17 States Still Project Budget Deficits (It Will Get Much Worse); Moving Targets and the Slowing Global Economy

State economies have partially recovered from the depths of 2009 and early 2010, but 17 states still project deficits. Moreover, there are no rainy day funds or untapped revenue sources, and some "temporary" tax hikes are set to expire. California is $13 billion in the hole but that is a huge improvement compared to the $40 billion hole previously.

Yahoo!Finance reports State revenue rises, but not enough to offset cuts

Twenty-nine states are spending less from their general funds today than they did before the recession, according to a recent joint survey from the National Governors Association and the National Association of State Budget Officers.

More than 30 states have raised taxes since the recession began, but some of those increases were temporary and are expiring soon, as in Arizona. With the economy slowly reviving and unemployment rates dipping, many governors and lawmakers say they don't want to jeopardize the recovery by raising taxes again.

But tax revenue is not expected to grow enough to make up for the impact of four years of dismal economic times. Rainy-day funds, internal transfers and other one-time sources have largely been tapped, so governors and lawmakers must look for new places to cut spending.

Changes to public employee retirement benefits and sweeping reforms to health care programs such as Medicaid are among the most likely targets.

At least 17 states project budget gaps for the next fiscal year, while a handful need to balance budgets in the remaining six months of the current budget year. The revenue of all 50 states combined remains $21 billion below 2008 levels, according to the National Governors Association-NASBO report.

Budget gaps in states projecting shortfalls in the 2012-13 fiscal year are estimated to total $40 billion. By comparison, California alone closed a deficit of $42 billion in 2009, during the worst of recession.

Democratic Gov. Jerry Brown and state lawmakers have fewer options to close the $13 billion shortfall that is projected over the next 18 months.

In December, Brown ordered $1 billion in midyear spending reductions to public schools, universities and social services because tax revenue did not meet projections. The state has given school districts the option of slicing another seven days from the current school year, now 175 days long. That already is five days shorter than before the recession.

Low-income seniors and the disabled will get less in-home care when the reductions start in January. School advocates warn that an estimated 1 million students will have trouble getting to class with a drop in home-to-school transportation funding.

"The cut to transportation is absolutely devastating," said Steve Henderson, a lobbyist for the California School Employees Association. "What that means is a lot of low-income and rural kids will not have the ability to get to school."

Brown has proposed a 2012 ballot initiative to raise $7 billion annually through 2016 by boosting income taxes on individuals making $250,000 or more a year and increasing the state sales tax by a half-cent. He also has submitted a plan to the Legislature to revamp public employee pensions.

Washington state is considering similar cuts to cope with its shortfall, including shortening its school year, eliminating medical programs for 55,000 low-income residents and letting some low- and moderate-risk offenders out of prison early.

Missouri is reducing funding for elementary and secondary education to close a mid-year budget deficit tied to tornado recovery. North Carolina Gov. Beverly Perdue, a Democrat, is warning of thousands of teacher layoffs next fall because federal aid to local school districts is running out.

Moving Targets and the Slowing Global Economy

Things look better than the depths of the recession, but there are two major problems

1. Moving Targets
2. Slowing Global Economy

Unlike 2011, the US will not be immune from slowing global economy, especially in the Eurozone and China. Europe will enter a massive recession and there will be spillover effects. I expect an outright recession in the US, but more certainly a profit recession.

In turn, this will mean states will face moving targets and revenues will not meet expectations, just as is happening in Europe right now.

Worse yet, there are no rainy day funds anywhere, and many feel states have already cut services to the bone. This time around, don't expect much help from Congress. It's simply not coming.

Finally, with the stock market flat in 2011, it's safe to assume state pension plans are deeper in the hole than a year ago. Most pension plan assumptions have expectations of 8% or 8.5% growth. It did not happen in 2011, and I expect 2012 to be much worse.

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

Spain's Budget Minister says "Serious Budget Shortfalls in All 17 Autonomous Regions"; Primer Minister Announces $19.3 Billion Package of Tax Hikes; Cockroaches and the Theory of the Unexpected

Spain's prime minister, Mariano Rajoy, has finally admitted three things I have been saying for a long time

1. Spain's regions were in deep fiscal trouble if not bankrupt
2. Spain could not possibly hit its deficit targets for 2012
3. It is mathematically impossible for Spain to meet deficit goals without raising taxes, no matter how much he insisted otherwise.

The truth (at least partial truth) is out today with an announcement from Rajoy regarding a major tax hike, and an announcement from the budget minister regarding "serious budget shortfalls in its 17 autonomous regions, which have spent recklessly in the past decade."

The budget deficit target is 6%, but the Prime Minister says it will "unexpectedly" be 8% so further austerity measures will be needed.

The New York Times reports Spending by Regions Makes Spain�s Fiscal Picture Worse

Facing a wider then expected budget deficit, Spain�s new government announced a $19.3 billion package of tax hikes and spending cuts Friday and admitted the picture was likely even worse than it appeared because of overspending by the country�s autonomous regions.

The new budget minister, Crist�bal Montoro, made clear Friday: serious budget shortfalls in its 17 autonomous regions, which have spent recklessly in the past decade.

The Bank of Spain announced this month that regional debt had surged 22 percent, to $176 billion in September from $144 billion the year before. And some experts say that there remain tens of billions of dollars in �hidden� regional debt yet to be discovered.

That �hidden debt,� most of it in unpaid bills, is not included in Spain�s total national indebtedness of $915 billion. That could easily amount to $25 billion to $40 billion more, experts say.

Hidden Debt and Regional Problems


I have talked about hidden debt, hidden losses, hidden deficits, and various regional problems many times. Here is a sampling:

• December 22, 2011: Spanish Implosion Coming Up; Deficit Up, Receipts Down, a Need to Cut 40 Billion in Expenses from 90 Billion; Spain's "Hidden Deficit"
 
• December 17, 2011: Home Prices in Spain Drop 14 Consecutive Quarters; Banks Stuck with Major Losses Not Marked to Market; Expect Conditions to Worsen
 
• September 22, 2011: Hidden Losses, Lack of Liquidity at Spanish Banks; No Bidders for State Owned CAM
 
• September 16, 2011: Navarra Region of Spain Bankrupt by End of Year "No Money to Pay Workers or Provide Services"; Electricity cut off to Spanish town over unpaid bills

Cockroaches and the Theory of the Unexpected

Mariano Rajoy says this news is "unexpected". It cannot possibly be. I have been talking about these problems for many months. The admission by Rajoy simply means the problem is so bad that Spain can no longer hide all of the cockroaches.

The cockroach theory says that when you see one cockroach there are at least a hundred more. In this case, we see dozens of cockroaches openly scurrying about.

I suggest the problems are still far bigger than reported and the economic situation will get much worse.

Problems to Get Much Worse

Major tax hikes in the midst of a serious recession, with unemployment rate at 22.8% (and rising) makes no economic sense. Yet that is exactly the medicine prescribed by the EMU and agreed to by Rajoy.

Spain will find it impossible to meet its deficit target even after these hikes because of the resultant drop in economic activity.

Italy, Portugal, and Greece are in the same boat. And with all these slowdowns, precisely who is Germany going to export its products to?

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

Additional 2012 Predictions: Trade Wars, US Election, Precious Metals, Energy

I inadvertently left off an item regarding trade wars that I intended to mention in Mish 2012 Predictions; 2011 Year in Review with Max Keiser. I also have some commentary on the US election, precious metals, and energy.

Trade Wars

Expect Global Trade Wars: Look for tit-for-tat trade wars to heat up in 2012 as noted previously in China to Impose Anti-Dumping Duties on GM; "Fair Trade" Idea is Self-Serving Scam; Proposal to Stop "Free Sunlight" Gains Support From Mitt Romney. Should Mitt Romney win the election, expect global trade to collapse in 2013. Trade wars will not be good for equity prices.


US Election

US Political Roadmap: If President Obama dumps Joe Biden for Hillary Clinton as his vice presidential candidate as Robert Reich suggests in My Political Prediction for 2012: It�s Obama-Clinton, Obama will win re-election unless the Republican candidate is specifically Ron Paul. Clearly this is not an endorsement of Obama, it is a prediction. Some mistook my 2008 prediction for Obama as an endorsement. It wasn't. I wrote in Ron Paul in 2008 and will do so again unless he is the nominee. If Ron Paul is the Republican nominee I think Paul would draw enough crossover votes from independents and Democrats who are sick of war and big government to win. If it's Obama-Biden vs. Newt Gingrich or Mitt Romney then it's too close to call.

Energy

Oil is a wildcard. My prediction is cooler heads prevail. However, the election is 11 months away and that is a lot of time for someone to get carried away. The odds the US initiates an attack on Iran under Ron Paul are virtually zero. Unfortunately the same cannot be said for any of the other major candidates. Should the US or Israel attack Iran (I do not believe the US will), then the price of crude will quickly skyrocket by $50 or more. Such an oil shock would immediately send the entire global economy into a severe recession.

Precious Metals

Precious Metals Roadmap: What follows is more of an approach than a prediction. Gold remains a much safer play than silver, something I have said for years. Technically silver is flirting with a breakdown of major support at $27. If that low does not hold, a decline to the low-to-mid $20's is likely (something I said earlier this year when silver was near $50). I have no target for gold. The longer the US holds off quantitative easing and the ECB lets the sovereign debt crisis simmer without action, the bigger the potential drop in precious metals. Moreover, silver is likely to take a bigger hit than gold (percentage-wise) in a recession or global slowdown because silver is an industrial commodity and Chinese demand for industrial commodities is poised to plunge. Both gold and silver are more likely to be weaker earlier in the year as opposed to the second half given the Bernanke Fed does not look to launch QE3 any time soon. If the stock market and energy prices plunge in the first half of 2012, Bernanke will be more inclined to launch another QE program and that would be beneficial to precious metals.

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

Explaining Italian Christmas Season Sales (It's Far Worse Than Previously Reported); How Various Austerity Measures Will Affect Spending in 2012; Emails from Italian Readers; Massive European Recession On the Way

In response to Italians Cut Spending in Worst Christmas in 10 Years; Harsh Times Ahead for All Europe (an article translated from Spanish that had me puzzled about a number of things even though I could tell spending fell dramatically), reader Andrea offers a very nice explanation of just how bad things are in Italy.

Hello Mish,

I can help your readers better understand the reported "spending cuts in Italy".

Coldiretti is the farmers lobby and they claim that for Christmas day dinner and lunch they spent 2.3 billion Euros, 18% less than last year and the lowest figure since 2001: Christmas day dinner and lunch (and generally speaking food) is typically a strong tradition that Italians wants to keep as much abundant and tasty as possible even through the worst times, this is why is such an important figure.

The other figure you mention ("The consumer group estimates "as much as 40 percent") is related to something completely different and it is an estimate. Just after the Christmas period (from the first days of January) in Italy and in Europe in general you have a "discounted sales", where retailers sell items at a discounted price to empty their stocks and of the items unsold during the normal season.

Typically this is a consistent part of the sales of the year and people used to rush in the shops since the very first hours of the first days to get the best bargains.

Codacons (one of the biggest consumer associations) estimates that the "discounted sales" this year will be 30%-40% less than last year. Federconsumatori (another consumer association) instead estimates a reduction of 19/20%, which is probably more close to reality (people have probably waited this season to buy something not urgent). If this happens, it will certainly be a huge sign that recession is beating hard.

Regarding total spending during the holiday season, it is quite hard to find a comparison with the last year. The typical comparison reported by media is between the forecast of another consumer association (Federconsumatori) and the actual results: Federconsumatori forecast 4.4 billion and instead the total was 4 billion, so 10% less than forecast.

However, looking in the Federconsumatori Website I found the final result for last year: roughly 5 billion. Therefore, Italy had a 20% decline through Christmas, not the 9% cited in the link you referenced. That 9% drop was based on estimates that had already factored in some of the decline.

This was a massive spending reduction for a season that makes a big part of the revenues of the year. Please note that in Italy employees get the so-called "tredicesima", a thirteenth monthly salary just before the Christmas period, and this is cash that typically helped to lift sales during this period.

By the way, on Federconsumatori website you can find a lot of statistics about spending, prices and so on, unfortunately in Italian.

The most hit seem to be clothes and shoes sectors, which are by the way typical sectors that instead have a lot of sales during the "discount season".

Actually I have been in Italy a few days around Christmas and generally speaking the atmosphere is quite gloom: all the time on the media the main topic is austerity, how much it will affect the spending power, frugal Christmas and so on.

The tax hikes are quite massive : apart the tax on house ownership (which was canceled by Berlusconi government 3 years ago and so is just a comeback), there will be tax increase on revenues applied by each Italian region, there has been increase between 5 and 10% of fuel (petrol, diesel, propane and methane).

Federconsumatori estimates that the sum of the all the austerity budget laws passed this year (Berlusconi + Monti) will reduce the spending power of a typical family of 7.6%.

Best regards,

Andrea

Email from an Expatriate Living in Italy

Here is a second email from a reader. This one is from Mikkel, an expatriate who now lives in Italy.

Hi Mish
I am a expat living in Italy for the last 6 years.

Italy is a wonderful, but strange country. In a politically incorrect and stereotypical analysis of Italy's problems, the North produces, the South lives off the wealth created by the North, and the omnipotent elected assembly (where you do not vote for the candidate, but the party),  allows the main politicians like Berlusconi to stay in office nearly forever.

Fortunately, Italy is a country of savers. However, huge fiscal pressure have forced over 60% the Italians to spend less. A liter of gas costs now 1.70 euros (over half is in taxes). That amounts to $8.35/gallon.

Assuming one has a job (official unemployment rate is 8.5%), the average salary is 1200 euro net/month or less, but you still need to pay 21% IVA on all goods, car insurance, gas + taxes, utilities, property and car taxes, etc. Gross salaries are on the order of 2500 euros/month. How much money do people have left to save and invest for the future?

It will be interesting to see what happens.
Thanks
Mikkel

Massive European Recession On the Way

As I have said numerous times, European countries are in dire need of work rule changes, less government spending, less bureaucracy, and fewer taxes. Unfortunately, bureaucrats have responded with increased taxes.

The recession in Europe, which has already started, will be massive.

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

French Unemployment Hits 12-Year High (It's Going to Get Much Worse); Sarkozy Outlines Jobs Plan (Mathematically It Can't Work); Olli Rehn to Give Keynote Speech at Eurobond Seminar

The EU Observer reports France to hold jobs summit as unemployment hits 12-year high

A sharp rise in France's unemployment figures is putting pressure on President Nicolas Sarkozy to deliver, with over half the French population wanting the candidates for the spring presidential election to focus their energies on maintaining jobs.

Figures released by the labour ministry this week show that the number of those unemployed hit 2.85 million in November, a 12-year high and the seventh consecutive monthly increase.

The numbers have sparked a debate in France about the nature and future of employment with Sarkozy convening a jobs summit on 18 January.

Unemployment as an issue is a number-one priority on French voters' minds. According to a poll in La Croix newspaper, 52 percent of French people want the candidates for the April presidential elections to focus on responses that "maintain employment."

Of the main candidates in the running, socialist contender Francois Hollande is seen as proposing the best solutions to the daily problems of French citizens by 24 percent of those polled. Sarkozy comes in second with 20 percent and far-right politician Marine Le Pen in third place (16%).

While all candidates will focus on combatting unemployment and there are set to be many proposals for economic growth, their hands will be tied by France's commitment to reduce its high budget deficit, as part of an overall plan to contain the eurozone debt crisis.

Sarkozy Outlines Jobs Plan Based on German Program (Mathematically It Can't Work)

The Wall Street Journal Reports Sarkozy Outlines Jobs Plan

Largely inspired by measures Germany relied on to navigate the 2009 economic recession, [Sarkozy's] draft plan calls for companies to retain all staff even if they are faced with a slump in orders, and for workers to accept lower pay. As an incentive and to help pay for the move, the government would kick in for some of the lost wages and social-security contributions, according to officials at the French Labor Ministry and union leaders who were briefed on the proposed pact.

Mr. Sarkozy intends to discuss both the job-saving scheme, and the flexibility idea at a meeting with labor and employer unions on Jan. 18. By then, the government must answer a key question: how to finance measures that officials say could cost more than �1 billion ($1.3 billion) next year.

Five months ahead of presidential elections, Mr. Sarkozy is already fighting on multiple fronts to reduce the budget deficit, preserve the country's triple-A debt rating and find a comprehensive solution to the protracted euro-zone debt crisis.

The unemployment rate�which rose to 9.7% of the active population in the third quarter�is the latest bad news on France's economic dashboard. The country's trade deficit is projected to widen to an all-time high of �75 billion this year, and the national statistics office, Insee, has forecast that the economy will likely contract in the current quarter and the first quarter of next year.

In France, the measure is likely to gather support from trade unions as long as the government commits to compensate pay cuts. "We're on board as long as the government puts some money on the table," said Jean-Claude Mailly, the head of Force Ouvri�re, France's third-largest union.

The French government's idea to increase work-time and pay flexibility is likely to meet much more resistance.

"All labor unions will say 'No,' because that would amount to making workers pay for the economic downturn," said Mourad Rabhi, a leader at CGT, France's second-largest union. "And in France there isn't the same climate of mutual confidence between workers and companies, as in Germany."

Mathematically It Can't Work

The unions will agree to pay cuts as long as there are no pay cuts (government kicks in the rest). Moreover the unions will not agree to increase work-time and pay flexibility because "that would amount to making workers pay for the economic downturn"

Heaven forbid. Meanwhile, Sarkozy needs to trim the deficit, not increase it, and his proposal does the opposite.

Note that Hollande is widely predicted to beat Sarkozy in an election runoff, and Hollande is running on a platform to make changes to the agreement reached between Sarkozy and German Chancellor Angela Merkel.

Expect European Unemployment to Get Much Worse

Europe is already in a nasty recession. Austerity measures coupled with tax hikes in numerous countries but especially Italy, France, Spain, Portugal, and Greece will make matters much worse.

"United States of Europe" Author Hosts Eurobonds Seminar

The galling arrogance of Eurocrats is rather stunning. While reading the EU Observer article at the top, this Ad for a Eurobonds Seminar on January 10, 2011 popped up.



Olli Rehn is Vice President of the European Commission. Guy Verhofstadt MEP is the Leader of the Alliance of Liberals and Democrats for Europe and author of the book United States of Europe (2006), the New Age of Empires (2008) and How Europe can Save the World (2009).


Tireless, Dangerous Demagogues

Rehn and Verhofstadt are tireless, socialist fools as well as dangerous demagogues dedicated to the destruction of sovereign rights of every nation in the EMU. They ought to scare the bejeebies out of any sane person who is not in favor of a European Nanny-Zone.

Their brainwashing event, marketed as a seminar on eurobonds is already filled up.

The primary thing stopping these socialists and their nanny-zone ideal is the German supreme court.

This past Wednesday, German Constitutional Court Judge Udo Di Fabio said in a Spiegel interview "It's a Mistake To Pursue a United States of Europe".

Please note that Di Fabio sees Euro-bonds as illegal.

However, the judge proved his naivet� with his statement "no politician really intends to transfer their power of disposition over the substance of the national budget at an EU level".

On the contrary, the European Parliament is loaded with nanny-zone proponents who are conducting seminars on how to do just that.

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

Race Baiting and Ron Paul: Actions Speak Louder Than Words; Truth is Indeed Powerful

When it comes to Ron Paul, many people pretend, with great indignation, that words not even said speak louder than actions. Jonathan Capehart writing for the Washington Post is such a person.

Before explaining further, first let's watch a video.



Admittedly that is a political ad. So what?

Here is the key question: Is there any reason to doubt the events in the video? If so why? Assuming, the video true, is there any reason to believe there is a racist bone in Ron Paul's body? Can the same be said for Newt Gingrich, Mitt Romney, or even Barrack Obama?

Mind you, the video describes an action, one that shows true character at precisely the right time. Sadly, Jonathan Capehart does not give a damn about that, he would rather spread lies and innuendo.

Please consider Ron Paul deserves to be �blot out�.

The new ad from Revolution PAC is pretty powerful. James Williams, a black man, talks about his efforts to get medical attention for his pregnant white wife at a Texas hospital in the 1970s. The crescendo comes when a young doctor named Ron Paul broke through the indifference of the staff to give them the help they needed. Their baby would be stillborn. And Paul paid their medical expenses. Then Williams extols the virtues of Paul � his honesty and willingness to take on the establishment.

Truth is Indeed Powerful

Yes, Jonathan. The video is indeed powerful. The simple explanation is truth is always powerful. Lies and innuendo aren't.

Nonetheless Capehart prefers to go on spreading innuendo.

Revolution PAC is hoping that a black man coming to the defense of Paul will blot out the controversy surrounding the Texas congressman and the racists statements polluting newsletters bearing his name in the 1980s and 1990s.

Paul, a man who wants to be entrusted with the presidency, owes the American people a clear accounting of how hatred came to be scribbled regularly in publications bearing his name and how he had no knowledge of it. His dismissive disavowal of the matter is beyond inadequate.

Nothing will satisfy Jonathan Capehart. That video proves it. How? Capehart embedded the video in his post.

It matters not to Capehart that Paul did not say the things attributed to him. All that matters to Capehart is that Paul's name was associated with them. If Capehart is looking for racists, he ought to look in the mirror.

Only racists or fools (Capehart is both) can possibly believe that words not even said, are more important than actions!

Nonetheless, I thank Capehart. His article will be seen by thousands, and people will see Capehart for the racist fool he is.

Racist's and fool's minds are already made up. However, everyone else (and this is far more important) will see Ron Paul is not the racist that Capehart portrays him to be.

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

China to Withdraw Support for Foreign Investment in Autos; Three Reasons China Will Not Be a Boon to Global Auto Sales

US and other auto manufacturers banking on increased car sales in China for 2012 have three reasons to be concerned.

1. Blistering growth in Chinese auto sales is expected to plunge
2. China is taking efforts to dampen foreign investment in autos
3. Trade wars

The Wall Street Journal reports China to Damp Foreign Investment in Auto Sector

China will withdraw its support for foreign capital in the country's auto-manufacturing sector in an effort to build up its domestic industry, state media reported late Thursday.

The report from the state-run Xinhua news agency didn't disclose additional details, and it was unclear whether it would impact existing operations by foreign auto makers. U.S. and European auto makers, including General Motors Co. and Volkswagen AG, and Japanese auto makers like Toyota Motor Corp. and Honda Motor Co. have long produced cars in the country through joint ventures with local partners.

Foreign auto makers have played a key role as China has shot up to become the world's No. 1 auto market. After blistering growth, auto sales this year are expected to grow no more than 3%, which would total 18.6 million vehicles, according to the China Association of Automobile Manufacturers, an industry group.

The report said officials would encourage more foreign investment into environmentally friendly technologies, alternative-fuel cars and other areas with guidelines taking effect Jan. 30. The government will lower foreign restrictions by allowing companies to invest in more sectors and increasing caps on the amount of foreign capital in some areas, the report said.

Clearly China is concerned about growth. So, don't look for efforts by foreign manufacturers to expand production or build new plants in China to be approved.

Moreover, look for tit-for-tat trade wars to heat up in 2012 as noted in China to Impose Anti-Dumping Duties on GM; "Fair Trade" Idea is Self-Serving Scam; Proposal to Stop "Free Sunlight" Gains Support From Mitt Romney.

Should Mitt Romney win the election, expect global trade to collapse in 2013.

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

Do Blogs Present "News" or "Commentary"? Is there a Difference? Should There Be?

Do bloggers present "news" or "commentary"?

The reason I ask is the advertising agency that represents my blog said advertisers were "looking to hear from our publishers on whether or not they break new stories".

Do I break news stories? Is reporting on the news (which is in general what all the economic bloggers do), news in and of itself?

My initial thought was that I comment on the news, not "break news stories". As I look at Calculated Risk, the Big Picture, and even Zero Hedge I would suggest we all primarily comment on the news, although all of us occasionally have major exclusive thoughts.

The criteria, however, which I initially missed was "external news sources crediting my blog".

On that basis, it is crystal clear that Calculated Risk, the Big Picture, Zero Hedge and my blog are news sources. Nonetheless I needed to provide recent citations.

My search turned up many things I was aware of and a few things I was not aware of at all.

Here are some examples I was well aware of in advance.

Known List

• The Business Insider frequently references my articles
• Finvz incorporates me into their news feed
• I did monthly commentary for Financial Sense
• I am a "professor" on Minyanville
• I provide economic commentary on a regular basis for nationally syndicated Coat-to-Coast AM radio with George Noory. 
• My housing-related posts are usually broadcast by Patrick.Net 
• I do weekly podcasts for Howe Street
• I frequently make �Best of the Web� on Dollar Collapse.
• Max Keiser regularly refers to my articles and I have done vides with Max and expect to do more videos.
• I am a regular writer for Town Hall Finance
• Real Clear Politics and Real Clear Economics have both quoted me recently but not on a regular basis.
• The same can be said for Bloomberg, the Wall Street Journal, the LA times, National Public Radio, and MarketWatch.
• Michael Campbell's Money Talks site linked to me recently.
• I recently did a live newscast video for Capital Account and expect to be back on again
• Eric King at King Word News has interviewed me numerous times 

Surprise List

I frequently review my hit list as do other bloggers. There are numerous other examples I could cite. I found one big surprise in my search.

Top 10 Blogger Blogs

Please consider the top ten blogspot blogs 2011- blogger powered blogs

The first 9 �blogspot� blogs are Google internal blogs. I was quite surprised to find myself in the list at all. Yet there I am, at #10. I do not know for how long. If Google launches another blog, not long. However, the record shows I did beat out the official Twitter blog and other prominent blogs.

#10 Mish's Global Economic Trend Analysis: Mike Shedlock / Mish is a registered investment advisor representative for Sitka Pacific Capital Management.
Alexa Traffic Rank: 18,583 , Links to Site: 3138

Top Financial Blog Citations

1. New York Times: NYT 10th Annual Year in Ideas - #1 Idea of the Year 'Do-It-Yourself Macroeconomics'
2. Time Magazine: Best 25 Financial Blogs
3. Bloomberg: Financial Blogs: The Best of the Bunch

Still, I return to the initial question. Do bloggers offer "news" or "commentary"? What does Fox News offer? The Wall Street Journal? LA Times?

Look at recent headlines by Time Magazine, the LA Times, CNN, Huffington Post, the Chicago Tribune, and numerous other places that "Ron Paul Walked Out" of an interview with CNN.

The truth is quite different as noted in Ron Paul Did Not "Walk Out" of CNN Interview; Blatantly Biased Headline by Time Magazine; Six Reasons to Vote for Paul


Much of what is presented as "facts" by major news organizations is in reality an infomercial for a slanted point of view. Furthermore, major news stories headlines frequently do not match the article.

Government data is often questionable, and I would be remiss if I failed to point out Jean-Claude Juncker, Luxembourg PM and Head Euro-Zone Finance Minister famously stated "When it becomes serious, you have to lie". In such cases, even if the news reporting is not purposely slanted, an article itself might be, unbeknown by the writer.

So, is anything really news, or is it all commentary? At least with bloggers, everyone understands the score.

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

Charts of the Day: European Demand Deposits; Global Equity Performance

Here are a couple of charts to consider courtesy of Steen Jakobsen, chief economist at Saxo Bank in Denmark.

European Demand Deposits



Clearly capital flight is taking place in a major way in Greece and an important if relatively minor (for now) way in Italy.

Global Equity Performance



click on chart for sharper image

Don't expect the same degree of out-performance from US equities in 2012.

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

Mish 2012 Predictions; 2011 Year in Review with Max Keiser

Shortly before Christmas I did a video discussion of 2011 with Max Keiser with a look-ahead to a few ideas for 2012.



Link if video does not play: On the Edge with Mish Shedlock

Part of the discussion was a recap of some of my call for 2011 as noted in Mish 2011 Predictions Review

Looking ahead to 2102, I see a continuation of the same themes, but a few new ideas as well.

Ten Themes for 2012

1. Severe European Recession as the sovereign debt crisis escalates: Austerity measures in Italy, Greece, Spain, and Portugal plunges all of Europe into a major recession. Spain and Portugal will follow Greece into an outright depression.
 
2. Political Crisis in Europe: French President Sarkozy loses to socialist challenger Francois Hollande. German Chancellor Angela Merkel's coalition collapses. The Merkozy agreement is either modified to do virtually nothing or is not ratified at all. This chain of events will not be good for European equities or European bonds.
 
3. Relatively Minor US Economic Recession: The US will not avoid a recession in 2012. Retail spending ran its course with the tail-off into Christmas of 2011. The Republican Congress has little incentive for fiscal stimulus measures in 2012 so do not expect any. However, with housing already limping along the bottom in terms of construction and investment (not prices), a US GDP decline will not be severe. The US may see a recession even if GDP barely drops. Certainly the US recession will be far less severe than the recession in Europe and Australia.
 
4. Major Profit Recession in US: Profit margins in the US will be torn to shreds as businesses will be unable to reduce costs the same way they did in 2008 and 2009 (by shedding massive numbers of employees).
 
5. Global Equity Prices Under Huge Pressure: Don't expect the same degree of reverse decoupling of US equities we saw in 2011. The US economy will be better than Europe, but equities globally will take a hit, including the US. Simply put, stocks are not cheap.
 
6. Fiscal Crisis in Japan Comes to Forefront: Japan's fiscal crisis and debt to the tune of 200+% of GDP finally matters. The crisis in Japan will start out as a whimper not a bang, but will worsen as the year wears on. If Japan responds by monetizing debt, not a remote possibility at all, Japanese equities will massively outperform in nominal and perhaps even in real terms. "Real" means "yen-adjusted", not "inflation-adjusted" terms.
 
7. Few Hiding Spots Other than the US Dollar: US treasuries and German bonds were safe havens in 2011, but with yields already depressed don't expect huge gains. Expect to see a strengthening of the US dollar across the board against all major currencies. Moreover, cash (one the most despised asset classes ever), may outperform nearly everything, even if the dollar goes virtually nowhere. Hiding places will be few and far between for much of 2012.
 
8. US Public Union Pension Plans Under Attack: States finally realize the need to rein in pension plans much to the dismay of public unions. Social and economic tensions in the US rise.
 
9. Regime Change in China has Major Ramifications: China will start a major shift from a growth model dependent on housing and infrastructure to a consumer-driven model. The transition will not be smooth. Property prices in China will collapse and commodity prices will remain under pressure.
 
10. Hyperinflation Calls Once Again Will Look Laughable: Unless there is a major disruption in the Mideast (which I do not rule out by any means), oil prices will drop and food prices will follow. If so, we will once again see silly talk from the Fed about preventing "unwelcome drops in inflation". As always, the deflation key is not prices at all but rather credit and credit marked-to-market. Expect credit in all forms to come under attack and expect junk bonds take a hit as well. By the way, regardless of what happens to oil prices, hyperinflation calls will look silly.

Addendum:

2011-12-30
Several people have asked me to comment on precious metals. I also wanted to mention trade wars and energy.

Trade Wars

Expect Global Trade Wars: Look for tit-for-tat trade wars to heat up in 2012 as noted previously in China to Impose Anti-Dumping Duties on GM; "Fair Trade" Idea is Self-Serving Scam; Proposal to Stop "Free Sunlight" Gains Support From Mitt Romney. Should Mitt Romney win the election, expect global trade to collapse in 2013. Trade wars will not be good for equity prices.  

US Election

US Political Roadmap: If President Obama dumps Joe Biden for Hillary Clinton as his vice presidential candidate as Robert Reich suggests in My Political Prediction for 2012: It�s Obama-Clinton, Obama will win re-election unless the Republican candidate is specifically Ron Paul. Clearly this is not an endorsement of Obama, it is a prediction. Some mistook my 2008 prediction for Obama as an endorsement. It wasn't. I wrote in Ron Paul in 2008 and will do so again unless he is the nominee. If Ron Paul is the Republican nominee I think Paul would draw enough crossover votes from independents and Democrats who are sick of war and big government to win. If it's Obama-Biden vs. Newt Gingrich or Mitt Romney then it's too close to call.

Energy

Oil is a wildcard. My prediction is cooler heads prevail. However, the election is 11 months away and that is a lot of time for someone to get carried away. The odds the US initiates an attack on Iran under Ron Paul are virtually zero. Unfortunately the same cannot be said for any of the other major candidates. Should the US or Israel attack Iran (I do not believe the US will), then the price of crude will quickly skyrocket by $50 or more. Such an oil shock would immediately send the entire global economy into a severe recession.

Precious Metals

Precious Metals Roadmap: What follows is more of an approach than a prediction. Gold remains a much safer play than silver, something I have said for years. Technically silver is flirting with a breakdown of major support at $27. If that low does not hold, a decline to the low-to-mid $20's is likely (something I said earlier this year when silver was near $50). I have no target for gold. The longer the US holds off quantitative easing and the ECB lets the sovereign debt crisis simmer without action, the bigger the potential drop in precious metals. Moreover, silver is likely to take a bigger hit than gold (percentage-wise) in a recession or global slowdown because silver is an industrial commodity and Chinese demand for industrial commodities is poised to plunge. Both gold and silver are more likely to be weaker earlier in the year as opposed to the second half given the Bernanke Fed does not look to launch QE3 any time soon. If the stock market and energy prices plunge in the first half of 2012, Bernanke will be more inclined to launch another QE program and that would be beneficial to precious metals.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Update on Brazil, BRICs

In response to Brazil is World's 6th Largest Economy, Overtaking UK Earlier this Year. Can Brazil Overtake France by 2016? What about BRICs in General? I received a nice email from Felipe Fiel, an economist from Brazil working in the hedge fund industry for Fram Capital.

Felipe writes ...

Hi Mish, hope is all well with you. First of all I would like to congratulate you for your blog and outstanding contribution do financial observers. I�m an economist who lives in Brazil, working for the hedge fund industry.

I agree entirely with you about Brazil�s skepticism.

I would like to highlight that the way you show inflation and GDP might cause a distorted impression to your readers.

You show GDP growth quarter-over-quarter seasonally adjusted, without annualizing it, which is the norm for US viewers. It was running at almost 8% annualized growth before 2008 crises and even recently it grew at 3.2% in the 4 quarters before stagnating in 3Q.

For next year, even the most pessimistic projections see growth at 4.3% on average, which is more or less what is seen at GDP potential. However, I personally think we cannot growth at that rate without generating too much inflation.



Best,
Felipe Fiel

BRIC Decade Ends as Growth Peaked

According to Goldman Sachs, BRIC Decade Ends as Growth Peaked

Dec 28, 2011

In the past decade, mutual funds poured almost $70 billion into Brazil, Russia, India and China, stocks more than quadrupled gains in the Standard & Poor�s 500 Index and the economies grew four times faster than America�s.

Now Goldman Sachs Group Inc. (GS), which coined the term BRIC, says the best is over for the largest emerging markets.

BRIC funds recorded $15 billion of outflows this year as the MSCI BRIC Index sank 24 percent, EPFR Global data show. The gauge, which beat the S&P 500 by 390 percentage points from November 2001 through September 2010, has trailed the measure for five straight quarters, the longest stretch since Goldman Sachs forecast the countries would join the U.S. and Japan as the top economies by 2050.

BRIC indexes may fall another 20 percent next year, buffeted by the liquidity squeeze stemming from Europe�s sovereign debt crisis, Arjuna Mahendran, the Singapore-based head of Asia investment strategy at HSBC Private Bank, which oversees about $499 billion, said in an interview. Nations such as Indonesia, Nigeria and Turkey may overshadow the BRICS in the next five years as they expand from lower levels of growth, he said.

�The slowdown we�re seeing in the BRICs will continue for most of the first half,� Mahendran said. �Compared to the U.S., corporate profits haven�t been that good as companies face higher wages, higher interest rates and currency volatility, and at best, we�ll only start to see the effects of monetary policy loosening in the second half of 2012.�

2011 Losses

The BSE India Sensitive Index led declines among BRIC equity gauges this year, falling 23 percent. China�s Shanghai Composite Index also dropped 23 percent, while Russia�s Micex retreated 18 percent and Brazil�s Bovespa sank 16 percent. The 21-country MSCI Emerging Markets Index (MXEF) lost 20 percent, while the S&P 500 gained 0.6 percent.

The time to warn about BRICs and emerging markets was a year ago, which I did, specifically in regards to China (but also with many references to trade surplus nations and commodity producers throughout the year).

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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"It's a Mistake To Pursue a United States of Europe" says German Supreme Court Justice in Spiegel Interview ; Interpretation of Interview from Saxo Bank Chief Economist

Those looking for a reason for a sinking Euro and falling stock markets today just may find the answer in a Spiegel Interview with German Constitutional Court Judge Udo Di Fabio who says "It's a Mistake To Pursue a United States of Europe".

SPIEGEL: Didn't the court's decision on the Lisbon Treaty in effect place strict limits on further European integration by banning the transfer of important political powers from Germany to the EU?

Di Fabio: The decision on the Lisbon Treaty pinpoints the sensitive areas, such as budgetary autonomy. Furthermore, in the euro-zone bailout ruling, issued on Sept. 7 of this year, the court made it clear once again that this particularly concerns the parliament's power of disposition over revenue and expenditure.

SPIEGEL: But this is precisely the aim of the fiscal union to control the debt crisis. If the national budget falls under the control of the European Commission, the next Constitutional Court veto will be just around the corner.

Di Fabio: Not necessarily. Since no politician really intends to transfer their power of disposition over the substance of the national budget at an EU level, there is no insurmountable obstacle.

SPIEGEL: Does it concern the substance when a Brussels fiscal commissioner says to the German parliament, the Bundestag: You're not allowed to pass this budget?

Di Fabio: If Brussels only more closely supervises whether the member states are adhering to the agreements that they have concluded, then this does not constitute an infringement on their identity. Anyone who voluntarily agrees to something has to accept that they will be checked to ensure that this contractual obligation is fulfilled. Such a veto could come from Karlsruhe, however, if there were a violation of the new debt brake (an amendment to Germany's constitution that requires the government to balance its budget each year by 2016).

SPIEGEL: The president of the European Court of Justice in Luxembourg nonetheless recently said that he's not happy to hear that Karlsruhe wants to have the last word.

Di Fabio: I'm also unhappy to hear certain things, but I accept them.

SPIEGEL: How long can this really work, this coexistence of authorities to adjudicate in Europe?

Di Fabio: As long as we don't have a United States of Europe, we will continue to have a polity that has a certain network character.

SPIEGEL: Wouldn't it be easier to form a democratic United States of Europe with separation of powers?

Di Fabio: I think it is a mistake to pursue a United States of Europe model. There is no ideal solution on earth, nor is there one that dates back to the 19th century. The supposed universal remedy of a United States of Europe could cause even greater conflicts than the current union with its many weights and counterweights that allow for a balance.

Interpretation From Saxo Bank

Via email Steek Jakobsen, chief economist for Saxo Bank in Denmark writes ...

This was a very open and interesting interview. The �killer stuff� is in the late part of the interview. Here are my notes:

• Di Fabio does not see Constitutional Court and Basic Law as Euro unfriendly, actually states the opposite
• Euro-bonds are �illegal� in his view (p.5 top)
• Wrong to pursue United States of Europe � you need intra- government coordination but also strong individual states � not one without the other
• No state can save the world on its own!
• Europe�a �security construction� � (the good old excuse for slow non-working EU)
• EY SENTENCE (p.2 top) : ��.. Anyone who voluntarily agrees to something has to accept they will be checked to ensure that this contractual obligation is fulfilled. Such a veto could come from Karlsruhe, however, were a violation of the new debt brake (an amendment to Germany�s constitution that requires the government to balance its budget each year by 2016!)

The last sentence � extremely critical � I must admit I did not know this. However, knowing this, Germany�s position makes sense! � They need �order� before anything and it also makes their compromise with France less �solid� as this exercise of buying time will end by 2012/13 � where they need to �structurally� get their budget down.

Germany looks to have weak growth in 2012 � and government is spending more money not tightening. However, Germany CAN�T stimulate when they need to be at ZERO deficit by 2016.

NOTE to ALL politicians � this is major, major, major statement � the new RULE is to BALANCE by LAW your fiscal imbalances.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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European Bank-to-Bank Lending Mistrust Hits Second Consecutive High; ECB's LTRO Won't Stop Collateral Contagion

Bond action in the Eurozone has modestly picked up (yields steady or falling) since the ECB's 3-Year LTRO program - Long Term Refinance Operation. However, European banks still do not trust each other, not even for overnight lending.

Instead, banks park all available funds with the ECB, as noted by the Wall Street Journal in Deposits at ECB Hit Record High.

Use of the European Central Bank's overnight deposit facility hit the second all-time high in a row Tuesday as euro area banks increased the amount of cash they park at the central bank's safe haven, ECB data showed Wednesday.

Banks parked �452.034 billion ($589.72 billion) at the ECB, up from �411.813 billion the previous day. The high level reflects prevailing distrust among banks which prefer using the ECB's facility rather than lending to each other.

The increase in deposits follows the ECB's first-ever three-year liquidity tender last week in which it allocated nearly half a trillion euros to more than 500 banks.

The ECB also said banks borrowed �6.225 billion via its overnight lending facility, up from �6.131 billion the previous day. When markets are functioning properly, banks use the facility to the tune of a few hundred million euros overnight.

The "first-ever three-year liquidity tender" offer cited by the Wall Street Journal is the 3-year LTRO that I mentioned at the top.

ECB's LTRO Won't Stop Collateral Contagion

Gordon Long put out an outstanding report on his website on why the ECB's LTRO Won't Stop Collateral Contagion. I picked up the link from Zero Hedge. Following are a few snips:

Here is the stark reality of what forced the ECB to offer unprecedented three year loans at absurd rates and most alarmingly, the acceptance of collateral that no other financial institutions will accept. The ECB has sacrificed its balance sheet in yet another EU "kick at the can".

1. COLLATERAL CONTAGION: There is a cascading Collateral Contagion crisis in which secured lending, based on sound assets, has replaced unsecured lending based on future expected cash flows.

2. WHOLESALE LENDING: Wholesale bank lending, which is a unique cornerstone of European banking, has completely frozen since the failure of Dexia and US Money Market Funds will no longer risk short term capital having learned their lesson in 2008.

3. BANK RUNS: Bank Runs are quietly and insidiously occurring throughout the peripheral EU countries as corporate and private depositors seek safe havens for their cash holdings.
...
WHOLESALE LENDING

There are approximately $55T of banking assets in the EU. This compares to only $13T in the US. Bank Assets in the EU are 4 times as large as the US.

In the US, debt held by the bank is smaller because retail deposits are a primary source of funds. EU banks use wholesale lending and, as a consequence, the debt held by banks is closer to 80% versus less than 20% by US banks.

Wholesale bank lending in the EU approximates $30T versus only $3T in the US, a 10 X differential.

Wholesale lending is fundamentally borrowing from money market funds and other very short term, unsecured instruments. The banks borrow short and lend long. It all works until short term money gets scarce or expensive. Both have occurred in the EU and this recently placed DEXIA into bankruptcy, forcing them to be taken over by the Belgium and French governments. The unsecured bond market fundamentally closed in the EU in Q3 2011, as fears mounted that an EU solution was not forthcoming.

Assuming $30T of loans is spread over three years, EU banks have a requirement for $800B / Month of rollover financing for wholesale lending outstanding.

Where is this money going to come from? No one is waiting around to find out as there will be cascading counterparty failures soon surfacing. Banking money in Europe is fleeing to custodial and official accounts of the ECB, the US Federal Reserve and any other central Bank willing to accept their cash.

Excerpts do not do the article full justice. It's well worth a read in entirety.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Japan Industrial Production Declines 2.6%, 3rd Quarter Capital Spending Drops 9.8%, Corporate Sentiment Drops to Minus 4; Powder Keg Waiting for a Spark

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

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

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

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

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

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

Land of the Rising Debt

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

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

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

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



click on chart for sharper image

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

Powder Keg Waiting for a Spark

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


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

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

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

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Italians Cut Spending in Worst Christmas in 10 Years; Debt in Spanish City of Gandia 50% Higher than Previously Reported; Harsh Times Ahead for All Europe

Spanish City of Gandia is Insolvent

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

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

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

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

Not an Isolated problem

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

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

Italians Cut Spending in Worst Christmas in 10 Years

Bloomerg reports Italians Cut Spending in Worst Christmas in 10 Years

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

Italians spent 48 euros ($62.75) less per person this holiday season than the average of the past five years, Rome-based Codacons said in a statement on its website. The shoe and clothing sector was hit the most, with sales dropping 30 percent from previous years, it said, adding retailers won�t recover the decline during seasonal promotions that start in January.

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

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

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

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

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

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

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

Austerity Kicks In, Harsh Times Ahead for Europe

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

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

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

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Ron Paul Did Not "Walk Out" of CNN Interview; Blatantly Biased Headline by Time Magazine; Six Reasons to Vote for Paul

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

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



Blatantly Biased Headline by Time Magazine

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

Piling on the Nonsense

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

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

Fair to Say?!

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

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

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

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

Contact CNN

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

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

Attempts to Turn Non-News into News

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

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

Six Reasons to Vote for Paul

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

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

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

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Brazil is World's 6th Largest Economy, Overtaking UK Earlier this Year. Can Brazil Overtake France by 2016? What about BRICs in General?

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

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

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

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

Is Brazil Fundamentally Different?

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

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

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

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

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

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

In Support of Hemp

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

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

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

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

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

Why is Hemp illegal? 

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

OK let's return to Brazil.

Brazil Inflation



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

Brazil Real GDP



Brazil Economy Stalls Q3

Trading Economics reports Brazil Economy Stalls in Q3

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

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

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

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

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

Brazil vs. France

Might Brazil overtake France by 2016?

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

What About BRICs in General?

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

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

Might stupidity from politicians outweigh everything else?

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

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

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

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

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Attack Dogs Unleashed on Ron Paul; No Need to Rethink Endorsement; Plus Side of Attack Dogs

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

Time Magazine even launched a headline Paul Walks Away

No Need to Rethink Endorsement

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

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

Paul Missed Best Tactic

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

This is what Paul said to CNN.

�Why don�t you go back and look at what I said yesterday on CNN and what I�ve said for 20 something years. 22 years ago? I didn�t write them, I disavow them."

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

Proposed Follow-Up

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

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

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

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

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

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

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

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

Attack Dog Plus Side

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

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

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

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Japan Seeks to Market Record 145 Trillion Yen Bonds in 2012; Kicking the Can Japanese Style

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

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

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

Yen Bond Schedule



Kicking the Can Japanese Style

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

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

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Businesses Exit California and Illinois; Tax and Destroy Policies of Governors Quinn and Brown; Unemployment Rates By State

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

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

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

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

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

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

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

Businesses Bargain for Better Deals in Illinois

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

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

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

Small Businesses, Taxpayers Screwed

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

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

Tax-and-Destroy Policies

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

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

Not a Red vs. Blue or Rustbelt Issues

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

However, California and Illinois have many things in common:

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

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

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