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A trusted San Antonio Roofing company has gone out of business, leaving customers without the new roofs they paid for. This same company was featured in an earlier KSAT 12 Defenders report for giving free roofs to two men who got ripped off. ...

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52 Sales Management Tips

Today launches Steven Rosen's book "52 Management Tips". It is a concise companion for sales managers dealing with issues frequently encountered in their management practice.

Here is one of the tips to give you a flavor of the contents of the book:

Tip #50: Beware of Failure to Impact Syndrome

Time and time again I see it. Sales reps going through their daily activities like robots. They have little impact on each call, but show up and expect the business. I call this “failure to impact syndrome.” It is contagious and can spread throughout an entire sales force. It works as long as the business grows. Everyone gets high fives and there is no need to dig any deeper.

But what happens when sales are off and senior management starts asking questions. Sales managers struggle to come up with the answers and reps get nervous.

The cure: Get out in the field and inspire your reps to be innovative. Just like a car you need to be behind the wheel to drive it.

About the author:

Steven Rosen, MBA is the CEO of STAR Results,and is a widely sought after executive sales coach, advisor and speaker. Steven is the author of 52 Sales Management Tips - The Sales Managers Success Guide.

Steven is passionate about assisting sales executives and managers to FOCUS on increasing sales and achieving STAR results in their personal and professional lives.T

he eBook 52 Sales Management Tips The Sales Managers Success Guide is available at Amazon.com. To find out more go to www.52SalesManagementTips.com

 

pointofdespo

pointofdespo

Does Mitt Romney Know What It Takes To Create Jobs? Did He Ever Create Any?

I have been (and continue to be) critical of both president Obama and Mitt Romney. As stated multiple times previously, I will not vote for either of them.

Obamacare will be a disaster for jobs as noted in Prepping for Obamacare, Olive Garden and Red Lobster Cut Workers' Hours; Are Other Companies Doing the same? Tip Sharing Lowers Minimum Wage; Like One, Like All?.

I still plan a followup on that post. Would Romneycare be any different? If so why?

More importantly, as a businessman, does Romney have any history of creating jobs? If you think so, I invite you to read what Ronald Reagan’s budget director, David Stockman, has to say about the claims.

Please consider Mitt Romney: The Great Deformer.

Bain Capital is a product of the Great Deformation. It has garnered fabulous winnings through leveraged speculation in financial markets that have been perverted and deformed by decades of money printing and Wall Street coddling by the Fed. So Bain’s billions of profits were not rewards for capitalist creation; they were mainly windfalls collected from gambling in markets that were rigged to rise.

The fact that Bain’s returns reputedly averaged more than 50 percent annually during this period is purportedly proof of the case—real-world validation that Romney not only was a striking business success but also has been uniquely trained and seasoned for the task of restarting the nation’s sputtering engines of capitalism.

Except Mitt Romney was not a businessman; he was a master financial speculator who bought, sold, flipped, and stripped businesses. He did not build enterprises the old-fashioned way—out of inspiration, perspiration, and a long slog in the free market fostering a new product, service, or process of production. Instead, he spent his 15 years raising debt in prodigious amounts on Wall Street so that Bain could purchase the pots and pans and castoffs of corporate America, leverage them to the hilt, gussy them up as reborn “roll-ups,” and then deliver them back to Wall Street for resale—the faster the better.

That is the modus operandi of the leveraged-buyout business, and in an honest free-market economy, there wouldn’t be much scope for it because it creates little of economic value. But we have a rigged system—a regime of crony capitalism—where the tax code heavily favors debt and capital gains, and the central bank purposefully enables rampant speculation by propping up the price of financial assets and battering down the cost of leveraged finance.

So the vast outpouring of LBOs in recent decades has been the consequence of bad policy, not the product of capitalist enterprise. I know this from 17 years of experience doing leveraged buyouts at one of the pioneering private-equity houses, Blackstone, and then my own firm. I know the pitfalls of private equity. The whole business was about maximizing debt, extracting cash, cutting head counts, skimping on capital spending, outsourcing production, and dressing up the deal for the earliest, highest-profit exit possible.

No Debate

There is no possible debate on what Stockman said above. He did not write anything above I would not have. However, Stockman has numerous details of exact transactions that I did not have.

For example, Stockman points out Bain’s returns on the overwhelming bulk of the deals — 67 out of 77 — were actually lower than what a passive S&P 500 indexer would have earned even without the risk of leverage or paying all the private-equity fees. Based on its average five-year holding period, the annual return would have computed to about 12 percent—well below the 17 percent average return on the S&P in this period.

Loaded with debt, four of Bain's investments ended in bankruptcy. Bain however, got out at the top.

Is any value created in that? There was for Bain and Romney but not for the employees of those companies. Counting bankruptcies, Bain and Romney destroyed jobs.

The article is worth a good look from start to finish.

Stockman concludes ...

The Bain Capital investments here reviewed accounted for $1.4 billion or 60 percent of the fund’s profits over 15 years, by my calculations. Four of them ended in bankruptcy; one was an inside job and fast flip; one was essentially a massive M&A brokerage fee; and the seventh and largest gain—the Italian Job—amounted to a veritable freak of financial nature.

In short, this is a record about a dangerous form of leveraged gambling that has been enabled by the failed central banking and taxing policies of the state. That it should be offered as evidence that Mitt Romney is a deeply experienced capitalist entrepreneur and job creator is surely a testament to the financial deformations of our times.

Piranha-Like Asset Stripping

Results at Bain were made possible by fractional reserve lending and leverage to the extreme. As I have stated before, Fed policies are for the benefit of the banks and the already wealthy, in other words, the 1%, not the 99%.

Indeed, close scrutiny of Romney's "job creation" track record shows it is nothing more than piranha-like asset stripping for the benefit of the piranhas. Everyone else involved was likely cleaned to the bones.

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

"Wine Country" Economic Conference Hosted By Mish
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Swedish Finance Minister Expects Greece to Exit Euro Within Six Months; Comments From Saxo Bank

Anders Borg, Sweden's finance minister, has warned it is 'probable' that Greece will leave the common currency.

As European Union leaders prepare for a summit next week devoted to saving the euro, Swedish Finance Minister Anders Borg said Greece may quit the common currency within the next six months.

“It’s most probable that they will leave,” Borg said today on a conference call from Tokyo, where global finance officials have gathered for the annual meetings of the International Monetary Fund. “We shouldn’t rule out this happening in the next half-year.”

Given Greece’s lack of competitive industry and inability to implement necessary reforms, “it’s a little bit hard to see how they’ll resolve this situation without stimulating competitiveness through a significantly lower exchange rate,” Borg said.

Borg has long been pessimistic about Greece’s future. In July, he said “some sort of default” was the most likely scenario for Greece. Last month, he said he couldn’t rule out a Greek euro exit within a year and that European banks were prepared for such an outcome.

Comments From Saxo Bank

Steen Jakobsen, chief economist for Saxo Bank in Denmark pinged me with with an email about Borg this morning ...

If Anders Borg is saying this – people needs to listen – he is by far the most pragmatic FM in the world, and very unemotional. This is major sign of the upcoming trouble for Greece and reconciling a deal where Germany and Austerity North gets something, and Club Med lead by Monti and Hollande continues to be non-accountable.

I think this phase is the most difficult now it’s real: real money needs being committed, real election as in German election, and real money – against this stands the IMF – the non-expert with their medicine now proven to kill patience rather than cure them – as per my Friday email: Is IMF short for I must Fail

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

Recovery, Monetary Policy, and Demographics: NY Fed vs. Mish Analysis

Fresh on the heels of my 3:38 AM post Charting Errors in BLS Participation Rate Projections came an interesting speech by William Dudley, president of the Federal Reserve Bank of New York.

Please consider these snips from Dudley's speech today The Recovery and Monetary Policy.

My remarks will focus on the economic outlook. I do this with some trepidation, of course. In the private sector there are two adages about forecasting that underscore the need to be humble in this endeavor: First, forecast often. Second, specify a level or a time horizon, but never specify both, together.

The disappointing recovery

Turning to the first question, U.S. economic growth has been quite sluggish in recent years. For example, annualized real GDP (gross domestic product) growth has averaged only about 2.2 percent since the end of the recession in 2009. As a consequence, we have seen only modest improvement in the U.S. labor market.

Not only has growth been slow, it has also been disappointing relative to the forecasters' expectations. For example, the Blue Chip Consensus have been persistently too optimistic in recent years. This is illustrated in Exhibit 1 [following] which shows how private sector forecasts for 2008 through 2013 have evolved over time.



click on chart for sharper image

Two aspects of this exhibit are noteworthy. First, forecasters have consistently expected the U.S. economy to gather momentum over time. Second, with only one exception, the growth forecasts for each year have been revised downward over time, as the expected strengthening did not materialize.

Although I have focused on the private forecasting record here, the FOMC participants' forecasts show a similar pattern. It is on the growth side where there have been chronic, systematic misses.

In my view, the primary reason for the poor performance of the U.S. economy over this period has been inadequate aggregate demand. There are several explanations for this. Although some were well-known earlier, others have only become more obvious as the recovery has unfolded.

During the credit boom, finance is available on easy terms and the economy builds up excesses in terms of leverage and risk-taking. When the bust arrives, credit availability drops sharply and financial deleveraging occurs. Wealth falls sharply, precautionary liquidity demands increase, desired leverage drops further. In the U.S. case, there were some idiosyncratic elements, such as subprime lending and collateralized debt obligations. But, in the end, the U.S. experience included the major elements of most booms: Too much leverage, too little understanding of risk, too easy credit terms, and then a very sharp reversal.

When the bust arrives, over-indebted households and businesses want to increase their saving and liquidity buffers, and financial intermediaries want to raise credit standards. Both responses restrain demand and make a cyclical rebound more difficult. In the U.S. case, because the bust was concentrated in housing, the scope for a strong cyclical recovery was particularly constrained because the interest-rate sensitive sector that would typically lead such a rebound could not recover until the overhang of unsold homes and the impairment of housing finances was corrected.

The U.S. recovery has also been subpar because it has been taking place in the context of a weak global economy. Historically, after a country experienced a financial crisis, growing foreign demand and currency depreciation have often led to a sharp improvement in the trade account that has put a floor under economic activity. In such circumstances, rising exports substitute for domestic consumption in supporting aggregate demand. This demand, in turn, encourages businesses to hire and invest.  In contrast, this time the shock generated by the U.S. housing bust had global consequences, exposing economic vulnerabilities outside of the United States, especially in Europe. Under these circumstances, the scope for trade as a support for U.S. growth, while positive, has been very limited.

These two factors—the dynamics following financial crises and the weakness of foreign demand—help explain why U.S. growth has been weak, but I don't think these factors explain why it has been consistently weaker than expected.

So why has the recovery disappointed?

One possibility is that the negative dynamics of a post-bubble environment are even more potent than had been appreciated. Feedback loops may be more powerful and frictions may be larger. In the U.S. case, this is particularly germane with respect to housing and mortgage finance. For example, we have found significant shortcomings in those institutional structures available to support the workout of the overhang of mortgage debt in an efficient and timely manner. 

A second reason may be the series of additional negative shocks experienced since the initial phase of the financial crisis. The largest of these relate to the crisis in the eurozone. But one could also add the periodic commodity price shocks, the disruptive impact of the tragic Japanese earthquake and tsunami on global trade and production, and the effect of the uncertainties around the impending fiscal cliff on hiring and investing.

A third reason for the weaker than expected recovery likely lies in the interplay between secular and cyclical factors. In particular, I believe that demographic factors have played a role in restraining the recovery. The developed world's populations are aging rapidly. In the United States, for example, the baby boom generation, which is a particularly large cohort, is now beginning to retire. As the population ages, this has two consequences. First, the spending decisions of the older age cohorts are less likely to be easily stimulated by monetary policy. That is because such age groups tend to spend less of their incomes on consumer durables and housing. Second, as the population ages and the number of retirees climbs, the costs associated with Social Security, government pensions, and healthcare retirement benefits increase. This creates budgetary pressure and leads to a choice of raising revenue to fund these costs, cutting other government programs, or cutting benefits.

Now if this all had been fully anticipated by retirees and near-retirees, then this would already be factored into their spending and saving decisions. But, I doubt that this has been the case. I suspect that many have been surprised by the swift change in economic circumstances as the housing boom went bust. I doubt that many fully anticipated the budget crunch and the prospect that their future retiree and healthcare benefits would likely be curbed or their taxes would have to rise in the future. When households begin to anticipate this, they reduce their assessment of their sustainable living standards. This downward reassessment then feeds back to current spending and saving decisions.

A fourth reason why the recovery has been slower than expected may be that we overestimated the capacity for fiscal policy to continue to provide support to growth until a vigorous recovery was achieved. On the fiscal side, the authorities can cut taxes or increase spending to support income and demand during the deleveraging phase that follows the financial crisis. But the ability of such stimulus to continue to support economic activity ultimately encounters budgetary limits. For example, the need to keep the long-term fiscal trajectory on a sustainable path limits the size and duration of federal fiscal stimulus measures. For state and local governments, the statutory requirements for balanced budgets meant that fiscal policies turned restrictive relatively quickly once budget surpluses and rainy day funds were exhausted, and this was only temporarily mitigated by federal transfers to the states as part of the initial fiscal stimulus program.  Fiscal policy is now a drag rather than a support to growth in the United States, and this will likely continue.

NY Fed vs. Mish Analysis

I have talked about all of the reasons cited by Dudley on this blog, numerous times, many before the financial crisis even hit.

Yet, we all have our misses, for me it was the stock market, not the economy that is in question. The financial recovery was far greater that I imagined in the face of what I thought was rather easy-to-see reasons why the real economy would not respond well to unprecedented stimulus globally, not just in the US.

Others have had misses as well. The group that was furthest off in projections were the staunch inflationists and hyperinflationists. Once again I thought low inflation was an easy call. Credit, except for student loans and other government-sector credit has gone nowhere.

As measured by credit (subtracting government sector loans), inflation is barely positive. As measured by prices, I happen to think inflation is a bit higher that the Fed states, especially when it comes to food and energy. Regardless, inflation is nowhere near out of control and hyperinflation calls look rather silly.

By the way, there is much more to the above article including four other exhibits and corresponding discussion. Inquiring minds may wish to take a look.

Reflections on Stimulus

First, please note that stimulus measures are actually way larger now than anyone talks about.

For a discussion please see US Runs 4th Straight $1 Trillion-Plus Budget Gap; More Stimulus? You Already Got It; Welcome to Slow Growth.

Simply put, trillion dollar deficits are nothing but monstrous (and misguided) Keynesian stimulus proposals. All the more reason for the Fed, to be puzzled over the weak recovery.

I have written about this numerous times before, but here are a few of them.

1. Bernanke, a Complete Dunce, "Puzzled by Weak Consumer Spending"
2. Bernanke Puzzled Over Jobs, Cites Okun's Law; Six Things Bernanke is Clueless About
3. Panic!

Where To From Here?

The Fed has not helped the real economy much, even if it has helped financial assets. The thing is, recovery of financial assets has minimal correlation to consumer spending. In contrast, rising home prices do.

People make all kinds of home improvements if they think they will "get their money back". However, consumers have rightfully thrown in the towel on such thinking.

Businesses did not hire in response to stimulus as I expected and I still do not think they will. Why should they? The problem is lack of customers, not ability to get loans.

Moreover, Obamacare is a real drag on business hiring. For a discussion, please see Is Obamacare Responsible for the Surge in Part-Time Jobs? What About Obama's Defense Layoff Suspensions?

I wrote about Obamacare about a week ago and received numerous responses from people that their businesses are indeed acting the way I said they are. I will have a follow-up shortly.

In general, businesses are running pretty lean. Should consumer spending pick up in a big way, perhaps there will be a spurt in hiring.

However, tax hikes starting in 2013 will be a drag on spending. Businesses, already lean, may have little room to fire. The choice then would be to fire workers (who would then have no money to spend, or keep the workers and take a big profit hit).

Alternatively, there are half-way measures of reducing hours across the board.

Many think the US is heading for recession. I think the US is in one already, as of June. Regardless, corporate profits will have only one way to go if the recession strengthens in a major way.

Can the stock market stay elevated in the face of priced-for-perfection results, demographics, and structural forces at play? I do not think so, but that is what I have thought for the last year and a half.

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

"Wine Country" Economic Conference Hosted By Mish
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Charting Errors in BLS Participation Rate Projections

The following graph plots labor force participation rates by BLS economist Mitra Toossi in November 2006 with new projections for the participation rate as of January 2012:



click on chart for sharper image

Chart Data

Mitra Toossi in November 2006: A new look at long-term labor force projections to 2050
Mitra Toossi in January 2012: Labor force projections to 2020: a more slowly growing workforce

I asked Doug Short at Advisor Perspectives to plot the difference as a follow-up to my post About That "Expected" Drop In Participation Rate.

As you can see, the participation rate is plunging even faster than the recent January 2012 projections.

Date	Value	2006 Estimate
1/1/2006	66.2	66.2
1/1/2007	66.0	66.1
1/1/2008	66.0	66.1
1/1/2009	65.4	66.0
1/1/2010	64.7	65.9
1/1/2011	64.1	65.8
1/1/2012	63.7	65.6

76% of Decline In Participation Rate Since 2006 Was Unexpected

The current participation rate is 63.7. In 2006, Toossi estimated the participation rate would be 65.6, a drop of .6 percentage points from 66.2. Instead, the participation rate fell by 2.5 percentage points.

Mathematically, 76% of the decline since 2006 was "unexpected" (1.9 of 2.5).

56% of Decline Since 2000 Was Unexpected

In 2000 the participation rate was 67.1. Using that favorable starting point, Toossi expected  a total drop of 1.5 percentage points. The actual drop was 3.4 percentage points.

Even by the most favorable method, only 44% of the total decline in the participation rate was expected by the BLS.

Thus, no matter how one slices or dices the data, there is no realistic way to say the decline in the participation rate was expected. Not even half of it was, by the most liberal interpretation.

Regardless, now that we have BLS projections for labor force and participation rates, there are some interesting things we can do with those projections (such as figure out how many jobs it will take to reduce the unemployment rate to 5%, hold it steady, etc.)

I hope to have an interactive graph of that idea shortly.

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

"Wine Country" Economic Conference Hosted By Mish
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Secessionist Wave Sweeps Belgium Ending 90 Years of Socialist Rule in Antwerp

In a vote on Sunday that is likely to have serious repercussion down the road for the eurozone, a Secessionist wave sweeps Belgium

Flemish nationalists made sweeping gains across northern Belgium in local elections on Sunday, a success that will bolster separatists’ hopes for a break-up of the country.

Bart De Wever, leader of the New Flemish Alliance (NVA), is set to become mayor of the northern city of Antwerp, Belgium’s economic heartland, after his party emerged as the largest one ending about 90 years of socialist rule.

Soon after the ballot results emerged, Mr De Wever, who had turned the tough mayoral race into a referendum on Flander’s independence for Belgium, demanded that the country’s prime minister give greater independence to the Dutch-speaking north.

Flanders, which is the most economically prosperous region of Belgium, has long resented financing the ailing economy of French-speaking Wallonia, and Sunday’s victory will strengthen their demand for self-rule.

“De Wever sent a strong signal to Brussels and he has put his party on course to send an even clearer one in 2014 ... they will try to go for an even bigger win in the federal elections,” said Lex Moolenaar, a veteran political analyst for the Gazet Van Antwerpen, the city’s daily.

Question of the Day

Here is the question of the day, even though the answer is easily discernible: If the New Flemish Alliance resents bailing out the rest of Belgium, how will they feel about bailing out Greece, Spain, and Italy?

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

Currency Wars: Bernanke Defends Fed Policy, Calls for Emerging Market Currency Appreciation

Fed chairman Ben Bernanke is at odds with Brazil, China, and even the IMF over his policies. Please consider the BBC report Bernanke defends Federal Reserve stimulus measures

Brazil has said US monetary easing to keep interest rates low and weaken the dollar has hurt emerging economies.

And International Monetary Fund chief Christine Lagarde warned on Sunday of consequent asset bubbles developing in emerging nations.

Speaking in Tokyo, where the International Monetary Fund and World Bank are holding annual meetings, Mr Bernanke said: "The linkage between advanced-economy monetary policies and international capital flows is looser than is sometimes asserted."

On Friday, Brazil's finance minister, Guido Mantega, warned that his country would take "whatever measures it deems necessary" to fight the problem.

"Emerging markets can't passively endure large and volatile capital flows and currency fluctuations caused by rich countries' policies," Mr Mantega said in Tokyo.

"Advanced countries cannot count on exporting their way out of the crisis at the expense of emerging-market economies," he said. "Currency wars will only compound the world's economic difficulties."

In a speech at the end of the IMF meeting, Ms Lagarde said: "We have seen several bold initiatives by major central banks certainly that the IMF highly praises and values as major contributing factors to stability."

But she acknowledged that "there are diverging views within and across countries about important issues including the management of capital flows".

She said monetary easing "could strain the capacity of those economies to absorb the potentially large flows and could lead to overheating asset price bubbles.

Bernanke's Speech

Let's take a closer look at Bernanke's speech that has Brazil clearly upset, and the IMF questioning what Bernanke is doing. Here are a few snips from "Challenges of the Global Financial System: Risks and Governance under Evolving Globalization," by Ben Bernanke in Tokyo, Japan.

Although the monetary accommodation we are providing is playing a critical role in supporting the U.S. economy, concerns have been raised about the spillover effects of our policies on our trading partners. In particular, some critics have argued that the Fed's asset purchases, and accommodative monetary policy more generally, encourage capital flows to emerging market economies. These capital flows are said to cause undesirable currency appreciation, too much liquidity leading to asset bubbles or inflation, or economic disruptions as capital inflows quickly give way to outflows.

I am sympathetic to the challenges faced by many economies in a world of volatile international capital flows. And, to be sure, highly accommodative monetary policies in the United States, as well as in other advanced economies, shift interest rate differentials in favor of emerging markets and thus probably contribute to private capital flows to these markets. I would argue, though, that it is not at all clear that accommodative policies in advanced economies impose net costs on emerging market economies, for several reasons.

Three Point Defense

Here is Bernanke's three point defense of Fed policy followed by my rebuttal.

Bernanke: First, the linkage between advanced-economy monetary policies and international capital flows is looser than is sometimes asserted.

Mish: That is a meaningless statement. Here is an equally true but also meaningless statement. The linkage between advanced-economy monetary policies and international capital flows is tighter than is sometimes asserted. The key word is "sometimes". It all depends on who is doing the assertion.

Bernanke: Second, the effects of capital inflows, whatever their cause, on emerging market economies are not predetermined, but instead depend greatly on the choices made by policymakers in those economies. In some emerging markets, policymakers have chosen to systematically resist currency appreciation as a means of promoting exports and domestic growth.

Mish: Of course it depends on how policymakers in those countries react. They can bend over and kiss Bernanke's ass or they can promote exports just like the Fed is attempting to do.

Bernanke: Finally, any costs for emerging market economies of monetary easing in advanced economies should be set against the very real benefits of those policies. The slowing of growth in the emerging market economies this year in large part reflects their decelerating exports to the United States, Europe, and other advanced economies. Therefore, monetary easing that supports the recovery in the advanced economies should stimulate trade and boost growth in emerging market economies as well.

Mish: If monetary easing in the US was supposed to boost growth in emerging markets, then why didn't it? The fact is that all of this manipulation is undesirable, regardless of what county is doing it. Proper signals come from free market flows, not central-planner fools who have a track record of producing boom and bust cycles of ever-increasing amplitude.

In regards to the latter point, note that IMF chief Christine Lagarde speaks out of both sides of her mouth at once, each saying different things.

One side of her mouth praises the Fed, the other says "monetary easing could strain the capacity of those economies to absorb the potentially large flows and could lead to overheating asset price bubbles."

So which is it Christine?

Bernanke Calls for Emerging Market Currency Appreciation

The Wall Street Journal reports, Bernanke Calls for Emerging Market Currency Appreciation

Federal Reserve Chairman Ben Bernanke encouraged policy makers in developing economies to let their currencies appreciate, delivering a strongly worded counterargument to their own critiques of the Fed.

"In some emerging markets, policy makers have chosen to systematically resist currency appreciation as a means of promoting exports and domestic growth," he argued. "However, the perceived benefits of currency management inevitably come with costs, including reduced monetary independence and the consequent susceptibility to imported inflation." Capital surges and inflation in these markets, in other words, are problems that policy makers in these markets could address themselves if they chose to, he argued.

The passage was an apparent shot at authorities in China, who intervene aggressively in foreign-exchange markets to keep their currency closely tied to the dollar, though Mr. Bernanke didn't mention any countries by name.

His comments come as other policy makers have been very critical of the Fed. Brazil's finance minister, Guido Mantega, has accused the Fed of starting a "currency war."

Mr. Bernanke has made similar arguments before, but these were especially pointed and come at a sensitive moment. The Fed in September launched a new bond-buying program that has sparked a new wave of global criticism.

Mr. Bernanke argued that central bankers in developing economies should "refrain from intervening in foreign-exchange markets, thereby allowing the currency to rise."

What's Good For the Goose

Bernanke has the gall to bitch about currency manipulation when his policies are designed to do the same thing. QE is designed to weaken the US dollar, and somehow that is OK, but not straight-up currency intervention.

Speaking of which, why is Bernanke and the entire rest of the world willing to sit back and say nothing about the biggest straight-up currency manipulation in history? I am talking of course about the Swiss National Bank and its unlimited measures to prevent the rise of the Swiss Franc vs. the Euro.

Quite frankly, they are all beggar-thy-neighbor hypocrites, which is what currency wars are all about.

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

US Runs 4th Straight $1 Trillion-Plus Budget Gap; More Stimulus? You Already Got It; Welcome to Slow Growth

If stimulus worked, then why isn't it? The US has $1 trillion deficits for four years in a row. If that's not stimulus, what is? Since it isn't working, the next question is how are we going to pay for it?

While pondering those questions, please note US runs a 4th straight $1 trillion-plus budget gap.

The United States has now spent $1 trillion more than it's taken in for four straight years.

The Treasury Department confirmed Friday what was widely expected: The deficit for the just-ended 2012 budget year — the gap between the government's tax revenue and its spending — totaled $1.1 trillion. Put simply, that's how much the government had to borrow.

It wasn't quite as ugly as last year.

Tax revenue rose 6.4 percent from 2011 to $2.45 trillion. And spending fell 1.7 percent to $3.5 trillion. As a result, the deficit shrank 16 percent, or $207 billion.

When Obama took office in January 2009, the Congressional Budget Office forecast that the deficit that year would total $1.2 trillion. It ended up at a record $1.41 trillion.

Debt piles up, year after year. It's reached $11.3 trillion — $16.2 trillion if you include money the government has borrowed from itself, mostly revenue from Social Security.

Unless something changes, the Congressional Budget Office warns, the federal debt would reach a level that is "unsustainable from both a budgetary and an economic perspective."

Over time, big government debts can damage the economy. The economists Kenneth Rogoff of Harvard University and Carmen Reinhart of the Peterson Institute for International Economics have found that growth tends to slow sharply once national government debt reaches 90 percent of GDP.

Welcome to Slow Growth

Welcome to slow growth for as far as the eye can see. Unfavorable demographics coupled with a mountain of debt seals the fate.

Ironically, Keynesian clowns are begging for stimulus, as if we don't have it already. But no! $1 trillion in deficit spending is not enough for them. They want to spend still more as if they can overcome demographics, debt deflation, interest on the national debt, and the simple fact that the government can never spend money wisely.

Want proof? The $16 trillion in debt speaks for itself. What do we have to show for that debt other than an enormously well off 1% vs. everyone else?

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

IMF Admits It Prescribed Wrong Medicine; Is IMF Short for I Must Fail?

Courtesy of Steen Jokobsen, chief economist at Saxo Bank in Denmark, here is an interesting article via email. Steen writes ...

Is IMF short for I must fail?

Fiscal Multipliers are wrong, IMF admits - the biggest macro story this year

The big story this week is the International Monetary Fund's (IMF) admission that the fiscal multiplier is not 0.5 percent but really 0.9-1.7 percent according to Financial Times article It’s (austerity) Multiplier Failure

This is actually not just big news, but massive news! For the IMF to let alone realize and then admit this is central to the outlook for growth and fiscal deficits across all economies. Let's walk through the maths here:

The fiscal multiplier defines that 1 percent of austerity will net cost 0.5 percent of gross domestic product (GDP) - but now the IMF says it is higher. Hence, its whole approach of austerity at any cost is losing its academic as well as practical application.

If the fiscal multiplier is larger than 2.0 percent you have an extremely vicious circle. You are enforcing a diet which will kill the patient rather than heal him, as for every percent you reduce in spending you lose 2 percent in growth.

The bigger the hole you dig, the harder the climb back up! Do you think it is a random decision that the IMF made 1.7 percent the top of its range? Hardly!

The fact that only FT Alphaville in its "The IMF game changer" has spotted and written about this is close to being scandalous. It tells us that the Anglo Saxon press' need for supporting Keynesian initiatives (buying time, maximum interventions and pretend-and-extend) at all costs is done for political reasons rather than for finding real solutions to this crisis which is now spinning out of control as systemic risk is at an all-time high.

The IMF has increased the systemic risk by extending the payback period of central planners' calculations (much lower growth and higher fiscal/structural deficits). The market knew this, but it is such naive forecasts produced by the IMF which dictate policy recommendations for the debt crisis. The IMF is ironically seen as the 'expert' although it has experiences considerably more failure than success in its "helping efforts" - think Asian Crisis, Russia, EU debt crisis! The IMF is asking for your patience - extend-and-pretend squared is here!

It is sad that it took this long though! This has been discussed at length before by me (interview in April with TradingFloor.com), plus in the FT (whose writers deserve much credit). The most prominent voice on this topic has been Soc. Gen's excellent economic team led by Ms Michala Marcussen - who I happened to study with a couple of 'wars' ago at the University of Copenhagen.

What we need now is for policymakers to start producing credible forecasts which politicians cannot misuse. The IMF started this, so will the Federal Reserve, European Central Bank and Bank of England take note? Will the Congressional Budget Office in the US reduce its growth forecast? (See link for how this has been done in the past). Probably not, but the IMF's admission this week is a game changer. You can't save yourself to prosperity, not even in the eyes of central planners anymore! The IMF admission also proves what we have known for a long time: Macro stinks!

Finally, and most importantly, this creates a need for something new - which is the very theme I keep emphasizing. Let's work on creating the fundamentals for the micro economy which will create more jobs. The strongest multiplier, after all, remains taking one person out of the unemployment queue and putting them into a job. This reduces the subsidies needed as the person earns a taxable salary, is probably less ill, feels better, spends more etc. So the real challenge the IMF and other central planners need to realize is: You can help, but only by going away and taking a holiday. The S&P 500 (excluding financials) has a Return on Equity (ROE) in excess of 20 percent this year. It is based on an economy growing at 2.0 percent! So, do you need more proof?

President Clinton is in growth terms one of the most successful US presidents in history. What did he do politically for eight years - except for smoking cigars? Nothing! Belgium was without a government for almost two years and every single macro indicator improved during this spell. I rest my case! Let's have total radio silence for five years and we will all be in a better place!

Wrong Medicine

In terms of governments doing nothing for five years (as in no more stimulus) I am in agreement, if that is what Steen means (but I am not so sure that's precisely what he means).  Nonetheless, while were at it, let's get rid of Fed meddling as well.

As for the multiplier theory, the IMF is now saying it prescribed the wrong medicine. What was a .5 multiplier is now a range of .9 to 1.7. Anything close to or above 1 means austerity can never work.

No doubt, Krugman will be crowing "I  Told You So" over this, but there is not an Austrian economist anywhere that was in support of the massive tax hikes we have seen. Reduction in government spending was not the problem. Rather massive tax hikes and lack of badly-needed reforms was the problem.

Certainly what we know is austerity cannot work "as implemented" but I said that years ago. We have seen massive tax hikes and few work rule and pension reforms. We needed lower taxes,  less government, and massive work rule reforms (and still do).

Blaming the problems on "austerity" will get a lot of sympathy from Keynesian clowns, but they cannot distinguish good medicine from cow patties.

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

Bank of China Warns of Ponzi Schemes; China's Demographic Peak; Birth Rate Comparison China vs. US; "China Will Grow Old Before Growing Rich"

The Ponzi schemes and off-balance sheet loans in China's banking system are in the forefront of today's news. Reuters reports Bank of China executive warns of shadow banking risks

A senior Chinese banking executive has warned against the proliferation of off-book wealth management products, comparing some to a Ponzi scheme in a rare official acknowledgement of the risks they pose to the Chinese banking system.

China must "tackle" shadow banking, particularly the short term investment vehicles known as wealth management products, Xiao Gang, the chairman of the board of Bank of China, one of the top four state-owned banks, wrote in an op-ed in the English-language China Daily on Friday.

He warned of a mismatch between short-term products and the longer underlying projects they fund, adding that in some cases the products are not tied to any specific project and that in others new products may be issued to pay off maturing products and avoid a liquidity squeeze.

"To some extent, this is fundamentally a Ponzi scheme."

Yuan Loans Trail Estimates

Bloomberg reports Yuan Loans Trail Estimates as Wen Struggles for Rebound

China’s new lending was below analysts’ estimates last month as the government struggles to reverse a slowdown in the world’s second-biggest economy.

Banks extended 623.2 billion yuan ($99.5 billion) of local- currency loans, the People’s Bank of China said on its website today. That compares with the median estimate of 700 billion yuan in a Bloomberg News survey of economists.

China’s central bank has cut interest rates and lenders’ reserve requirements to spur lending, with economic growth sinking just as the Communist Party prepares for a once-a-decade leadership transition that starts next month. While local governments are rolling out plans for infrastructure spending, banks are wary of accumulating bad loans and have failed to make use of extra leeway for offering discounts to borrowers.

Premier Wen Jiabao is “risking handing over a sharply slowing economy to the next administration, a blemish to his otherwise great performance over the last ten years,” said Liu Li-Gang, an economist in Hong Kong at Australia & New Zealand Banking Group Ltd. (ANZ), who previously worked at the World Bank. Liu said the central bank needs to cut lenders’ reserve requirements.

Korea Slashes Interest Rates

Business Insider reports Korea Slashes Interest Rates

SEOUL, South Korea (AP) — South Korea's central bank trimmed the key interest rate Thursday for a second time this year, as Asia's fourth-largest economy faces mounting threats from the protracted debt crisis in Europe and the slowing growth in the world economy.

Analysts expect that the Bank of Korea, which revised down its outlook for South Korea's economy to 3 percent in July, will further reduce its growth forecast for 2012 and 2013 in its scheduled announcement later in the day.

Singapore Economy Contracts

Business Standard reports Singapore Q3 economic growth slows.

Singapore's economy grew by 1.3 percent in the third quarter, slower than the 2.3 per cent growth in the previous quarter.

"On a quarter-on-quarter seasonally-adjusted annualised basis, the economy contracted by 1.5 per cent, compared to the 0.2 per cent expansion in the second quarter", the Ministry of Trade and Industry (MTI) said while releasing the advance GDP figures.

The Ministry also cautioned that growth could be weighed down by the subdued global economic conditions for the rest of the year.

Hong Kongs's July retail sales growth slows

China Daily reports HK's July retail sales growth slows

Retail sector to remain weak for rest of the year, analysts warn

The city's retail July sales value tumbled drastically as the local retail sales market was weighed by the global economic slowdown and the decrease in mainland tourists' spending. Economic analysts cautioned that the local retail sales will remain weak for the rest of the year.

Birth Rates of North America vs. Asia



Chart from Google World Indicators.

Birth Rates of US, UK, Australia, China, Canada, Korea, Germany



"China Will Grow Old Before Growing Rich"

My friend "BC" emailed the above links along with a few thoughts. "BC" writes.

Developmentally, China is where the US was in the late 1920s and early 1930s, and where Japan was in the late '60s and early '70s, but China does not have the luxury of growing supplies of $10-$15 oil as did Japan.

Banking crises historically occur following demographics-induced credit and unreal estate booms/bubbles. China, Australia, and Canada are next in line for an unreal estate bust and banking crisis.

Demographic drag effects will hereafter begin to occur in China, Korea, and the Asian city-states, especially for China after '14 into the mid- to late '20s. Attempts to increase lending and "stimulus" with a debt overhang will encounter the same structural demographic constraints as in Japan since the mid- to late '90s and the US since '08.

China's growth boom is over, which means that the same for Taiwan, Korea, Singapore, Hong Kong, Thailand, Malaysia, and Vietnam.

China will "grow old before growing rich".

Impact on Commodity Producers 

I am in general agreement with the thoughts expressed by "BC".

The impact on commodity exporters like Canada and Australia will be far, far greater than most realize. For further discussion, please see ...

12 Predictions by Michael Pettis on China; Non-Food Commodity Prices Will Collapse Over Next Three to Four Years; Nails in the Hard Landing Coffin?

Currency Wars, Commodity Prices and Capital Flight; China FDI Contracts 8.7% YoY, 8th Drop in 9 Months

Moreover, while the US is in the best shape demographically speaking, the overall picture is not especially pretty anywhere as retired boomers require medical benefits at an ever-increasing pace with real wages stagnant at best for those fresh out of college.

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

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