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Sunday, October 5, 2014

Mish's Global Economic Trend Analysis

Air Strikes on Isis Not Working; What's Next?

Posted: 05 Oct 2014 07:27 PM PDT

Isis fighters are closing in on the city of Kobani near the Turkish border. ISIS evades air strikes simply by scattering when planes approach.

The Guardian reports Air Strikes Against Isis are not Working, say Syrian Kurds.

US-led air strikes in northern Syria have failed to interrupt the advance of Islamic State (Isis) fighters closing in on a key city on the Turkish border, raising questions about the western strategy for defeating the jihadi movement.

Almost two weeks after the Pentagon extended its aerial campaign from Iraq to neighbouring Syria in an attempt to take on Isis militants in their desert strongholds, Kurdish fighters said the bombing campaign was having little impact in driving them back.

Isis units have edged to within two kilometres of the centre of Kobani, according to Kurds fighting a rearguard action inside the city. The jihadis, who this weekend generated further outrage with the murder of the British hostage Alan Henning, are simply too numerous to be cowed by the air assault by US fighter jets, the Kurds say.

"Air strikes alone are really not enough to defeat Isis in Kobani," said Idris Nassan, a senior spokesman for the Kurdish fighters desperately trying to defend the important strategic redoubt from the advancing militants. "They are besieging the city on three sides, and fighter jets simply cannot hit each and every Isis fighter on the ground."

He said Isis had adapted its tactics to military strikes from the air. "Each time a jet approaches, they leave their open positions, they scatter and hide. What we really need is ground support. We need heavy weapons and ammunition in order to fend them off and defeat them."

What's Next?

Most likely the US will drop more and more bombs, with 20% of the bombs finding the right targets, 40% the wrong targets, and the remaining 40% doing nothing. This will be labeled as a "success".

However, many so-called moderates will get fed up with US action and join ISIS.

Then, after another beheading or two, Obama will send in more ground troops and weapons, but purportedly only for training and aiding moderates who will take the weapons and training in directions contrary to the stated intentions.

My Take

The US and UK should issue a travel advisory labeled "beheadings happen". The advisory should tell everyone, including journalists to get the hell out of the region and if they don't, they are on their own.

Tax dollars should not go to protect those who voluntarily put themselves in harm's way. This is not a disparaging comment on journalists, who choose to do what they do. I commend them for wanting to get the story out.

Rather, my comments are a simple practical matter: The US has no obligation to protect anyone who voluntarily puts themselves in harm's way outside the US.

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

800 Towns in Catalonia Pledge Support for Independence Referendum; Humpty Dumpty Chides Artur Mas

Posted: 05 Oct 2014 12:02 PM PDT

Inquiring minds may be interested in the latest events in Europe on an otherwise slow news weekend. Via translation from El Singular, 800 Towns in Catalonia Openly Pledge Support for Independence Referendum.

This morning, more than 800 mayors delivered to Catalan president Mas certificates in support of the November 9 referendum for Independence. The mayors represent 96% of the Catalan municipalities. A total of 920 councils who have so far voted in favor of N-9, but some mayors did not want to participate in the event.

Since 1918 there has not been a similar concentration of mayors in Catalonia.

The Mayor of Barcelona, Xavier Trias, thanked the 800 mayors who approved the motion to defend the right to decide.

"It is our responsibility to fulfill the legitimate mandate coming from all over Catalonia," emphasized Trias and asked the mayors to do everything they can to ensure Catalans have the right to vote on November 9.

71% of Catalans Support Right to Vote

The Wall Street Journal notes overwhelming support for the referendum.

A poll taken last week by the regional government's Center of Opinion Studies found 71% of Catalans favored the Nov. 9 referendum.

Catalan separatists say Spain's central government doesn't respect their language and culture, or give them a fair return on their taxes. Spanish leaders say Catalonia has plenty of autonomy, and that the Catalan political class just needs to put its house in order.

Without a doubt the number would be far higher than 71% if Spain's government had not declared the vote illegal.

Catalonia Autonomy

Let's take a look at the region of Catalonia.

Statutes of Autonomy

In the Spanish Constitution of 1978 Catalonia, along with the Basque Country and Galicia, was defined as a "nationality". The same constitution gave Catalonia the automatic right to autonomy, which resulted in the Statute of Autonomy of Catalonia of 1979.

Both the 1979 Statute of Autonomy and the current one, approved in 2006, state that "Catalonia, as a nationality, exercises its self-government constituted as an Autonomous Community in accordance with the Constitution and with the Statute of Autonomy of Catalonia, which is its basic institutional law, always under the law in Spain".

The Preamble of the 2006 Statute of Autonomy of Catalonia states that the Parliament of Catalonia has defined Catalonia as a nation, but that "the Spanish Constitution recognizes Catalonia's national reality as a nationality". While the Statute was approved by and sanctioned by both the Catalan and Spanish parliaments, and later by referendum in Catalonia, it has been subject to a legal challenge by the surrounding autonomous regions of Aragon, Balearic Islands and the Valencian Community, as well as by the conservative People's Party.

Spain's Constitutional Court assessed the disputed articles and on 28 June 2010, issued its judgment on the principal allegation of unconstitutionality presented by the People's Party in 2006. The judgment granted clear passage to 182 articles of the 223 that make up the fundamental text. The court approved 73 of the 114 articles that the People's Party had contested, while declaring 14 articles unconstitutional in whole or in part and imposing a restrictive interpretation on 27 others.

The court accepted the specific provision that described Catalonia as a "nation", however ruled that it was a historical and cultural term with no legal weight, and that Spain remained the only nation recognized by the constitution.

Humpty Dumpty Chides Artur Mas

Catalonia is already a nation but the term has no "legal weight".

'When I use a word,' Humpty Dumpty (Mariano Rajoy) said, in a rather scornful tone,' it means just what I choose it to mean, neither more nor less.'

'The question is,' said Alice (Artur Mas) 'whether you can make words mean so many different things.'

'The question is,' said Humpty Dumpty (Mariano Rajoy), 'which is to be master - that's all.'

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

Saturday, October 4, 2014

Mish's Global Economic Trend Analysis

Shifting Debts: The Gold Standard: Both Good and Necessary

Posted: 04 Oct 2014 12:55 PM PDT

In response to Reader Question on a Credit-Based Society: Can Interest Ever Be Repaid? I received an email from reader Keith Weiner at Monetary Metals.

Keith writes

Hi Mish,

I hope all is well.

I liked your reply to the reader question. I think it boils down to one thing. With fiat money, there is no extinguisher of debt. Debts are paid using dollars, but the dollar is itself a debt. The dollar is just a bite-sized piece of the Treasury bond. Paying a debt with a debt merely shifts it around.

The debt must rise exponentially, by at least the accrued interest, and more if the government wants what passes for growth.

The Gold Standard Institute is sponsoring an event in NYC on Nov 1. I will be talking about this problem, and numerous others that plague the dollar.

Would you be willing to share the link on your site? It's for a good cause that I think is near to your heart as well. :)

Thanks so much for whatever you can do.

Best Regards,
Keith

Keith is one of the good guys. If you are in the area, the conference should be well worth attending.

Date: November 1, 2014
Time: 1:00 to 5:00pm on
Place: The 3 West Club, Midtown Manhattan
Cost: $50 (click here to register)

Conference Link: The Gold Standard: Both Good and Necessary.

You are cordially invited to join us for a presentation of ideas you won't get anywhere else. The gold standard is the monetary system of the free market—of capitalism. Advocates of the gold standard should make the clear connection from gold to freedom, and from freedom to self-interest. Advocates of freedom should understand the destruction wrought by the dollar, and it's not simply rising prices.

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

Friday, October 3, 2014

Mish's Global Economic Trend Analysis

What Do Treasury Yields Say About Job Expectations, Inflation Expectations, and the Recovery?

Posted: 03 Oct 2014 11:29 AM PDT

Curve Watcher's Anonymous notes some interesting reactions in the treasury bond market following a string of good job reports.

Today the jobs numbers once again beat expectations: Nonfarm Payrolls Rose by 248,000 and the unemployment rate fell to 5.9%.

In seven out of the last eight months, jobs rose by over 200,000. Last month was the exception, but even then, the initial job report was revised up 69,000 to +180,000.

In light of such purportedly strong data, especially with the Fed tapering ending this month and expectations across the board of fed hikes, yield on the long bond should be rising.

The yield curve also should be steepening, at least if one believes in the recovery. Let's take a look to see what is actually happening.

30-Year Treasury Yield

Note: The above chart is off by a factor of 10. At the time I snapped that chart, the 30-year treasury yield was 3.143%

Yield on the 30-year long bond shot up on the job report but is now in the red for the day. This is not what one would expect following a strong jobs report.

Nonetheless, one day does not prove much. Let's take a look at the 5-year and 30-year treasuries over time.

30-Year and 5-Year Treasury Yields Since 2010

click on any chart for sharper image

The long-term trend since 2010 has been a gentle flattening of the curves.

Moreover, since the beginning of the year the spread between 30-year and 5-year treasuries has decreased significantly as the following chart shows in detail.

Treasury Spread 30-Year Minus 5-Year

The above chart shows weekly closes. The last data point is from September 26.

At the end of the day, the spread will be a bit lower than shown above. I currently have the spread at 1.396 (3.133 on the 30-year minus 1.737 on the 5-year), down about 10 basis points this week.

Instead of the curve steepening as one would expect in a recovery, the 5-30 spread curve has been declining since hitting a peak of 3.0 in November of 2010.

Conclusion

The bond market does not think much of an ongoing recovery or future price inflation prospects, and neither do I.

By the way, I occasionally get asked "Who is Curve Watcher's Anonymous?" The answer is me.

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

Nonfarm Payrolls 248K; Unemployment 5.9%; Employed +232K; Labor Force -97K

Posted: 03 Oct 2014 08:47 AM PDT

Initial Reaction

The payroll survey shows a net gain of 248,000 jobs vs. an expectation of 215,000 jobs. Last month was revised up by 69,000 to 180,000. The six-month string of plus 200,000 jobs remains broken.

Last month the household survey had a gain in employment of only 16,000. That number was not revised up.

This month the household survey shows a respectable gain of 232,000, pretty much in line with the establishment survey.

Nonetheless the household survey over the past six months has been much weaker than the establishment survey. One or the other is apt for some serious revisions.

The labor force fell by 97,000. Those not in the labor force increased by 315,000. This follows last month's increase of those not in the labor force of 268,000.

The civilian labor force rose by 217,000. It would take that increase in employment to hold the unemployment rate steady.

Thus, the unemployment rate fell by 0.2% primarily on the basis of people dropping out of the labor force.

All things considered, this was a pretty strong report.

BLS Jobs Statistics at a Glance

Nonfarm Payroll: +248,000 - Establishment Survey
Employment: +232,000 - Household Survey
Unemployment: -329,000 - Household Survey
Involuntary Part-Time Work: -174,000 - Household Survey
Voluntary Part-Time Work: +35,000 - Household Survey
Baseline Unemployment Rate: -0.2 at 5.9% - Household Survey
U-6 unemployment: -0.2 to 12.0% - Household Survey
Civilian Non-institutional Population: +217,000
Civilian Labor Force: -97,000 - Household Survey
Not in Labor Force: +315,000 - Household Survey
Participation Rate: -0.1 at 62.7 - Household Survey

Additional Notes About the Unemployment Rate

The unemployment rate varies in accordance with the Household Survey, not the reported headline jobs number, and not in accordance with the weekly claims data.
In the past year the working-age population rose by 2,278,000.
In the last year the labor force rose by 389,000.
In the last year, those "not" in the labor force rose by 1,889,000
In the past year, the number of people employed rose by 2,330,000 (an average of 194,1677 a month)

Please note that over the course of the last year, the working-age population rose by more than the number of people employed. In normal times, the unemployment rate would have gone up slightly. Instead, the unemployment rate fell from 7.2% to 5.9%.

Over 100% of the decline in unemployment in the past year is due to people dropping out of the labor force, rather than strength in employment!

September 2014 Employment Report

Please consider the Bureau of Labor Statistics (BLS) July 2014 Employment Report.

Total nonfarm payroll employment increased by 248,000 in September, and the unemployment rate declined to 5.9 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services, retail trade, and health care.

Click on Any Chart in this Report to See a Sharper Image

Unemployment Rate - Seasonally Adjusted

Nonfarm Employment January 2003 - September 2014

click on chart for sharper image

Nonfarm Employment Change from Previous Month by Job Type

Hours and Wages

Average weekly hours of all private employees rose by 0.1 hours to 34.6 hours. This was the first increase in seven months. Average weekly hours of all private service-providing employees also rose by 0.1 hours to at 33.4 hours.

Average hourly earnings of production and non-supervisory private workers was flat at $20.67. Average hourly earnings of production and non-supervisory private service-providing employees was flat at $20.46.

Last month numbers appear to have been revised lower by $0.01 as last month I reported production and non-supervisory private at $20.68 and service-providing at $20.47.

For discussion of income distribution, please see What's "Really" Behind Gross Inequalities In Income Distribution?

Birth Death Model

Starting January, I dropped the Birth/Death Model charts from this report. For those who follow the numbers, I keep this caution: Do not subtract the reported Birth-Death number from the reported headline number. That approach is statistically invalid. Should anything interesting arise in the Birth/Death numbers, I will add the charts back.

Table 15 BLS Alternate Measures of Unemployment

click on chart for sharper image

Table A-15 is where one can find a better approximation of what the unemployment rate really is.

Notice I said "better" approximation not to be confused with "good" approximation.

The official unemployment rate is 5.9%. However, if you start counting all the people who want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

U-6 is much higher at 11.8.0%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.

Labor Force Factors

Discouraged workers stop looking for jobs
People retire because they cannot find jobs
People go back to school hoping it will improve their chances of getting a job
People stay in school longer because they cannot find a job
Disability and disability fraud

Were it not for people dropping out of the labor force over the past several years, the unemployment rate would be well over 9%. Some of those dropping out genuinely retired. However, millions retired involuntarily. That is, they needed to retire and collect social security because they had no job and no income. Such folks are no longer in the labor force even if they want a job. The falling unemployment rate is very deceiving, painting a picture of improvement that simply does not exist.

A gallup survey on the economy better reflects how the average Joe feels: 38% Think Economy Getting Better, 56% Say Worse.

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

Thursday, October 2, 2014

Mish's Global Economic Trend Analysis

Bernanke Turned Down For Mortgage Refinance; Questions Abound
Gordon Long Video Interview of Mish: Topic - Financial Repression (and How to Defend Yourself From It)
Tensions Mount in Hong Kong as Protest Enters 5th Day

Bernanke Turned Down For Mortgage Refinance; Questions Abound

Posted: 02 Oct 2014 09:49 PM PDT

In the curious news of the day, former Fed Chair Ben Bernanke was turned down in his effort to refinance his mortgage.

Bloomberg reports You Know It's a Tough Market When Ben Bernanke Can't Refinance.

Ben S. Bernanke said the mortgage market is still so tight that he's having a hard time refinancing his own home loan.

The former Federal Reserve chairman, speaking at a conference in Chicago, told moderator Mark Zandi of Moody's Analytics Inc. -- "just between the two of us" -- that "I recently tried to refinance my mortgage and I was unsuccessful in doing so."

"The housing area is one area where regulation has not yet got it right," Bernanke said. "I think the tightness of mortgage credit, lending is still probably excessive."

Questions Abound

Given that Bernanke makes $250,000 per speech, why does he even have a mortgage?
How big is it?
What about Bernanke's finances? Is Bernanke living beyond his means?
Is there any chance Bernanke was turned down on purpose as a publicity stunt to highlight a fictitious need for looser mortgage standards?

I cannot quite put my finger on it, but "just between the two of us", something about this story does not seem exactly as presented.

Perhaps I am wrong and Bernanke just firmly believes the dollar is trash and the Fed will inflate his mortgage away.

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

Gordon Long Video Interview of Mish: Topic - Financial Repression (and How to Defend Yourself From It)

Posted: 02 Oct 2014 12:54 PM PDT

I had the pleasure of being interviewed by Gordon Long last week. Gordon is publisher and editor of Gordon T Long Macro Analytics.

The topic was "Financial Repression".

What is financial repression? I defined it as "a set of fiscal and monetary policies for the expressed benefit of the ruling class: politicians, banks, and the already wealthy, at the expense of everyone else."

In the video, I give numerous examples of repression, noting that central bank sponsored inflation is the epitome of financial repression.

We also discuss what to do about financial repression.

The video is about 30 minutes long.

There is one chart in the video that Gordon used to reflect a point I made on inflation. The chart is from Shadowstats, a methodology to which I disagree.

I do believe inflation statistics are a mess but in different ways than Shadowstats. I talked about this recently in my blog Housing Prices, "Real" Interest Rates, and the "Real" CPI.

Also consider GDP, Real GDP, and Shadowstats "Theater of the Absurd" GDP.

Other than that single chart, Gordon did an excellent job of putting together visuals to accompany our video discussion.

Again, it was a pleasure to be on with Gordon. See the link at the top for additional views on financial repression.

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

Tensions Mount in Hong Kong as Protest Enters 5th Day

Posted: 02 Oct 2014 11:59 AM PDT

Protests in Hong Kong entered the 5th day with no sign of letup.

The protest movement followed a controversial decision in which candidates for chief executive of Hong Kong in the 2017 elections be made by a committee, rather that a general election. Election by committee is billed as "election reform".

Protests intensified after police used teargas in an attempt to disperse student protesters. Pro-democracy protesters now number in the hundreds of thousands. The protesters demand a free election and the resignation of Hong Kong's current chief executive CY Leung.

This is the greatest mass protest in China since the Tiananmen Square Protests of 1989.

Beacon of Hope

Bloomberg comments on Hong Kong Autonomy

Hong Kong is an island of free speech and civil liberties in an authoritarian sea. It is not, however, a democracy. Hong Kong citizens have never had the power to choose their top leader, neither as part of China since 1997 nor as an outpost of the British Empire for 156 years before that. Now the prospect of the first direct election of a chief executive in 2017 is increasing the tension between Hong Kong's yearning for autonomy and China's for loyalty.

Tensions Mount

The Financial Times reports Tension Mounts in Hong Kong as Police Mass.

The stand-off between the authorities and demonstrators calling for the resignation of Hong Kong's chief executive CY Leung had continued for a fifth day ahead of the midnight deadline given by demonstrators for Mr Leung to stand down.

The huge protests have been going on since Sunday as crowds flocked to join the democracy movement calling on China to reverse course on a controversial plan for electoral reform in the territory.

On Thursday night students blocked a road to Mr Leung's office as they prepared to escalate their campaign, while the road to the chief executive's office in the Central district was cordoned off at both ends by the police.

Hong Kong Leaders Will Open Talks With Protesters

Bloomberg reports Hong Kong Leaders Will Open Talks With Protesters.

Hong Kong's top official Leung Chun-ying appointed his deputy Carrie Lam to hold talks with leaders of pro-democracy protesters who have crippled parts of the city for the past week.

Chief Secretary Lam will discuss constitutional reform, said Leung, who reiterated he won't resign. Student leaders also urged thousands camped outside government offices to keep calm after they earlier threatened to besiege more buildings if Leung didn't quit by midnight.

The messages from both sides were the most conciliatory since tens of thousands of mostly young people began rallying on the city's streets to demand democracy and Leung's resignation. Student leaders said earlier last night that they would be prepared to speak to Lam, as tensions grew and police warned protesters they would deal firmly with any escalation.

Police Draw the Line at Occupation, Stockpile Teargas in Government Buildings

Messages may be conciliatory, but Hong Kong Police Draw Line on Occupation of Buildings. Police also stockpile teargas in government buildings.

"Some organizers have threatened to escalate their actions by surrounding government buildings," Hui Chun-tak, chief superintendent of the police public relations branch, told reporters today. "Police will not tolerate any illegal surrounding of government buildings. The police urges protesters to remain calm and show restraint."

Around 4 p.m., police were seen carrying boxes and canisters into the government complex, with at least one box labeled as containing tear gas. Student leader Joshua Wong said police appeared to be stockpiling gear, including gas, rubber bullets and pepper spray, in preparation for taking action.

Leung has made three public appearances, including a televised address, since police fired tear gas at protesters on Sept. 28. He arrived by boat near the main protest area yesterday to attend a flag-raising ceremony for China's National Day. He spoke for less than four minutes, urging the community to "work with the government in a peaceful, lawful, rational and pragmatic manner."

Wong, founder of the student activist group Scholarism, told a crowd yesterday that if Ip wants to talk, she should come down to the protest site and address everyone.

Talks with the protesters are impossible if the pre-condition is the resignation of Leung, Jasper Tsang Yok-sing, president of the the city's Legislative Council, said in a press conference today.

In Pictures: Hong Kong's Democracy Standoff

Bloomberg has an interesting 16-image slideshow on Hong Kong's Democracy Standoff

Here are a few of the images.

Demonstrators shine lights from their mobile devices as they hold them aloft during a ongoing protest outside the central government office in Hong Kong, on Oct. 1, 2014.

Demonstrators shine lights from their mobile devices outside the central government office in Hong Kong, on Oct. 1.

Demonstrators shelter under umbrellas during heavy rain storm outside the central government complex, on Sept. 30.

Lightning strikes as demonstrators gather outside the central government complex in Hong Kong, on Sept. 30.

All images by Lam Yik Fei/Bloomberg.

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

Wednesday, October 1, 2014

Mish's Global Economic Trend Analysis

Federal Judge Smacks CalPERS on Sanctity of Pensions; CalPERS Liens Null and Void
Argentine Central Bank Chief Quits in Currency Dispute; Hyperinflation On the Way?
Congressman Rangel Calls for War Tax, Draft; Why Not Bomb the Entire Muslim World? Draft Worse Than Slavery

Federal Judge Smacks CalPERS on Sanctity of Pensions; CalPERS Liens Null and Void

Posted: 01 Oct 2014 09:41 PM PDT

Exceptionally good news from California today: A federal judge ruled CALpers claim of "Sanctity of Pensions" is invalid. Today's ruling went even further than the bankrupt city of Stockton originally sought in court.

For details, please consider the New York Times article In Ruling on California Town's Bankruptcy, Judge Challenges Sanctity of Pensions.

A federal bankruptcy judge on Wednesday upended the widely held belief that public workers' pensions have a special status in California that makes them impossible to cut, further chipping away at the idea that pensions are sacrosanct in a municipal bankruptcy.

The ruling, which came during a hearing on a plan by the City of Stockton to exit bankruptcy, did not order the city to cut its pension plan or take any specific action. The judge said that he needed more time to reflect on Stockton's situation and that he would decide Oct. 30 whether the city could emerge from its two-year bankruptcy or whether it still had more work to do.

But the decision, by Judge Christopher M. Klein of the Eastern District of California, dealt a blow to California's giant state-led pension system, known as Calpers, which has been leading efforts to preserve defined-benefit pensions nationwide.

Calpers had argued that if Stockton stopped making payments and dropped out of the state pension system, the lien would let it claim $1.6 billion of its assets. But Judge Klein said those statutory powers were suspended once a California city received federal bankruptcy protection.

"Why should I take that lien seriously?" he asked a lawyer for Calpers, Michael Gearin. "I may avoid it as a black-letter matter of bankruptcy law," he said, referring to well-established legal principles.

He did not dispute that Stockton would be billed $1.6 billion to leave Calpers and said such a termination fee "can be seen as a golden handcuff." But in bankruptcy, he said, Stockton could legally refuse to pay the bill because it arose from the city's contract with Calpers, and contracts are broken routinely in bankruptcy.

"The bankruptcy code provides that the lien can be avoided and be treated as an unsecured claim," Judge Klein said.

In court proceedings in July, Judge Klein said it was not clear to him that Calpers was even a creditor. He adjourned the hearings until the city and other parties could brief him on Stockton's relationship with Calpers.

Bizarre Position of Stockton's lawyer

One has to wonder just what side Sockton's lawyer is on.

In oral arguments on Wednesday, Stockton's lawyer, Marc A. Levinson, said that for Stockton to switch to another retirement plan administered by a different entity would probably take two years, and in the meantime all the city's workers were likely to quit. Their first choice would be to seek similar jobs in cities that were still part of Calpers, he said, adding that he thought Calpers was a more efficient plan administrator than any other entity Stockton might try.

The idea that the entire city force would quit is lunacy. Moreover, it would be a good thing if they did!

All Stockton need do is submit a bankruptcy plan that stipulates employees lose 100% of their benefits if they quit before some stipulated date. How many would leave? None.

The position of Sockton's lawyer is so bizarre, one wonders if he is attempting to protect his own pension.

Stockton does not need another defined benefit retirement plan. Rather, it needs to eliminate the one it has. And this excellent, common-sense ruling from Judge Klein paves the way.

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

Argentine Central Bank Chief Quits in Currency Dispute; Hyperinflation On the Way?

Posted: 01 Oct 2014 07:26 PM PDT

On Tuesday evening, Argentine President Cristina Fernández accused Juan Carlos Fábrega, head of Argentina's central bank, of "provoking a devaluation of the peso".

In response Head of Argentine Central Bank Quits.

Without naming Mr Fábrega directly, Ms Fernández accused the central bank during a nationwide address on Tuesday night of failing to control "manoeuvres" by banks and brokers to provoke a devaluation of the peso, and suggested that "privileged information" had been leaked.

After continual clashes over economic policy with Argentina's economy minister Axel Kicillof, there are fears that Mr Fábrega's departure may clear the way for greater government control over the central bank.

"Kicillof has increased his power, he will have a bigger say on monetary issues and we should expect an acceleration in the pace of the worsening of financial conditions," said Miguel Kiguel, who runs the EconViews consultancy.

There was a sharp sell-off in the benchmark Merval stock index after Mr Fábrega's departure was announced. But Luis Secco, an economist, argues that the central bank has been "absolutely subordinated" to the executive's decisions "for a long time".

Mr Fábrega leaves the central bank as annual inflation has climbed to around 40 per cent, and presided over huge monetary emission to finance a growing fiscal deficit, with negative real interest rates of about 20 per cent.

Argentine Central Bank "Absolutely Subordinated"

Inquiring minds may be seeking proof the central bank has been "absolutely subordinated for a long time".

Here's a chart that shows just that.

Argentine Peso vs. US Dollar

64% "Official" Decline Since July 2008

On July 31, 2008, the peso had been relatively stable an traded at 3.03 pesos to the US dollar. Today the peso trades at 8.45 to the US dollar. That's a decline of 64%.

Does a 64% decline constitute hyperinflation? No not quite. Hyperinflation is generally defined as a complete collapse in currency.

Nonetheless, such a decline does constitute severe inflation, especially since the decline has gone increasingly hyperbolic in the past two years.

Black Market Rate Shows 78% Decline

The black market exchange rate is about 14 pesos to the dollar. That's a decline of 78%. And that is arguably hyperinflation territory depending on how fast that decline occurred.

Here's a Black Market exchange rate chart form the Wall Street Journal as of the end of August.

Another Devaluation Coming Up

On September 5, the Wall Street Journal reported Argentina Moves to Limit Dollar Purchases.

Argentina limited the number of people who can buy U.S. dollars on Friday, following record demand for greenbacks amid fears that a debt default and hard-currency shortages could lead to a second peso devaluation this year.

Argentine taxpayers seeking to legally buy up to $2,000 a month are now required to have a monthly salary of at least 8,800 pesos ($1,046). The increase from the previous floor of 7,200 pesos comes amid growing concerns about the central bank's declining foreign-currency reserves.

Argentines have bought almost $1.5 billion since the program was launched in January, when the government devalued the peso by about 20% in an ultimately successful bid to halt a run on the currency and reserves. In just the first four days of September, taxpayers bought $147 million, compared with $260 million for all of August.

The dollar purchases speak volumes about where some Argentines think the exchange rate is headed because buyers pay a 20% tax on those transactions, which effectively means they are paying about 10.10 pesos for each greenback. The local Rofex futures market quotes the peso at 9.1650 to the dollar in December.

Argentines have few reasons to hold pesos. Benchmark deposit rates are at 21%, while inflation is widely believed to be nearly 40%. A black-market exchange rate of around 14 pesos to the dollar makes the official exchange rate of 8.41 pesos look overvalued and hurts confidence in the currency.

The government has been selling limited amounts of dollars to taxpayers to keep them from turning to an underground currency market that is feeding inflation and devaluation expectations. But the default has rekindled demand for U.S. currency, causing the black-market dollar rate to surge from 12.30 pesos in late July and leading people to buy more dollars from the government.

Spotlight on Exports

Argentina is generally perceived as a commodity exporter, especially grains. With that in mind, please consider Against the Grain

AGRICULTURE ought to be Argentina's strength. Instead, incessant intervention has turned it into a source of weakness. The government has meddled in wheat production since 2006 by raising export taxes and setting export quotas. This interference, defended by the government as "protecting the tables" of Argentine consumers, has simply discouraged farmers from planting the crop.

The interventions show no sign of stopping. Last year's unexpectedly poor wheat harvest caused the price of bread to double, prompting the government to suspend exports of the crop. Last month was the first December in 25 years that Argentina did not export any wheat.

Wheat production in Argentina has plunged—from nearly 16m tonnes in 2005 to 8.2m tonnes in 2013. Not all the intervening years have been terrible, says Santiago del Solar, an Argentine agronomist and farmer. There were decent wheat harvests in 2008, 2011 and 2012, as high international prices incentivised farmers to plant wheat despite the unpredictability of government policy. But with export restrictions becoming tighter and tighter, Mr del Solar has slashed the area he plants with wheat. He expects other farmers will do the same.

The retreat from wheat has devastated exports. According to the US Department of Agriculture, Argentina was the world's fourth-largest exporter of wheat in 2006. By 2013, it had dropped to tenth place.

Exports Down, Prices Down Too

Not only are exports in tons down, prices are down even more.

Wheat

Things do not look promising for Argentina.

Four Signs Hyperinflation On the Way

Black market rates show a 78% increasingly hyperbolic decline
Governments taking over central banks is a strong indication of futher trouble.
That Argentine citizens willingly pay a 20% tax to escape the peso is another sign.
A fourth factor is falling commodity prices.

If Argentina uses up all of its foreign currency reserves, it's lights out for the Argentina peso.

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

Congressman Rangel Calls for War Tax, Draft; Why Not Bomb the Entire Muslim World? Draft Worse Than Slavery

Posted: 01 Oct 2014 12:20 PM PDT

In a Time Magazine Op-Ed, Congressman Charles Rangel (Democrat from New York), a combat veteran says It's Time for a War Tax and a Reinstated Draft.

While I am optimistic about our Commander-in-Chief's strategy to defeat the Islamic State of Iraq and Syria, I voted against the Continuing Appropriations Resolution 2015 that would grant the President the authority to provide funds to train and arm Syrian rebels against the enemy. I opposed the amendment because I strongly believe amassing additional debt to go to war should involve all of America debating the matter. That is why I have called for levying a war tax in addition to bringing back the military draft.

Both the war surcharge and conscription will give everyone in America a real stake in any decision on going to war, and compel the public to think twice before they make a commitment to send their loved ones into harm's way.

For a decade I have been calling for the reinstatement of the draft because our military personnel and their families bear a tremendous cost each time we send them to fight.

Draft Worse Than Slavery

Slavery is involuntary servitude. Is a draft anything less than slavery?

Actually, it's worse. You take a guy's freedom away, ship him overseas, give him a rifle, and force him to kill other people against whom he has no direct grievance, when the best such a person can ever hope for is to come back in one piece, years later, possibly with huge psychological stress after needless killing.

Rangel points out the "tremendous cost each time we send them [US troops] to fight" then proposes the stupidest solution possible, to force everyone to have the same opportunity.

I propose there can be no debate on a draft just as there can be no debate on whether we should revive slave trade from Africa.

Financing Wars

Rather than admit the stupidity of wasting $6 trillion in Iraq and Afghanistan and vowing to never do it again, Rangel proposes a War Tax.

The United States has borrowed almost $2 trillion to fund our military engagements on foreign soil. It is estimated that the total cost would be close to $6 trillion; we continue to pay a heavy toll for these conflicts. Each dollar spent on war is a dollar not spent on education, energy, housing, or healthcare. We cannot afford to tread this same path when we are slashing domestic programs that are the lifelines for so many Americans. I will soon introduce a bill that will impose war tax to ensure that we do not have to choose between further gutting the social safety net and adding to the $17.7 trillion of national debt.

Rangel was once Chairman of the House Ways and Means Committee.

Let's Bomb the Entire Muslim World

George Monbiot, writer for the Guardian, says "Humanitarian arguments, if consistently applied, could be used to flatten the entire Middle East".

Monbiot sarcastically asks Why stop at Isis when we could bomb the whole Muslim world?

Let's bomb the Muslim world – all of it – to save the lives of its people. Surely this is the only consistent moral course? Why stop at Islamic State (Isis), when the Syrian government has murdered and tortured so many? This, after all, was last year's moral imperative. What's changed?

In Gaza this year, 2,100 Palestinians were massacred: including people taking shelter in schools and hospitals. Surely these atrocities demand an air war against Israel? And what's the moral basis for refusing to liquidate Iran? Mohsen Amir-Aslani was hanged there last week for making "innovations in the religion" (suggesting that the story of Jonah in the Qur'an was symbolic rather than literal). Surely that should inspire humanitarian action from above? Pakistan is crying out for friendly bombs.

Is there not an urgent duty to blow up Saudi Arabia? It has beheaded 59 people so far this year, for offences that include adultery, sorcery and witchcraft. It has long presented a far greater threat to the west than Isis now poses. In 2009 Hillary Clinton warned in a secret memo that "Saudi Arabia remains a critical financial support base for al-Qaida, the Taliban … and other terrorist groups".

The humanitarian arguments aired in parliament last week, if consistently applied, could be used to flatten the entire Middle East and west Asia. By this means you could end all human suffering, liberating the people of these regions from the vale of tears in which they live.

Yes, the agenda and practices of Isis are disgusting. It murders and tortures, terrorises and threatens. As Obama says, it is a "network of death". But it's one of many networks of death. Worse still, a western crusade appears to be exactly what Isis wants.

And if the bombing succeeds? If – and it's a big if – it manages to tilt the balance against Isis, what then? Then we'll start hearing once more about Shia death squads and the moral imperative to destroy them too – and any civilians who happen to get in the way. The targets change; the policy doesn't. Never mind the question, the answer is bombs. In the name of peace and the preservation of life, our governments wage perpetual war.

While the bombs fall, our states befriend and defend other networks of death. The US government still refuses – despite Obama's promise – to release the 28 redacted pages from the joint congressional inquiry into 9/11, which document Saudi Arabian complicity in the US attack. In the UK, in 2004 the Serious Fraud Office began investigating allegations of massive bribes paid by the British weapons company BAE to Saudi ministers and middlemen. Just as crucial evidence was about to be released, Tony Blair intervened to stop the investigation.

Last week's Private Eye, drawing on a dossier of recordings and emails, alleges that a British company has paid £300m in bribes to facilitate weapons sales to the Saudi national guard. When a whistleblower in the company reported these payments to the British Ministry of Defence, instead of taking action it alerted his bosses. He had to flee the country to avoid being thrown into a Saudi jail.

There are no good solutions that military intervention by the UK or the US can engineer. Whenever our armed forces have bombed or invaded Muslim nations, they have made life worse for those who live there. The regions in which our governments have intervened most are those that suffer most from terrorism and war. That is neither coincidental nor surprising.

Yet our politicians affect to learn nothing. Insisting that more killing will magically resolve deep-rooted conflicts, they scatter bombs like fairy dust.

Fraud of Humanitarin Wars

For humanitarian reasons, 2009 Nobel Peace Laureate Barack Obama has bombed seven Muslim nations: Iraq, Syria, Afghanistan, Pakistan, Yemen, Somalia, and Libya.

The utter lack of interest in what possible legal authority Obama has to bomb Syria is telling indeed: Empires bomb who they want, when they want, for whatever reason (indeed, recall that Obama bombed Libya even after Congress explicitly voted against authorization to use force, and very few people seemed to mind that abject act of lawlessness; constitutional constraints are not for warriors and emperors).

It was just over a year ago that Obama officials [Sec of State John Kerry] were insisting that bombing and attacking Assad was a moral and strategic imperative. Instead, Obama is now bombing Assad's enemies while politely informing his regime of its targets in advance. It seems irrelevant on whom the U.S. wages war; what matters it that it will be at war, always and forever.

Six weeks of bombing hasn't budged ISIS in Iraq, but it has caused ISIS recruitment to soar. That's all predictable: the U.S. has known for years that what fuels and strengthens anti-American sentiment (and thus anti-American extremism) is exactly what they keep doing: aggression in that region. If you know that, then they know that.

As the disastrous Libya "intervention" should conclusively and permanently demonstrate, the U.S. does not bomb countries for humanitarian objectives. Humanitarianism is the pretense, not the purpose.

On May 2, Glenn Greenwald wrote about The Fraud of Humanitarian Wars. "All wars, even the most unjustifiably aggressive, are wrapped in the same pretty rhetorical packaging."

Goering at the Nuremberg Trials

Please recall what Reichsmarschall Hermann Wilhelm Göring (in English his name is also spelled as Hermann Goering) Nazi founder of the Gestapo, Head of the Luftwaffe, said at the Nuremberg Trials.

Here is a clip of the interview in Goering's cell in prison, after the war.

Göring: Why, of course, the people don't want war. Why would some poor slob on a farm want to risk his life in a war when the best that he can get out of it is to come back to his farm in one piece? Naturally, the common people don't want war; neither in Russia nor in England nor in America, nor for that matter in Germany. That is understood. But, after all, it is the leaders of the country who determine the policy and it is always a simple matter to drag the people along, whether it is a democracy or a fascist dictatorship or a Parliament or a Communist dictatorship.

Gilbert: There is one difference. In a democracy, the people have some say in the matter through their elected representatives, and in the United States only Congress can declare wars.

Göring: Oh, that is all well and good, but, voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same way in any country.

We Gotta Do Something!

Please note that all it took was a couple of beheadings for warmongers to get the rest of Congress behind bombing ISIS in Syria. And that's all it took for Obama to break his promise to get out of Afghanistan. Instead, we will be there until 2024 "at least".

For details, please see "Come Hell or High Water" Promise Morphs Into "Infinity and Beyond"

Public sentiment following the beheadings is "We Gotta Do Something!"

Indeed we do.

Instead of a draft coupled with a war tax, I propose we kick the warmongers out of office and stop all war funding except what's explicitly needed to protect US borders here, not half-way around the globe.

Unfortunately that goal is next to impossible. The industrial-military war machine backs every candidate who is in favor of perpetual war.

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