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Tuesday, December 27, 2011

Mish's Global Economic Trend Analysis

Japan Industrial Production Declines 2.6%, 3rd Quarter Capital Spending Drops 9.8%, Corporate Sentiment Drops to Minus 4; Powder Keg Waiting for a Spark
Italians Cut Spending in Worst Christmas in 10 Years; Debt in Spanish City of Gandia 50% Higher than Previously Reported; Harsh Times Ahead for All Europe
Ron Paul Did Not "Walk Out" of CNN Interview; Blatantly Biased Headline by Time Magazine; Six Reasons to Vote for Paul
Brazil is World's 6th Largest Economy, Overtaking UK Earlier this Year. Can Brazil Overtake France by 2016? What about BRICs in General?

Japan Industrial Production Declines 2.6%, 3rd Quarter Capital Spending Drops 9.8%, Corporate Sentiment Drops to Minus 4; Powder Keg Waiting for a Spark

Posted: 27 Dec 2011 06:52 PM PST

A torrent of bad news hit Japan in November. Please consider some details from the Bloomberg article Japan Factory Output Falls on Global Slump

Factory output fell 2.6 percent from October
Exports fell for the second straight month
Capital spending in the third quarter dropped 9.8 percent
The Bank of Japan Tankan quarterly index of corporate sentiment fell to minus 4 this month. A negative figure indicates that pessimists outnumber optimists

Japan blames this mess on a strong Yen and Thailand's worst flooding in almost 70 years. The flooding crippled the output in Southeast Asia of Japanese companies such as Sony Corp. and Honda Motor Co.

Japan created four separate "supplementary budgets" totaling of 20 trillion yen ($257 billion) to deal with the the earthquake and tsunami. In 2012, Japan will create a "separate budget" for reconstruction.

However, no matter how many piles spending is split into, Japanese deficit spending cannot be hidden.

Japan's problems don't stop there. Europe is Japan's third largest export market, and Europe is a basket case. Europe will remain a basket case if Eurozone austerity measures are even modestly implemented.

Land of the Rising Debt

Pater Tenebrarum had some excellent charts and commentary in his post Land of the Rising Debt

Government spending does not 'spur growth'. If it did, Japan would have been the world's growth engine for the past two decades. In reality, every cent the government spends must be taken from the private sector and therefore can no longer be spent or invested by it. We can see what the government's spending achieves (not much) – what we cannot see is what would have been achieved had the government left well enough alone and the private sector had saved, spent and invested instead. This is the 'broken window effect' – one must not only consider the obvious economic effects of a policy, but also the 'unseen' ones. Government spending is a burden, not a boon.

Like its counterparts in Europe, Japan's government tries to get its house in order not by reducing spending – apparently a completely taboo subject in Japan – but by raising taxes. This will predictably - just as it does in Europe - double the burden on the economy. Since these tax hikes are immensely unpopular in Japan, it is not necessarily likely that they will happen. Moreover, there may be no more time to take effective countermeasures against the growing debt load: the death spiral may well begin before such measures can be implemented and take effect.

Not only is Japan's debt-to-GDP ratio uncomfortably high, its tax revenues continue to decline precipitously as a percentage of government spending.

click on chart for sharper image

In such a situation, the level of interest rates becomes an ever growing concern. Right now, Japan's interest rates remain among the very lowest in the world. And yet, in spite of near record low interest rates, the percentage of tax revenue the government must spend on interest expenses is increasing fast.

Powder Keg Waiting for a Spark

The pertinent point is not the sorry state of affairs including a debt-to-GDP ratio of 220%, but rather when it matters. So far Japan has avoided printing on the scale of the Bernanke Fed, but one has to wonder how long that can continue in spite of Japan's dire worst in the industrialized-world demographics.

Tenebrarum points out "At the moment, JGB's trade like 'risk free' debt, in spite of the fact that Japan has lost its 'AAA' rating long ago and has been downgraded again this year, with further downgrades likely. Should the percentage of foreign ownership of JGB's rise significantly, the probability of a 'non-linear' debt market convulsion will rise commensurately. The Japanese government can 'financially repress' its own institutions, but not foreign investors."

"It seems rather like a powder keg waiting for a spark".

Indeed! Moreover, Japan's efforts to kick the can down the road perpetually issuing short-term debt that will need to be rolled over at some point insures the explosion will be massive once the debt-bomb finally ignites. Please see Japan Seeks to Market Record 145 Trillion Yen Bonds in 2012; Kicking the Can Japanese Style for a brief analysis.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Italians Cut Spending in Worst Christmas in 10 Years; Debt in Spanish City of Gandia 50% Higher than Previously Reported; Harsh Times Ahead for All Europe

Posted: 27 Dec 2011 12:54 PM PST

Spanish City of Gandia is Insolvent

Courtesy of Google Translate El Economista reports The debt of the City of Gandia exceeds 300 million euros

The Deputy Mayor for Economic and Financial Officer of the City of Gandia, William Barber, has appeared before the media to explain and detail the results of the audit report conducted by Deloitte, commissioned by the new municipal government. The result is 300,066,000 euros, although the municipal government of the PP, initially estimated that out of about 200 million.

In this report, it appeared that the City was in a situation of "negative equity", which obliged the government to take drastic and quick, and to develop an economic and financial plan, presented the mayor this week in Conselleria, to try to address this situation.

Despite the situation, Barber wanted to reassure the public. "While the situation is difficult, we are working to balance budgets, checking all items, although I can announce them or Social Welfare and basic services will be hurt. Our commitment is also paying suppliers not to complicate the situation further not to raise taxes. "

Not an Isolated problem

Every official in Spain repeats the line they will not raise taxes. In the case of Gandia which is in a situation of "negative equity" (bankrupt), how the heck does the city propose paying suppliers?

Gandia is not an isolated problem. Please consider Spanish Implosion Coming Up; Deficit Up, Receipts Down, a Need to Cut 40 Billion in Expenses from 90 Billion; Spain's "Hidden Deficit" for another take on "hidden deficits" coming to light.

Italians Cut Spending in Worst Christmas in 10 Years

Bloomerg reports Italians Cut Spending in Worst Christmas in 10 Years

Italian retailers had the worst Christmas in 10 years, consumer group Codacons said, as austerity measures to combat the sovereign debt crisis prompted households to cut spending.

Italians spent 48 euros ($62.75) less per person this holiday season than the average of the past five years, Rome-based Codacons said in a statement on its website. The shoe and clothing sector was hit the most, with sales dropping 30 percent from previous years, it said, adding retailers won't recover the decline during seasonal promotions that start in January.

The discount period "will be a flop," with sales declining as much as 40 percent compared with 2010, Carlo Rienzi, the head of Codacons, said in the statement.

Prime Minister Mario Monti secured final passage last week for 30 billion euros of austerity and growth measures as he seeks to cut the euro region's second-biggest debt. The measures, including a tax on luxury goods, a levy on primary residences and higher gasoline prices, may further sap consumer spending and push the euro area's third-biggest economy deeper into recession.

The austerity plan will cost every Italian family 1,129 euros, according to consumer group Federconsumatori. Italians spent 4.4 billion euros in the holiday season, 400 million euros less than Federconsumatori's forecast, the group said.

I am trying to get a handle on the percentage decline and the magnitude of the decline. The consumer group estimates "as much as 40 percent" but believe that appears to be by sector, not overall spending.

Courtesy of Google Translate, here is another link from El Economista: The Italian Christmas spent 400 million euros less than in 2010

The Italians spent this Christmas 400 million less than last year, according to a report by the Consumer Federation of ONF, met with another federation Coldiretti farmers who notes that Christmas dinner and lunch on day 25 spent 18% less than in 2010.

According to the ONF, in this Christmas period the Italians spent four billion euros, compared to the 4,400 million provided for the consumer organization, which means that the average expenditure per household was 116 euros, below the amount projected which were already down.

Austerity Kicks In, Harsh Times Ahead for Europe

Translation is not entirely clear. As measured by a 400 million decline from 4,400 million, spending is down 9%, not the 18% Coldiretti farmers reference.

Regardless, various austerity measures will take a direct bite out of Spain, Portugal, Italy, France, and Greece via reduced wages, rising unemployment rate and extremely harsh times.

With the rest of Europe pulling back, and with China cutting back, the export machine of Germany is headed for major problems. Thus, austerity will take an indirect bite out of Germany and the trade surplus countries as well.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Ron Paul Did Not "Walk Out" of CNN Interview; Blatantly Biased Headline by Time Magazine; Six Reasons to Vote for Paul

Posted: 27 Dec 2011 10:19 AM PST

In response to Attack Dogs Unleashed on Ron Paul; No Need to Rethink Endorsement; Plus Side of Attack Dogs I received many emails informing me that Ron Paul did not walk out of an interview with CNN with Gloria Borger.

The Daily Paul, posted the entire CNN interview that shows a much different picture than portrayed by Time and CNN.

Blatantly Biased Headline by Time Magazine

Play the video and you will see the interview was effectively over. Time Magazine posted a very slanted headline Paul Walks Away.

Piling on the Nonsense

David Frum, CNN Contributor, piles on the nonsense Codger, crank or more?

It's fair to say that almost no one who has followed the controversy believes that Paul is telling the truth about any of this. The authorship of the newsletters is an open secret in the libertarian world: they were produced by a community of writers led by Paul aides Lew Rockwell and Murray Rothbard, who wrote a newsletter of their own at the same time that expressed similar ideas in similar language. The racism of the newsletters -- and the elaborate lying subsequently deployed to evade responsibility for the newsletters -- say much about the ethics of Paul himself and the circle around him.

Fair to Say?!

It's certainly not fair to make that claim. Can I see a poll please? Moreover, Libertarians do not hold the racial beliefs stated by David Frum.

If someone wants to talk about ethics, it's just as easy for me to claim "It's fair to say the vast majority of those following the Paul story understand that CNN writers like Gloria Borger, David Frum, and Wolf Blitzer do not care about the news, they only care about generating sensational headlines, any way they can. Moreover, CNN openly support wars, regardless of the ethics of war, because war is good for ratings."

I do believe that's "fair to say", although like David Frum I do not have a poll to prove it.

While on the theme of "fair to say" I would like to point out this comment made by "EasyRhino" to Frum on the CNN blog: "Keep in mind Frum is a 5 star chicken hawk who defended the invasion of Iraq and advocates regime change in Iran and Syria, everything Paul is against."

Contact CNN

I might also point out that it's "fair to say" the CNN writers must be cowards because they do not have a direct way to contact them via email.

You can however, Send a General Email to CNN and let them know what you think of their reporting.

Attempts to Turn Non-News into News

This biased reporting of "walking away" is a case of news agencies attempting to "make news" where there is no news. Moreover, a couple of questions by Gloria Borger, including the question of returning money, were economically inane. There is no one to return money to, as Paul pointed out.

Still when pressured by Borger, Paul should have been more direct with something like "Sorry Gloria, things I did not say over 20 years ago and have explained to CNN a number of times are not meaningful and are not news, no matter how much you try to spin it so. What is relevant today is my position on the economy, on troops in Afghanistan, and on reducing the deficit, not things I never said, and more importantly never acted on in all my years in Congress."

Six Reasons to Vote for Paul

Paul is the only one for a balanced budget and a plan to get there
the only one who would bring US troops home immediately
the only one who would end the Fed
the only one who believes in the free market
the only one who believes gold should be money
the only one who would dismantle entire government departments

As I have pointed out before, President Obama and Mitt Romney are Nearly One and the Same!

This is not a case of the lesser of two candidates, this is a case where one electable candidate and one electable candidate alone has a platform that makes sense.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Brazil is World's 6th Largest Economy, Overtaking UK Earlier this Year. Can Brazil Overtake France by 2016? What about BRICs in General?

Posted: 27 Dec 2011 12:22 AM PST

Earlier this year, Brazil surpassed the United Kingdom as the world's 6th largest economy. Moreover, Brazil's finance minister makes the claim Brazil to Remain Ahead of U.K. Economy and will surpass France by 2016.

Brazil will remain one of the fastest-growing nations in the coming years after overtaking the U.K. this year to become the world's sixth-largest economy, the country's Finance Minister Guido Mantega said.

The countries that will grow the most are the emerging markets such as Brazil, China, India and Russia," Mantega said in a statement published on the finance ministry's web site, referring to findings by the London-based Center for Economics and Business Research, or CEBR. "The trend is for Brazil to remain one of the world's top economies."

The CEBR echoed forecasts earlier this year by the International Monetary Fund showing that Brazil's $2.5 trillion economy had overtaken the U.K. to become the world's sixth- largest. The IMF expects Brazil to climb past France to become the fifth-largest economy by 2016.

Is Brazil Fundamentally Different?

This reminds me of forecasts that China will soon overtake the US. China won't and energy is the reason. Is Brazil fundamentally different?

Please consider the American Thinker article Import Brazil's Oil Policy, Not Brazil's Oil

In 1980, Brazil imported 77 percent of its oil. Now it imports 0.0 percent. During that same time period, America increased its oil imports from roughly 30 percent to 70 percent. If Brazil can become completely self-sufficient in oil, why can't America start becoming more self-sufficient?

To answer the question, Brazil can produce relatively cheap energy from sugar cane, something that cannot be said about ethanol from corn.

Fundamentally, if Brazil can produce ethanol cheaper than the US, then the US should indeed import Brazilian ethanol, contrary to the opinion expressed by American Thinker. Furthermore, the US certainly can and should end agricultural tariffs that drive up the price of corn and ethanol.

Let's take a sidetrack for a moment to look at one aspect of US agricultural policy.

In Support of Hemp

Certainly the US should legalize hemp for softer-than-cotton fibers that use far less water and energy-wasteful fertilizers.

Hemp quickly grows up to 5 metres in height with dense foliage which blocks weed growth. This means herbicides are not needed and the field is weed free for the next crop. Unlike cotton hemp does not have a high water requirement. The hemp plant has a deep tap root system which enables the plant ot take advantage of deep subsoil moisture, thus requiring little or no irrigation.

Anything that can be made from cotton can be made from hemp. Hemp's long fibres give it the strength to create a finished product that is much stronger and more durable than one produced from cotton. Just as hemp can be cultivated instead of trees, it can also be grown in place of cotton, with environmental benefits.

Cotton is one of the most environmentally destructive agricultural crops. In pesticide use in the US alone, is staggering – 125 million kilograms annually. Worldwide, cotton production used 50 percent of the world's pesticides/herbicides. Pesticides are possibly the greatest toxic threat to contaminating our soil, air, water and natural communities because they are often permanent and they bio-accumulate, ie their toxicity increases as they are consumed up the food chain. Many pesticides are known carcinogens, and can also cause immuno-deficiency disorders. Added to this, pesticides have a petroleum base and their excessive use perpetuates our dependency on oil.

Cotton also requires large quantities of fertilisers, growth regulators, general biocides such as methyl bromide, and water. Hemp on the other hand, is one of the most environmentally positive crops that actually leaves the soil enriched. Hemp requires little or no pesticides or herbicides and the extensive and deep root system draws nutrients from deeper soil layers, and when the roots breakdown after harvest they aerate the soil and provide humus. Hemp grows very tall and thick, shading and mulching the ground contributing to a healthy microbial life in the soil.

Why is Hemp illegal?

Warmongers like to wage endless wars or drugs, so do manufacturers of artificial fibers, so do fertilizer companies, and of course the cotton industry does not want competition either.

OK let's return to Brazil.

Brazil Inflation

When inflation is running comparatively hot, as it is in Brazil, you have a perception of growth that really isn't there. In "real" inflation-adjusted terms, Brazil's growth does not look spectacular.

Brazil Real GDP

Brazil Economy Stalls Q3

Trading Economics reports Brazil Economy Stalls in Q3

Brazil Economy failed to grow from the previous three months for the first time since the first quarter of 2009, as credit curbs, higher borrowing costs and budget cuts checked demand. The GDP grew 2.1 percent from the same period a year ago.

As Europe's crisis deepens, President Dilma Rousseff's government is taking steps to reinvigorate the economy with a mix of tax cuts, interest rate reductions and looser bank lending requirements.

Industrial output was the part of the economy hit the hardest by the deepening debt crisis in Europe, posting in September the second-biggest decline since 2008. Production sank 1.9 percent in September and 0.6 percent in October

The central bank's rate increases in the first half of 2011 aimed to cool down the fastest inflation in six years and an economy that grew at a 7.5 percent pace in 2010, the fastest in two decades. Policy makers began slashing rates in August in the most abrupt reversal in monetary policy since 1999, citing a "substantial deterioration" in the global economy.

Bank lending growth in October slumped to its lowest level since January, the central bank said, as a bank workers' strike interrupted operations and the interest-rate increases began to work their way through the $2.1 trillion economy, the world's sixth biggest.

Brazil vs. France

Might Brazil overtake France by 2016?

Given Europe is likely headed for an extremely nasty recession, it might be reasonable to assume that. But what if China slows, Europe slows, and the US slows? Can Brazil put up sufficient internal demand? What about Brazil's inflation rate and the possibility Brazil's central bank is forced to slam on the brakes?

What About BRICs in General?

In a balance-sheet recession and global slowdown (especially a slowdown with defaults), it is the balance-of-trade surplus countries that will take a hit.

Thus, I expect both Germany and China to take a hit, and I have said so many times. Should Brazil be any different? Can energy make the difference?

Might stupidity from politicians outweigh everything else?

The last question is easy enough to answer, even if the other questions aren't. Certainly, poor decisions by politicians may trump everything else. And when it comes to poor economic policies, the EU is in the lead.

However, even if Brazil does grow faster than the UK or France, what growth is Brazil priced for, and how sustainable is it?

I do not have answers to all those questions, nor does anyone else. The situation is far more complex than it appears at first glance. However, the questions do provide a framework for further analysis.

By the way, the above discussion shows the frequently touted "BRIC" grouping (Brazil, Russia, India, China), is fundamentally flawed. Each country must be evaluated individually because of vastly differing energy needs, inflation, and internal politics.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mish's Global Economic Trend Analysis

Attack Dogs Unleashed on Ron Paul; No Need to Rethink Endorsement; Plus Side of Attack Dogs

Posted: 26 Dec 2011 07:07 PM PST

Attack dogs have finally been unleashed on Ron Paul. Those barking dogs caused Andrew Sullivan to Re-Think The Paul Endorsement

Time Magazine even launched a headline Paul Walks Away

No Need to Rethink Endorsement

There is no need to rethink endorsements. Here is the deal: Ron Paul did not say the things attributed to him. He denies them, disavows them, and most importantly, his voting record proves it!

Can anyone honestly tell me why things Ron Paul did NOT say over twenty years ago should be news today?

Paul Missed Best Tactic

How many times does he have to deny he wrote those things? Still, Ron Paul did not handle the CNN setup in the best possible manner.

This is what Paul said to CNN.

"Why don't you go back and look at what I said yesterday on CNN and what I've said for 20 something years. 22 years ago? I didn't write them, I disavow them."

That answer was perfectly fine, as far as it went. Then Paul walked out. It was a missed opportunity.

Proposed Follow-Up

Rather than walking out, Paul should have followed up with ...

"I'm not here to discuss imaginary topics or things I never said. Now, do you want to discuss my position on the economy, on the Fed, and on spending, or is your only point to this interview to discuss things I did not say 20 years ago and have explained to CNN countless times?"

That would have smashed the ball down CNN interviewer Gloria Borger's throat, right where it belonged.

OK. Admittedly, Ron Paul did not respond in the perfect manner. So Ron Paul is human. Who isn't?

Is a transgression 22 years ago of something Ron Paul never said, and whose track record in congress proves it, any reason to drop support of Ron Paul?

In favor of who? Flip-flopper Newt Gingrich? Mitt Romney, the man that practically wrote the Obama Health-Care legislation? The Mitt Romney who wants to starts a trade war with China? Another Republican candidate that has no chance of winning?

If case you are a misguided Mitt Romney fan please consider President Obama and Mitt Romney are Nearly One and the Same!

Anyone "rethinking" their Ron Paul endorsement based on things Paul never said is not thinking clearly.

Attack Dog Plus Side

Here's the plus side to the attack dogs: Ron Paul is now considered a serious candidate or the attack dogs would not have been unleashed on things he never said 22 years ago.

Interestingly, The State Column reports Ron Paul still holds a lead in Iowa.

Thus, a majority of voters have decided that 22-year-old never-made statements are irrelevant, even if some misguided souls can't.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Japan Seeks to Market Record 145 Trillion Yen Bonds in 2012; Kicking the Can Japanese Style

Posted: 26 Dec 2011 08:14 AM PST

Japan, the country with the highest debt-to-GDP ratio in the G7 to Sell Record 149.7 Trillion Yen Debt in Fiscal 2012

Japan's government said it will increase bond sales to the market to a record 149.7 trillion yen ($1.9 trillion) in the fiscal year starting April 1.

The amount for investors such as banks and life insurers is 4.8 trillion yen more than 144.9 trillion yen in the initial plan for fiscal 2011. Total debt issuance, including securities to replace maturing debt and so-called zaito bonds sold for government agencies, will increase by 4.6 trillion yen to a record 174.2 trillion yen.

Yen Bond Schedule

Kicking the Can Japanese Style

Japan ought to be financing its debt for as long as possible, as cheap as it can, while it still can. Instead, the bulk of it is 5-year duration or less, with next to nothing at the extreme long end.

Ability to roll this debt over at perpetually low rates is going to be a problem sooner or later, and I think sooner, rather than later.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Sunday, December 25, 2011

Mish's Global Economic Trend Analysis

Businesses Exit California and Illinois; Tax and Destroy Policies of Governors Quinn and Brown; Unemployment Rates By State

Posted: 25 Dec 2011 11:09 PM PST

Businesses have tad it with poor business conditions in two of the most dysfunctional states in the union, California and Illinois.

In an editorial, the Orange County Register reports Even profitable firms fleeing California

Democratic reaction to the news that Waste Connections, a $3.6-billion company and major Sacramento-area employer, is headed to Houston to seek a friendlier business climate tells other businesses all they need to know about the attitudes of those who run California's government.

State Senate President Pro Tem Darrell Steinberg, D-Sacramento, gave these clueless and snarky remarks in response to the news: "In this instance you have a company that is, in fact, profitable, making significant revenue gains in 2011 and 2010. That doesn't speak to a bad business climate here in California when a good company is able to thrive in that way. So whatever Mr. Middelstaedt's (company CEO) reasons are to leave the great state of California, I know I'm pushing back."

Is it really the Senate president's role to determine the proper profit margin for a privately owned company? Talk about arrogance.

"The decision by Waste Connections to relocate, despite the 17 percent revenue increase and the $18 million cost to move to Texas, illustrates that businesses will endure short-term costs to ensure long-term prosperity," wrote state Sen. Mimi Walters, R-Laguna Niguel, in response to Steinberg's message. Walters quotes business-relocation expert Joe Vranich of Irvine, who notes that businesses typically save 40 percent in costs by leaving California because of lower taxes and more manageable regulations found elsewhere.

If California wants to improve its business climate and reduce its double-digit unemployment rate, its officials need to understand what companies such as Waste Connections are saying, rather than simply dismiss their concerns.

Businesses Bargain for Better Deals in Illinois

The Chicago Tribune lists 10 companies with an eye in exiting the state in Illinois companies eyeing an exit

Chicago's huge futures exchange owner CME Group has joined a growing list of companies threatening to leave Illinois as a result of the state's corporate tax increase earlier this year. Illinois pushed through the 45 percent corporate tax increase in January, trying to address one of the biggest budget shortfalls of any state in the U.S. But the move proved to be a risky step -- since then, both small and large companies have complained about the increase, and some have received incentives to stay put.

Also on the list: Sears, Motorola Mobility, Caterpillar, Navistar, Mitsubishi, US Cellular, Jimmy John's, and continental Tire.

Small Businesses, Taxpayers Screwed

On December 12, Illinois House approved CME-CBOE, Sears tax deal. Indeed, most of the above companies negotiated huge tax breaks and will stay in Illinois at least for a while.

Small companies with no clout and no leverage as well as taxpayers in general are the ones paying the price for the seriously misguided policies of Democratic Governors Pat Quinn, and Jerry Brown.

Tax-and-Destroy Policies

The tax-and-destroy policies of Illinois and California, coupled with the the massive public union pandering in both states got me wondering about respective unemployment rates, state by state.

Unemployment Rates for States Monthly Rankings Seasonally Adjusted Nov. 2011^p
Rank	State	Rate
1	NORTH DAKOTA	3.4
2	NEBRASKA	4.1
3	SOUTH DAKOTA	4.3
4	NEW HAMPSHIRE	5.2
5	VERMONT	5.3
6	IOWA	5.7
7	WYOMING	5.8
8	MINNESOTA	5.9
9	OKLAHOMA	6.1
10	VIRGINIA	6.2
11	UTAH	6.4
12	HAWAII	6.5
12	KANSAS	6.5
12	NEW MEXICO	6.5
15	LOUISIANA	6.9
15	MARYLAND	6.9
17	MAINE	7.0
17	MASSACHUSETTS	7.0
19	MONTANA	7.1
20	ALASKA	7.3
20	WISCONSIN	7.3
22	DELAWARE	7.6
23	PENNSYLVANIA	7.9
23	WEST VIRGINIA	7.9
25	ARKANSAS	8.0
25	COLORADO	8.0
25	NEW YORK	8.0
28	TEXAS	8.1
29	MISSOURI	8.2
30	CONNECTICUT	8.4
31	IDAHO	8.5
31	OHIO	8.5
33	ALABAMA	8.7
33	ARIZONA	8.7
33	WASHINGTON	8.7
36	INDIANA	9.0
37	NEW JERSEY	9.1
37	OREGON	9.1
37	TENNESSEE	9.1
40	KENTUCKY	9.4
41	MICHIGAN	9.8
42	GEORGIA	9.9
42	SOUTH CAROLINA	9.9
44	FLORIDA	10.0
44	ILLINOIS	10.0
44	NORTH CAROLINA	10.0
47	MISSISSIPPI	10.5
47	RHODE ISLAND	10.5
49	DISTRICT OF COLUMBIA	10.6
50	CALIFORNIA	11.3
51	NEVADA	13.0

Not a Red vs. Blue or Rustbelt Issues

High unemployment is not a red-state vs. blue-state issue. Nor is there a clear rust-belt trend. Moreover, Nevada, is among the more business friendly states but like Florida the hardest hit by the housing bust. Illinois was not so hard-hit but parts of California were.

However, California and Illinois have many things in common:

Harsh business environments
High tax rates
Both states are among the most pro-union states
Both states lack right-to-work laws

That California and Illinois suffer from business flight and high unemployment should not be surprising.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Christmas Laughs: How Not to Teach a Bullfrog to Play Video Games; Grandma Got Indefinitely Detained (A Very TSA Christmas)

Posted: 25 Dec 2011 11:04 AM PST

This remake of "Grandma Got Run Over by a Reindeer" is better than the original. It's cute but also reflects a very sad state of affairs.

Grandma Got Indefinitely Detained

Link if video does not play: A Very TSA Christmas

This next video will have you laughing for sure. Please play to the end. It's only 27 seconds long.

How Not to Teach a Bullfrog to Play Video Games

Link if video does not play: Teach a Bullfrog to Play "Ant Crusher"

Merry Christmas Everyone

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Saturday, December 24, 2011

Mish's Global Economic Trend Analysis

"Full Faith and Credit" of General Obligation Bonds Comes to Critical Test in Alabama Bankruptcy

Posted: 24 Dec 2011 06:37 PM PST

General obligation bonds are thought to be perfectly safe because they are backed by the ability to tax, no matter what it takes to pay off the obligation. I have been waiting for a test of this theory and that time is at hand.

Jefferson County Alabama filed the biggest bankruptcy in the history of the US and has stopped paying interest on its general obligation bonds. For background details, please see Jefferson County Alabama Hires Bankruptcy Firm; Record Municipal Bankruptcy Coming; Death Spiral Swaps and JPMorgan Fraud Revisited.

The key issue now is what happens to the "Full Faith and Credit" theory now that the county has defaulted following a bankruptcy declaration.

Please consider Bankruptcy Filing Raises Doubts About a Bond Repayment Pledge.

People who own what is considered the safest type of municipal bond may be in for a surprise.

This safe debt, called a general-obligation bond, is said to be the next strongest thing to Treasuries because it is backed by a "full faith and credit" pledge. That means the government that issued it will pay it on time, no matter what.

But now Jefferson County, Ala., has stopped paying such debt, breaking with convention and setting up a fundamental test of what full faith and credit truly means.

The few places that have gone bankrupt with general obligations outstanding have sent reassuring signals, making payments even though they were not required to in bankruptcy. Orange County, Calif., the previous Chapter 9 record-holder, took a few extra months to pay some maturing debt, but it compensated investors for the delay by giving them almost a full percentage point more interest than it otherwise owed them.

The small city of Central Falls, R.I., has been duly paying its general-obligation debtholders in Chapter 9 this year, bolstered by a new state law giving those investors priority over everybody else.

Jefferson County, by contrast, is taking advantage of the automatic stay granted in bankruptcy, which bars creditors from demanding payments or grabbing collateral. Officials say they stopped sending cash to the county's paying agent in November and will not send any money this month, either.

Bankruptcy experts have long known that in theory a municipality could use the stay to revoke its full faith and credit pledge, but they have not watched a big distressed city or county go through with it. "You've got a case here where the rubber has hit the road," said Kenneth N. Klee, a bankruptcy lawyer representing Jefferson County, whose debt grew out of poorly conceived efforts to finance a court-ordered rebuilding of its sewer system.

The county's nonpayment is not its only surprise. Like many places, it used newfangled instruments to circumvent constitutional limits on how much debt it could legally issue. In Alabama, counties are required to hold a referendum before issuing any general-obligation bonds. So Jefferson County has not issued such bonds since the 1950s. Instead, it issues warrants, which look nearly identical but do not require the referendum.

Official disclosures promote the county's warrants as "general obligations," toward which "its full faith and credit have been irrevocably pledged." Sounds good, but what does it really mean? Conventional wisdom has it that if a government defaults on a general obligation, its creditors can take it to court, where the judge will order it to raise taxes — as much as it takes, no matter how painful.

But that now appears to be a hollow threat in Jefferson County. Counties in Alabama do not have the legal authority to raise taxes. Only the state can do that.

Mr. Klee, the county's bankruptcy lawyer, said about 40 percent of America's counties appear to be in the same boat, issuing full faith and credit debt even though they have no legal authority to raise taxes, as the term implies.

"Jefferson County made a very different decision than Rhode Island did," Mr. Klee said. "Rhode Island put bondholders ahead of its citizens, and Jefferson County is not going to do that."

He called the notion that a full faith and credit pledge was inviolate, and that a debtor must honor it even in bankruptcy, "a myth and a scare tactic."

"The issue of full faith and credit," Mr. Klee said, "is whose full faith and credit?"

Rhode Island legislature screwed taxpayers by bailing out bondholders. Alabama tried hard to do the same, but fortunately Jefferson County filed anyway.

A major twist is Jefferson County had no legal authority to issue general obligation bonds without first holding a voter referendum. Jefferson County did not have a voter referendum and instead issued warrants. Does it matter the warrants were promoted as "Full Faith and Credit" obligations?

I have had it with the notion that bondholders can never take a loss. The best court ruling would be those are indeed general obligations bonds, but bankruptcy changes the game. My guess is the courts will duck the issue based on the fact Jefferson County never issued a referendum.

Still, it would be a huge victory for taxpayers in a major court case, assuming the county's attorney is correct in that "40 percent of America's counties appear to be in the same boat, issuing full faith and credit debt even though they have no legal authority to raise taxes"

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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College Football Nothing But a Free Farm-System for the NFL; Who are the Winners and Losers in the Current System?

Posted: 24 Dec 2011 11:03 AM PST

While watching the myriad of college bowl games this holiday season, many of them between teams that have no business being in bowl games at all, please step back and ponder who the winners and losers of this system are.

My high-school friend David Wise takes a critical look at college football in a Real Clear Sports article proclaims it's Time for Colleges to Rein In Football

Since 1985 college tuition has increased nationally by 498 percent compared with 115 percent for prices overall – an unsustainable bubble. Higher education commentators Andrew Hacker and Claudia Dreifus have commented that a large portion of this additional college tuition revenue is being funneled into athletics and not towards education. Over the same time the average compensation of public college football coaches has increased 750 percent compared with 32 percent for professors. The two colleges that will play for the BCS championship this season spend $1,320 per every member of the student body ($204,919 per player) to support the football programs.

In the words of Dr. James J. Duderstadt, the former president of the University of Michigan, athletics "has drifted so far from the educational purpose of the university. They exploit young people and prevent them from getting a legitimate college education. … We are supposed to be developing human potential, not making money on their backs."

And the failure of colleges is not just in things such as the whopping 51 percent disparity between the graduation rates of African-American and white players on last year's BCS champion Auburn Tigers or the combined 34 percent graduation rate for all players on the 2005 champion the Texas Longhorns. Colleges and the education system in general are failing young men who at age 22 graduate at the rate of 100 males for every 187 females.

In a time of crushing state government deficits and student loan debt, it makes absolutely no sense for American universities to operate as free farm systems for the NFL and NBA. At a time when the American competitive position in the world is under more stress than ever, we cannot allow our universities – an area in which American still holds undisputed world leadership – to erode. Rather than have the NFL subsidize college sports, a cure that would be worse than the disease, there are other options.

The low point this year is to be found in the "Kraft Fight Hunger Bowl," which features two teams whose seasons were so disastrous that they both just fired their head coaches and one team, UCLA, which enters the bowl game with a losing record.

This year it is possible that almost a third of the games (10 out of 35) could end up with a so-called "bowl team" with a losing season. And some collection of attorneys general out there should examine whether the Supreme Court's prohibition against "horizontal restraint" in the 1984 landmark case NCAA v. The Board of Regents of the University of Oklahoma is being observed.

Who are the Winners and Losers?

Wise points out that of the 30,000 kids in college football, only abut 310 are ever seriously considered for the NFL.

The rest may get passing grades, but how many of them actually get an education? We all hear that bowl games are "big money makers" but for who?

In the "Kraft Fight Hunger Bowl", Illinois 6-6 just fired its coach. UCLA 6-7 just fired its coach. Both states are financial basket cases.

Both schools will probably sustain large losses participating in these useless bowls that should not even be held. Taxpayers of Illinois and California will make up the difference.

I propose a name change from the "Kraft Fight Hunger Bowl" to the "Tidy Toilet Bowl" because both teams belong in the toilet, not in bowl games. No matter who wins, one team is sure to end up with a losing season and taxpayers of both states will foot the bill for this monstrosity.

Please consider the winners and losers in the current setup.

Who Loses?
The students
The Players
Taxpayers
Teachers who are quasi-forced to give passing grades to kids so they can stay eligible

Who Wins?
The NFL who avoids having a farm system
Advertisers
College coaches and their staff who make preposterous salaries

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Friday, December 23, 2011

Mish's Global Economic Trend Analysis

4 out of 5 Australians Worry about Debt; New Reality - Owing More on Your Home Than You Own; Shocking Year for Corporate Collapses ; Merry Christmas to Those Down Under
Consumers Win Game of Chicken; 40-60% Off "Entire Store" at Some Retailers; Low Prices are Good; US Senate Economic Illiteracy
ECB Holds Off Bond Purchases, Italian 10-Year Yield Back Over 7 Percent

4 out of 5 Australians Worry about Debt; New Reality - Owing More on Your Home Than You Own; Shocking Year for Corporate Collapses ; Merry Christmas to Those Down Under

Posted: 23 Dec 2011 10:01 PM PST

Merry Christmas to all my Australian readers. Here is an economic roundup, with many links sent from Australian readers over the past couple weeks, especially Tony the "Brisbane Bear".

Boxing Day Sale Before Christmas

Boxing Day is traditionally the day after Christmas. Not this year, at least for all retailers.

Tony Writes ... "Talk about desperation! We are now having the traditional Boxing day sales before Christmas. This will not make any difference in the longer run as everyone is now so accustomed to deals that any retailer who doesn't offer substantial discounts won't get any business. It is a whole new paradigm in retail that will eventually spread to all sectors. Businesses with high fixed costs will go broke in droves."

Please consider Myer brings forward online 'Boxing Day' sale

December 23, 2011
The annual Boxing Day sales need a new name, it seems.

This year retail giant Myer will launch its annual post-Christmas shopping bonanza two days early, on Christmas Eve, for online customers.

Myer spokesman Steven Carey said more than 1100 new items would be available for purchase on the Myer website from 6pm tomorrow - the first time the company had launched its stocktake sale early online.

While some customers were expected to stick to the annual tradition of queueing outside stores on Monday to snap up a bargain, Mr Carey said more and more people were choosing to shop from the comfort of their own home.

''We've got to cater to both the online and the bricks-and-mortar customer,'' Mr Carey said.

It comes as electronics giant Harvey Norman, which has long complained about the rise of international online shopping, began selling computer games this week via a website in Ireland that lets Australian consumers avoid GST.

Chairman Gerry Harvey said the company had launched the initiative reluctantly. "We are not doing this with a great deal of joy. We have been able to do this for a long time, we have held off," he said. "But you get to a point where you can't hold off."

Mr Carey said if Myer's online experiment this year was successful, it could become an annual event.

Treasurer Swan takes a potshot at 'whinger' Retailer Gerry Harvey

Tony writes ..."The Treasurer and our biggest retailer are having a slanging match right on Christmas. The party is over and everyone is getting very, very agitated as they try to deal with the new reality."

Please consider Swan takes a potshot at 'whinger' Gerry Harvey

December 23, 2011
Treasurer Wayne Swan says it's just not Christmas if retailer Gerry Harvey isn't whingeing about soft sales.

The co-founder of Harvey Norman has been highly critical of the rise of international online shopping, which he says is threatening Australian jobs and businesses.

Mr Swan defended the GST threshold on goods bought offshore, saying a Productivity Commission report into the issue found it wasn't the cause of retailers' woes.

"I can't remember a Christmas where Gerry Harvey wasn't whingeing," he told ABC Radio today.

"Back when we put the original stimulus package in place he spent a lot of time whingeing about that, but ultimately it did lift consumption in Australia."

Mr Harvey responded, saying he wasn't a whinger and just wanted to protect the whole retail sector, not only his business.

"To call me a whinger when you are poll-driven, that's just an illusion," he told ABC Radio.

He told Mr Swan: "I've been telling you and your government for a long time ... you have a major problem: the GST. You thought it was more important to think about the votes you were going to get."

Retailers Rocked as Debt Crisis Spreads

Tony writes ... "Hi Mish. I have been saying for ages that we have cost structures set to boom time conditions with no way of lowering costs.

Panic is setting in. Prominent broker Charlie Aitken has warned that the industry has a cost base tailored for a boom year such as 2007, when volumes are more in line with 2002."

Please consider Retailers rocked as debt crisis spreads

December 20, 2011
THE nation's shoppers have firmly closed their wallets amid fears of a full-blown debt contagion in Europe, while Billabong shares were smashed by 44 per cent yesterday after the iconic surfwear company released a shock profit downgrade.

The Billabong malaise extended to other discretionary retail stocks such as David Jones and JB Hi-Fi, as more than $30 billion was shed from the value of local equities.

4 out of 5 Australians Worry about Debt

The Sydney Morning Herald reports Most Australians worried about debt

December 19, 2011
Four out of five Australians are worried about their ability to meet future debt repayments, a survey shows.

The biannual survey by data intelligence company Veda, found 82 per cent were worried about their ability to meet debt repayments in the future, up from 75 per cent a year ago.

The survey also found that one in five Australians was struggling to repay their current credit commitments.

However, about 29 per cent of this sub group were considering applying for more credit in the next six months, the survey found.

"It is concerning that there are people struggling with their current debt levels but are turning to more credit as the answer, potentially edging closer to a debt spiral," Veda senior adviser Matthew Strassbourg said in a statement.

Here is a stat straight from the Twilight Zone: 82% are concerned about debt yet 29% of those worried want more credit.

New Reality - Owing More Than You Own

The Age reports on the "New Reality" Owing More on Your Home Than You Own

Rising property values have been an article of faith in the housing market for a generation of Australians who borrowed big as real estate prices marched ever upward.

While the percentage of home owners with so-called negative equity remains tiny - about one in fifty of the 3 million households with mortgages - the number may well swell in 2012 if home prices extend their declines as some analysts expect.

The emergence of a sector of the housing market ''under water'' on their mortgages may hurt an already fragile real estate market. Any forced sales would obviously dent individual household wealth but further drops in home prices would deter investors from buying residential properties.

Tony writes "Hey Mish, Negative equity is a new buzz word slowly entering the lexicon."

Yes indeed. For starters, I highly doubt that only 1-in-50 are underwater. Regardless, I expect that number to be 40-in-50 of those who bought or did a substantial cash-out refi in the last four years. I do not know what percentage that is, but I do known it is far more than 2%.

Shocking Year for Corporate Collapses

Tony comments "Hey Mish, panic is setting in as retail chains go broke daily. The banks are warning that next year will be very tough. It is a vicious cycle and it is gathering speed as panic spreads and people stop spending"

SmartCompany reports Tools chain Glenfords placed in voluntary administration

The shocking year for Australian corporate collapses has continued, with discount tools chain Glenfords now up for sale after being placed in voluntary administration last week.

The sale of the chain comes as the do-it-yourself sector has reached a major transformation point, with market leading hardware chain Bunnings now battling the Woolworths-backed Masters chain.

Analysts have said mid-tier and smaller operators will slowly be pushed out of the market as Bunnings and Masters stores dominate areas once controlled by SMEs.

The construction industry has been one of the worst hit this year – it suffers the highest number of insolvency appointments out of any sector. Glenfords has likely suffered alongside that drop in demand.

Talent Two and Billabong Shares Smashed

Tony writes ... "The interesting downgrade was Talent2, these guys have been very successful for a long time but it seems white collar jobs are drying up fast"

The Australian reports No 'ho ho' from Billabong, Talent Two

December 19, 2011
THERE'S no ho ho ho on the bourse today, as hopes for a consumer-led recovery evaporate as quickly as snow on an outback nativity set.

Talent Two and Billabong -- smashed by 50 per cent and 37 per cent respectively -- tell two parts of the dismal story.

Talent Two, a leading recruiter, reported current-half earnings wouldn't come within cooee of expectations because of reduced hiring caused by "fears of European contagion and the volatility of financial markets".

Talent Two's full-year EBITDA is expected to come in at less than half the expected $30m or so, but the shares probably received an extra dollop of punishment because the "market update" was issued at beer-o-clock on Friday.

Talent Two focuses on white-collar hiring, especially in the financial services sector where fearful workers rue their lack of skill at driving mining earthmovers or sealing S bends with O rings. It doesn't take a (still employed) rocket scientist to work out scared workers won't be buying electronic gizmos or surfwear, hence JB Hi-Fi's surprise downgrade last week (also after market close) and the ever-erratic Billabong's shocker this morning.

Retail Malaise Spreads Like Wildfire

The Age Reports Myer to close or shrink stores as retail malaise bites

Last week, failed apparel retailer Fletcher Jones said it would close a third of its stores immediately and shed 61 staff as administrators try to revive and sell the company.

Myer stores at Tuggeranong in the Australian Capital Territory and at Forest Hill in Melbourne's east will close early next year. Others outlets will be shrunk when the shopping centres in which they operate are redeveloped.

Real estate stockbroking analysts suggested the Myer stores at Dandenong Plaza and possibly in Wollongong, south of Sydney, could also be closed.

It is not just the stores that are shrinking. Myer has already reduced the range of white goods, electrical items, DVDs and CDs it offers, and is also reducing the number and range of location devices such as GPSs in response to changed sales conditions.

Harvey Norman is following suit, shrinking the space devoted to electrical goods in response to a plummet in prices, which means the retailer has to sell many more television sets, for example, to make the same money.

Tony writes ...

Hey Mish.

Myer is probably our oldest and most respected retail department store. (I would guess Sears or Bloomingdale's would be US equivalents) they are in real trouble and are proposing closing stores and downsizing others.

Retail business models are broken (as are 1000's of other business models in various sectors) and reality is sinking in. It will be very ugly when people realise that there is literally no way out.

Wages are way, way too high and working conditions are way too generous and most all other overheads are way too costly. Throw in terrible industrial relations laws that this Socialist government has introduced and you have a recipe for disaster.

Spotlight on Australia

For those who think Australia can do no wrong and the Australia is the place to be, need to take another look at Australian housing, Australian retail, and also the slowdown in China.

I contend things are going to get very nasty for those down under.

Thanks for the Links - Merry Christmas

I get links from "Brisbane Bear" nearly every day and links from Bran in Spain nearly every day.

Indeed, I get links from all over the world every day and I appreciate them. Sometimes they stack up like this before I use them and sometimes I never use them. But I do appreciate them regardless.

Many times I get 30 or more emails on a story gone viral. I Typically do not respond to such articles or use them.

If you do send a link, my most common response is simply "thanks". I get hundreds of emails a day and often cannot say much more than that.

If I never respond (not once, but repetitively), I cannot use the stories you send, you are consistently late, or I have already seen them. Most often I will not use or respond to conspiracy theories.

Finally, to those who email every day, please note I may say "thanks" only occasionally.

Merry Christmas Australia (they are a nearly day ahead of Chicago), and to everyone else too!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Consumers Win Game of Chicken; 40-60% Off "Entire Store" at Some Retailers; Low Prices are Good; US Senate Economic Illiteracy

Posted: 23 Dec 2011 10:33 AM PST

Buyer's Remorse

I have questioned all these glowing retail sales estimates in light of Buyer's Remorse; Record Volume of Returns Before Christmas; $217 Billion Returns Expected, Up 14%.

Retail Sales Not In Alignment With Shipping

Moreover, stores were supposed to be run low on merchandise so they could charge full prices. Yet reported retail sales are not in alignment with truck fuel usage as noted in Ceridian Fuel Index Shows Christmas Doesn't Come Early to the Trucking Industry

However, the Ceridian index is in essential alignment with with energy usage as noted on December 9 in US Petroleum and Gasoline Usage Plunges Last 5 Weeks Compared to Prior Years

Consumers Win Game of Chicken

Today we get a third piece of evidence that all is not well in retail-land. In spite of a glowing "Black Friday" reports, consumers held back and won a victory over retailers.

This was not supposed to happen, but Retailers Are Slashing Prices Ahead of Holiday, not just select items but rather entire stores.

Half off at the entire store at Ann Taylor. Sixty percent at Gap. Forty percent off almost everything at Abercrombie & Fitch.

"It's really a game of chicken," said David Bassuk, managing director and head of the retail practice at the consultant firm AlixPartners.

Many retailers entered the season "with pretty optimistic plans" that shoppers would rush into stores and pay full price, Mr. Bassuk said. But that did not pan out, and the final days before Christmas have retailers being "much more aggressive in terms of promotions being offered," he said.

Toys "R" Us announced on Thursday new deals on dozens of items for Friday and Saturday, including 'buy one, get one half off" on popular toys like Legos. A sampling of other promotions: Up to 70 percent off toys at Amazon; up to 50 percent off gifts at Restoration Hardware; 40 percent off almost everything at American Eagle Outfitters, Talbots, Limited and Wet Seal; and 30 percent off everything at J. Crew.

"There's been kind of a waiting game with retailers," Gerald L. Storch, the chief executive of Toys "R" Us, told CNBC last week. "And it looks like the consumer wins."

Paul Lejuez, an analyst at Nomura Equity Research, surveyed mall deals over the weekend and said he was concerned. "It looks like 40 percent is the new level you have to be at, 40 percent off, to drive traffic. Those that weren't at that level weren't getting their fair share," he said.

Going into the holiday season, inventories had grown more than three times as fast as sales at several retailers, including American Eagle Outfitters, Aéropostale, Gap Inc., Urban Outfitters, Chico's and Talbots.

"The inventory is worth so much less in two weeks," said the chief executive of a retailer, who asked not to be named because he did not want to reveal his store's strategy. "With that kind of inventory, you've got to get rid of it. Whatever the margin is today, it's that much lower next week and the week after when traffic stops."

Low Prices are Good

Low prices are good. The more the competition the better. Yet economic fools including US senators think otherwise.

Senator Snowe Calls on Amazon to Cancel Attack on Small Businesses

In an extremely misguided news conference Republican Senator Olympia Snowe Calls on Amazon to Cancel Attack on Small Businesses

U.S. Senate Committee on Small Business and Entrepreneurship Ranking Member Olympia J. Snowe (R-Maine) issued the following comment regarding Amazon.com's upcoming promotion targeting small business pricing:

Senator Snowe, said:

"Amazon's promotion - paying consumers to visit small businesses and leave empty-handed - is an attack on Main Street businesses that employ workers in our communities. Small businesses are fighting everyday to compete with giant retailers, such as Amazon, and incentivizing consumers to spy on local shops is a bridge too far. I often tour Main Streets in cities and towns across Maine to speak directly with local business owners, and they have told me repeatedly that they rely on increased sales during the holidays to grow their businesses and create new jobs. Indeed, according to the latest NFIB Economic Trends Survey, small business owners listed "poor sales" as the top problem they face. As such, during the busiest shopping season of the year, we should remember that our local restaurants, bookshops, and hardware stores are the economic engines in our communities. I urge Amazon to cancel its planned promotion, and look for ways to partner with Main Street, not promote anti-competitive behavior that could shutter the doors of America's small businesses."

Economic Idiocy at Its Finest

Senator Snowe's message is economic idiocy at its finest. She wants everyone to pay more for merchandise to protect small businesses. For starters, people have enough problems with high gas prices, high food prices, high debt, and shrinking real wages. Consumers need to save every cent they can. Competition from Amazon is a godsend.

Effectively Senator Snowe is asking everyone suck up to protect mom-and-pop businesses. Her message is misguided in more ways than one.

As noted, Snowe's position is a bad bargain for consumers, regardless of whether Amazon would comply. Ironically, even if Amazon complied (Amazon won't and they shouldn't), business would not go to mom-and-pop stores but to Walmart or Target or some other firm slashing prices 40-60%.

Need for More Amazons!

We need more Amazons not less. Every dollar consumers save on clothing, electronics, books, etc is another dollar that can go to food, shelter, and gasoline.

Speaking of which, more online shopping would help cut down on gasoline usage, and in case no one has noticed the world is running out of cheap energy sources.

It is disappointing but not surprising to see such economic incompetence in the US Senate, and that is one of the reasons the US is in such a fiscal mess in the first place.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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ECB Holds Off Bond Purchases, Italian 10-Year Yield Back Over 7 Percent

Posted: 23 Dec 2011 08:56 AM PST

The ECB has held off purchasing sovereign debt bonds in Europe the past two weeks and the results were easily predictable. Yield on 10-Year Italian debt is back over 7%.

Italy 10-Year Government Bond Yield

ECB Buys Mere $25 Million in Bonds

Yahoo!Finance reports ECB buys few bonds for second week

The European Central Bank held its bond purchases to a bare €19 million ($24.8 million) this week.

The scant amount indicates that the bank has for now almost ceased the controversial program which has helped keep borrowing costs down for Italy and Spain.

It bought a minimal €3.36 million last week. That makes two weeks of near-negligible purchases, following €635 million the week ending Dec. 9 and €3.66 billion the week ending Dec. 2.

The program has helped keep Italy and Spain from financial disaster from high borrowing costs. But the ECB says it is of limited amount and duration and that it is up to governments to cut their deficits and not wait for a central bank bailout.

Portugal 10-Year Government Bond Yield

I expect Portugal to blow sky high at any time, but the yield stubbornly remains at or near an unsustainable 13 percent. Nonetheless, the upward trend is clear and it is only a matter of time before this blows.

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