Mish's Global Economic Trend Analysis

Obama's Nuclear Deal With Iran: Rare Victory for Peace or Foolish Compromise?
Bank of Canada Admits Recession: Shades of Voldemort; The Solution: More Bubbles; Operation Twist Canadian Style?
Emanuel Fiddles While Chicago Burns; Public Schools Over the Edge; 9% Cloud Tax on Data Streaming; Emanuel Eyes Property Tax Hikes

Obama's Nuclear Deal With Iran: Rare Victory for Peace or Foolish Compromise?

Posted: 17 Jul 2015 03:59 PM PDT

Historic Deal

On Tuesday, President Obama, World Powers, and Iran agreed on a Historic Nuclear Pact phasing out economic sanctions in return for curbs on Iran's nuclear program.

President Barack Obama said the deal with Tehran ensures that "every pathway to a nuclear weapon" has been cut off.

"We have stopped the spread of nuclear weapons in this region," he said in an early-morning statement that — in a rare move — was carried on Iranian television

Republicans Blast Deal

The Bustle reports Republicans Respond To The Iran Deal With Every Bit As Much Vitriol As You'd Expect — And Then Some.

"I have said from the beginning of this process that I would not support a deal with Iran that allows the mullahs to retain the ability to develop nuclear weapons, threaten Israel, and continue their regional expansionism and support for terrorism," said Florida Sen. Marco Rubio in a statement on Tuesday. "Based on what we know thus far, I believe that this deal undermines our national security."

"I expect that a significant majority in Congress will share my skepticism of this agreement and vote it down," said Rubio, calling on the next president to effectively wipe the slate clean once again and trash the deal. "It will … be left to the next President to return us to a position of American strength and re-impose sanctions on this despicable regime …"

Rubio's GOP counterparts were equally displeased. "Iran's Supreme Leader should know that a future American president will not be bound by this diplomatic retreat," said Wisconsin Governor Scott Walker in a statement on Tuesday morning. "Undoing the damage caused by this deal won't be easy [but] when the United States leads, and has a President who isn't eager to embrace Iran, the world will follow."

As president, on my very first day going forward, I would pull back, I would terminate that bad deal with Iran completely on day one. I would then put in place crippling economic sanctions against Iran, and I'd convince our allies to do the same. This is not a country we should be doing business with.

"This is the most dangerous, irresponsible step I've ever seen in the history of watching the Mideast," said South Carolina Senator (and 2016 hopeful) Lindsey Graham in a visit to MSNBC's Morning Joe on Tuesday. "You've ensured that the Arabs will go nuclear … put Israel in the worst possible box [and it] will be a death over time sentence to Israel if they don't push back," added Lindsey, directing his commentary to the president.

Democrats Lukewarm

Not even the Democrats seemed pleased with the announcement. The Hill reports Dems Hold Judgment on Iran Deal.

Sen. Charles Schumer (N.Y.) and other Democrats are taking a wait-and-see approach to the Iran nuclear deal announced by President Obama on Tuesday morning. Schumer, who is poised to lead Senate Democrats in the next Congress, said he would go through the agreement with a "fine-tooth comb" and speak to administration officials.

Senate Democratic Leader Harry Reid (Nev.) also stopped short of endorsing the deal.

Sen. Bob Menendez (N.J.), a former chairman of the Foreign Relations Committee is the only Senate Democrat so far to publicly criticize the agreement. "The bottom line is: The deal doesn't end Iran's nuclear program — it preserves it," he said in a statement. Menendez's influence in the Democratic caucus has waned, however, since he stepped down as the senior Democrat on Foreign Relations after being indicted on corruption charges.

Sen. Michael Bennet (Colo.), the most vulnerable Senate Democratic incumbent of the 2016 election cycle, echoed Reid's caution. "We will carefully scrutinize the terms of this agreement. The stakes are high, and the details of this deal matter," he said.

The Republicans hate the deal, and the Democrats seems to be holding their noses while semi-supporting it. Is anyone happy?

Bernie Sanders is Happy

The Hill reports "One of the most enthusiastic responses in the Democratic caucus came from Sen. Bernie Sanders of Vermont, who is running for the Democratic presidential nomination on a liberal platform."

Let me point out that Bernie Sanders is an Independent. He merely caucuses with with the Democratic party.

Here is Sanders' statement: "I congratulate President Obama, Secretary Kerry and the leaders of other major nations for producing a comprehensive agreement to prevent Iran from obtaining a nuclear weapon. This is a victory for diplomacy over saber-rattling and could keep the United States from being drawn into another never-ending war in the Middle East."

Is Anyone Else Happy?

Yes, Me.

So is David Stockman, libertarians in general, and anyone, regardless of political party, who can think clearly.

I have not thought about it this way before, but if no one in Washington is happy, I probably am.

I exempt compromises in which both sides got something and parties are unhappy only because the other side got anything at all.

War Mongering Fools

It's high time both parties party rid themselves of warmongering fools like Marco Rubio, Scott Walker, Lindsey Graham, and Bob Menendez.

Rubio and Walker are particularly troubling. In the past I have praised Walker for taking on the public unions in Wisconsin, but I cannot support anyone with warmongering views as extreme as his.

They claim among other things "The US cannot trust Iran".

If they had an ounce of common sense, they might ask the question: "Why the hell should Iran trust the US?"

The irony should be obvious. Rubio and Walker promised to renege on the deal in advance.
The US blew Iraq to smithereens under president Bush for no reason at all. The WOMD threat was a known lie. The Republican party's primary excuse was that Hillary supported the war. This only proves war-mongering idiocy has no political party bounds.
The US backs Israel no matter what Israel does.
The US, with cooperation from the British, overthrew a democratically elected government in Iran and installed a US puppet suitable to US oil interests. The Iranian coup d'état was named "Operation Boot" in the UK, and "TPAJAX" in the US.
US idiocy in Iraq spawned ISIS. The result was that Iran and the US became allies in the fight, but we did not want their help. Politics at any cost got in the way.

Lesson for Hypocrites

US hypocrites have some nerve bitching we cannot trust Iran, when Iran has every right not to trust the US!

I commented on this before, on April 6, 2015 in History Lesson for Hypocrites, Warmongers, and Fools.

In 2013, under freedom of information lawsuits, the Guardian reported CIA Admits Role in 1953 Iranian Coup.

Netanyahu Lesson from 2002

Here's another history lesson: Who said "If You Take Out Saddam, I Guarantee It Will Have Enormous Positive Reverberations".

Here's the answer: Benjamin Netanyahu in 2002.

Gingrich vs. Reagan 1985

Anyone recall what Republican House Speaker Newt Gingrich said about Ronald Reagan's meeting with Gorbachev in 1985?

The answer is amusing: Gingrich called it "the most dangerous summit for the West since Adolf Hitler met with Neville Chamberlain in 1938 in Munich."

War in Iraq

And the War with Iraq? In 2003 Defense Secretary Donald Rumsfeld and his deputy Paul Wolfowitz said "the war could be done on the cheap and that it would largely pay for itself."

Here we are trillions of dollars later and counting. And ISIS is a direct result of that stupid war with Iraq.

Fighting ISIS

In 2013 the Washington Post stated Iraq and Afghanistan Wars Costs Top $4 Trillion.

The Washington Post forgot to factor in ISIS.

Did Iran Threaten to "Wipe Israel off the Map"?

The Hitler Card players in both parties keep referring to an alleged statement by Iran's Mahmoud Ahmadinejad to "Wipe Israel Off the Map".

The problem is twofold.

Ahmadinejad was not the power broker in Iran.
The translation was not even correct.

Ahmadinejad was actually referring to a statement made by leader Khamenei in which Khamenei said in Persian "Een rezhim-i eshghalgar-i Quds bayad az sahneh-i ruzgar mahv shaved." This means, "This occupation regime over Jerusalem must vanish from the arena of time."

Anonymous wire service translators rendered Khomeini as saying that Israel "must be wiped off the face of the map."

The myth still persists to this day. President Bush, and Even President Obama have used it when it suits their purpose.

And of course, every time that I have spoken favorably of the agreement, I hear the same "wipe the map" nonsense from readers.

Rare Victory for Peace

Due to political divisiveness, political leaders are never willing to say the other side did anything right.

That's why I will never be a political leader. I bash Obama often enough, and for many things. But I equally bash the warmongers who have been wrong every which way, and virtually every time!

This was a rare victory for peace.

I am proud of the fact that I stood against the Vietnam War, I was against the War in Iraq, and I have been on the right side of the Iran debate from the beginning.

I echo Ronald Reagan's former budget director David Stockman who says All Praise To Barack Obama For Stiffing The War Party—- Peace Is Finally Being Given A Chance.

I even go one step further and encourage President Obama to resume normal relations with Iran. Only good can come from such talks.

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

Bank of Canada Admits Recession: Shades of Voldemort; The Solution: More Bubbles; Operation Twist Canadian Style?

Posted: 17 Jul 2015 11:16 AM PDT

The Bank of Canada admitted on Wednesday that Canada was in Recession. Well sort of.

Bank of Canada Governor Stephen Poloz is afraid to speak the "R-Word". Instead, Poloz phrased it this way: "Real GDP is now projected to have contracted modestly in the first half of the year."

Shades of Voldemort

Poloz further went out of his way to state the "R-word is unhelpful".

Pressed by reporters to just come out and use the R-word, Poloz dug in.

"I just find the discussion quite unhelpful," he sniffed. "It's especially unhelpful when what has happened to the economy is very narrowly defined."

Recession an Easy Call

Calling the Canadian recession was one of the easiest calls ever. I did so on January 31, in Canada in Recession, US Will Follow in 2015.

What made the Canadian recession easy to spot was the Canadian yield curve inverted out to three years following a surprise rate cut by the Bank of Canada on January 21.

It remains to be seen if the US follows. The US contracted in the first quarter, but the second quarter rebound was a bit stronger than I expected.

On January 21, in response to the surprise cut, I wrote Canadian Recession Coming Up: Yield Curve Inverts Following Unexpected Rate Cut; Loonie at Six-Year Low.

In that post I awarded Canada the "Blue Ribbon" for the first yield curve inversion of any major country following the great financial crisis. I am not aware of anyone else noticing or commenting on the yield-curve inversion at the time.

Denial Sets In Already

Two consecutive quarters of GDP contraction are a sufficient but not necessary condition for recession. Indeed the NBER, the official arbiter of US recessions, has called the start of recessions in quarters in which GDP was positive.

I have not seen anyone deny a recession when there has been 2 quarters of negative growth, "mild" or not, until now.

The Globe and Mail amusingly claims Canada's Fall into Recession Far from a Sure Thing.

The question of whether Canada slipped into a recession in the first half of 2015 may depend on our definition of "recession." And most of us have been using the wrong one, says one of the country's top experts on measuring business cycles.

Many commentators pointed at the Bank of Canada's revelation this week that the Canadian economy likely contracted in the second quarter as evidence that the country met the "technical" definition of a recession: two consecutive quarters of declining gross domestic product. Indeed, much was made of Bank of Canada Governor Stephen Poloz's unwillingness to even utter the word "recession" after the central bank's interest-rate cut Wednesday.

The Solution: More Bubbles

Apparently, if you don't like the word recession, you not only don't say it, you change the meaning of it.

Then you need to do something to make the problem go away. The tried and true central bank method the world over is to blow more bubbles.

Pater Tenebrarum at the Acting Man blog offered his well thought out take in Bank of Canada Decides More Bubble-Blowing is Needed

You Can't Keep the Printing Press Idle for too Long …

We have recently portrayed Canada's new central bank governor Stephen Poloz, to whom we have alternately referred to as a comedian and a delusional bubble blower. This may perhaps strike some readers as uncharitable; then again, central economic planning bureaucrats should be fair game, especially as nearly all of them are slaves to hoary inflationism and are apodictically certain to do grave damage to the economy, based on economic theories that at best deserve to be called a form of voodoo. It's really that bad.

As readers may recall, Mr. Poloz has continued where his fellow bubble-blower and predecessor Mark Carney left off, by keeping the bubble blown with all his might. We imagine he may be a bit intimidated by the truly daunting size the combined real estate and consumer credit bubbles have attained in Canada. To call them monuments to monetary megalomania would be an understatement. Among developed nations, only the bubbles in a few Scandinavian countries and Australia can hold a candle to them.

We were therefore decidedly unsurprised when it emerged yesterday that the Bank of Canada has cut rates again – apparently the Canadian economy has entered an official recession, which must however not be mentioned.

Canadian Household Debt

Bubble for the Record Books

The above chart reads "This is a credit bubble for the history books. The 2008 Bubble couldn't stop it from growing, so when it finally does implode, it will probably be quite spectacular. This is likely to go hand-in-hand with the demise of the equally egregious housing bubble."

Chart courtesy of Pater Tenebrarum. Pater also offered these pertinent comments.

Several years go already about one third of Canadians reported in a survey that their debt worries caused them to have sleeping problems. We can certainly believe it.
Stephen Poloz, comedian, gifted pantomime, delusional bubble blower and hoary inflationist, sprung directly from the John Law School of economics (just as the rest of the developed world's central planners), is trying to prolong the bubble's life some more. So far, he has been successful, but he is riding a tiger. The sooner such policies are discredited, the better it will be for all of us, even though the process is likely to be painful for many.

Change 'likely' to 'will be' and many to 'nearly everyone, but especially those who got into the real estate bubble in the latter stages' and Pater is precisely correct.

Yield Curve Still Inverted

By the way, portions of the Canadian Yield Curve are still inverted, albeit very slightly. I compiled this list of rates today from Investing.Com.

30-Year: 2.242%
10-Year: 1.562%
7-Year: 1.154%
5-Year: 0.705%
4-Year: 0.446%
3-Year: 0.383%
2-Year: 0.423%
1-Year: 0.445%
6-Month: 0.435%
3-Month: 0.400%
1-Month: 0.390%

Note the inversion: 1M, 3M, 6M, 1Y, and 2Y yields are all higher than the 3Y yield.

Operation Twist, Canada Style

I smell an "Operation Twist" type move by the Canadian central bank to rectify this horrific "recession-signaling" condition.

If so, the sweet spot for banks and hedge funds to front-run the trade appears to be 5Y or 7Y notes.

Then again, some banks may already be in on it. I suspect some of them were not at all surprised by the surprise announcement in January. That's simply the way the system "works".

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

Emanuel Fiddles While Chicago Burns; Public Schools Over the Edge; 9% Cloud Tax on Data Streaming; Emanuel Eyes Property Tax Hikes

Posted: 16 Jul 2015 11:13 PM PDT

Chicago public schools are effectively bankrupt. Its pension plans are countless billions of dollars in the hole, the worst in the nation. And Chicago bonds carry a junk rating, the worst of any major US city.

There is plenty to fix. But instead of addressing the enormous problems Chicago faces, Mayor Rahm Emanuel opts to nickel and dime residents and businesses to death, scaring away companies away in the process.

He also threatens property tax hikes that rate to be enormous.

There's much more in this article. Make sure you get to the details of how Chicago "funded" its pension plan this year. Starting from the top ...

"9% Cloud Tax on Streaming"

In April, Emanuel announced a commitment from technology companies to create 1,000 new jobs.

This month, Emanuel rewarded those technology companies with a 9% Cloud Tax on Online Movies, Music, Game, Real Estate Data Feeds.

Streaming data? Movies? Real estate Feeds?

If you have a Chicago business address expect to pay 9% more to do so thanks to an amusement tax and property lease tax extension.

Chicagoans who pay to stream movies and music from services like Netflix and Spotify will now need to fork over an additional 9 percent for the privilege, as will Chicago businesses that pay to use everything from real estate to court databases online, under a decision the city quietly made recently to expand its taxing power.

According to the Finance Department changes, the 9 percent amusement tax, which has mostly been tacked onto tickets to concerts and sporting events, also now applies to paid subscriptions for streamed digital music and to streamed rental movies or TV shows, and "for the privilege of participating in games, on-line or otherwise," if the person paying to receive the data is in Chicago.

The personal property lease transaction tax expansion also applies to professional services, like electronic property databases real estate agents use, court case databases lawyers rely on and various financial information networks.

"I think they have taken the existing lease transaction tax and existing amusement tax as far as you can take them," said Michael Wynne, a partner and attorney in the Chicago office of the law firm Reed Smith.

"Let's say I sign up for streaming business data in the city but I have offices throughout the country," Wynne said. "I will definitely make sure my billing goes through a different office.

Anything that requires a user to do a search or make a request is subject to the tax. "There is nothing you can access that's not taxable," he said.

Minimum Wages

Chicago hopes to collect $12 million from the streaming tax. Let's assume it does.

How many businesses will take a look at Chicago nickel and diming everyone to death and decide there are better places to do business?

Recall that in December, the Chicago raised its minimum wage to $13.00 by 2019. It's $10 an hour as of July 1, 2015.

State Problems

Just outside Chicago, there's a place called Illinois. And Illinois is not a good place to do business.

Illinois has ....

The second-highest property taxes nationwide.
The fourth-highest workers' compensation costs in the country.
The ninth-highest regulatory burden in the U.S.
The ninth-highest overall tax burden nationwide.
Forced unionism.

Progressives have been angling for a massive income tax hike.

The "glory" does not stop there.

Please note that Illinois has the most units of local government of any state in the country. According to the U.S. Census Bureau, with 6,963 local governments, Illinois beats its nearest competitor by more than 1,800. Texas is No. 2 with 5,147 local governments.

For more details please see Congratulations to Illinois: Most Government Bodies, Most Convicted Governors, Lowest Credit Rating.

Chicago Public Schools Over the Edge

Anyone living in Chicago has to deal with Chicago schools. The district is both politically and fiscally bankrupt.

On June 25, The public school system contract talks ground to a halt.

Even though its pension plan is horribly unfunded, someone hatched a plan to borrow $500 million from it, to avoid teacher cuts.

Emanuel Eyes Property Taxes

The Pension Borrowing Scheme was Shelved and instead, Emanuel has his eyes on your wallet.

The Chicago Public Schools and the Chicago Teachers' Pension Fund have ended discussions on a school district proposal to borrow $500 million from the pension to avoid additional layoffs and classroom cuts.

The district recently paid a $634 million pension bill that officials said it couldn't afford. As a result, the nation's third-largest school district plans 1,400 layoffs, scaled-back maintenance and reduced transportation.

Mayor Rahm Emanuel blames state legislators for worsening the situation and says a property tax increase is up for consideration.

Budget Cuts? Where?

Instead of facing the fact that the system is bankrupt, Emanuel wants still higher property taxes.

The Chicago Public School Budget brags about cutting $55 million. Here is a bit of perspective on those cuts from The Stump.

$55 million out of a $5.8 billion budget is not much more than a rounding error.

Illinois Budget $4 Billion in the Hole

The Chicago school budget assumes $500 million is coming from the state. Is that going to happen?

If you think so, please recall this headline from June 25, Rauner vetoes Illinois budget, cites $4 billion deficit.

And curiously, that $500 million assumption is exactly the same as the amount that was to be borrowed from the pension plan.

Chicago Public Schools Borrow $1 Billion to Fund Pensions

Inquiring minds might even be wondering where the money came from to "fund" the pension this year.

I use the words "fund the pension" very loosely.

For the answer, please consider CPS Has 'No Choice' But To Borrow $1B Amid Cash Crunch.

The school board approved the new borrowing on Wednesday, a day after the Illinois House rejected a three-week delay for a $630 million payment due to the teachers' pension fund on June 30. The district also is facing a $1 billion operating deficit.

It might not sound like a good idea for CPS to borrow $1 billion more when it's already heavily in debt, but Performance Trust Capital Partners director Brian Battle said CPS has no real options.

"They need to borrow this money short-term, so they can make a massive pension payment that's coming due here in two weeks.

"CPS might get downgraded, because of an action like this, but really the rating agencies will deem this as a reasonable tactical thing to do. You know, you don't want to default if you have another option. You don't want to not make the payment if you have another option," he said.

According to Battle, bond agencies want to see CPS come up with a long-term plan to address its budget and pension issues, and that might mean a property tax hike.

Got That?

The public schools borrowed $1 billion to make a $630 million payment due to the teachers' pension fund. The teachers then wanted to borrow $500 million of it right back, to support ongoing budget needs.

Brian Battle, Performance Trust Capital Partners director, claims the rating agencies will view this as "reasonable" thing to do, even though Chicago's four pension plans have a combined $20.1 billion unfunded liability and funded ratios ranging from just 24% to 57%.

Beware the Tax Man

I commented on the tax aspect before, on May 4, in Beware, the Tax Man Has Eyes on You: Potential Hike for Illinoisans is Staggering.

Short Synopsis: A report by Nuveen shows a pension payment spike looms in 2016, and the potential tax hike to fix it is staggering. Nuveen estimates property tax hikes of close to 50% will be needed.

Lost Cause

Not a penny of taxpayer money should go to fund these lost causes. I find it hard to believe that Emanuel himself does not know the school system is truly bankrupt.

To spare the citizens of Illinois massive tax hikes, the only reasonable course of actions are as follows:

Halt defined benefit pension plans for new employees
Eliminate collective bargaining of public unions
Scrap Davis Bacon and all prevailing wage laws so that cities do not have to overpay for services
Enact right-to-work legislation
Pass bankruptcy legislation allowing cities, municipalities, and other taxing bodies the right to declare bankruptcy

Had options 1-4 been done a decade ago, Illinois would not be as bad off as it is today. Now, even those measures cannot and will not fix the problems.

Moody's Announcement "Chicago's Pension Pressures Will Grow For Years"

On May 1, Moody's made this announcement: Regardless of legal and political outcomes, Chicago's pension pressures will grow for years.

Illinois desperately needs bankruptcy legislation. 50% tax hikes are not only amazingly unfair, they will drive both corporations and individuals out of the state.

Sad Conclusion

Instead of admitting the obvious, Emanuel expects $500 million from the State, nickels and dimes businesses to death, further makes Illinois and Chicago an uncompetitive place to do business, and even threatens massive property tax hikes.

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

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