FedUpUSA

Archive for June 20th, 2012

This should be good for Confidence, especially after Monti (Hall?) was running around telling everyone that Italy was “just fine” and “didn’t need help.”

LOS CABOS, Mexico, June 19 (Reuters) – Italy put forward a proposal at a G20 summit in Mexico on Tuesday for the euro zone’s rescue funds to start buying the debt of distressed European countries, and the idea is expected to be discussed at a meeting of leaders in Rome on Friday.

The Italian proposal foresees using the EU’s rescue funds, known as the EFSF and the ESM, to buy bonds of countries such as Spain and Italy in the secondary market to help bring down bond yields and lower refinancing costs.

So we’ve gone beyond “liar liar pants on fire!” to “and behind Door #1 we have….”

You know the jackass is back there too.

I’m well beyond the point where I register surprise — say much less shock — when “leaders” get caught lying like this by their own hand.  We’re into this odd Kafkaesque realm where the bigger the lie the more it is believed, where Presidents of drunk nations prescribe cases of whiskey for the pounding headache and puke-fest taking place the next morning and where the citizens wave multi-colored flags pretending that John and Steve’s public expression of intent to screw each other in the ass or Jeff’s desire to smoke a joint on the courthouse steps is the most-important issue in the upcoming election.

Pass that whiskey please, it will make me forget that I’m broke and the only calories down my pie hole in the last 72 hours have been ethanol-based — and liquid!  Oh, it will also make me forget the hemorrhoids from last night’s boffing too – and where did I put that joint?

Yeah.  This is what passes for “political discourse” on the issues of the day.  Blatantly unconstitutional usurpations of power by the President (under the guise of “prosecutorial discretion”) either garners no comment (from Romney) or worse, a plan to do even more unconstitutional things (by Wayne Root) in response.  Nobody raises the quite-simple point that a person who’s first act upon entry to the United States was to break the law should not be rewarded, as whatever behavior you reward in the law you will get more of!

Never mind that the nation’s economy has collapsed (not “is about to collapse”) and is being propped up by explicit debasement of everyone’s wealth through government deficit spending — a path that will eventually lead to the collapse of the government itself if it continues for too long, and for every day it goes on it increases the economic damage that must be recognized to “detox” from our credit-induced craze.

As such the morning news flow, including this little tidbit from the G-20, no longer elicits even a wry smile from me.  I do, however, take some solace in the fact that yesterday Bloomberg finally came around to the idea of sound(er) banking and had the audacity to publish it — a drum I’ve been beating on since The Ticker began publication.

It’s been a lonely five years, but this morning, as I sip my coffee in expectation of the heroin dealerextraordinaire, Ben Buttafackie himself, pontificating on how we shall all be fine if we just take another slug of that case of whiskey, I will ponder whether that tiny second drumbeat from Bloomberg yesterday might — just might — turn into a cacophony of sufficient volume to halt that which, at this point, appears inevitable.

Incidentally, if you are in the Orlando area I am speaking this evening at The 2012 Business Convention and Expo of The Deaf at 7:30 PM.

As has been done hundreds of times before, we enter yet another election cycle to determine our civic leaders and reaffirm our principles as a Republic. This system is supposedly based on competition where one candidate squares off against another in a battle of ideas and the public is left to decide who will do the best job.

But what if there are no competitors?

That’s what I see right here in Okaloosa County. At least 13 local elections will be unopposed this year, including a state representative, the Clerk of Court, the Property Appraiser, and the Supervisor of elections.

Worse still, the Republican Party is the only one presenting candidates for Sheriff, Tax collector, Superintendent of Schools, and the County Commission seats. Although everyone can vote in a party primary if there are no other party candidates, the August primary races are, in effect, elections determined only by the Republican Party.

Of course, there are those who will say this serves the will of the people. The fact that the Republicans are so dominant means their ideas won out in the open marketplace. Our paradigm now is one party can serve all.

That is nonsense. Groupthink like that can only bring bad things for the Republic, and it only serves to stamp out the political competition that our county and our country need so desperately. As a former military man, I think of the quote by George Patton “When everyone is thinking the same thing, then nobody is thinking.”

Dominance by either the Republican or Democrat Party is the result of a series of barriers to political competition constructed by them over the last 150 years, each of which are not insurmountable but when taken together become formidable.  Getting on the ballot can only be achieved now by great personal wealth or by organized political help, and laws place so many encumbrances on that organized political help that only the big two parties can routinely sustain them. This was a big reason why the local Tea Parties are organized as they are. Barriers also include laws that limit how much individuals can contribute to political action, and intricate Federal laws, such as the “Bipartisan” (not “Multipartisan”) McCain Feingold Act, that financially limits, and can thereby crush, a new political party for simply saying “Vote for Us!” Most importantly, the winner-take-all election laws, which dominate this country since the Civil War, automatically favor a two-party system. Taken together, these laws keep power in the hands of the established parties and discourage others.This is nothing new, and something most people intuitively know.

But it goes even farther. There are Justices of the Supreme Court who have openly said that part of their decision process is to maintain the two-party system in America, which is clearly not a part of our Constitution. Many individuals vote big party simply as a matter of tradition, perpetuating their dominance.

For all their strengths, The Tea Party, Occupy Wall Street, and the alphabet soup of other organizations, are not political competition. They are spectators in the crowd, or diners in a political restaurant whose menu is already chosen by the big parties. The only real competition comes from those willing to withstand all the official abuse, and put candidates on the ballot.

You pay a real price, daily, for these artificial limits on competition. Who speaks for those who want gambling in the City of Destin? Who speaks for those who want to prosecute the massive bank mortgage fraud that cost this County hundreds of thousands of dollars in taxes, and possibly hurt thousands of investors? Who will ever pit law enforcement against the blatantly illegal actions of the TSA in our very county? Who stands against the property tax which makes you a perpetual renter from the government? Who will end the government monopoly in education? Who is truly against Federal regulation of states? And who will be held accountable for County TDC employees run amok or for the financial disaster that is the Mid Bay Bridge? These are just to start.

Let’s face it; we are just going to get more of the same.

That’s what you get in a one-party system.

Pete Blome is a retired military officer and Chairman of the Libertarian Party of Okaloosa County.www.Libertarianpoc.org

Steen Jakobsen, chief economist of Saxo Bank in Denmark, asks via email: “Is Merkel Misinterpreted? Will the FOMC Move Decisively?”

 The misunderstood Chancellor.

The market clearly believes Ms. Merkel will, ultimately, not withstand the pressure – and she will end up collateralizing rising debt. I remain extremely skeptical. I even dusted off my school German to read Der Spiegel and Focus, two major German weeklies, which give you a very different perspective.

As a generalization, the Anglo-Saxon driven investment banks and media tend to rely on poorly translated English versions of domestic financial papers, hence they lose the subtle difference on what Merkel is REALLY saying. This is what I believe Ms. Merkel, and Germany, think.

• When countries join the euro, they also directly and indirectly accept the Stability-and-Growth Pact, hence anything that moves Germany and Europe closer to Stability-and-Growth will be supported by Germany.
• Germany knows it will take time – more time than the market wants it to take. But Germany also realizes it will probably mean more crisis before the whole of Europe moves in the same direction.
• The big loser if Germany “caves in” is Germany. Bund yields will rise and all of Europe will have to finance itself at higher rates – the exact same reason the Alexander Hamilton sinking fund will not work – why should Germans pay more for issuing debt and the high debtors pay less?
• Germany has a game-theory upside in Greece failing to comply – only through more crisis will Club Med (Italy, France and Spain) move to more Europe. (The only thing Club Med wants for now is more German money, not more Europe…)
• Merkel needs to reach across to SPD, the opposition, to get her 2/3 majority for the Fiscal Compact. Watch closely what “concessions” she is willing to give SPD. That will give us clear indication on where she stands vis-a-vis the Club Med call for the easy solution of Euro-bonds and Banking Union.
• Merkel and Germany are pro-European. They want the EU to succeed and they will never leave the euro. But they are also aware that collateralizing debt without the Stability-and-Growth pact will end in tears as it will be extend-and-pretend squared. Throwing liquidity at a solvency issue avoids any real reforms and will be the fastest way to Japanisation.

From this old cynical trader’s point of view, the more likely Merkel and Germany give up and bow to the pressure, the sooner will we face a full-blown crisis and collapse of Europe.

European Crisis Summit Score 0-19

Rhetoric and non-plans cannot continue to dominate the agenda at the EU Summits. The meeting on the 28/29 June is, by my count, meeting number 19 without a real result. Zero from nineteen games – talk about a team going towards relegation!

FOMC – more of the same The US data is still getting weaker, but not weak enough to warrant a panic from the FOMC tomorrow. Bernanke failed to provide the juice in his speech last week, so now the consensus is it will have to happen tomorrow. Otherwise… you know the rest of the sentence. The Fed will lower growth; it will probably also extend Operation Twist, but I doubt it will go all in considering the banking system issues and the overall need for having reserves.

On the other hand, however, the Fed also realizes that “promising” has a real impact on the market. So, overall, expect some small adjustment from FOMC/FED, but not enough.

Strategy

We would be almost square into this meeting, but looking to be heavily bearish on equities post the FOMC and EU Summit.

We still see a summer of discontent as the misinterpretation of Germany and FOMC will lead the market to realize that, for once, central banks and the politicians can’t buy more time.

It is time to reflect not act, as their five-year experiment of doing the same thing expecting different results is leading them nowhere. Probably naive thinking by me… But I think we will all lose if I’m wrong, as extend-and-pretend squared is the road to the poor house.

Safe travels,
Steen Jakobsen

Market Won’t Wait

I believe Steen has this essentially correct and that Germany giving in would ultimately just make matters worse in spite of all the “mother hen calls” from nearly every other economist.

Yet,  the market cannot and will not wait long enough for Merkel to be proven correct. Interest rates in Italy and Spain are at disaster levels and will likely get worse.

My position is summed up in these three posts.

• It’s Just Impossible
• Six Reasons Why Italy May Exit the Euro Before Spain; Ultimate Occupy Movement
• Greek Election Sideshow; Socialists Win Absolute Majority in France

In the meantime, I offer another musical tribute, this one from The Animals.

Please Don’t Let Me Be Misunderstood

Mike “Mish” Shedlock
Global Economic Analysis