set a specific plan in motion, with one describing Khorasan's planning as "aspirational".

Perpetual War

Is the US war on Syria constitutional according to Syria's constitution? Better yet, is the US war on Syria constitutional even according to ours?

On September 13, the Guardian reported Obama's legally dubious Isis campaign is just a way to continue perpetual war.

Authot Trevor Tim wrote "The question isn't whether this is war. It is. The question is how long until we're clamouring for ground troops in Iraq again."

I am in complete agreement.

Following a Pentagon statement that this was the "beginning of a sustained campaign" that could last years, I penned Battle for Perpetual War is Won.

Undeclared War

"We did not request the regime's permission. We did not co-ordinate our actions with the Syrian government. We did not provide advance notification to the Syrians at a military level, or give any indication of our timing on specific targets," said Jen Psaki, the state department spokeswoman."

Interestingly, Syria's Deputy Foreign Minister called the US a "Natural Ally" stating We're 'Fighting the Same Enemy.

"When it comes to terrorism, we should forget our differences… and forget all about the past," said deputy foreign minister Faisal Mekdad. "It takes two to tango...We are ready to talk."

Talk? Who wants that? Why talk when the battle for perpetual war has been won?

Legal Knots

Let's return to the question of legalities, this time specifically in regards to Syria. The Guardian reports US ties itself in legal knots to cover shifting rationale for Syria strikes.

US government lawyers have invoked Iraq's right to self-defence and the weakness of the Assad regime as twin justifications for US bombing in Syria, in a feat of legal acrobatics that may reopen questions over its right to intervene in the bitter civil war.

In a letter to the United Nations secretary general, Ban Ki-moon, released near 24 hours after attacks began, US ambassador Samantha Power argued that the threat to Iraq from Islamic State, known as Isis or Isil, gave the US and its allies in the region an automatic right to attack on its behalf.

The brief letter did not mention the US invasion of Iraq in 2003, which rested on erroneous claims of weapons of mass destruction and arguably contributed to its current instability, but stresses instead the country's right to self-defence in the face of this new threat.

The US also argued that there was legal right to pursue Isis inside Syria due to the weakness of that country's government – a regime the US has been actively urging be undermined by rebel groups for much of the past two years.

Amazing Three-Point Logic!

States must be able to defend themselves and Syria cannot.
One reason Syria cannot defend itself is the US actively supports those who attempt to topple Syrian president Assad.
Because Assad is struggling to defend himself (from us), we allegedly have a legal basis to defend Syria.

For purpose of crippling another country, oil refineries are "prime targets". By taking out Syrian refineries, Syria is even less likely to defend itself from those who wish to topple the Syrian government.

Meanwhile, the US is in yet another undeclared war with Congress sitting on its ass, unwilling to do anything with elections coming up.

Bright Side

Please look on the bright side!

US GDP goes up every time we drop a bomb and the bomb is replaced with more bombs.
The more innocent kids we kill, the more enemies we make.
The more enemies we make, the more bombs we drop.
The more bombs we drop the more US GDP goes up and the more money the CEOs of defense companies make.

As an alternative, I offer my own sure-fire solution: The Moderate's Prayer.

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

Blue Ribbon for Sanction Craziness: Italy Seizes Hotel of Putin Ally; Russia Threatens Law Allowing Seizure of Foreign Assets

Posted: 25 Sep 2014 11:16 AM PDT

What's Russia to do? Stand back and let the US and Europe escalate sanction after sanction, or respond in kind?

Either way, Russia loses. I believe Europe has the worst of it, but both suffer.

Hope for Sanity Appears to Be Lost Cause

By responding in kind, Russia hopes to put some sanity in the heads of US and EU officials. But with brains as dense as Obama, McCain, and various EU officials, hope for sanity appears to be a lost cause.

Sanction Madness Escalates: Italy Seizes Hotel of Putin Ally

Two days ago sanction madness hit a new extreme: Italy seizes Putin ally Arkady Rotenberg's property assets.

The Italian tax police have seized €30m in assets, including a luxury hotel in Rome and two villas in Sardinia, controlled by Arkady Rotenberg, a longtime ally of Russian president Vladimir Putin targeted by US and EU sanctions.

The move comes amid continued tensions between Russia and the EU over Ukraine, and ahead of a possible visit by Mr Putin to Milan next month for a summit with European and Asian leaders that could offer a chance to rebuild some bridges.

Speaking to Russian newswire Interfax, Mr Rotenberg said: "I have been subject to sanctions for several months. Nothing surprises me anymore. But what puzzles me is that the current situation involves real estate to which the sanctions do not apply. Sanctions only apply to accounts and assets which I do not have in Italy."

Russia Threatens Law Allowing Seizure of Foreign Assets

Response from Russia was swift. Moscow Times reports Draft Law Allows Russia to Seize Foreign Assets in Response to Sanctions.

Russian courts could get the green light to seize foreign assets on Russian territory under a draft law intended as a response to Western sanctions over the Ukraine crisis.

The draft, which was submitted to parliament on Wednesday by a pro-Kremlin deputy, would also allow state compensation for an individual whose property is seized in foreign jurisdictions.

Italian authorities this week seized property worth about 30 million euros ($40 million) belonging to companies controlled by Arkady Rotenberg, an ally of President Vladimir Putin targeted by the U.S. and European Union sanctions.

The draft law, published on a parliamentary database, would allow for compensation for Russian citizens who suffer because of an "unlawful court act" in a foreign jurisdiction and clear the way to foreign state assets in Russia being seized, even if they are subject to international immunity.

Russian laws require three readings in the lower house and the approval of the upper house before going to Putin to be signed into law.

Blue Ribbon for Sanction Craziness

What would happen if Russia were to act in kind, by seizing McDonald's Real Estate Empire in Russia, Starbucks, or Exxon?

Does Russia have more assets in the US (for the US to seize) or does the US have more assets in Russia (for Russia to seize)?

The question is moot.

Illegal seizure of assets under the guise of "sanctions" is not a good idea. Sanctions in general are crazy, but in the ever-escalating madness, Italy is now in the lead for the much-coveted blue ribbon for sanction craziness.

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

Housing Early Warning Stress Indicator On Rise

Posted: 25 Sep 2014 10:03 AM PDT

A chart in the latest Black Knight Mortgage Monitor Release caught my eye.

For five months, the number of properties and the percentage of properties 30-days delinquent has been on the rise (arrows added).

click on chart for sharper image

Key Indicators

The mortgage delinquency rate jumped nearly 5% in August, reaching its highest point since February.
The year-over-year change in 30-day delinquencies is a negative 4.8%. Another month like August would nearly reverse the year-over-year downtrend in delinquencies.
The inventory of 30-day delinquent homes rose by 146,000. Another month like August would reverse the year-over-year change.
90-day delinquencies do not show the same ominous trend as 3-day delinquencies, but 90-day delinquencies first require 30-day delinquency then 60-day delinquency.

So far, the 90-day stats have not rolled over, but with the 30-day uptrend this long, it likely will.

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

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Mish's Global Economic Trend Analysis

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