Monday, March 12, 2012
Biderman's Daily Edge 3/9/2012: Rigged Market Conventional Wisdom
And other markets as well.
jessescrossroadscafe.blogspot.com
There will be a 'reversion to the mean' and a return to the primary trends. And if it happens precipitously, it will shake the nation.
The problem with the Fed's 'stimulus' is that it is a blunt instrument, and is largely channeled by those with their hands on the financial throttle into their own pockets, and not into the productive efforts of the real economy.
'Modern Monetary Theory' merely shifts the money printing power from the Fed directly into the hands of the Treasury and the politicians.
This is not Keynesianism but crony capitalism. Austerity is also another Wall Street alternative, allowing the monied interests to obtain productive assets on the cheap.
There is only one path that the status quo hates and fears, and that is genuine reform.
jessescrossroadscafe.blogspot.com
There will be a 'reversion to the mean' and a return to the primary trends. And if it happens precipitously, it will shake the nation.
The problem with the Fed's 'stimulus' is that it is a blunt instrument, and is largely channeled by those with their hands on the financial throttle into their own pockets, and not into the productive efforts of the real economy.
'Modern Monetary Theory' merely shifts the money printing power from the Fed directly into the hands of the Treasury and the politicians.
This is not Keynesianism but crony capitalism. Austerity is also another Wall Street alternative, allowing the monied interests to obtain productive assets on the cheap.
There is only one path that the status quo hates and fears, and that is genuine reform.
The Land of the Mega-rich: No Jobs For Americans
March 9. Today the Bureau of Labor Statistics (BLS) announced that 227,000 new nonfarm payroll jobs were created by the economy during February. Is the government’s claim true?
No. Statistician John Williams (shadowstats.com) reports that 44,000 of these jobs or 19% consist of an add-on factor derived from the BLS’s estimate that 44,000 more unreported jobs from new business start-ups were created than were lost by unreported business failures. The BLS’s estimate comes from the bureau’s “birth-death model,” which works better during normal times, but delivers erroneous results during troubled times such as the economy has been experiencing during the past four years.
Taking out the 44,000 added-on jobs reduces the February jobs number to 183,000, but does not provide a full correction. In an economy as troubled as the US economy is, most likely the deaths exceeded the births, but we don’t know what the number is. Was it 20,000? 50,000? What number do we deduct from the 183,000? We simply do not know.
Williams reports that seasonal adjustment factors do not work properly during troubled economic times and add their own overstatement to the jobs figure. If anyone could estimate the overestimate of new jobs that results from malfunctioning seasonal adjustments, it is John Williams, but he doesn’t provide an estimate.
Most likely, the new jobs did not exceed 150,000, a figure that would merely keep even with population growth and thus not reduce the rate of unemployment, which, consistent with this deduction, remained constant.
Let’s look now at the kind of jobs that were created. Of the new jobs reported by BLS, 92% are in services. Of this 92%, only 7% could possibly relate to exportable services--architectural, engineering, and computer systems services.
Of the reported new service jobs, 29% are in health care and social services. The categories that account for the health services jobs are ambulatory health care services and hospitals. Waitresses and bartenders account for 20% of the reported new jobs. Employment services account for 29% of the new reported jobs. Transportation and warehousing accounted for 5% of the reported new jobs, despite a loss of 60,000 jobs in general merchandise and department stores.
In other words, the vast majority of the new jobs are low paying jobs, except for a few truck drivers.
Other conclusions that we can draw are:
The US has nothing to export to reduce its massive trade deficit, which has, sooner or later, disastrous implications for the US dollar.
Middle class income jobs are declining, with polarization at the two extremes.
US economic policy continues to focus on the mega-rich at the expense of 99% of the population. US interest rates are kept at, or near to, zero in order to maximize mega-bank earnings, while depriving tens of millions of retired Americans of interest income on their lifetime savings, forcing them to spend their capital in order to live, thus depriving their heavily indebted children of inheritance.
In short, the US is well on its way to becoming a third world country, as I predicted would be the case in 20 years at a Brookings Institution conference in Washington DC early in the 21st century.
America is no longer the land of the free and independent. It is the land of the 1% mega-rich.
Paul Craig Roberts is a frequent contributor to Global Research. Global Research Articles by Paul Craig Roberts
No. Statistician John Williams (shadowstats.com) reports that 44,000 of these jobs or 19% consist of an add-on factor derived from the BLS’s estimate that 44,000 more unreported jobs from new business start-ups were created than were lost by unreported business failures. The BLS’s estimate comes from the bureau’s “birth-death model,” which works better during normal times, but delivers erroneous results during troubled times such as the economy has been experiencing during the past four years.
Taking out the 44,000 added-on jobs reduces the February jobs number to 183,000, but does not provide a full correction. In an economy as troubled as the US economy is, most likely the deaths exceeded the births, but we don’t know what the number is. Was it 20,000? 50,000? What number do we deduct from the 183,000? We simply do not know.
Williams reports that seasonal adjustment factors do not work properly during troubled economic times and add their own overstatement to the jobs figure. If anyone could estimate the overestimate of new jobs that results from malfunctioning seasonal adjustments, it is John Williams, but he doesn’t provide an estimate.
Most likely, the new jobs did not exceed 150,000, a figure that would merely keep even with population growth and thus not reduce the rate of unemployment, which, consistent with this deduction, remained constant.
Let’s look now at the kind of jobs that were created. Of the new jobs reported by BLS, 92% are in services. Of this 92%, only 7% could possibly relate to exportable services--architectural, engineering, and computer systems services.
Of the reported new service jobs, 29% are in health care and social services. The categories that account for the health services jobs are ambulatory health care services and hospitals. Waitresses and bartenders account for 20% of the reported new jobs. Employment services account for 29% of the new reported jobs. Transportation and warehousing accounted for 5% of the reported new jobs, despite a loss of 60,000 jobs in general merchandise and department stores.
In other words, the vast majority of the new jobs are low paying jobs, except for a few truck drivers.
Other conclusions that we can draw are:
The US has nothing to export to reduce its massive trade deficit, which has, sooner or later, disastrous implications for the US dollar.
Middle class income jobs are declining, with polarization at the two extremes.
US economic policy continues to focus on the mega-rich at the expense of 99% of the population. US interest rates are kept at, or near to, zero in order to maximize mega-bank earnings, while depriving tens of millions of retired Americans of interest income on their lifetime savings, forcing them to spend their capital in order to live, thus depriving their heavily indebted children of inheritance.
In short, the US is well on its way to becoming a third world country, as I predicted would be the case in 20 years at a Brookings Institution conference in Washington DC early in the 21st century.
America is no longer the land of the free and independent. It is the land of the 1% mega-rich.
Paul Craig Roberts is a frequent contributor to Global Research. Global Research Articles by Paul Craig Roberts
“A harder Default To Come”
“We owed it to our children and grandchildren to rid them of the burden of this debt,” said Greek Finance Minister Evangelos Venizelos about the bond swap that had just whacked private sector investors with a 72% loss. While everyone other than the bondholders was applauding, the drumbeat of Greece’s economic horror show continued in its relentless manner.
In central Athens, a stunning 29.6% of the businesses ceased operations, up from 24.4% in August; in Piraeus 27.3%, a 10-point jump since March. The whole Attica region lost 25.6% of its businesses. “This worsening of the survival index in the commercial sector ... shows that resistance is waning,” said Vasilis Korkidis, president of the National Confederation of Hellenic Commerce. “We must continue the battle of daily survival and keep our shops open,” he pleaded—while fourth quarter GDP was being revised down to -7.5% on an annual basis. The Greek economy has shrunk about 20% since 2008.
Unemployment is veering toward disaster. The overall rate of 21% in December, announced Thursday, was horrid enough, but youth unemployment rose to a shocking 51.1%, double the rate before the crisis. A record 1,033,507 people were unemployed, up 41% over prior year. Only 3,899,319 people had jobs—a mere 36.1% of a total population of 10.8 million!
No economy can service a gargantuan—and rapidly growing—mountain of debt when only 36.1% of its people contribute (by comparison, the US employment population ratio is 58.6%, down from 64.7% in 2000). Hence, another bout of red ink. The “cash deficit” at the end of 2011 hit €24.9 billion, 11.5% of GDP, far above the general budget deficit. Government-owned enterprises, such as the public healthcare sector, couldn’t pay their bills. Total owed their suppliers: €5.73 billion.
Yet, forcing down the deficit is one of the many conditions that the bailout Troika of EU, ECB, and IMF have imposed on Greece. And: “If the Greek people or the Greek political elite do not apply all of these conditions, they exclude themselves from the Eurozone,” said Luxembourg’s Finance Minister Luc Frieden. All of these conditions. Then he added the crucial words: “The impact on other countries now will be less important than a year ago.” Read.... Firewalls In Place, Markets ready: Greece Can Go To Heck.
Under pressure to cut its healthcare budget, the government reduced the prices that the industry can charge state-owned insurers. So wholesalers are selling their limited supply outside Greece, while out-of-money state-owned insurers delay payments to pharmacies and hospitals, which then can’t pay their wholesalers for the medications they do get. In return, wholesalers turn off the spigot. And the system is locking up.
Even Health Minister Andreas Loverdos conceded that there were shortages, but that they were limited to lower-priced medications. Of the 500 most common drugs, 243 have disappeared from the shelves, including antibiotics and drugs for treating diabetes and hypertension. The Panhellenic Association of Women with Breast Cancer, for example, received many complaints from patients who claim they weren’t treated due to lack of oncology drugs. And the world’s largest pharmaceutical companies are worried that Greece and some other countries might not be able to pay them at all.
A bright spot: tourism. In 2011, receipts rose by 9.5% over prior year as the Arab Spring had scared tourists away from destinations such as Egypt and Tunisia. In July, receipts jumped 14.4% and in October 15%. Alas, in December they declined 4.9%. And that reversal has now infected 2012. Tourist arrivals so far this year are down 10.7% in Athens and 6.7% for the country. Its last growth industry has hit the skids, too.
With unemployment climbing, production and consumption tanking, businesses shutting down, and tourism nose-diving, there is only one way for tax revenues: down. Budget deficits will be worse than promised. Greece’s debt—now largely to taxpayers of other countries—will continue to balloon. The standard of living of the vast majority of Greeks will get slammed, though the elite that are negotiating these deals will do just fine.
“We still don’t have a solution for Greece, so there will be a harder default to come,” predicted Charles Wyplosz, director of the Geneva-based International Center for Money and Banking Studies. Yet, in a bitter irony, Germany—the country where tax dodging is a national sport—has decided to send 160 employees of its Ministry of Finance to Athens to fix against all odds the tax collection system, a debacle that will endear the already reviled Germans even more to the Greeks. Read.... Final Spasm: Greco-Teutonic Wrestling.
In central Athens, a stunning 29.6% of the businesses ceased operations, up from 24.4% in August; in Piraeus 27.3%, a 10-point jump since March. The whole Attica region lost 25.6% of its businesses. “This worsening of the survival index in the commercial sector ... shows that resistance is waning,” said Vasilis Korkidis, president of the National Confederation of Hellenic Commerce. “We must continue the battle of daily survival and keep our shops open,” he pleaded—while fourth quarter GDP was being revised down to -7.5% on an annual basis. The Greek economy has shrunk about 20% since 2008.
Unemployment is veering toward disaster. The overall rate of 21% in December, announced Thursday, was horrid enough, but youth unemployment rose to a shocking 51.1%, double the rate before the crisis. A record 1,033,507 people were unemployed, up 41% over prior year. Only 3,899,319 people had jobs—a mere 36.1% of a total population of 10.8 million!
No economy can service a gargantuan—and rapidly growing—mountain of debt when only 36.1% of its people contribute (by comparison, the US employment population ratio is 58.6%, down from 64.7% in 2000). Hence, another bout of red ink. The “cash deficit” at the end of 2011 hit €24.9 billion, 11.5% of GDP, far above the general budget deficit. Government-owned enterprises, such as the public healthcare sector, couldn’t pay their bills. Total owed their suppliers: €5.73 billion.
Yet, forcing down the deficit is one of the many conditions that the bailout Troika of EU, ECB, and IMF have imposed on Greece. And: “If the Greek people or the Greek political elite do not apply all of these conditions, they exclude themselves from the Eurozone,” said Luxembourg’s Finance Minister Luc Frieden. All of these conditions. Then he added the crucial words: “The impact on other countries now will be less important than a year ago.” Read.... Firewalls In Place, Markets ready: Greece Can Go To Heck.
Under pressure to cut its healthcare budget, the government reduced the prices that the industry can charge state-owned insurers. So wholesalers are selling their limited supply outside Greece, while out-of-money state-owned insurers delay payments to pharmacies and hospitals, which then can’t pay their wholesalers for the medications they do get. In return, wholesalers turn off the spigot. And the system is locking up.
Even Health Minister Andreas Loverdos conceded that there were shortages, but that they were limited to lower-priced medications. Of the 500 most common drugs, 243 have disappeared from the shelves, including antibiotics and drugs for treating diabetes and hypertension. The Panhellenic Association of Women with Breast Cancer, for example, received many complaints from patients who claim they weren’t treated due to lack of oncology drugs. And the world’s largest pharmaceutical companies are worried that Greece and some other countries might not be able to pay them at all.
A bright spot: tourism. In 2011, receipts rose by 9.5% over prior year as the Arab Spring had scared tourists away from destinations such as Egypt and Tunisia. In July, receipts jumped 14.4% and in October 15%. Alas, in December they declined 4.9%. And that reversal has now infected 2012. Tourist arrivals so far this year are down 10.7% in Athens and 6.7% for the country. Its last growth industry has hit the skids, too.
With unemployment climbing, production and consumption tanking, businesses shutting down, and tourism nose-diving, there is only one way for tax revenues: down. Budget deficits will be worse than promised. Greece’s debt—now largely to taxpayers of other countries—will continue to balloon. The standard of living of the vast majority of Greeks will get slammed, though the elite that are negotiating these deals will do just fine.
“We still don’t have a solution for Greece, so there will be a harder default to come,” predicted Charles Wyplosz, director of the Geneva-based International Center for Money and Banking Studies. Yet, in a bitter irony, Germany—the country where tax dodging is a national sport—has decided to send 160 employees of its Ministry of Finance to Athens to fix against all odds the tax collection system, a debacle that will endear the already reviled Germans even more to the Greeks. Read.... Final Spasm: Greco-Teutonic Wrestling.
Dutch Freedom Party pushes euro exit as €2.4 trillion rescue bill looms
The Dutch Freedom Party has called for a return to the Guilder, becoming the first political movement in the eurozone with a large popular base to opt for withdrawal from the single currency.
Geert Wilders made his decision after receiving a report by London-based Lombard Street Research concluding that the Netherlands is badly handicapped by euro membership Photo: EPA
"The euro is not in the interests of the Dutch people," said Geert Wilders, the leader of the right-wing populist party with a sixth of the seats in the Dutch parliament. "We want to be the master of our own house and our own country, so we say yes to the guilder. Bring it on."
Mr Wilders made his decision after receiving a report by London-based Lombard Street Research concluding that the Netherlands is badly handicapped by euro membership, and that it could cost EMU’s creditor core more than €2.4 trillion to hold monetary union together over the next four years. "If the politicians in The Hague disagree with our report, let them show the guts to hold a referendum. Let the Dutch people decide," he said.
Mr Wilders is not part of the coalition. However, the minority government of Mark Rutte relies on the Freedom Party to pass legislation. The two men were in talks on Monday on €16bn of fresh austerity cuts needed stop the budget deficit jumping to 4.5pc of GDP.
The study said the eurozone cannot survive in its current form. The longer Europe’s politicians dither, the more costly it will become. "The euro can only survive if it becomes a fiscal transfer union with national sovereign debt subsumed in eurozone bonds," said co-author Charles Dumas.
Greece will opt for a "negotiated exit" later this year, once the pain becomes excruciating. This will be after the French elections in May, but before the German electoral season begins in 2013.
Portugal will follow in "short order" as markets focus on its struggling banks and nasty logic of recession for debt dynamics. "At that point, if not before, attention will turn to Spain and Italy, both likely by then to be much weakened by savage austerity programmes now being implemented," said Mr Dumas.
That is the moment when the creditor core will face the decision they have "ducked" for the past two years: either accept an EMU reflation strategy, along with debt pooling, fiscal union, and transfers; or accept a break-up.
Under an "optimistic scenario" it would cost €1.3 trillion to shore up Med-Europe, rising to more than €2.4 trillion if Italy and Spain need some form of bond relief. "The staggering trillion bill to preserve the euro only takes us to 2015. In reality, most of the debts will never be repaid and subsidies will need to continue, year in and year out," said Mr Dumas.
The report said exit by Italy would be relatively easy. The country would recover once it regained currency freedom, though foreign bondholders would take an exchange rate hit. Spain’s exit would be harder to manage since it has a primary budget deficit of 7pc of GDP, and its companies have large euro debts abroad.
Exits costs will rise relentlessly for both countries over time. Prolonged economic depression within EMU would render their debt mostly worthless in the end. So if there is to be break-up, "the sooner the better".
Italy and Spain are more likely to hang on as long as they can, until Northern patience snaps. Germany and Holland would then leave, causing a general return to the "sanity" of floating currencies.
The report said Holland had fallen behind non-euro Sweden and Switzerland since the launch of EMU. Its growth rate dropped from 3pc over the preceding 20 years to 1.25pc under the euro, compared with 2.25pc in Sweden and 1.75pc in Switzerland. The Swedes have stolen a march worth €3,500 per head over the past decade.
The report said Sweden and Switzerland have performed better on every front, relying on currency swings to check imbalances. "They created more jobs than the Dutch and especially the Germans. They enjoyed lower inflation. They were more successful in balancing their budgets. And they have run larger current account surpluses. Only wishful thinking could absolve the euro from blame."
Holland had enjoyed a "one-off" gain of 2pc to 2.25pc of GDP from the launch of the euro, and transaction costs have fallen. However, the trade benefits have been scant. The value-added share of exports has not risen.
The pan-EMU convergence in borrowing costs cited for many years as the great success of EMU proved to be a curse. It let the South borrow too cheaply and too much, lulling creditors into a false sense of security, and ultimately led to the debt crisis.
The report conclude that EMU membership "locks the Netherlands into a system in which cost competitiveness is matched by massive structural over-valuation of costs in Med-Europe, resulting in deficits that will suck cash out of the core Eurozone".
Mr Wilders said the study "goes against everything we are told in the media and by the left-wing elite on a daily basis".
The Dutch government is unlikely to pay any attention to the findings, but the Freedom Party’s populist campaign may force Mr Rutte to take an even harder line in loan talks with Greece, Portugal and Ireland, or over the expansion of the EFSF rescue fund.
The Dutch are major net contributors to the EU budget and have long resented serving as a cash cow. They rejected the European Constitution by a wide margin in 2005. A bitter edge has crept into Dutch political discourse.
Mr Wilders is known for his astute political instincts. His demarche tells us all too clearly that Dutch patience is wearing very thin.
That is the moment when the creditor core will face the decision they have "ducked" for the past two years: either accept an EMU reflation strategy, along with debt pooling, fiscal union, and transfers; or accept a break-up.
Under an "optimistic scenario" it would cost €1.3 trillion to shore up Med-Europe, rising to more than €2.4 trillion if Italy and Spain need some form of bond relief. "The staggering trillion bill to preserve the euro only takes us to 2015. In reality, most of the debts will never be repaid and subsidies will need to continue, year in and year out," said Mr Dumas.
The report said exit by Italy would be relatively easy. The country would recover once it regained currency freedom, though foreign bondholders would take an exchange rate hit. Spain’s exit would be harder to manage since it has a primary budget deficit of 7pc of GDP, and its companies have large euro debts abroad.
Exits costs will rise relentlessly for both countries over time. Prolonged economic depression within EMU would render their debt mostly worthless in the end. So if there is to be break-up, "the sooner the better".
Italy and Spain are more likely to hang on as long as they can, until Northern patience snaps. Germany and Holland would then leave, causing a general return to the "sanity" of floating currencies.
The report said Holland had fallen behind non-euro Sweden and Switzerland since the launch of EMU. Its growth rate dropped from 3pc over the preceding 20 years to 1.25pc under the euro, compared with 2.25pc in Sweden and 1.75pc in Switzerland. The Swedes have stolen a march worth €3,500 per head over the past decade.
The report said Sweden and Switzerland have performed better on every front, relying on currency swings to check imbalances. "They created more jobs than the Dutch and especially the Germans. They enjoyed lower inflation. They were more successful in balancing their budgets. And they have run larger current account surpluses. Only wishful thinking could absolve the euro from blame."
Holland had enjoyed a "one-off" gain of 2pc to 2.25pc of GDP from the launch of the euro, and transaction costs have fallen. However, the trade benefits have been scant. The value-added share of exports has not risen.
The pan-EMU convergence in borrowing costs cited for many years as the great success of EMU proved to be a curse. It let the South borrow too cheaply and too much, lulling creditors into a false sense of security, and ultimately led to the debt crisis.
The report conclude that EMU membership "locks the Netherlands into a system in which cost competitiveness is matched by massive structural over-valuation of costs in Med-Europe, resulting in deficits that will suck cash out of the core Eurozone".
Mr Wilders said the study "goes against everything we are told in the media and by the left-wing elite on a daily basis".
The Dutch government is unlikely to pay any attention to the findings, but the Freedom Party’s populist campaign may force Mr Rutte to take an even harder line in loan talks with Greece, Portugal and Ireland, or over the expansion of the EFSF rescue fund.
The Dutch are major net contributors to the EU budget and have long resented serving as a cash cow. They rejected the European Constitution by a wide margin in 2005. A bitter edge has crept into Dutch political discourse.
Mr Wilders is known for his astute political instincts. His demarche tells us all too clearly that Dutch patience is wearing very thin.
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