Australia Cuts Rate .25%, Core Inflation on Weakest Pace in 14 years; China PMI Lowest in 3 Years; Wen Pledges to "Firmly" Maintain Property Curbs

The Reserve Bank of Australia cut rates .25% as housing weakens and core inflation was a tame .3%, the lowest in 14 years.

I have been saying for quite some time the next move would be a cut, and here it is. I expect more, as do interest rates futures, but some others do not see it that way.

Please consider RBA rate cut sparks bank response
The Reserve Bank of Australia has cut interest rates for the first time in more than two and a half years, bringing relief to households and corporate borrowers.

The Australian central bank today lowered its key cash rate by 25 basis points to 4.5 per cent. The move reversed the increased imposed on Melbourne Cup Day last year, the most recent time the RBA has shifted rates.

More to come?

Some economists say the moderate language used in the RBA's accompanying commentary suggest today's move may be a one-off by the central bank for now.

"There are no hints in the statement that the RBA is considering further moves at this time," said HSBC chief economist Paul Bloxham. "In large part it seems to be characterised as a shift back to 'neutral' given that the inflation concerns that the RBA had previously seemed to have dissipated."

Financial turmoil

RBA Governor Glenn Stevens noted that recent sharp moves on financial markets were likely to drag on Australia's economy. "The effects of the recent turmoil on confidence may result in a period of precautionary behaviour by firms and households," he said in a statement accompanying today's decision.

"Over the past year, the Board has maintained a mildly restrictive stance of monetary policy, in view of its concerns about inflation. With overall growth moderate, inflation now likely to be close to target and confidence subdued outside the resources sector, the Board concluded that a more neutral stance of monetary policy would now be consistent with achieving sustainable growth and 2-3 per cent inflation over time," he said.

Last week, core inflation data - the measure watched by the RBA - slowed to 0.3 per cent in the September quarter, the weakest pace in 14 years.

Financial markets were earlier today pricing in four cuts of today's size over the next 12 months, with three more now to come. That estimate remains little changed after the verdict.
Expect Australian Dollar to Weaken

The Australian dollar weakened from 1.10 to .94 in the "risk off" trade but soared back to 1.06 in October in the "risk on" trade. If Australian housing and retail sales weaken, and I expect both will, look for more cuts by the RBA, sooner, rather than later. In turn, rate cuts will put downward pressure on the Australian dollar.

China PMI Drops to Lowest in Almost 3 Years

Bloomberg reports China PMI Drops to Lowest in Almost 3 Years
A Chinese manufacturing index dropped to the lowest level since February 2009, bolstering the case for fiscal or monetary loosening to support the expansion of the world’s second-biggest economy.

The Purchasing Managers’ Index fell to 50.4 in October from 51.2 in September, the China Federation of Logistics and Purchasing said in a statement today. That was lower than any of 16 economist estimates in a Bloomberg News survey that had a median forecast of 51.8. A reading above 50 indicates expansion.

An index of export orders contracted for the second time in three months as Europe’s failure to resolve its debt crisis dims the outlook for shipments to China’s biggest market.
Weakening PMI Suggests Weakening Commodity Prices

Exports are down because of the slowdown in both Europe and the US. Europe is clearly in recession, the US headed towards recession. Moreover, the Chinese slowdown suggests more weakness to come in commodity prices which should be good for the US dollar.

Chinese PM Pledges to ‘Firmly’ Maintain Curbs

Bloomberg reports China’s Property Stocks Decline as Wen Pledges to ‘Firmly’ Maintain Curbs
China property stocks fell for the first time in six days in Shanghai trading after Premier Wen Jiabao doused speculation the government will ease curbs on the industry.

The government will “firmly” maintain restrictions on real estate and local authorities should continue to strictly implement its policies, Wen said according to a statement following a State Council meeting.

Treadmill to Hell

China is on “a bigger and faster treadmill” than ever as property sales slow, Jim Chanos, president and founder of $6 billion hedge fund Kynikos Associates Ltd., said in a Bloomberg Television interview from Singapore on Oct. 28.

Chanos has forecast since at least February 2010 that the property market will slump, saying that China is Dubai times a thousand and on a “treadmill to hell” because of its reliance on real estate. Property transactions in the past two months in so-called tier one, two and three cities his firm tracks are down 40 percent to 60 percent year on year, said Chanos, who predicts “the property slowdown or worse has started.”

The hedge-fund manager’s views are at odds with those of Stephen Roach, non-executive chairman of Morgan Stanley Asia, who said in New York last week that the government has had some success in deflating a housing bubble and that concerns of a hard landing are “overblown.”
Expect Property Bubble Implosion

I will side with Chanos over Roach. China's property bubble is the largest in the world and it will crash hard. Once again, the bursting of the Chinese property bubble as well as the credit bubble suggests more weakness to come in commodity prices.

Mike "Mish" Shedlock
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Merkel Sells Soul for Applause from the Devil

German Chancellor Angela Merkel Merkel went out of her way to prove she is just like the vast majority of vote-buying hypocrite politicians willing to say or do anything to advance personal agendas and get reelected.

Those looking for proof can find it in Der Spiegel article Another U-Turn For Merkel.
Chancellor Angela Merkel has performed another big U-turn by calling for a minimum wage, which she had opposed until now. She is sharpening her party's social profile in response to the euro crisis -- and, possibly, to secure her power by preparing another 'grand coalition' with the Social Democrats.

Angela Merkel has a reputation for playing the long game. But the German chancellor is no stranger to U-turns either, if it serves her political goals. There are some striking examples of Merkel vacating positions that had long been core to the agenda of her conservative Christian Democratic Union (CDU) party.

Mandatory military service, that bedrock of CDU policy for decades? Merkel ditched it last year. Nuclear power? She arranged for an early exit just months after extending the lifetimes of reactors. The three-tiered system of secondary schools? A thing of the past.

And now it's the turn of social policy. At its party congress in November, the CDU plans to pass a motion that has long been the exclusive domain of the left-wing opposition parties: a minimum wage.

The new approach fits in with Merkel's drive to sharpen the CDU's social profile in response to the euro crisis , which has triggered a wave of public anger at the financial industry and concern that ordinary taxpayers are being made to foot the bill for profligate high-debt euro member states.

Together with Labor Minister Ursula von der Leyen, and much to the annoyance of the center-left Social Democrats, Merkel has been wooing voters with decidedly leftist policies of late. Von der Leyen plans to give pensioners a financial boost to combat old-age poverty, she has taken on discount supermarkets that exploit temporary staff and has criticized German companies for resisting her plans for a minimum quota of women on company boards.

"The question is no longer whether we're going to have a minimum wage but how one negotiates the right level," von der Leyen said in a recent interview with the Süddeutsche Zeitung newspaper published on Monday. It sounded like she had been taking lessons from SPD leader Sigmar Gabriel.

Applause From Trade Unions

The trade unions are predictably elated by Merkel's leftward shift. A general minimum wage had been expressly ruled out in the coalition agreement reached between her conservatives and their junior partner, the pro-business Free Democratic Party (FDP), after the 2009 election.
Reflections on Integrity and Core Principles

So much for agreements, integrity, and core principles. Things change of course, but core principles shouldn't, at least not on a routine basis.

With this latest U-turn, Merkel just made it perfectly clear she has no core principles, that everything is for sale, including her soul and her integrity.

Mike "Mish" Shedlock
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Papandreou Calls for Voter Referendum on EU Debt Deal

In an extremely risky move, Papandreou calls for referendum on EU debt deal
Prime Minister George Papandreou has stated his intention to hold a referendum on last week's agreement in Brussels for Greece's bondholders to accept a 50 percent haircut and the country to receive some 130 billion euros in loans from its eurozone partners.

Speaking to PASOK MPs, Papandreou also said that he would ask for a vote of confidence in Parliament. This is likely to take place next week. The referendum could happen later this year.

Papandreou said he had faith in Greeks making the right decision. “Let us allow the people to have the last word, let them decide on the country’s fate,” he said. He said handing the vote over to Greeks was «an act of patriotism."

The premier insisted that calling snap polls - ahead of elections scheduled for 2013 - would be “simply dodging the issue.”

The vote of confidence - likely to be held next week - would come just over four months after a similar vote that Papandreou sought, and won, to bolster his government ahead of a Parliamentary vote on austerity measures.

The premier's bombshell came a day after an opinion poll, carried out by To Vima, found that 60 percent of Greeks regard last Thursday's EU debt deal as «negative» or «probably negative."
Things will become unglued in a hurry if Greek voters decide to tell the EU where to go. Moreover, but less importantly, Papandreou just may not survive the next vote of confidence.

Mike "Mish" Shedlock
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In 2009, Greek Debt-to-GDP was 127%; Target for 2020 is now 120%; Is this Progress?

Depending on your point of view, your holding of Greek debt, and whether or not you live in Greece, here is a humorous (or not so humorous) Google Translation on the Past and Future of Greece.
Based on official data from the Eurostat in 2009, when was the last census that pushed the deficit above 15%, Greece's debt was 127% of GDP. Today, the Government is making earnest efforts to pull Greece out of the crisis according to statements of Chancellor Angela Merkel, mortgaging much to get the debt-to-GDP ratio to 120% by 2020.

And the obvious question that arises for all is, what is so much effort for a decade? To get to where we were in 2009?

The numbers and figures, unfortunately, speak for themselves.

Eurostat census estimates real unemployment will reach 20% by the summer of 2012, Greece will close 183,000 companies, increase cuts in wages and pensions, and over-tax all its citizens just to get 2020 debt to 2009 levels.
All Pain and No Gain

The author, George Kouros perfectly describes the ramifications of stretching out debt for a decade in pretense that a 50% "voluntary" haircut on bonds will solve anything.

Greece surely does need structural reforms, but the average Greek on the street sees all pain and no gain.

A hard default and debt forgiveness of 80% by the EU would show Greek citizens they were at least getting something in return for forced (but badly needed) structural reforms and austerity measures.

Instead, the average Greek understands everything is being done to protect German and French banks, and anything that helps Greece is nothing but a fortuitous accident.

Moreover, by fooling itself, the EU hurts itself. The longer the EU pretends haircuts are voluntary, that Greece can pay back these loans, and that Greece can be competitive with Germany, and there will be no hard default, the worse the crisis will become.

Mike "Mish" Shedlock
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Dear Christina: Reflections on Economic Fools and the Policies they Espouse

The New York Times headline reads Dear Ben: It’s Time for Your Volcker Moment.

I expected the article to be about inflation. It starts out as such, praising Volcker for his commitment to lower inflation. A third of the way through came an innocuous looking sentence "Mr. Bernanke needs to steal a page from the Volcker playbook."

From there it went straight downhill.

Here are a few snips ...
To forcefully tackle the unemployment problem, he needs to set a new policy framework — in this case, to begin targeting the path of nominal gross domestic product.

More specifically, normal output growth for our economy is about 2 1/2 percent a year, and the Fed believes that 2 percent inflation is appropriate. So a reasonable target for nominal G.D.P. growth is around 4 1/2 percent.

It would work like this: The Fed would start from some normal year — like 2007 — and say that nominal G.D.P. should have grown at 4 1/2 percent annually since then, and should keep growing at that pace. Because of the recession and the unusually low inflation in 2009 and 2010, nominal G.D.P. today is about 10 percent below that path. Adopting nominal G.D.P. targeting commits the Fed to eliminating this gap.
Who is this Monetarist Fool?

At that point I stopped reading and asked "who is this monetarist fool?" I went to the bottom of the article to find out it was none other than Christina D. Romer, an economics professor at the University of California, and former chairwoman of President Obama’s Council of Economic Advisers.

Dear Christina ...

In case you have not noticed, interest rates are zero percent. The Fed cannot lower them any further. The Fed can of course print, but in case you did not notice again, the Fed already tried that and all it did was increase the price of food, gasoline, gold, and the stock market.

Moreover, and in case you did not notice, here is a chart of excess reserves sitting at the Fed.

You see Christina, there is 1.6 trillion dollars parked at the Fed already. Printing money in and of itself does nothing if it just sits there.

Moreover, and in case you did not notice, Japan over a 20 year period tried both quantitative easing and Keynesian stimulus (fiscal spending), and that did not stop Japan's deflation. All Japan did was dig itself a 200% debt-to-GDP hole that will at some point destroy the country.

Bernanke, a Complete Dunce, "Puzzled by Weak Consumer Spending"

On September 8, 2011 Bernanke said he was "surprised by how cautious consumers remain more than two years since the recession officially ended."

I responded with Bernanke, a Complete Dunce, "Puzzled by Weak Consumer Spending"
It does not take a genius to understand why consumer spending is weak.

  1. Unemployment rate is 9%
  2. Real wages are falling
  3. Income advances go to the wealthy
  4. Middle class is shrinking
  5. Jobs hard to find
  6. Approval ratings of Congress and Obama at record lows
  7. Consumers have high debt ratios
  8. Home prices are still falling
  9. Homeowners are trapped in their homes, unable to refinance
  10. Boomers need to save for retirement

However, those simple facts are far too complicated for a PhD like Fed chairman Ben Bernanke to figure out.

Is it any wonder his policies are so counterproductive when he cannot figure out simple things the average person can see clearly?
Change of Heart in Bernanke?

Christina, in case you did not notice, here are a few sentences by Chairman Ben S. Bernanke, Before the Joint Economic Committee, U.S. Congress, Washington, D.C., on October 4, 2011, regarding Economic Outlook and Recent Monetary Policy Actions

Fiscal policymakers face a complex situation. I would submit that, in setting tax and spending policies for now and the future, policymakers should consider at least four key objectives. One crucial objective is to achieve long-run fiscal sustainability. The federal budget is clearly not on a sustainable path at present. ...

As a nation, we need to think carefully about how federal spending priorities and the design of the tax code affect the productivity and vitality of our economy in the longer term. Fourth, there is evident need to improve the process for making long-term budget decisions, to create greater predictability and clarity, while avoiding disruptions to the financial markets and the economy. In sum, the nation faces difficult and fundamental fiscal choices, which cannot be safely or responsibly postponed.

Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the U.S. economy. Fostering healthy growth and job creation is a shared responsibility of all economic policymakers, in close cooperation with the private sector. Fiscal policy is of critical importance, as I have noted today, but a wide range of other policies--pertaining to labor markets, housing, trade, taxation, and regulation, for example--also have important roles to play.
Dear Christina, please read those three paragraphs closely.

What is it you fail to understand about all three of them, but especially the last one?

Bernanke, like yourself is a dyed-in-the-wool monetarist, who hopefully (and at long last) may realize that monetary policy is next to useless at this juncture.

Hello Ben Bernanke, Meet "Stephanie"

Dear Christina, I also invite you to read Hello Ben Bernanke, Meet "Stephanie".

The article is about an email from "Stephanie" who wrote about the difficulty of living on fixed income with rising prices and getting 0% on CDs.

I responded that "Bernanke is a Coward Hiding Behind Mathematical Formulas", that he did not know what he was doing in 2006 and he does not know now. Here is one key snip ...
Fed's Policy Is Theft

Stephanie, it's a little known fact that inflation benefits those with first access to money, such as the banks, the wealthy (via rising asset prices), and the government (think rising sales taxes and property taxes when prices go up).

Everyone else gets screwed. You are right in the middle of the pack of those most hurt by the serial bubble blowing policies of the Fed.

Viewed this way, Bernanke's policies are nothing but theft, robbing the poor, for the benefit of banks and the wealthy.

This is why I support Congressman Ron Paul's effort to end the Fed.
Currency Cranks Agree With Themselves

Christina, I read your reference to The Case for a Nominal GDP Level Target by fellow monetarists Jan Hatzius Sven and Jari Stehn, as well as your reference to Nominal Income Targeting by Robert E. Hall and N. Gregory Mankiw, also monetarists.

The opening paragraph of the latter is quite humorous:
There is increasing agreement among economists on two broad principles of monetary policy. The first principle is that monetary policy should aim to stabilize some nominal quantity. Monetarists have sought to make monetary policy stabilize the growth of the nominal money stock. In some periods of history, policy has been committed to pegging the nominal price of gold. Some economists have proposed stabilizing a bundle of commodity prices or even the consumer price index (CPI).

The second principle, which was taken for granted up until the past fifty years, is the desirability of a credible commitment to a fixed rule for monetary policy. It is now apparent that there are substantial gains if the central bank commits in advance to a set policy, rather than leaving itself free to exercise unconstrained discretion.
Ants and Termites in Increasing Agreement

As with currency cranks agreeing with themselves, there is increasing agreement by ants and termites that anteaters should go vegetarian.

In short, put a bunch of monetarist currency cranks in a room, and the one thing they are sure to propose in an economic decline is currency expansion.

Is it Different this Time?

Dear Christina, in light of the facts I presented above in regards to the experiences of Japan, the excess reserves at the Fed, the increase in inflation with no increase in jobs, and the number of people on fixed income destroyed by the rise in price level while getting 0% on their CDs, you have a hell of a lot more explaining why "It's different this Time".

The ultimate irony of your preposterous proposal, is there is a chance (albeit a small one), that Bernanke's realization that there are limits to monetary policy constitutes his Volcker moment.

For the sake of the country, we should all hope so because history shows that additional monetary and fiscal stimulus will not help, no matter how many Monetarist currency cranks and Keynesian clowns think otherwise.

By the way, anyone wondering why the recovery went nowhere and will go nowhere need only look at who was advising president Obama and who has his ear now (Christina Romer and Tim Geithner, respectively).

Mike "Mish" Shedlock
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Morning Update/ Market Thread 10/31 - You’ve Been Tricked Edition…

Good Morning,

Equity futures are down this morning with massive intervention in Japan affecting the currency markets while people around the globe come to realize that Europe is simply running a circular Ponzi scheme to hide their insolvency (same as in the U.S.) – and that as a basis of a stock market rally means “sold to you” distribution is occurring, those buying in now will be striped of their “assets” later. Hey, you’ve been told you’re playing in manipulated markets, if you haven’t withdrawn from their hologram yet, don’t come crying later – you’ve definitely been tricked.

The dollar is up as the Yen falls massively from record highs, bonds are higher, oil is lower, gold & silver are lower, and food commodities are slightly lower as well.

The Chicago PMI for the month of October came in this morning at 58.4 which is below September’s 60.4 reading and close to consensus. Econofool makes a big deal that this index value is above the “expansion” level of 50 – just remember WHO it is that makes these indices and the self-interest involved in pumping on both the “Fed’s” part and on the part of Econodrool:
Very strong rates of monthly expansion in the Chicago area extended through October. The Chicago purchasing managers composite index came in at 58.4, well above 50 to indicate monthly expansion in general business activity though at a slightly less robust pace than September's 60.4 level. But October's 58.4 reading, which is four tenths above the Econoday consensus, is impressive and is right at the four-month average of 58.5.

Orders are the most important components and point to very strong production and employment in the months ahead as businesses expand capacity. New orders came in at 61.3, showing monthly expansion against September's outsized 65.3 for one of the strongest monthly rates of expansion of the last six month. Backlog orders rose nearly six points to 51.2 to show a monthly build and to end two months of draws.

Employment is another highlight of October, accelerating 1.7 points to 62.3. Production is also very strong at 63.4. Other readings include a slowing in inventory accumulation, one hinting at a production-related draw, and also include a slowing in supplier deliveries which is consistent with increasing traffic in the supply chain. Prices paid accelerated which is also consistent with strong activity.

The sample of the Chicago report includes businesses from all areas of the economy and continues to show exceptionally healthy conditions. Regional manufacturing reports from the district Federal Reserves have been mixed this month, with some showing a bounce back for expansion but others continuing to show contraction. Stocks are showing no significant early reaction but today's report may help raise confidence for strength in the two ISM reports this week and may help limit losses through the session. The Dallas manufacturing survey will be posted today at 10:30 a.m. ET.

Remember that most of these indices are first measured in dollar values, then turned into an index, and “adjusted” by the very same people whose living depends upon keeping the central banker box alive. My new slogan goes like this: Lying is a cooperative act. We, the 99%, no longer consent.
Everything the “Fed” does is designed to trick you. From their very name, all the way to every report they disseminate, nothing but lies, disinformation, disconnects between words and actions, and blatant self-interest all designed for them to profit at your expense. And robbing you they are. Their advertised inflation rate is running a little more than 2%, vastly understated I say. Today the University of Washington confirmed that for us in the Seattle area:
The cost for two parents and two children to live in Seattle has risen 13 percent in the last two years and for single people, it's 19 percent more expensive, according to a University of Washington survey.

The Seattle reports the study indicates it costs a single parent of two children in East King County $65,690 to meet basic needs, up 14 percent from 2009.

Hmmm, home prices are still falling (your “asset”), yet the cost for singles to live is up 19%! That’s nearly FIVE TIMES the “Fed’s” stated rate of inflation.

Speaking of inflation, guess whose houses are INflating in value like mad?
October 27 – Bloomberg (Katie Spencer): Home prices in the Hamptons, the Long Island beach towns that attract summering Manhattanites, surged 22% in the third quarter from a year earlier as demand climbed for the most expensive properties. The median price of homes sold in the quarter increased to $850,000 from $696,000 in the same period last year…

That’s the thing about inflation within the central banker box, those closest to the production of money benefit, while those further away from that production suffer.

With the current money explosion occurring, do not be surprised when real inflation surpasses 10% or more per year – of course there will be asset stripping waves of deflation mixed in, but the course of global currencies is clear. Just look at the actions Japan’s Prime Minister took last night – he said that he was going to do what it takes to force the Yen lower without stating a figure as to how much money he would create in order to accomplish that, stating instead, “I’ve repeatedly said that we’ll take bold action against speculative moves in the market.” Azumi then acted unilaterally, creating huge shifts in the global currency markets – direct manipulation.

On the daily chart of the Yen you can see the last three interventions, all of which created large moves which are accomplished by printing trillions of yen and then buying into the market:

Printing money to protect your currency is a competitive game with ever increasing numbers, forcing other central banks around the world to do likewise in order to protect their trade. The root cause of this has the very same reasons we’ve been talking about for years, it is rooted in WHO it is that controls the production of money. When giant interventions occur in currency and bond markets, there is no such thing as “free markets” anywhere.

We just learned that MF Global filed for bankruptcy this morning. For those who don’t know, Wiki describes them like this, “MF Global is a major global financial derivatives broker providing exchange-traded derivatives such as futures and options as well as over-the-counter products such as contracts for difference (CFDs), foreign exchange and spread betting. MF Global is also a primary dealer. MF Global traces its roots to the sugar trading business started by James Man in England in 1783, which evolved into broader commodities trading before its later transformation into a financial services business during the 1980s.”

And just like that, one of the major leaders in producing and controlling the production of derivatives (which act like money, a part of the “moneyness”) is in serious trouble. Gee, I’m sure there’ll be no spill-over from that… go long.

I spent this Saturday at a local Occupy rally. I can tell you that more and more people are waking up and they are all getting very close to target. Bill Still also went to his local rally and filmed his thoughts on Libertarianism, after all, he is now running on the Libertarian ticket for President:

Like Bill says, please go here, register on the site, and then vote in the Libertarian straw poll. Gee, look who’s leading:

Go Bill! Voting for Bill is the only shot we have working within the system to truly shift the production of money back in favor of the people – I highly encourage you to support Bill any way you can, his website is located here:

Which will it be, trick or treat? Lying is a cooperative act. I, for one, no longer consent to the lies.

Europe to Recapitalize Banks Without Raising any Capital; Berlusconi Defiant as Focus Shifts to Italy; Sarkozy Under Fire for Seeking China’s Help

Italy's Prime Minister Silvio Berlusconi denies entering an agreement for early elections and arrogantly insists he is the only one who can possibly save Italy from itself.
Berlusconi ruled out early elections and said the current legislature in Rome will last until 2013, according to an interview published yesterday in Corriere della Sera.

“Only I and my government can achieve this reform program for 18 months, which is why there is no way for me to stand aside,” the Italian leader told the newspaper.
Sarkozy Under Fire for Seeking China’s Help

Please consider Sarkozy Criticized for Seeking China’s Help
French President Nicolas Sarkozy came under fire from opposition leaders for seeking China’s help to resolve the euro area’s debt crisis.

“It’s shocking,” Martine Aubry, the general secretary of the Socialist Party, said in the Sunday newspaper, Journal du Dimanche. “The Europeans, by turning to the Chinese, are showing their weakness. How will Europe be able to ask China to stop undervaluing its currency or to accept reciprocal commercial accords?”

Sarkozy reached out last week to his Chinese counterpart Hu Jintao to build support for an enlarged rescue fund designed to solve the region’s sovereign-debt crisis. The leaders talked just hours after a euro-region summit on Oct. 27 ended with an agreement to boost the European Financial Stability Facility to about 1 trillion euros ($1.4 trillion), leveraging existing guarantees by as much as five times.
Financial Suicide

Aubry asks "How will Europe be able to ask China to stop undervaluing its currency?" That's a good question for Sarkozy but a far better one for Klaus Regling, head of the European Financial Stability Facility who says "Bailout Fund Could One Day Issue Bonds in Yuan".

Then again, there is a fundamental question as to whether the Yuan is really undervalued in the first place. However, issuing bonds in Yuan would be financial suicide if per chance the masses are correct or if the timing was wrong.

Moreover, begging for help is a big sign of weakness as well as an admission of fear that no other buyers may step up to the plate.

Europe to Recapitalize Banks Without Raising any Capital

Bloomberg reports Europe Tries to Recapitalize Its Banks Without Injecting Capital
European Union leaders ordered banks last week to increase the ratio of “highest quality” capital they hold by the end of June, creating a shortfall of 106 billion euros ($150 billion). Of Europe’s 28 largest lenders, only eight will need to raise a total of 11 billion euros from investors, Huw Van Steenis, a Morgan Stanley analyst, wrote in an Oct. 28 report.

Rather than tapping investors or governments, firms are trying to hit the 9 percent core capital target by adjusting risk-weightings, limiting dividends, retaining earnings, reducing loans and selling assets. Banks had threatened to curb lending, risking a recession, to meet the goal rather than take government aid that would bring limits on bonuses and dividends. EU leaders already are pressing banks to restrain payments to employees and shareholders until they meet the capital target.

“Surely, no one thinks that by allowing banks to avoid raising capital in all these various ways it’s going to give investors more confidence,” said Peter Hahn, a professor of finance at London’s Cass Business School and a former managing director at New York-based Citigroup Inc. “Part of the issue for a long time has been the lack of credibility of bank balance sheets and their risk models. This isn’t going to help.”
Capital Math

Let's go over the math one more time as noted previously in Capital Shortfall Estimates of European Banks Range from 8 to 413 Billion Euros; EU to Offer Additional Extend-and-Pretend Time

Analyst Estimates

  • Citigroup estimates there is a capital shortfall of between €64 billion and €216 billion for banks to achieve a minimum core Tier 1 ratio of 7% to 9%, respectively.

  • Credit Suisse came up with a similar figure of €220 billion for the potential 9% scenario.

  • Analysts at Espirito Santo said write-downs at current market prices on Greek, Portuguese, Irish, Italian and Spanish bonds, along with a higher minimum capital ratio of around 9%, could require as much as €413 billion in new capital across the sector.

  • Merrill Lynch analysts in turn came up with estimates of between €7.6 billion and €143 billion in required capital for the region's major banks, depending on various scenarios.

The IMF came up with 200 billion Euros, a figure I think is exceptionally low because it ignores writedowns on Portuguese, Spanish, and Irish debt (and of course Italian debt as well). It also presumes Greek losses will be pegged at 50% when losses are likely to be in the 70-90% range.

Nonetheless, the agreement worked out by Merkel reduced that 200 billion euro figure down to 106 billion. Now we see that of that 106 billion euros, banks claim they need only raise 11 billion euros.

Is that before or after Merkel agreed to kick in an extra 21 billion euros of taxpayer money to the banking sector in the recent EFSF agreement?

Regardless, the answer to the question "How Does Europe Recapitalize Banks Without Raising any Capital?" should now be perfectly clear ...

Oh Ho Ho Its Magic!

Mike "Mish" Shedlock
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Massive Intervention in Yen; Japan Finance Minister Promises to "Intervene Until I'm Satisfied"; Race to Debase Back On; Will It Work?

The headlines on the Yen tonight are rather amusing.

Two hours ago Bloomberg reported Yen Climbs to Postwar Record Versus Dollar as Traders See No Intervention

About 40 minutes ago Bloomberg reported Yen Drops on Intervention; Aussie Weakens

About 10 minutes ago Bloomberg reported Yen Tumbles as Japan Sells Currency Third Time in 2011
The yen dropped as Japan stepped into foreign-exchange markets to weaken the currency for the third time this year after its gains to a postwar record threatened an export-led economic recovery.

“I’ve repeatedly said that we’ll take bold action against speculative moves in the market,” Japanese Finance Minister Jun Azumi said to reporters today in Tokyo after the government intervened unilaterally. “I’ll continue to intervene until I am satisfied.”

The yen sank as much as 4 percent to 78.98 per dollar and traded at 78.19 as of 11:10 a.m. in Tokyo from 75.82 in New York Oct. 28.
I like to watch these headlines for a bit to see where they are going. Here is a chart of the action.

Yen 15 Minute Chart

Intervention Never Works

Japan has struck out twice this year on intervention efforts and numerous times before. Why should this time be any different?

Currency intervention never works. However, it may appear to work if by some lucky chance intervention came at the time the Yen was ready to reverse on its own accord.

The race to debase is back on.

Mike "Mish" Shedlock
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Berlusconi Defiant as EU’s Focus Shifts to Italy

"I am taking the day off today, and hereby decree that Nadia is Queen Bee for the day."

Italian Prime Minister Silvio Berlusconi said he alone can deliver the country’s promised deficit cuts as European leaders turn their attention to his government’s ability to help contain the debt crisis.
In an interview published in Corriere della Sera today, Berlusconi ruled out early elections and said the current legislature in Rome will last until 2013. He said the European Central Bank’s support will only be maintained if his government follows through on measures to rein in debt and promote growth.
“Only I and my government can achieve this reform program for 18 months, which is why there is no way for me to stand aside,” the Italian leader said in the interview.
The European Union’s latest package of measures failed to stem a rise in Italian borrowing costs, with an Oct. 28 bond sale sending yields to a euro-era record and denting the euphoria triggered after the EU summit. Group of 20 leaders will convene in Cannes, France, this week after an agreement to bolster Europe’s rescue fund to 1 trillion euros ($1.4 trillion) and persuaded bondholders to incur 50 percent losses on Greek debt.
Days after the euro area’s 14th crisis summit in 21 months sent the euro to its biggest one-day gain in more than a year, German Finance Minister Wolfgang Schaeuble warned against inflated expectations, saying more such meetings are to come. He repeated a warning to Italy to execute reform measures.

Readiness for Reform

Long list of dangers ahead for global economy

(Reuters) - Europe's long shadow is tempering a burst of optimism that the United States can escape recession and China achieve a soft landing.

Deep concern persists that European leaders will fall short when they try to flesh out the details of how their rescue fund can tap sufficient resources to backstop Greece and to handle a potential government financing crisis in Italy or Spain.

Europe is looking to emerging economies to provide the extra financial firepower to strengthen the fund four- to five-fold, to about 1 trillion euros, a promise that could materialize at a Group of 20 summit in France on Thursday and Friday.

The response so far from China on strengthening the fund has been very cautious, and market experts want to see a fund with resources twice the size under discussion in Brussels. That has set the stage for possible unsettling disappointment in the days ahead.

"If the absolute amount is not enough, we will be back to the storms. The break in the clouds may only last a few hours," said Ellen Zentner, senior U.S. economist at UBS.

Australian court ends lockout, strikes at Qantas, airline expects to resume flights quickly

DALLAS — Qantas Airways was expected to resume flying Monday after an Australian court intervened in a labor dispute that led the airline to ground its entire fleet over the weekend.
By the time the labor-relations court acted, several hundred flights had been canceled and tens of thousands of passengers stranded around the world.
Some airline industry experts say Qantas’ surprise grounding of its entire fleet Saturday could cause many travelers to book future trips on other airlines.
Qantas CEO Alan Joyce said he had no choice but to order the lockout of union workers and end months of rolling strikes that led to canceled flights, $70 million in losses and a collapse in future bookings.
Joyce told the Australian Broadcasting Corp. that he expected some flights to resume by mid-afternoon Monday. It was unclear how long it would take for the airline to resume a full schedule. The airline had estimated that it would lose $20 million a day during the lockout.

Financial Suicide: Head of EFSF says Bailout Fund Could One Day Issue Bonds in Yuan

Klaus Regling, head of the European Financial Stability Facility has proposed European Bailout Fund Could ‘One Day’ Issue Bonds in Yuan
The euro area’s bailout fund could at some point issue bonds denominated in the Chinese currency, Chief Executive Officer Klaus Regling said in Beijing today.

“We are authorized to use any currency we want if it seems efficient so we may one day issue in U.S. dollars or renminbi,” said Regling, head of the European Financial Stability Facility, using another name for the yuan. “It depends whether the Chinese authorities would approve of that. I could imagine that over the years that might happen, maybe not immediately but maybe one day,” he said.

European leaders are seeking financial support from China, holder of the world’s largest foreign-exchange reserves, for an enlarged rescue fund aimed at containing the region’s sovereign- debt crisis. Vice Finance Minister Zhu Guangyao said yesterday his government wants more details about the “technicalities” before making any decision on investment.

Regling said yesterday that China, which has been a “good” and “loyal” purchaser of EFSF bonds so far, hasn’t set any conditions for buying more of the securities.
Financial Suicide

Issuing bonds in another currency risks financial suicide. Currency movements add to the already massive potential risk of huge fluctuations because of leverage.

Argentina blew up when it could no longer hold a peg in US dollars. While not a peg, imagine the losses on long-term bonds on a leveraged fund were the Yuan to rise by 33% vs. the Euro.

Many homeowners in Eastern European countries have housing loans in Euros or Swiss Francs and have paid a severe price as the value of their currency has dropped vs the Euro and even more so vs the Swiss Franc.

Perhaps the yuan would sink vs. the Euro, but anyone entertaining the risk is severely lacking in financial competence.

Moreover, that Regling would even suggest such a foolish thing says the EU not only expects this crisis will linger for a long time, and it does not believe it has buyers for the debt it issues.

Mike "Mish" Shedlock
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Czech PM Considers Referendum to Halt Joining EU

The Czech Republic is having second thoughts about joining the EU, and rightfully so. The EU Observer reports Czech PM mulls euro referendum
The ruling euro-sceptic ODS party in the Czech Republic wants to push for a referendum on the country's future eurozone accession, claiming that the rules have changed since 2003 when Czechs said yes to the EU and the euro.

We signed up to a monetary union, not a transfer union or a bond union in our accession treaty. This is the major reason why the Czech Prime minister wishes to call the referendum on this matter," said Czech MEP Jan Zahradil, leader of the European Conservatives and Reformists.

Last weekend, at an ODS party congress, Prime Minister Petr Necas demanded a referendum on whether the country should join the eurozone.

"The conditions under which the Czech citizens decided in a referendum in 2003 on the country's accession to the EU and on its commitment to adopt the single currency, euro, have changed. That is why the ODS will demand that a possible accession to the single currency and the entry into the European stabilisation mechanism be decided on by Czech citizens," the ODS resolution says.

Prime Minister Necas also floated the idea in case Germany gets it way on another treaty change bringing about more economic integration and tougher sanctions for deficit sinners.

"In the event that there is a change to fundamental rights that would result in powers being transferred from national organs to European organs, this government is bound to ratify this step with a referendum,” Necas told reporters in Brussels on Sunday evening.
Conditions Have Changed

It is crystal clear the rules and conditions have changed. Thus, the Czech prime minister is right to call a voter referendum.

The ESM alone is reason enough to tell the EU bureaucrats where to shove it the Euro. For details, please see Treaty of Debt - An Eye Opening Video on the ESM Bailout Mechanism

Mike "Mish" Shedlock
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Treaty of Debt - An Eye Opening Video on the ESM Bailout Mechanism

Inquiring minds are interested in the terms of the European Stability Mechanism (ESM) accord scheduled to replace the EFSF. The following video highlights the key sections of the proposed treaty.

Link if video does not play: Treaty of debt (ESM) - stop it now!

There are comments on The Telegraph article A German view of the bailout deal which is where I found the video.

Key Details of ESM Accord

  • Article 8 says "Authorized Capital stock 700 billion Euros"
  • Article 9 says "ESM members irrevocably and unconditionally undertake to pay capital calls on them within 7 days"
  • Article 10 allows the ESM board of governors to "change the authorized capital and amend article 8 accordingly"
  • Article 27 says ESM shall enjoy "immunity from every form of judicial process". Thus the ESM can sue member countries but no one can challenge it. No governments, parliament or any other body or laws apply to the ESM or its organization.
  • Article 30 says "Governors, alternate governors, directors, alternate directors, the managing director and staff shall be immune from legal process with respect to acts performed by them (...) and shall enjoy inviolability in respect of their official papers and documents"

There are no independent reviewers and no existing laws apply. Thus Europe's national budgets will be in the hands of one single, unelected body that is accountable to no one and immune from all legal actions.

Is this the future of the EU or will the German supreme court and other governments put an end to it?

Mike "Mish" Shedlock
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Chanos Interview: China Slowdown Just Beginning

Jim Chanos Says China Slowdown has just begun.

There is not much new in the video actually. I just happen to think he is correct.

The link came in an email I played while stuck in an airport on a plane delay back to Chicago.

URL if video does not play:

Mike "Mish" Shedlock
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Absurd Comment of the Week; Peter Principle in Action

The absurd comment of the week goes to Larry Summer for his statements on the irony of the financial crisis.
The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending. Most policy failures in the United States stem from a failure to appreciate this truism...
Anyone who thinks the cure is the same as the disease (as Larry Summers clearly does) is incompetent (at best).

I found the reference when Zerohedge posted the Summers link with no comment. I suspect the Summers comment was so asinine that ZH did not even see a need to state it. Because he did not comment, I will.

Peter Principle in Action

Larry Summers may be one of the best examples of the Peter Principle that you can ever find.

However, I suspect a case can be made that Summers did not rise to his level of incompetence, that he was never competent in any position, ever, and that he got where he is out of sheer luck, birthright, bribery, or some combination thereof.

Mike "Mish" Shedlock
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Weekend Open Thread...

Weekend Funnies...

Spain's Unemployment "Unexpectedly" Rises to 21.52%; Expect Market Focus to Shift from Greece to Portugal, Spain, Italy

With news of a "voluntary" haircut on Greek bonds of 50%, it's time to look ahead to the next big trouble spots. By measure of 10-Year government bond yields, Portugal at 11.8%, Italy at 6.02%, and Spain at 5.51% (as compared to Germany at 2.18%), Portugal, Italy, and Spain clearly have critical issues.

Moreover, the economic data from Spain is continuously awful. For example Spain's Unemployment "Unexpectedly" Rises to 21.52%
The number of unemployed persons increased by 144,700 in the third quarter, bringing the total number of unemployed amounted to 4,978,300 people, according to Labour Force Survey (EPA) released today by the National Statistics Institute (INE). Spain has not seen such a high unemployment rate since the fourth quarter of 1996.
Austerity measures and economic reforms in the "Club-Med" Euro states are much needed. However, the short and intermediate-term effect will not be good for sovereign debt yields, budget targets, or GDP.

Spain and Portugal are accidents waiting to happen (sooner rather than later), and judging from bond yields alone, it is safe to add Italy to that mix.

The euphoria of a "settlement" (that fixes nothing) in regards to the crisis in Greece will soon give way to the massive number of even larger problems elsewhere in the Eurozone.

Mike "Mish" Shedlock
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Silver is set up for explosion!

By: Peter Brandt

Price, volume and the COT data are the kings.
They were kings when Silver blasted off in late 2005. They were kings when Silver bottomed in early 2010. They were kings when Silver topped in April 2011. And they are kings behind this current strong rally.
For the past six months Silver bulls should have just kept silent and let price, volume and COT data tell the story. Price should interpret your view, not the other way around.
Silver has a combination of very strong technical factors. The weekly and daily charts display a possible 6-month bull flag.

Fitch says 50% Haircuts would Constitute Default; No Official Ruling from ISDA Yet; Wrong Decision Could Kill CDS Market; How Will Setup be Resolved?

The yield on 10-year Italian bonds is back over 6% following a weaker than expected bond auction. Who wants to load up on Spanish, Portuguese, or Italian bonds if they cannot hedge with credit default swaps?

No ISDA Ruling Yet

Everyone is acting as if the International Swaps and Derivatives Association (ISDA) has issued a ruling on on whether 50% haircuts forced at gunpoint are "voluntary", but there is no official ruling yet, only hints.

Please consider Voluntary or forced? The important word games of debt default
When is a default not a default?

Investors struggled with that question Thursday after European officials outlined plans that would see owners of Greek bonds take a 50 per cent loss on the face value of their holdings.

The International Swaps and Derivatives Association, an industry group that oversees the CDS market, says the Greek deal probably won’t trigger default clauses in CDS contracts because the 50 per cent “haircut” is voluntary.

That view is starting to roil the $25-trillion market for credit default swaps because it calls into question the fundamental reason for purchasing insurance against losses on bonds. If investors can no longer count on being able to hedge against the possibility of a loss, they may start demanding higher yields as compensation for increased risk.

“I would think [such a ruling by the ISDA] would be quite a negative for the market,” said Lawrence Chin, director of research at the Cundill division of Mackenzie Financial. “You could get hit on the debt, but you don’t get the insurance [payout].”

“Based on what we know it appears from preliminary news reports that the bond restructuring is voluntary and not binding on all bondholders,” the ISDA said on its website Thursday. “As such, it does not appear to be likely that the restructuring will trigger payments under existing CDS contracts.”

But things can be confusing, even at the ISDA. In a version of the Q&A dated July 8, the ISDA asks, “Does it matter whether the event is ‘voluntary’ or ‘mandatory’ ”? Answer: “The CDS Definitions do not refer to a distinction between voluntary and mandatory events, though it does come up indirectly.”

Then there’s the matter of just how voluntary the latest agreement really is. Banks may have agreed to take a 50 per cent loss on their Greek debt holdings to avoid an even worse deal.

David Geen, general counsel for the ISDA, acknowledged in an interview on Bloomberg Television that there was likely some “coercion” of banks by European officials. “There’s been a lot of arm twisting,” he said, but asserted that while the deal may have been “borderline.” it still fell short of being a default.

The Determinations Committee of the ISDA will make a final decision on whether the Greek deal triggers CDS payouts “when the proposal is formally signed, and if a market participant requests a ruling from the DC,” the association said in its Q&A.

“If you can’t hedge your position, you shrink your position,” said Steven Tananbaum, managing partner and chief investment officer at GoldenTree Asset Management.
Fitch says 50% Haircuts would Constitute Default

Just to muddy the waters further, Fitch says acceptance of 50% haircuts on Greek debt would constitute default. Bloomberg reports ...
If it’s accepted, “the 50 percent nominal haircut on the proposed bond exchange would be viewed by the agency as a default event under its Distressed Debt Exchange criteria,” Fitch said in a statement today. The accord is “ a necessary step to put the Greek sovereign’s public finances on a more sustainable footing.”

This week’s rise in the euro “shows expectations were very low for what would come out of the meeting,” said Geoff Kendrick, head of European currency strategy at Nomura Holdings Inc. in London. “I am relatively skeptical about how long this will last because I think it was just another plan for a plan.” Kendrick expects the euro to weaken to $1.30 by year-end.

Italian Prime Minister Silvio Berlusconi conducted the first test of investor enthusiasm for Europe’s debt since the summit’s plan was announced, selling bonds today at euro-era record borrowing costs.
Italian Sale

The Treasury in Rome sold 7.93 billion euros, less than the maximum 8.5 billion-euro target, of four different bonds today. The yield on Italy’s benchmark 10-year bond rose 11 basis points, or 0.11 percentage point, to 5.98 percent.
Fitch vs. ISDA

We come to the very real possibility that Fitch rules one way and the ISDA another.

Voluntary "No Default" Decision Could Kill CDS Market

The Wall Street Journal reports Default Insurance Market Takes Hit
Under the broad deal reached this week to stem the euro-zone's financial crisis, holders of credit-default swaps on Greek government bonds aren't expected to receive any payout, even though a preliminary agreement between financial institutions and European policy makers would recognize just half the face value of some Greek debt.

The decision not to trigger the swaps raises questions about the value of the insurance-like contracts and exposes the limitations of the hedging strategies that banks and investors have come to rely on. The swaps are widely used by bondholders and major banks to defuse a wide range of risks, and by traders to bet on market trends. If the swaps don't pay out when bonds default, banks and funds that bought the insurance may face losses they thought they had hedged.

"You need the real money guys, the banks, to view [credit-default swaps] as a viable contract for CDS to be a real market," said Adam Fisher, chief investment officer at hedge fund Commonwealth Opportunity Master Fund Ltd., and a trader of sovereign credit-default swaps. The deal reached Thursday, he said, could "kill off the market."

"If you owned a sovereign bond and you got scared because you bought CDS thinking it would pay out, you'll realize you would have been better off just selling your bond—and you'll just get rid of everything," said Ashish Shah, co-head of credit at AllianceBernstein.

The biggest U.S. lenders don't stand to lose much on the Greek "haircut." A bigger issue is exposure to economies such as Portugal and Ireland, and much bigger countries such as Spain, Italy and even triple-A-rated France.
I Predict a Surprise Default Ruling by ISDA

The WSJ implies a "decision not to trigger the swaps" has been made. Piecing together various reports, I don't think it has.

Here is the setup. There is only $3.7 billion in CDS contracts on Greek bonds vs. €350 billion ($496 billion) government debt.

Will the ISDA be willing to risk the CDS market on sovereign debt for a lousy $3.7 billion? I believe it won't if the "Derivatives King" (JP Morgan) and a few of the other big boys decide it is in their best interest to take a small hit now to prevent killing a lucrative market.

Thus I am going to go out on a limb and predict the ruling will be a default, possibly triggering massive buying of CDS contracts on Portuguese, Spanish, and Italian debt to the huge benefit of the "Derivatives King" and other big players.

Just don't expect the same result next time if the big boys go on an insurance selling spree.

Mike "Mish" Shedlock
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Two Beers with Steve Interview – Occupy the Impossible Math…

Nathan Martin interview on Two Beers with Steve: Occupy the Impossible Math.

(Some technical glitches on my end as my Skype headset was going bad without me realizing it until afterwards – new headset in hand already.)

Morning Update/ Market Thread 10/28 - How to Fix Social Security Edition…

Good Morning,

Equity futures are lower this morning following yesterday’s moneyness/ leverage fluff fest. The dollar and bonds are recovering a small part of yesterday’s losses, the Yen continues into record territory, oil is down slightly, gold & silver are holding onto yesterday’s gains, and food commodities are slipping slightly.

Yesterday was a sad, sad day for America, did you miss it? What the media and your government didn’t tell you yesterday was that America’s advertised debt (reality is WAY higher) surpassed 100% of the nation’s GDP? No, all you heard on the news was that trumped up GDP supposed “grew” by 2.5%. But remember, debt is money inside of the central banker box, and thus it is the growth of debt/money that you are seeing as “growth.” Do not believe the lies, remember that lying is a cooperative act, do not give the purveyors of fraud permission to lie!

Speaking of moneyness lies, Personal Income supposedly rose by .1% in September while Consumer Spending supposedly rose by a whopping .6%! Those figures are supposedly up 4.4% and 5.3%, respectively, year over year, not that I believe for a second that Personal Income is actually up by that amount. The first flaw in this report is that they do not disseminate the actual dollar figures they are measuring, they convert them into percent moves. Here again, because they measure inflation incorrectly (understated), these figures are distorted to the high side. Thirdly they fail to average in the “income” that’s missing from the unemployed! Fourthly, these statistics fail to point out that those closest to the production of money are seeing giant leaps in income, while those who are further away are taking it on the chin with lower wages and a higher percentage of temporary and part-time work. Even if we take these numbers at face value, then they are high and it is clear that the “Fed” is failing in their price stability mandate, thus how do they justify more “stimulus” and printing? Oh, that’s right, they’re not printing money, just ask them. Here’s Econoday giving their blessing to the lies:
Personal income rose modestly in September but wages & salaries were healthy. Meanwhile, spending was up notably while inflation was mixed. Personal income in September edged up 0.1 percent, following a 0.1 percent dip in August. The latest number fell short of the consensus forecast for a 0.3 percent gain. Importantly, the wages & salaries component rebounded 0.3 percent, after declining 0.1 percent in August. Sluggishness in income was from a dip in interest income and from flat government benefits.

Consumer spending ramped up, gaining 0.6 percent, following a 0.2 percent rise in August. The September figure beat analysts' median forecast for a 0.3 percent increase. By components, durables jumped 2.2 percent after a 1.1 percent decline in August. Nondurables increased 1.1 percent, following a 0.6 percent rise. About half of the nondurables increase was price related. Services rose 0.2 percent after a 0.3 percent gain in August.

Turning to inflation numbers, the headline PCE price index increased 0.2 percent after gaining 0.3 percent in August. The consensus called for 0.2 percent gain. The core rate slowed to no change from up 0.2 percent in August. The market expectation was for a 0.1 percent rise.

Year-on-year, headline prices are up 2.9 percent, compared to 2.9 percent in September. The core is up 1.6 percent on a year-ago basis, down slightly from 1.7 percent in August.

Today's report is relatively strong-at least for this recovery. Headline income is sluggish but the important wages & salaries component is moderately healthy. Personal spending is robust although price gains played a partial role. Core inflation softened and this gives the Fed room for further accommodation if the FOMC chooses.

On the news, equity futures slipped a bit.

The Employment Cost Index for Q3 rose half that expected at .3%, which is up 2.0% for the year. This measurement includes benefit costs – again everything is measured in dollars then converted into a percentage:
Growth in benefit costs eased substantially in the third quarter and helped to bring down the employment cost index to a quarter-to-quarter plus 0.3 percent in the third quarter from outsized 0.7 percent and 0.6 percent gains in the prior two quarters. The reading is far below the Econoday consensus for plus 0.6 percent. The year-on-year rate slowed to 2.0 percent vs the prior quarters' 2.2 percent and 1.9 percent.

Benefit costs slowed to plus 0.1 percent in the third quarter, down from 1.3 percent and 1.1 percent in the prior two quarters. Wages & salaries rose a respectable 0.3 percent, following a run of 0.4 percent gains. But the year-on-year rate of plus 1.6 percent, the second in a row, is below the core CPI rate of plus 2.0 percent and well below the overall CPI rate of plus 3.9 percent.

Are you dazed and confused yet by how these statistics show supposed growth and yet there is a giant disconnect between them and reality? Money printing coupled with false and misleading statistics is why that disconnect exists, again, we have to collectively stop giving our tacit permission for the lies.

The University of Michigan’s Consumer Sentiment reading just came in at the very depressed level of 60.9, which is higher than the last report of 57.5. This reading, while depressed, is in the opposite direction of the Consumer Confidence reading we just got which is near an all-time low. Not that the “consumer’s” sentiment matters – they are being marginalized more and more.

So, you want to fix Social Security? Guess what, it’s EASY, but only if you remove yourself from the central banker’s debt to control you box. Have you wondered yet why it is that trillions can be created to “shore up the banks,” and yet when it comes to things like Social Security and education there’s no money to be found and “we’re all going to have to take the pain!?”

Uh, huh, sorry, but I don’t give my permission for that whopper of a lie. And let’s be clear, the AARP crowd is right, people have paid into the system for years and years, they deserve to get the benefits that were promised to them! WE all deserve to get something back for what we put in, failing to do so is letting the criminal class abscond with your life’s productive efforts, and that’s called theft!

For decades the surpluses that went into Social Security were moved into the general fund and spent. Spent on what? Stupid things like ridiculous wars, insane “defense” spending, and special interest pandering galore. This is what happens when you give the money production power to a few private individuals, they turn YOUR PRODUCTION (99%) into THEIR GAINS (1%).

So now all that’s left is a phony accounting entry saying that Social Security is owed all that money. And now we have a demographic problem where for the next couple of decades we’re going to be taking in less than is going out – that’s the Ponzi nature of the way the program was created. It is Ponzi because it did not start with assets, payouts were dependent upon current income, and we squandered surpluses instead of saving them. What to do now?

Here’s all that has to be done to fix Social Security, this is best performed inside of the framework of Freedom’s Vision (more on that coming), but is certainly doable at any point, including right now. Are you ready? The ease at which the cure is possible might startle you, but again you must remove your brain from the control-you fear created by the central banker paradigm:

To “unponzify” social security all that must be done is to create 1 trillion sovereign, non debt backed, dollars (more if needed), and then PARK THEM into a new and untouchable Social Security Trust Fund. You then use those dollars to meet obligations while the demographics are unfavorable, and then mandate that during surplus years the fund is rebuilt. No changes to benefits or taxes required.

That’s it, that’s all it takes. Creating this truly sovereign money is NOT inflationary because it is parked (like the current $1.6 trillion “excess reserves are today) – and in fact it acts as a sort of ‘shock absorber’ to the demographic roller-coaster. It took no “PAIN” to create that money, it simply took removing your brain from the debt as money to control you paradigm. In other words, it took not giving permission to the lies. In fact, had it been given the proper reserves and accounting in the first place, it would never have been “Ponzi” from the start.

There are all kinds of true solutions that benefit everyone equally once your mind is outside of the central banker box. I’m going to go there, all the way, in my next series of articles to show you how. I think I see a floor that needs sweeping…