Mish's Global Economic Trend Analysis

The ECB's LTRO was a stunning success. Or was it? Certainly rates dropped in Italy and Spain. However, all that really happened is the ECB became the buyer of first resort in which banks front-ran the trade, buying sovereign bonds for sure profit, plowing back into the same problem that created the European mess.

The ECB's balance sheet skyrocketed in the process, and banks that plowed into those 3-Year LTROs (long term refinance operations) at cheap rates will face a huge rollover problem when the program ends, if not substantially before then.

Should something go wrong (and it will), then the ECB (or rather EMU member countries, especially Germany) will be on the hook for losses.

Consider the enormous mess over the past few weeks caused by a measly 40 billion euro holding of Greek debt by the ECB. Now take a look at the ECB's Balance Sheet expansion recently.

ECB Balance Sheet



Since July 8 2011, the ECB's balance sheet has expanded from 1.92 trillion Euros to 2.66 trillion Euros, a rise of 740 billion euros. €489 billion of that that was taken by 523 banks in the ECB's long-term-refinance-operation LTRO.

Round two is scheduled for February 29, and the ECB is rightfully getting nervous.

ECB Transmission Mechanism is Broken

FT Alphaville explains in the "Diagram Du Jour" How the ECB Transmission Mechanism is Broken
Courtesy of Nomura’s euro area economics and strategy team:



Nomura explains In a normal functioning money market a rate cut by the ECB should trigger a tick up in money (i.e. deposits) and credit growth.

But, in abnormal times the interest rate and the bank lending channel can break down. And when banks are shut out of the money markets, they are forced into asset fire sales; the pressure on bank balance sheets can be severe, preventing banks from expanding the supply of credit.

It doesn’t appear that the interest rate channel has improved since 2008; a worrying conclusion given the myriad ECB unconventional policy interventions in that period.ECB Buyer of First Resort, Banks Still Aren't Lending

Simply put, banks aren't lending and funds pile up at the ECB just as excess reserves have piled up at the Fed.

The ECB is in worse shape than the Fed because rules prevent it from taking losses. When, not if, Spanish rates head back up, the ECB is going to have a pile of losses it will have to force onto member countries.

The ECB is already sitting on small stack of losses on Portuguese bonds, but for now the ECB supposedly has a profit on Spanish bonds, just as it supposedly had a profit on Greek bonds.

Shutting Down the Liquidity Spigot

Reuters reports ECB Preparing to Close Liquidity Floodgates
The European Central Bank wants its second offer of cheap ultra-long funds next week to be its last, putting the onus back on governments to secure the euro zone's longer-term future.

Powerful members of the central bank's 23-man governing council are privately hoping demand at the February 29 auction will fall well short of the 1 trillion euros some expect, backing their view that it should be the last.

Central bank sources say they are worried that banks will become too reliant on ECB funds, removing the incentive to restart lending between themselves.

The ECB first offered banks low cost three-year money in December to stave off a freeze in interbank lending that threatened to make the region's debt crisis much worse.

Banks flocked to take advantage of the offer, filling their coffers, and ECB President Mario Draghi said "a major, major credit crunch" had been averted.

The ECB funneled banks nearly half a trillion euros in cash at the first operation on December 21. A Reuters poll of over 60 economists showed a mid-range expectation for it to allot another 492 billion euros next week with some expecting up to a trillion to be taken.

ECB officials accept they have to help the banking sector but they also want to send a message that the unprecedented liquidity provision will end.

Bundesbank chief Jens Weidmann has warned that "too generous" supply of liquidity could create risky incentives for banks, which could in turn store up future inflation risks.

Bank of Finland chief Erkki Liikanen is also worried about ample liquidity provision leading to future problems and has said the ECB must think about how to unwind the extraordinary measures. Other senior policymakers are concerned too.

Anecdotal evidence suggests banks in Spain used the first LTRO to make most use of this "Sarkozy trade" - a term adopted by markets after the French president suggested governments look to banks that tapped the ECB operation to buy their bonds.

Italy faces a debt issuance hump in the next few months and could do with the second LTRO fuelling demand for its debt. It needs to sell around 45 billion euros of its bonds a month in both March and April versus 19 billion in February.Temporary Fix

Market News International reports ECB 3-LTRO Cut Funding Crisis Risk But Won't Stoke Loans
The European Central Bank's new three-year refinancing operations have reduced the risk of a major funding crisis in the Eurozone, but they will not prevent banks from shrinking their balance sheets and constricting loan growth, Standard & Poors said in a study released Tuesday.

The rating agency also warned that the ECB's massive long-term lending has only deepened the divide that already existed between healthy banks and those that are more dependent on ECB funding. The ECB pumped E490 billion worth of three-year loans into the banking system in late December and is expected by some analysts to inject a similar or even larger amount at the second three-year LTRO to be held next Wednesday.

"The increase in ECB loans to banks and in bank deposits at the ECB reflects a deepening divide of the European banking industry. The gap is between the liquid, more credit-worthy banking groups that stockpile liquidity at the ECB and those that are less credit-worthy and relatively dependent on central bank funding and on government support programs in general," S&P noted. "The larger role of the ECB reinforces the credit tiering in the industry, in our view."

The reported cited "high dependence" on ECB funding for the banking industries of Greece, Ireland and Portugal, with "growing net use" by banks in Italy and Spain, and a "relatively neutral" position for French and Belgian banks. The banks in Germany, the Netherlands, Finland, Austria and Luxembourg, on the other hand, are net lenders to the ECB, the study showed.

The report also noted that the historically high volumes deposited by banks with the ECB -- a total of E730 billion as of February 3, in the overnight deposit facility and in one-week term deposits used to sterilize the central bank's sovereign bond purchases -- shows that the interbank market is still on very tentative footing.

"In our opinion, the huge amount of very low yielding deposits (25 basis points in the deposit facility, roughly 30-40 basis points on the fixed-term deposits) indicates that the top-tier banks prefer the safety of the ECB due to the uncertain conditions in the bank funding markets," S&P said, though it conceded that required risk weightings on interbank loans might also be a factor behind the large bank deposits at the ECB.

S&P's assessment of the ECB's three-year lending program is strikingly less upbeat than the central bank's own view. ECB President Mario Draghi and other top ECB officials have repeatedly argued in recent weeks that new cash is beginning to circulate in the economy and that the high level of deposits at the ECB was not necessarily evidence to the contrary.
Liquidity Floodgate Set to Backfire

1. The diagram above shows banks are hooked on LTROs
2. Those LTROs have created an exit problem for the ECB
3. Banks still are not lending so there has been no help to the real economy
4. Reserves are piling up at the ECB
5. The ECB is on the hook for losses, rather the net lenders to the system are: Germany, the Netherlands, Finland, Austria and Luxembourg

The widely touted "success" of the program will be fleeting. Look for huge stress on the system the moment rates in Spain and Italy head back up. A mess in Portugal (100% guaranteed) may trigger a catastrophe long before then.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Bloomberg reports Stocks Decline in Europe After Worse-Than-Expected PMI Data
Purchasing Managers Index

European (SXXP) services and manufacturing output unexpectedly shrank in February as the euro-area economy struggled to rebound from a contraction in the fourth quarter. A euro-area composite index based on a survey of purchasing managers in both industries dropped to 49.7 from 50.4 in January, London-based Markit Economics said in an initial estimate released by e-mail today. Economists had forecast a reading of 50.5, according to the median of 16 estimates in a Bloomberg News survey.

A separate report showed German services and manufacturing expansion unexpectedly slowed in February amid declining orders at factories in Europe’s largest economy. Unexpected?!

Exactly why anyone thought this would not happen is a mystery. The second mystery is why the data is so "good". Let's take a look at the actual data.

Markit Flash Eurozone PMI®

Please consider Markit Flash Eurozone PMI

• Flash Eurozone PMI Composite Output Index at 49.7 (50.4 in January). Second-highest in six months.
• Flash Eurozone Services PMI Activity Index at 49.4 (50.4 in January). Second-highest in six months.
• Flash Eurozone Manufacturing PMI at 49.0 (48.8 in January). Six-month high.
• Flash Eurozone Manufacturing PMI Output Index at 50.4 (50.4 in January).

The Markit Eurozone PMI® Composite Output Index fell from 50.4 in January to 49.7 in February, according to the preliminary ‘flash’ reading based on around 85% of usual monthly replies. The latest figure signalled a slight contraction in business activity following the marginal expansion seen in January, which had been the first month in which the Index had risen above the 50.0 no-change level since last August.

The latest reading was nevertheless the second-highest of the past six months, and suggests that the Eurozone economy has stabilised over the first two months of the year having contracted in the final quarter of 2011.





Incoming new business fell for the seventh month running, but the rate of deterioration eased for the fourth month in a row to register the smallest drop in demand for six months. Rates of decline eased in both manufacturing and services, with the latter showing the smaller decline. Manufacturers reported the weakest drop in demand for seven months, led by an easing in the rate of loss in new export orders, while the decline in service sector new business was the smallest in the current six-month sequence.

Backlogs of orders fell across the region for the eighth successive month, but at reduced rates in both manufacturing and services. The overall fall was the smallest for six months. However, a combination of falling inflows of new business and lower backlogs of work caused companies to trim their headcounts, leading to a slight drop in employment for the second successive month.

Reductions in headcounts were only marginal in both manufacturing and services, but contrasted with robust employment growth in both sectors during the first half of last year. Employment growth in Germany slowed to the weakest since March 2010, while only a modest gain was seen in France. Elsewhere in the Eurozone, the average rate of job losses eased to a four-month low but remained steep.

Commenting on the flash PMI data, Chris Williamson, Chief Economist at Markit said:

“A retreat back below the 50.0 no-change level for the Eurozone PMI is a disappointment, and highlights the ongoing risk that the region may be sliding back into recession. Although business conditions are showing signs of stabilising so far this year, which represents a marked improvement on the widespread deepening gloom seen late last year, the Eurozone is by no means out of the woods. Demand needs to improve considerably in coming months before we can safely say that the region will return to anything like reasonable growth.

“Encouragingly, business confidence continues to improve on the better news flow surrounding the sovereign debt crisis and renewed stimulus from the ECB. But even German companies remain unsure about the outlook, and many are clearly seeking to cut costs where possible in order to be more competitive in a tough business environment.

“Sharp divergences in performance also continued to be evident across the region, with modest growth in Germany contrasting with a steep decline in the periphery. Given the lack of domestic demand in austerity-hit peripheral countries, this divergence looks set to continue for some time.”Expect German-Periphery Divergence to Resolve to the Downside for Germany

The idea that Europe can avoid a recession is complete silliness. Europe is clearly in a recession already.

The amazing thing is things have not deteriorated more than they have. Unlike the Chief Economist at Markit, I expect the divergence to resolve to the downside for Germany, not for the divergence to continue for some time. Given conditions in Europe and Asia, the odds that Germany is immune from the global slowdown are essentially zero.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

The sad saga of unending, even impossible demands by the Troika on Greece continues. For example, please consider this set of paragraphs listed in a Eurogroup Statement of conditions placed on Greece.
The Eurogroup also welcomes Greece's intention to put in place a mechanism that allows better tracing and monitoring of the official borrowing and internally-generated funds destined to service Greece's debt by, under monitoring of the troika, paying an amount corresponding to the coming quarter's debt service directly to a segregated account of Greece's paying agent.

Finally, the Eurogroup in this context welcomes the intention of the Greek authorities to introduce over the next two months in the Greek legal framework a provision ensuring that priority is granted to debt servicing payments. This provision will be introduced in the Greek constitution as soon as possible. ....

We reiterate our commitment to provide adequate support to Greece during the life of the programme and beyond until it has regained market access, provided that Greece fully complies with the requirements and objectives of the adjustment programme.Lovely, isn't it? The Troika now wants Greece to pass constitutional amendments to meet its demands to bail out Greece French and German bondholders, the IMF, and the ECB.

How likely is that? The answer is "not very" given it cannot be done constitutionally until 2013 at the earliest according to Keep Talking Greece.

Please consider Greece Needs New Parliament to Pass Constitutional Provision Imposed by the Troika
Conditions for Constitutional Amendment

According to Greek constitution, an amendment of the constitution can take place after two consecutive legislation terms and not before five years have past from the latest amendment. As the Greek parliament passed an amendment in May 27, 2008, a new amendment before 2013 is hardly achievable.

Procedures

• 50 MPs have to propose the need for a Constitutional Amendment. The amendment proposal has to be approved at two parliament votings, which will take place in one month form each other. The approval needs ‘enhanced majority’ i.e. 3/5 of the MPs or 180 MPs have to vote in favor, although some provisions can pass with the ‘absolute majority’ of 151 votes in the parliament fo 300. With the parliament voting, the provisions to be amended will be determined.
• The proposal for a constitutional amendments can be voted by the current parliament, but a new parliament that will come into force after elections is needed to pass the amendment.
• The new parliament can pass the amendment during its first session after the elections. An enhanced majority of 3/5 is needed for the amendment to pass, that is: 180 votes in favor.
• No new amendment is allowed before five years have passed after the latest one.

The current Parliament could pass the amendment proposal within 1 to 1.5 month as Papademos coalition government partners have an enhanced majority of at least 184 votes (PASOK 130 seats, ND 64 seats). Should the elections take place towards end of April or beginning of May, the new parliament will have to wait for almost a year to pass the Eurogroup imposed provision. However as the Greek voters are angry at the two big parties that ruled the country for almost four decades, who can say in advance what will the political balances in the new parliament? Only Way to Win is to Lose

Technically, 2013 is "as soon as possible" but I highly doubt that is what the Troika meant.

As I said in 9 Day Race to Ecstasy; Only Way Greece Can Win Is To Lose:

Hold your horses on that "finalized" deal. There are still numerous austerity measures to implement, details to wrap up, ribbons to cut, and bows to tie. ...

Things have deteriorated so badly, the deal is in no one's best interest.

Germany clearly understands that simple fact and has put up roadblock after roadblock hoping to find the right set of conditions that Greece would not accept or fail to meet if they did accept them.

At this point, no statements by Greek politicians or the Troika are credible. Rather, I suggest statements are made by everyone to prevent further capital flight. If Greece was working on a plan to return to the Drachma they could not say so.

Likewise, if Germany was attempting to force Greece to return to the Drachma, Germany too would have to deny it. And Chancellor Merkel has, as noted in Merkel's Official Denial "I will have no part in forcing Greece out of the euro"; Schäuble Starts Salami Tactics on German Participation, Calls for Vote

The perpetual placement of roadblocks suggests that Greece will not survive the Ides of March. If by some miracle Greece does make the March 20 payment, I still stick with Disastrous Piecemeal Breakup of Eurozone Likely in the Cards because nothing has been solved.

The deal is in no one's best interest and cannot last.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

The Fiscal Times suggests Hillary Clinton is Now Secretary of Job Creation.
The State Department may become the nation's human resources department by adding job creation to its already bulging portfolio.

Secretary of State Hillary Clinton invited U.S. companies to call on Foggy Bottom experts for guidance on increasing their exports, safeguarding intellectual property abroad, and increasing foreign direct investment in the U.S. as part of a new administration effort to promote domestic jobs.

Speaking on Tuesday before more than 200 major U.S. executives operating in more than 120 countries, Clinton laid out the State Department’s plans through a concept Clinton coined “Jobs Diplomacy.” Under this approach, U.S. diplomats will take a more active role in looking out for U.S. business interests abroad, making a stronger effort to share their knowledge of foreign markets with U.S. multinationals.

Although it’s unclear what the exact structure of the State Department-private sector relationship will be, the concept could potentially be a boon to the U.S. economy, said Ted Alden, a senior fellow at the Council on Foreign Relations. “You’ve got in the embassies abroad what really amounts to market intelligence—people on the ground who are familiar with the business environments in the countries in which they are working and companies are looking to break into,” he said.Farcical Idea

The suggestion that Hillary Clinton is going to be a boon to jobs creation in the US is farcical. The only way government can create jobs is for government to get the hell out of the way. That means less government not more of it.

Indeed, the idea of an actual "Secretary of Job Creation" position is so ridiculous that Obama is likely to embrace it, wasting still more money we do not have on foolish ideas that should easily be discarded.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Hold your horses on that "finalized" deal. There are still numerous austerity measures to implement, details to wrap up, ribbons to cut, and bows to tie. Thus, the Greek Race to Unlock Bail-Out is on.
The Greek government is racing to complete a lengthy checklist of reforms demanded by international lenders before the end of February to unlock a €130bn bail-out agreed in the early hours of Tuesday morning after months of high-stakes bargaining.

The latest demands include dozens of “prior actions” that Greece must deliver as a condition of the rescue – from sacking underperforming tax collectors to passing legislation to liberalise the country’s closed professions, tightening rules against bribery and readying at least two large state-controlled companies for sale by June.

Andrew Balls, head of European portfolio management at Pimco, one of the world’s largest bond investors, said: “It is all an exercise in make-believe. Does anybody really believe any of the Greek debt sustainability numbers?”

In addition to the sheer volume of legislation the Greek government needs to pass, it will also be working against a backdrop of social unrest that has brought thousands of demonstrators on to the streets of Athens. Leftwing politicians, who have risen in the polls, have already vowed to challenge the deal ahead of expected April elections.

In what could set a precedent for future European Union rescues, the new deal gives the lenders extraordinary powers to monitor Greece’s policies and ringfence its revenues to ensure that foreign creditors are paid first.Only Way Greece Can Win Is To Lose

The irony to this mad dash to hell is the only way Greece can win is to lose. To understand why please read Why Greece Must Exit the Eurozone, How it Will Happen (and Why Portugal and Spain Will Follow); Does the Euro Act Like a Gold Standard?

For an alternative angle with the same conclusion please consider Greek Bailout Or Deliverance? by Peter Tchir.
The Greek government has been a complete failure. They are represented in these negotiations [by someone] who owes his job to the people he is negotiating with. His job was not to represent the Greek people, but to force a deal down their throats. No work was done on alternatives to the bailout (until recently). He didn’t explore what options Greece had other than the bailout. All he did was create fear that without a bailout Greece would fall into total chaos and used that to get his job done – passing austerity measures imposed on the people by the Troika. The situation in Greece seems awful. The economy is collapsing. The human toll is growing, yet the puppet didn’t spend time looking for alternatives, looking for paths that might be good for Greece, but instead tried to promote irrational fear and get his job done.

Any attempt by Greeks to explore alternatives has been shut down. Remember when the last Greek leader had the silly idea of a referendum? Samaras mentioned that the April elections could change things, which led to some demands that the elections be changed, but ended (so far) with him just groveling for forgiveness. And that is a trend that is growing. This is no longer any attempt by one nation to help another, this is now about creating a pecking order. Too many things have been said that cannot be unsaid that hurt the dignity of the Greeks. If they had a leadership that had worked on alternatives to the bailout, maybe the PSI talks would already be over. Instead, there is a real risk they accept a deal and allow their dignity and sovereignty to be stripped away, all for a deal that probably isn’t in their best interests. The deal is in the best interest of the Troika – not Greece.Deal In No One's Best Interest 

The last line in the snip above is  "The deal is in the best interest of the Troika – not Greece." Actually, that's not quite right. Although that statement was true at one point, it no longer is.

Things have deteriorated so badly, the deal is in no one's best interest.

Germany clearly understands that simple fact and has put up roadblock after roadblock hoping to find the right set of conditions that Greece would not accept or fail to meed if they did accept them.

At this point, no statements by Greek politicians or the Troika are credible. Rather, I suggest statements are made by everyone to prevent further capital flight. If Greece was working on a plan to return to the Drachma they could not say so.

Likewise, if Germany was attempting to force Greece to return to the Drachma, Germany too would have to deny it. And Chancellor Merkel has, as noted in Merkel's Official Denial "I will have no part in forcing Greece out of the euro"; Schäuble Starts Salami Tactics on German Participation, Calls for Vote

Humiliating Greece

Germany originally asked Greece to Cede Sovereignty to Eurozone "Budget Commissioner".

When France objected, the German proposal was watered down to "I will Give You Money If You Give It Right Back" a Mathematical Scam to Prevent CDS Triggers

When Greece reluctantly agreed to that demand, the German Finance minister Wolfgang Schaeuble then asked Greece to suspend elections. The Greek president responded with an Attack on German Minister's "Insults"
"I cannot accept Mr Schaeuble insulting my country," said Papoulias, an 82-year-old veteran of Greece's resistance struggle against the Nazi occupation of World War Two.

"Who is Mr Schaeuble to insult Greece? Who are the Dutch? Who are the Finnish?" he said in a speech at the Defense Ministry.

His comments marked a highly unusual foray into international controversy for Papoulias, who normally steers clear of daily political debate.

Resentment of the tough German stand on Greece's failure to meet targets set by the EU and IMF in return for financial aid has become widespread in recent months.

Protesters burned a German flag last week and newspapers have run computer-generated pictures of Chancellor Angela Merkel in a Nazi uniform.New Roadblocks at Every Turn

Imagine the outcry if someone proposed Germany to suspend elections or to dump Merkel in the first place for a puppet appointed chancellor.

Regardless, every time Greece agrees to anything, new demands are put in place. Thus, in spite of an announced deal, Greece still has a basket of items to complete and Germany is doing everything it can so that Greece will fail.

The perpetual placement of roadblocks suggests that Greece will not survive the Ides of March. If by some miracle Greece does make the March 20 payment, I still stick with Disastrous Piecemeal Breakup of Eurozone Likely in the Cards because nothing has been solved.

To answer the question posed by Andrew Balls, head of European portfolio management at Pimco, who said: “It is all an exercise in make-believe. Does anybody really believe any of the Greek debt sustainability numbers?”

The answer is: No, not even the Troika, and especially not Germany. The deal then is in no one's best interest and cannot last.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Der Spiegel has an interesting and frequently humorous look at politics in a 22 slide-show presentation on Mardi Gras.
German carnival culminated on Rose Monday with huge parades in the cities of Cologne, Düsseldorf and Mainz. Hundreds of thousands lined the streets to catch sweets and watch the marching bands and satirical floats, one of which illustrated the close relationship between Angela Merkel and Nicolas Sarkozy.

German carnival started in earnest last Thursday, Old Wives' Day, when women went around storming town halls and committing symbolic mass castration by cutting off the ties of all the men they come across in their rampage.

The festival reached its height on Rose Monday with the big processions. But the partying will continue on Tuesday. Parades and fancy dress balls have been going on in scores of towns and villages across the predominantly Catholic Rhineland and south-west of the country, which have come to a virtual standstill for the best part of a week.

Sadly, it will all end on Ash Wednesday, the start of Lent, the Christian fasting season before Easter, when order and discipline will be restored on German streets for another year.Carnival Images




The carnival processions in Cologne, Düsseldorf and Mainz are famous for their satirical floats as Germany's Catholic regions celebrate the country's version of Mardi Gras. This one in Düsseldorf purports to illustrate the close political relationship between French President Nicolas Sarkozy and Chancellor Angela Merkel.



Ballerina Angela Merkel shielding Europe from the euro crisis with her ample tutu. The term "Rettungsschirm" on her tutu is the German expression for "bailout package".



Christian Wulff, who resigned as president on Friday following months of criticism for accepting discounts and taking free vacations with the rich and famous, gets a serious pasting. This one in Düsseldorf portrays him as a fallen, plucked eagle.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

As a point of curiosity, the Greek 1-Year Bond Yield touched 682% today, now down to a mere 666%. Bloomberg quotes the open as 566%, if correct, the one year yield soared 116 percentage points from the open to the high.

Deal "Really" Finalized?

Open Europe says Many questions around the second Greek bailout remain unanswered
We finally have an agreement on the second Greek bailout…in principle. It only took eight months. If you’re of the belief that a disorderly Greek default would have triggered Armageddon, the deal that was agreed (as ever ‘agreed’ is used loosely) by Euro finance ministers in the early hours of this morning is broadly good news.

Below we outline a few key issues (not exhaustive by any means, there are many more) and give our take on how they could play out.

Greater losses for private sector bondholders: Reports suggest the Greek government was sent back to the negotiating table with bondholders at least four times during last night’s meeting. Nominal write downs for bond holders now top 53.5% (or around 74% net present value). The leaked Greek debt sustainability analysis (DSA) assumes a participation rate of 95%.

Open Europe take: 95%, really? We weren’t convinced the previous threshold of 90% with a lower write down would be reached and that was while potential ECB participation was still on the table. Although this target may have been agreed with the lead negotiators for the private sector, it is far from a cohesive group, diminishing the value of the agreement. It will be interesting to see how bondholders respond to the plan but we think that hold outs could well be more than 5%.

Greek ‘prior actions’: The deal includes a list of requirements which Greece must meet in the next week to get final approval for the bailout. These include: passing a supplementary budget with €3.3bn in cuts this year, cuts to minimum wage, increase labour market flexibility and reforms opening up numerous professions to greater competition.

Open Europe take: The now infamous €325m in cuts still needs to be specified. The huge adjustments to labour markets and protected professions mark a cultural shift in Greece – pushing these through will not be painless and could result in further riots.

Fundamental tensions in objectives of the programme: The DSA notes that the prospect achieving a return to competitiveness while also reducing debt is very small – the massive austerity could induce a further recession.

Open Europe take: As we have noted all along the assumption that Greece can impose massive levels of austerity and then return to growth in the next two years is a big leap and almost inherently contradictory. We’d also note that the cuts in expenditure in Greece are larger than have been attempted anywhere in recent memory (successful or failed). Likely to be substantial slippages in the austerity programme while the growth programme remains almost non-existent, essentially closing the book on Greek debt sustainability.

Further favourable treatment for the ECB: ECB and national central banks avoid taking losses on their holdings of Greek bonds but promise to redistribute ‘profits’ from these holdings so that they can be used in Greece.

Open Europe take: See our previous post for a full discussion of this issue. Markets still don’t seem too worried by suddenly being subordinated by central banks in Europe – they should be. This raises questions of the basic premise that all bonds are treated the same, based on who issued them not who holds them. As we’ve noted before, the whole concept of ‘profits’ is misleading, while any distribution would happen anyway – this is not a commitment from central banks but a further fiscal commitment by the eurozone (should really be included in total bailout funding).

Greece may not be able to return to the market even after three years: The DSA points out that any new debt issue will essentially be junior to existing debt, hampering the chances of Greece issuing new debt in 2014/2015.

Open Europe take: This point isn’t too clear but given that the eurozone, IMF and ECB will own such a larger percentage of Greek debt in 2014 any new private sector debt will be massively subordinated and at risk of taking losses if anything goes wrong with the Greek programme. Additionally after the restructuring the remaining private sector debt will be governed under English law and will have the EFSF sweetener – further subordinating any new debt issued to the market. Why would anyone want to purchase Greek debt in this situation (especially given the other concerns above)?

EFSF funding requirements: The EFSF will have to raise €70.5bn ahead of the bond swap – €30bn in sweeteners for the private sector, €5.5bn to pay off interest and €35bn to provide Greek banks with assets to use to gain liquidity from the ECB.

Open Europe take: We’ve already questioned whether raising these funds so quickly can be done and whether the approval from national parliaments will be forthcoming. Even if it is the €35bn is said to fall outside of the €130bn meaning it is expected to be returned swiftly – given the uncertainty over how long banks will need these assets (as long as Greece as declared as in selective default by the rating agencies) this may be a generous assumption.

There is also no talk of the money to recapitalise banks. This is a risky strategy given that Greek banks’ main source of capital (government bonds) will have just been wiped out significantly. The needs were previously specified at €23bn, although reports now suggest they could top €50bn. It’s not clear where this money will come from or when it will be raised. The bond restructuring will be like dancing through a minefield for Greek banks.

We’re still trawling through the responses, analysis and documents to come out of the meeting – meaning there are likely to be plenty more questions and uncertainties to come.

The one thing that is clear is that even if this bailout is ‘successful’, it will set Greece up for a decade of painful austerity and low growth leading to social unrest, while the eurozone will have to provide on-going transfers to help it keep its head above water.

Sorry to be killjoys but as Dutch Finance Minister Jan Kees de Jager put it, the deal isn’t “something to cheer about”. Open Europe Offers excellent analysis of the issues.

• On the ECB Swap: Decoding the ECB bond swap
• On a Continually Insolvent Greece: Take III: Don't bore me with the details

The Improbable Greece Plan

Felix Salmon chimes in with The Improbable Greece Plan.
Greece is now officially a ward of the international community. It has no real independence when it comes to fiscal policy any more, and if everything goes according to plan, it’s not going to have any independence for many, many years to come.

The problem, of course, is that all the observers and “segregated accounts” in the world can’t turn Greece’s economy around when it’s burdened with an overvalued currency and has no ability to implement any kind of stimulus. Quite the opposite: in order to get this deal done, Greece had to find yet another €325 million in “structural expenditure reductions”, and promise a huge amount of front-loaded austerity to boot.

The effect of all this fiscal tightening? Magic growth! A huge amount of heavy lifting, in terms of making the numbers work, is done by the debt sustainability analysis, and specifically the assumptions it makes. Greece is five years into a gruesome recession with the worst effects of austerity yet to hit. But somehow the Eurozone expects that Greece will bounce back to zero real GDP growth in 2013, and positive real GDP growth from 2014 onwards. Here’s the chart:



Note that the downside, here, still looks astonishingly optimistic: where’s all this economic growth meant to be coming from, in a country suffering from massive wage deflation? And under this pretty upbeat downside scenario, Greece gets nowhere near the required 120% debt-to-GDP level by 2020: instead, it only gets to 159%. And to make things worse for the Eurozone, the report explicitly says that under the terms of this deal, “any new debt will be junior to all existing debt” — in other words, there’s no way at all that Greece is going to be able to borrow on the private markets for the foreseeable future, so long as this plan is in place.

As in all bankruptcies, the person providing new money gets to call the shots. And it’s pretty clear that the Troika is going to have to continue providing new money long through 2020 and beyond. Under the optimistic scenario, Greece’s financing need doesn’t drop below 7% of GDP through 2020. Under the more pessimistic scenario, it’s 8.8%. And here’s the kicker: all of that money is being lent to Greece at very low interest rates of just 210bp over the risk-free rate. Much higher, and Greece’s debt dynamics get even worse. But of course even with well-below-market interest rates, Greece is still never going to pay that money back.

The cost of this plan is €130 billion right now, and €170 billion over three years, through the end of 2014; it just continues going up from there, with no end in sight. Remember that total Greek GDP, right now, is only about €220 billion and falling.

Oh, and in case you forgot, this whole plan is also contingent on a bunch of things which are outside the Troika’s control, including a successful bond exchange. The terms of the deal, for Greek bondholders, are tough: there’s a nominal haircut of 53.5%, which means that you get 46.5 cents of new debt for every dollar of existing bonds that you hold. The new debt will be a mixture of EFSF obligations and new Greek bonds; the new Greek debt will pay just 3% interest through 2020, and 3.75% until maturity in 2042.Incorrect Conclusion

Salmon has this nailed except for his conclusion.
Europe’s politicians know this, of course. But at the very least they’re buying time: this deal might well delay catastrophic capital flight from Greece, and give the Europeans more time to work out how to shore up Portugal if and when that happens. Will they make good use of the time that they’re buying? I hope so. Because once the Greek domino falls, it’s going to take a huge amount of money, statesmanship, and luck to prevent further dominoes from toppling. Simply a Prelude for Return to the Drachma?

By now, and at long last European politicians  do realize Greece is hopeless, so on that score Salmon is correct. However, I still think there is a very good chance this deal was done only to protect the ECB as a prelude to pulling the plug on Greece funding sometime between now and March 20 when the next bond payment is due. If I am correct, at some point between now and then, most likely a Friday or Saturday, Greece will declare a bank holiday.

Please see Germany Draws Up Plans for Greece to Leave Euro; Athens Rehearses the Nightmare of Default; Merkel's Denial Rings Hollow for further discussion.

The sooner Greece exits the euro, the more likely Greece will be able to prevent still more capital flight. The smart money has already left.

We are only discussing the dumb money now, and the best way to convince the masses that all is well is to reach a deal. Yes this borders on the conspiratorial side, but the ducks are lined up and squawking loudly.

Further delays serve absolutely no purpose and will only encourage more capital flight, especially if there is more protests and panic in the streets. If so, Salmon is incorrect on preventing capital flight.

Then again, perhaps I am overly optimistic that the EU finally does the right thing with Greece.

Regardless, Salmon is overly optimistic for sure, because there is virtually no chance to shore up Portugal, Spain, or Ireland. The dominoes will topple, the only question is "how disorderly?"

Disastrous Piecemeal Breakup of Eurozone Likely in the Cards

The best solution would be for Germany to exit the Eurozone  first, but that is not going to happen.

The next best option would be for a simultaneous bank holiday involving all Greece, Portugal. Spain, and Ireland at the same time as noted in Why Greece Must Exit the Eurozone, How it Will Happen (and Why Portugal and Spain Will Follow); Does the Euro Act Like a Gold Standard?

That too is highly unlikely. Thus the odds of a protracted, one-by-one, and very costly breakup of the eurozone is the most likely outcome whether or not Greece survives the Ides of March.

For further discussion including an analysis of why it would be best for Germany to exit the Eurozone, please see Eurozone Breakup Logistics (Never Believe Anything Until It's Officially Denied).

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Reuters reports Deal reached on second Greek bailout package
Euro zone finance ministers struck a deal early on Tuesday for a second bailout program for Greece that will involve financing of 130 billion euros and aims to cut Greece's debts to 121 percent of GDP by 2020, EU officials said.

"The financial volume (of the Greek package) is 130 billion euros and debt-to-GDP (will be) 121 percent. Now it's down to work on the statement," one official involved in the negotiations told Reuters.

Another official confirmed that the financing would total 130 billion euros with the aim of reducing Greece's debts from around 160 percent of GDP now to 121 percent by 2020.Deal Won't Hold

Even if true, the deal won't last. It may not even last a month. In fact, it may be nothing but a setup to convince Greeks to leave their money in banks.


Greek Debt Nightmare Laid Bare

Please consider Greek Debt Nightmare Laid Bare
A “strictly confidential” report on Greece’s debt projections prepared for eurozone finance ministers reveals Athens’ rescue programme is way off track and suggests the Greek government may need another bail-out once a second rescue – set to be agreed on Monday night – runs out.

The 10-page debt sustainability analysis, distributed to eurozone officials last week but obtained by the Financial Times on Monday night, found that even under the most optimistic scenario, the austerity measures being imposed on Athens risk a recession so deep that Greece will not be able to climb out of the debt hole over the course of a new three-year, €170bn bail-o

It warned that two of the new bail-out’s main principles might be self-defeating. Forcing austerity on Greece could cause debt levels to rise by severely weakening the economy while its €200bn debt restructuring could prevent Greece from ever returning to the financial markets by scaring off future private investors.

A “tailored downside scenario” in the report suggests Greek debt could fall far more slowly than hoped, to only 160 per cent of economic output by 2020 – well below the target of 120 per cent set by the International Monetary Fund. Under such a scenario, Greece would need about €245bn in bail-out aid, far more than the €170bn under the “baseline” projections eurozone ministers were using in all-night negotiations in Brussels on Monday.

The report made clear why the fight over the new Greek bail-out has been so intense. A German-led group of creditor countries – including the Netherlands and Finland – has expressed extreme reluctance to go through with the deal since they received the report.We are supposed to believe all of that has been magically fixed?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Looking for another reason for an artificially low unemployment rate?

Consider disability fraud, people claiming disabilities they do not have such as mental illness. Prior to the great recession 33% of applicants claimed mental illness. The number is 43% now.

There was fraud before, of course. There is even more fraud now.

Please consider Jobless disability claims soar to record $200B as of January
Standing too many months on the unemployment line is driving Americans crazy — literally — and it’s costing taxpayers hundreds of billions of dollars.

With their unemployment-insurance checks running out, some of the country’s long-term jobless are scrambling to fill the gap by filing claims for mental illness and other disabilities with Social Security — a surge that hobbles taxpayers and making the employment rate look healthier than it should as these people drop out of the job statistics.

As of January, the federal government was mailing out disability checks to more than 10.5 million individuals, including 2 million to spouses and children of disabled workers, at a cost of record $200 billion a year, recent research from JPMorgan Chase shows.

The sputtering economy has fueled those ranks. Around 5.3 percent of the population between the ages of 25 and 64 is currently collecting federal disability payments, a jump from 4.5 percent since the economy slid into a recession.

Mental-illness claims, in particular, are surging.

During the recent economic boom, only 33 percent of applicants were claiming mental illness, but that figure has jumped to 43 percent, says Rutledge, citing preliminary results from his latest research.

His research also shows a growing number of men, particularly older, former white-collar workers, instead of the typical blue-collar ones, are applying.

The big concern about the swelling ranks is that once people get on disability, they’re unlikely to give it up and go back to work.What's the Number?

The above article says there were 10.5 million individuals receiving disability checks. A quick check of Fed data shows there are 27.5 million Civilian Noninstitutional Population - With a Disability, 16 years and over



Unfortunately the data only goes back to mid-2008. I would like to see the pattern before the recession began.

We can see a brief recovery for a year following the end of the recession. However, since mid-2010 the number of people with disabilities has risen by 1.5 million.

All of them dropped out of the labor force and are no longer counted as unemployed.

Household Survey Data



click on chart for sharper image

In the last year, the civilian population rose by 3,565,000. Yet the labor force only rose by 1,145,000. Those not in the labor force rose by 2,420,000.

That is an amazing "achievement" to say the least.

Disability Math

If one million of those disability claims are fraudulent, the civilian labor force would rise to 155,395,000 and the number of unemployed would rise to 13,758,000. The resultant unemployment rate would be reported as 8.9%, not 8.3%.

However, we need to go back further  because there were certainly fraudulent claims prior to the recession. For the sake of argument, let's assume 25% of the total is fraudulent.

Unemployment Rate with 25% Fraud

25% of 27.5 million is 6,875,000.
The civilian labor force would rise to 161,270,000 from 154,395,000
The number of unemployed would rise to 19,633,000 from 12,758,000
The resultant unemployment rate would be 19633/161270 = 12.2%

Don't like that number? Let's assume a minimum of 10% fraud.

Unemployment Rate with 10% Fraud

10% of 27.5 million is 2,750,000.
The civilian labor force would rise to 157,145,000 from 154,395,000
The number of unemployed would rise to 15,508,000 from 12,758,000
The resultant unemployment rate would be 15508/157145 = 9.9%

Is there anyone who thinks disability fraud is less than 10%? If not, then the unemployment rate would be at least 9.9% assuming those in fraudulent claims started looking for work.

For more on the incredulous, artificially low unemployment rate posted by the BLS, please see ...

• Fundamental and Mathematical Case for Structurally High Unemployment for a Decade
 
• Fewer Nonfarm Employees Now Than December 2000; Unemployment Rate: Some Things Still Don't Add Up; Obamanomics?
 
• Gallup Reports Unemployment in February Increases to 9%, Up From 8.6%; Underemployment Increases to 19%
   

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Several people have asked me about statements I have made that "Greece is in a hopeless situation until it exits the Eurozone."

Actually Greece is in a horrific condition whether or not it exits the Eurozone as the Troika literally destroyed Greece (perhaps purposely to protect French and German banks), by dragging this mess out the way they have.

A Primer on the Euro Break-Up

To understand why Greece (then Spain and Portugal and perhaps even Italy) must exit the Eurozone, one must first understand the flaws of the European Monetary Union.

In general terms, the question at hand is "what makes good and bad currency unions?" The best answer I have seen written anywhere is also in the same article that explains in depth how sovereign defaults and currency devaluations happen.

Please consider some pertinent snips from A Primer on the Euro Break-Up by Jonathan Tepper of Variant Perception.
THE NEED TO EXIT: A ONE SIZE FITS ALL MONETARY POLICY

Europe exemplifies a situation unfavourable to a common currency. It is composed of separate nations, speaking different languages, with different customs, and having citizens feeling far greater loyalty and attachment to their own country than to a common market or to the idea of Europe.

Professor Milton Friedman, The Times, November 19, 1997

Before the euro was created, Robert Mundell wrote about what made an optimal currency area. It is a groundbreaking work that won him a Nobel Prize. He wrote that a currency area is optimal when it has:

1. Mobility of capital and labor – Money and people have to be willing and able to move from one part of the currency area to another.
2. Flexibility of wages and prices – Prices need to be able to move downwards, not just upwards.
3. Similar business cycles – Countries should experience expansions and recessions at the same time (technically this is referred to as “symmetry” of economic shocks).
4. Fiscal transfers to cushion the blows of recession to any region – If one part of the currency area is doing poorly, the central government can step in and transfer money from other regions.

Europe has almost none of these characteristics. Very bluntly, that means it is not a good currency area.

The United States is a good currency union. It has the same coins and money in Alaska as it does in Florida and the same in California as it does in Maine. If you look at economic shocks, the United States absorbs them pretty well. If someone was unemployed in southern California in the early 1990s after the end of the Cold War defense cutbacks, or in Texas in the early 1980s after the oil boom turned to bust, they could pack their bags and go to a state that is growing. That is exactly what happened.

This doesn’t happen in Europe. Greeks don’t pack up and move to Finland. Greeks don’t speak Finnish. And if Americans had stayed in California or Texas, they would have received fiscal transfers from the central government to cushion the blow. There is no central European government that can make fiscal transfers. So the United States works because it has mobility of labor and capital, as well as fiscal shock absorbers.

The fundamental flaw of the euro is that it provides one monetary policy for the entire euro area. This has led towards wildly divergent real effective exchange rates and has produced asset bubbles. ... Does the Euro Act Like a Gold Standard?

Here are a few more snips that caught my attention.
EURO AS A MODERN DAY GOLD STANDARD: SIMILARITIES AND DIFFERENCES

In truth, the gold standard is already a barbarous relic. All of us, from the Governor of the Bank of England downwards, are now primarily interested in preserving the stability of business, prices, and employment, and are not likely, when the choice is forced on us, deliberately to sacrifice these to outworn dogma... Advocates of the ancient standard do not observe how remote it now is from the spirit and the requirements of the age.
John Maynard Keynes, 1932, in "A Retrospective on the Classical Gold Standard, 1821-1931" and in Monetary Reform (1924), p. 172

The modern euro is like a gold standard. Obviously, the euro isn’t exchangeable for gold, but it is similar in many important ways. Like the gold standard, the euro forces adjustment in real prices and wages instead of exchange rates. And much like the gold standard, it has a recessionary bias. Under a gold standard, the burden of adjustment is always placed on the weak-currency country, not on the strong countries. All the burden of the coming economic adjustment will fall on the periphery.

Under a classical gold standard, countries that experience downward pressure on the value of their currency are forced to contract their economies, which typically raises unemployment because wages don’t fall fast enough to deal with reduced demand. Interestingly, the gold standard doesn’t work the other way. It doesn’t impose any adjustment burden on countries seeing upward market pressure on currency values. This one-way adjustment mechanism creates a deflationary bias for countries in a recession.

What modern day implications can one draw from the gold standard-like characteristics of the euro?

Barry Eichengreen, arguably one of the great experts on the gold standard and writer of the tour de force Golden Fetters, argues that sticking to the gold standard was a major factor in preventing governments from fighting the Great Depression. Sticking to the gold standard turned what could have been a minor recession following the crash of 1929 into the Great Depression. Countries that were not on the gold standard in 1929 or that quickly abandoned it escaped the Great Depression with far less drawdown of economic output.

It is odd then that Eichengreen and most economists today encourage peripheral countries to stay inside the euro as a proper policy recommendation when they would have encouraged countries in the 1930s to leave the gold standard.Barbarous Relic - Not

Anyone quoting Keynes in a positive manner is going to elicit a negative reaction from me.

Gold is hardly a barbarous relic. Nearly all of the problems cited with a gold standard have little to do with gold per se, but everything to do with fractional reserve lending, the rampant expansion of credit, and arrogant central bank planners who think they (and not the markets), know how to set interest rates.

Russia Central Planners vs. Central Banks

By trying to prevent recessions and bail out banks every time they got into trouble, The Greenspan Fed, followed by the Bernanke Fed spawned the biggest housing and credit bubbles in the history of the world.

Can someone, anyone tell me why economists correctly railed against communist Russia central planners, yet openly praise complete fools at the Fed who think they can plan where interest rates ought to be?

Setting interest rates by central planning committee cannot be done, and the results speak for themselves. Indeed, history has proven that central bank malfeasance spawns boom-and-bust cycles of increasing amplitude over time. 

It's high time we stop blaming the gold standard for problems and instead lay the blame where it squarely belongs, on fractional reserve lending, central banks, and government interference in the free markets.

Currency Controls, Bank Holidays, and PIIGS to the Slaughter

The above section constitutes my main complaint in an otherwise brilliant article, packed full of historical examples as to how sovereign defaults occur.

It's 53 pages long and well worth a read in entirety.

Ideal Breakup

The ideally, Greece, Portugal, Ireland, and Spain should all drop out of the Eurozone at once, but it's far more likely this will drag out over time. If so, Portugal is on deck, followed by Spain.

In spite of recent praise of Portugal by German Finance Minister Wolfgang Schäuble, it would be foolish for anyone to trust what he or chancellor Merkel says. Like Greece, the situation in Portugal and Spain is hopeless, just not far enough progressed yet.

Fate was sealed on February 7, with Merkel's Official Denial "I will have no part in forcing Greece out of the euro"; Schäuble Starts Salami Tactics on German Participation, Calls for Vote.

Note carefully how the "I"s are being dotted and the "T"s crossed: Germany Draws Up Plans for Greece to Leave Euro; Athens Rehearses the Nightmare of Default; Merkel's Denial Rings Hollow

Look for Greek CDS to Trigger in March possibly with preceding bank holiday ahead of the March 20 bond due date.

The weekend of March 11-12 or 18-19 look like ideal candidates for a bank holiday and Greece exit of the Eurozone.

If you have money in Greek banks, get it out now!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

It's time to bring home the troops, all of them, from every country where they do not belong (which is everywhere but home).

Instead, I am saddened to report a WTF moment on warmongering insanity: Canada wants military base in Germany
Canada plans to set up a military base in Germany under a deal that will allow the expanding Canadian military to increase its global reach.

The new "operational support hub" – along with others to be set up around the world – will allow Canada to deploy troops and supplies to distant hotspots on short notice, said a joint statement by the German and Canadian governments as German Defence Minister Thomas de Maiziere paid a visit to Ottawa.

It’s still not clear when the base at Cologne-Bonn Airport will be set up or how many Canadians will be there, although troop numbers will not approach the tens of thousands of Americans currently stationed in Germany.

De Maiziere told a press conference that he and his Canadian counterpart, Peter MacKay, are also discussing missile defence, the future of Afghanistan and the nuclear component of NATO defence capabilities – all topics of an upcoming NATO summit in Chicago in May.

According to the Canadian CBC television network, Germany and Canada have recently been expanding their defence cooperation as both countries grapple with prolonged military deployments to Afghanistan.

The Canadians have experimented with setting up temporary logistics hubs in Germany to support their Afghanistan mission – one successful such venture was recently launched alongside the American military in Spangdahlem, Rhineland-Palatinate.From Temporary to Permanent Insanity 

Canada has gone from temporary insanity to a more permanent form thereof, though not as bad as the US which has troops in 140 countries.

Here are a few comments to the article that I agree with ...

1. Supernova says: W*T*F every creep from NA want their crappy basis in Germany. Go do your military exercise on glaciers that were given to you. Get the hell out of DE!
2. Sebastian says: As a dual citizen, Germany/Canadian I think they should keep the military out.
3. Carlm says: What are those Canadians thinking, eh? Let the Germans fend for themselves, they've got the money and the know how to do the job, if they choose. But why would they when others, namely the US, are dumb enough to do it for them.
4. Christopheuk25 says: The Americans have about 80.0000 troops in Germany the UK yes remember them they still have 22,000 troops in Germany. There may be some French troops still in Germany though what good they would be is anyone's guess. The cost to keep US and UK troops in Germany for defense is astronomical to both countries especially in these serious economic times.

Looks like Canada could use a Ron Paul type candidate as well. On second thought, every country in the entire world does. Indeed, the world would be a safer place and taxpayers everywhere would have more money in their pockets instead of feeding the military complex.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Ron Paul went after Santorum, on Sunday on CNN's "State of the Union with Candy Crowley".
"His voting record is ... from my viewpoint, an atrocious voting record -- how liberal he's been in all the things he's voted for over the many years he was in the Senate and in the House," Paul said.

He had kinder words for Mitt Romney, praising his "acceptable management style," a qualification that he said Santorum and Newt Gingrich did not share.

"But as far as issues go, I'm uncomfortable with all three of them," Paul added. "I think they are the status quo and they are not change -- they don't want to really change anything. That's what I'm offering."


Paul is certainly correct about all of them. They do not offer change. I will write in Ron Paul unless Paul is the Republican nominee.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

At some point, I suggest now, Japan needs to stop blaming the earthquake and tsunami for its collapse in exports. Furthermore, Japan is going to have difficulty financing its debt unless its turns the situation around quickly.

That may not be likely as Japan logs record trade deficit in JanuaryJapan posted its biggest ever trade deficit in January, topping the previous record seen during the financial crisis in 2009, Ministry of Finance data showed On Monday, underlining concerns that a persistent trade gap may undermine the country's ability to finance its debt.

The trade deficit stood at 1.475 trillion yen ($18.59 billion), against median market forecast for 1.468 trillion yen, marking a fourth straight month of deficit, as weak global demand and a strong yen hurt exports and robust fuel demand boosts imports.

Exports fell 9.3 percent from a year earlier, down for a fourth straight month. That compared with a 9.5 percent drop expected by economists, following an 8.0 percent decline in the year to December.

Japan logged an annual trade deficit in 2011 for the first time in 31 years as the March disaster, a global slowdown and a strong yen dealt a blow to an export-reliant economy.Imports Up Exports Down

Imports rose 9.8 percent from a year ago and energy prices are one of the reasons. Japan needs alternate energy sources following the shutdown of its nuclear reactors.

While rising imports may still be blamed on the tsunami, the collapse in exports has a different reason. Europe is in a major slowdown and more US consumers are happy with GM and Ford autos.

This doers not bode well for Japan.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Whether or not Greece stays in the Eurozone and for how long is still debatable, but Greek CDS contracts are set to trigger next month after Greek parliament retroactively inserts collective action clauses (CACs) forcing all debt-holders to participate in the next deal.

Bear in mind that forced restructuring is the trigger, not the insertion of the CAC language itself.

The Financial Times reports Greece sets date for €200bn debt swap
Greece plans to launch a debt swap next month for private bondholders as part of a second €130bn bail-out expected to be approved on Monday by eurozone finance ministers, a government official said on Saturday.

The official said the swap, which would cover €200bn of Greek sovereign debt, would take place between March 8 and March 11, only days before Athens is due to repay a €14.4bn bond maturing on March 20.

As a first step towards completing the deal, the Greek parliament is set to pass legislation next week on so-called collective action clauses, with the aim of forcing a minority of “holdout” investors to take losses of around 70 per cent on their holdings.

The debt swap would offer bondholders a cash sweetener of 10-15 per cent of their holdings, plus new 30-year bonds with a coupon of around 3.75 per cent, which could increase if Greece achieves higher than forecast growth rates

An Athens banker with knowledge of the swap negotiations said the size of the cash payment and the final interest rate would be set by eurozone officials ahead of Monday’s meeting of finance ministers.Default Ducks Lined Up

As noted earlier, the ECB will get preferential treatment on its bonds, exchanging them at par.

After the swap, the ducks will then be lined up for the Troika to find some excuse to deny Greece payments or request still more austerity measures that Greek politicians refuse to go along with. In theory, the Greek mess could fester for years, I just highly doubt it will.

A hard default will not be as disorderly as most claim, especially from the point of view of the rest of the Eurozone. There are only $3.2 billion or so  Net CDS Contracts still floating around, a trivial number these days. I have seen reports as low as $2.8 billion. Last month it was $4 billion.

Greece is in a hopeless situation until it exits the Eurozone. German officials seems to have figured that out even if the Eurocrats have not.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Spain and Ireland have economies in shambles over housing bubbles popped long ago. Damage continues to mount. Here are a pair of stories highlighting problems.

Bloomberg reports Irish Home Loans At Least 90 Days In Arrears Rise to 9.2%
Irish home loans in arrears for more than 90 days rose to 9.2 percent at the end of last year from 8.1 percent at the end of the third quarter, according to the country’s central bank.

A total of 107,708 home mortgages, or 14 percent of the total, were either 90 days in arrears or had been restructured and were performing at the end of December, the central bank said in an e-mailed statement today. Spain Lending Shrinks at Record Pace

In the wake of Spanish real estate collapse, Spain Lending Shrinks at Record Pace as Defaults Rise
Lending fell by 3.3 percent in December from a year before, the biggest drop since Bank of Spain records started half a century ago, the regulator said on its website today. Bad loans as a proportion of total loans rose to 7.61 percent from 7.52 percent in November as borrowing considered “doubtful” jumped to 136 billion euros ($179 billion) from about 11 billion euros five years ago, before Spain’s property crash.

The prospect of a protracted recession in Spain is curbing the appetite for loans and making banks more cautious about lending. The economy may shrink 1.5 percent this year, according to central bank forecasts, while unemployment stands at 23 percent. Exane BNP Paribas predicts an economic contraction could stretch through 2013.

Banks piled up apartments and building land on their balance sheets as loans to property developers and mortgage borrowers soured during the crash. The government is talking to banks to try to reduce the number of people evicted from their homes for failing to pay their mortgages, Economy Minister Luis de Guindos said in an interview with state radio RNE late yesterday.

Deposits gathered by Spanish lenders declined 4.6 percent from a year earlier, the Bank of Spain said. Deposits increased 0.5 percent from November, the regulator said. Misery in Spain

Various austerity measures, tax hikes, and cuts to regional governments ensure that the recession in Spain will be both long and deep.

For more on the misery in Spain, please see ...

• EU to Punish Spain for Delaying Austerity Measures, Playing Games with Deficit Projections; Unprecedented Spanish Bond Front-Running; European Job Losses Accelerate
 
• Brussels Recommends Sucking Spain Dry with Increased VAT; France to Raise Sales Tax to Protect Jobs; Is There Any Point or Reason for the Eurozone?
 
• About That "Increase" in Spain's January Car Sales

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

It's been crystal clear for weeks, if not much longer, that Germany has been actively seeking to persuade Greece to abandon the Euro.

Confirmation came on February 7 with Merkel's Official Denial "I will have no part in forcing Greece out of the euro"; Schäuble Starts Salami Tactics on German Participation, Calls for Vote .

Note carefully how the "I"s are being dotted and the "T"s crossed. The ECB refuses to take a haircut on its Greek bond holding so now we have this last-minute debt swap to bail out the ECB right before the rug is pulled.

My friend Pater Tenebrarum had an excellent writeup on the debt swap in Credit Market Watch – ECB To Participate in Greek Debt Exchange.

Pieces of the Puzzle are In Place

1. Greek CDS contracts are down to a mere $2.8 billion
2. Merkel's "Official Denial"
3. German Finance minister places numerous roadblocks on Greece accepting the next bailout
4. A Debt Sawp will enable the ECB to be made whole (at the expense of German and French taxpayers of course)
5. Dress Rehearsal

The Financial Times discusses the dress rehearsal in Athens rehearses the nightmare of default
On Friday afternoon, Constantine Michalos, president of the Athens chamber of commerce, sat in his office – around the corner from where protesters were hurling chunks of marble at riot police – and contemplated what was once unthinkable: that Greece would default on its debt and then be forced into a messy exit from the euro.

“All hell would break loose,” Mr Michalos said, sketching a society that would quickly run short of fuel, food, medicine and necessities. “You would have social upheaval.”

On Monday, eurozone finance ministers gather in Brussels to consider a €130bn bail-out that Greece counts on to avoid such a scenario.What's likely early next week is a debt swap in which the ECB gets new bonds guaranteed in Euros, then immediately transferred to the EFSF making the ECB whole. Some relatively short time later, the Troika will refuse to lend more money to Greece forcing Greece to go back on the Drachma.

Germany Draws Up Plans for Greece to Leave Euro

Let's now get to the heart of the matter. The Telegraph reports Germany Draws Up Plans for Greece to Leave Euro
The German finance ministry is actively pushing for Greece to declare itself bankrupt and to agree a "haircut" on the bulk of its debts held by banks, a move that would be classed as a default by financial markets.

Eurozone finance ministers meet on Monday to approve the next tranche of loans from the EU and the International Monetary Fund, designed to stave off national bankruptcy while the new Greek government puts the country's finances in order.

But the severe austerity measures being demanded have caused such fury in Greece, and the cuts required are so deep, that Wolfgang Schäuble, the German finance minister, does not believe that any government would be able to implement them.

His pessimism has been tipped into despair with a secret European Commission, Central and IMF report that even if Greece made good on its promises, it would not be enough to reach the target of bringing total debt to 120 per cent of GDP by 2020.

"The idea instead is that the Greek government should officially declare itself bankrupt and begin negotiating an even bigger cut with its creditors. For Schäuble, it is more a question of when, not if."

The German finance minister's comments are certain to plunge the authorities in Athens into even deeper gloom. On Saturday they tried to sound optimistic, with a cabinet meeting to thrash out the final details of an austerity package.

With Greek morale at rock bottom, the national mood darkened yet further after armed thieves looted a museum on Friday in Olympia, birthplace of the Olympic Games, and stole bronze and pottery artifacts - just weeks after the country's National Gallery was burgled.

One Greek newspaper suggested the state could no longer properly look after the nation's immense cultural heritage. "The Greek state has gone bankrupt, let's face it," the conservative daily Kathimerini said in an editorial.

Mr Schäuble maintains that since Greece is already regarded by the financial world as bankrupt, a formal bankruptcy would have no negative consequences for other euro members. Merkel's Denial Rings Hollow

I side with Schäuble. Moreover, I do not believe Merkel is sincere when she says "Greece going bust could cause a shock wave that buries other countries - with Spain and Italy among them".

Rather, Merkel simply does not want to be the scapegoat, preferring to make it look like this was Greece's choice, not hers. She will be a hero in Germany when Greece leaves the Euro, in spite of her façade, pretending she does not want that to happen.

The irony is shock waves will indeed come later when Portugal and Spain exit the Euro, given that all the bureaucrats still think "Greece is unique".  In reality, the Euro is a failed idea with too many structural flaws to paper over.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Given the previous misguided stimulus efforts in China, it is not surprising to discover Chinese Banks’ Bad Loans Rise in Fourth Quarter.
Chinese commercial banks’ bad loans increased in the fourth quarter of last year, highlighting pressures the lenders face in maintaining asset quality as the economy slows.

Non-performing loans rose 20.1 billion yuan ($3.2 billion) to 427.9 billion yuan as of Dec. 31, the China Banking Regulatory Commission said in a report on its website today. Bad loans accounted for 0.96 percent of total lending, up from 0.95 percent in September and 0.17 percentage point lower than a year earlier.

Chinese banks are struggling to keep bad loans in check as the country’s economic expansion slows and the housing market cools under government curbs. Lenders’ non-performing loan ratio had not increased quarter-on-quarter since the end of 2005, according to data compiled by Bloomberg.
China Cuts Bank Reserve Requirements

Bad loans or not, in an attempt to keep its faltering economy together, China Cuts Bank Reserve Requirements.
China cut the amount of cash that banks must set aside as reserves for the second time in three months to spur lending as Europe’s debt crisis and a cooling property market threaten economic growth.

Reserve requirements will fall by 50 basis points effective Feb. 24 the People’s Bank of China said on its website this evening. Before today’s move, the ratio for the nation’s largest lenders stood at 21 percent.

Premier Wen Jiabao aims to steer the world’s second-biggest economy through a property market slowdown and the weakest export growth since 2009, with the commerce ministry last week calling the trade outlook “grim.” The International Monetary Fund said this month that China’s expansion may be cut almost in half if Europe’s debt crisis worsens.

“Growth remains the top concern for policy makers,” Zhu Haibin, a Hong Kong-based economist for JPMorgan Chase & Co. (JPM), said before today’s release. “Monetary policy will be biased toward easing this year.”

Export Slide

China’s exports and imports fell for the first time in two years last month and new lending was the lowest for a January in five years.

Before today's announcement, Ken Peng, a Beijing-based economist at BNP Paribas SA, said the government needs to be “careful not to overshoot monetary loosening, as it did in the financial crisis.” Lingering effects of record lending in 2009 and 2010 include the risk for banks that local government financing vehicles will default, saddling lenders with bad loans.

The government also aims to avoid fueling consumer and property prices. Inflation unexpectedly rebounded to 4.5 percent in January, accelerating for the first time in six months, as a week-long Chinese New Year holiday boosted spending and prices. China's Problems

• Inflation
• Bad loans
• Property bubbles
• Massive problems with SOEs State Owned Enterprise 
• Pollution
• Unsustainable growth

Loosening lending standards is the very thing that fueled property bubbles, price inflation, bad loans, and gargantuan problems with SOEs. For more on the SOE problem, please see China Financial Markets: When Will China Emerge From the Global Crisis?

Looking for Miracles

Damn the consequences, central banks everywhere inevitably respond to slowdowns with two actions: print money and loosen lending standards. That holds true for the US, China, Europe, and Japan.

There are no miracle cures because printing money and loosening lending standards are why we are in this global fiscal mess in the first place.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Led by the US and China, 26 nations are now protesting the EU's airline carbon tax, and a outright Carbon Trade War Edges Nearer.
An alliance of countries opposed to a carbon tax on airlines is threatening to tear up trade deals with the European Union and impose new taxes on EU carriers, in a sign the world’s first carbon trade war is edging closer.

A meeting has been called for next week by the 26 countries that have been fighting to stop Brussels’ charging airlines flying in or out of the EU for their carbon emissions.

China has already told its carriers to ignore the EU legislation which took effect from January 1 and US legislators are attempting to push a similar measure through Congress.Retaliatory Measures Considered

• Re-open existing trade agreements in sectors other than aviation to put “pressure on EU industries”.
• Impose new charges on European airlines flying into non-EU countries.
• Suspend current and future negotiations about EU airline requests for new routes or airport destinations.
• Review important bilateral aviation agreements with individual EU states.
• Enact legislation banning their airlines from complying with the EU law.

Airline Tax Background

For background on the airline carbon tax, please consider Emissions: Rivals dig in over EU carbon trading scheme
The European Union has decided that from January 1 2012, any airline flying into or out of the EU will be charged for its carbon pollution.

That is due to aviation being brought into the EU’s six-year-old emissions trading scheme (ETS), a system that obliges companies to pay for permits (or allowances), each equal to one tonne of carbon dioxide, to cover their annual emissions.

The decision to extend it to companies outside the bloc – foreign airlines – is the EU’s most ambitious move yet to force the rest of the world to comply with its environmental rules.

The ATA [American Transport Association] estimates the scheme would cost US airlines more than $3.1bn between 2012 and 2020, though some analysts say the costs will be lower.Barbary Pirates for Safe Passage

China told its airlines to ignore the tax, and Republicans in Congress seek to pass similar legislation.

"The ETS scheme is equivalent to the paying of ransom to the Barbary pirates for safe passage" said Chip Cravaack, the first Republican since 1947 to win Minnesota's 8th congressional district.

Insanity of Cap-and-Trade Revisited

For further discussion of the absurdities of carbon tax trading and credits for renewable energy, please see ...

• Solar Energy Madness in Europe
• Walmart, Costco, US Bank Profit From Energy Credits in US; Carbon Tax Thrown Out By French Court

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

The German presidency is little more than a symbolic position, nonetheless, the announcement by German President Christian Wulff that he will resign is a major embarrassment to German Chancellor Angela Merkel who hand-picked Wulff as president.

Spiegel Online reports Wulff Announces He Will Step Down
German President Christian Wulff resigned from office after prosecutors stated a day earlier they would seek to have parliament lift his immunity. Prosecutors wanted his immunity revoked so they could formally investigate allegations he accepted favors during his tenure as governor of the state of Lower Saxony. At the center of the probe are allegations that a film producer had paid for a vacation in a luxury hotel for Wulff during his time in office in the state.

Speaking nearly a half hour after Wulff's resignation, German Chancellor Angela Merkel appeared before reporters to say she had received Wulff's resignation with "great respect and deep regret." The chancellor also noted that the development underscored the strength of the German legal system because it showed that all people are treated equally, regardless of their position.

Merkel said her coalition government would approach all political parties in an effort to find a "joint candidate" to replace Wulff.

The development is likely to cause embarrassment because Wulff is the second president after Horst Köhler to step down during her term. The chancellor handpicked Wulff to run as Köhler's successor after his sudden resignation in 2010. Even after his selection, Wulff was weakened going into the presidency because it took three rounds of voting in the Federal Assembly before he was ultimately elected.Financial Times reports that Merkel cancelled a meeting scheduled with prime minister Mario Monti in Rome on Friday in the wake of the announcement by Wulff.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

The latest Gallup survey finds U.S. Unemployment Increases in Mid-February
The U.S. unemployment rate, as measured by Gallup without seasonal adjustment, is 9.0% in mid-February, up from 8.6% for January. The mid-month reading normally reflects what the U.S. government reports for the entire month, and is up from 8.3% in mid-January.

US Unemployment Rate, Monthly Averages



Gallup also finds 10.0% of U.S. employees in mid-February are working part time but want full-time work, essentially the same as in January. The mid-February reading means the percentage of Americans who can only find part-time work remains close to its high since Gallup began measuring employment status in January 2010.

Percentage of Workers, Working Part Time but Want Full Time Employment



Seasonal forces typically cause unadjusted unemployment rates to increase at this time of year. In this regard, some of the sharp increase Gallup finds in unemployment and underemployment may result from seasonal factors. Although the government seasonally adjusts the U.S. unemployment rate, and the workforce participation rate could decline, it still seems likely that the BLS will report an increase in the seasonally adjusted U.S. unemployment rate for February.

Regardless of what the government reports, Gallup's unemployment and underemployment measures show a sharp deterioration in job market conditions since mid-January. BLS Numbers Not Realistic

Gallup only polls those 18 and above while the BLS includes 16 and above. Given teenage unemployment, this would (or at least should) artificially lower unemployment numbers for Gallup. Yet, Gallup is higher, way higher when one considers underemployment.

Fundamental and Mathematical Case for Structurally High Unemployment for a Decade

As I have said many times, the BLS numbers are simply not realistic for many reasons. For further discussion please see ...

• Fewer Nonfarm Employees Now Than December 2000; Unemployment Rate: Some Things Still Don't Add Up; Obamanomics?
 
• Fundamental and Mathematical Case for Structurally High Unemployment for a Decade; Shrinking Job Opportunities and the Jobs Gap; The Real Employment Situation

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.