Tsipras Accuses Troika of "Creditor Monstrosity", Urges Eurozone Leaders to Read "For Whom the Bell Tolls"

It appears the eurozone is one step closer to an "accident" today. In a Le Monde editorial Defiant Tsipras Threatens to Detonate European Crisis Rather than Yield to Creditor "Monstrosity".

Greek premier Alexis Tsipras has accused Europe's creditor powers of issuing "absurd demands" and come close to warning that his far-Left government will detonate a pan-European political and strategic crisis if pushed any further.

Writing for Le Monde in a tone of furious defiance after the latest set of talks reached an impasse, Mr Tsipras said the eurozone's dominant players were by degrees bringing about the "complete abolition of democracy in Europe" and were ushering in a technocratic monstrosity with powers to subjugate states that refuse to accept the "doctrines of extreme neoliberalism".

"For those countries that refuse to bow to the new authority, the solution will be simple: Harsh punishment. Judging from the present circumstances, it appears that this new European power is being constructed, with Greece being the first victim," he said.

"If some, however, think or want to believe that this decision concerns only Greece, they are making a grave mistake. I would suggest that they re-read Hemingway’s masterpiece, “For Whom the Bell Tolls”," he said.

The situation has become critical after depositors withdrew €800m from Greek banks in two days at the end of last week, heightening fears that capital controls may be imminent.

Mr Tsipras's choice of words also implies that Greece may turn its back on the Western security system, presumably by shifting into the orbit of Russia and China.

The Left Platform has called for a full "counter-attack" against the EU powers, laying out its inflexible terms in a new document. It demands a default on the debt and the "immediate nationalization of the banks with all necessary accompanying measures".

"What the ruling circles of the EU, the ECB and the IMF are ruthlessly and consistently aiming for in the last four months, is to strangle the economy, to milk the last euro from the country´s reserves and to push a vulnerable government into full submission and exemplary humiliation," it said.

Greek Debt Pile



What cannot be paid back, won't. And anyone with any bit of common sense knew four years ago.

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

Pitiful Alignment: War Hawk Hypocrites and Liberals Pressure Paul as Clock Ticks on Patriot Act

At midnight, the Patriot Act expires. Given that the Patriot Act should never have passed in the first place, that's a good thing.

In a Time magazine op-ed, senator Rand Paul proclaimed I Will Stop the Illegal NSA Spying.

Sunday, I will continue my fight to end the illegal collection of American phone records. The Second Appeals court has ruled the NSA’s bulk collection of phone records illegal. We should not be debating modifying an illegal program. We should simply end this illegal program.

We have all the tools we need to preserve both security and liberty. What we now need is a president with the will to do just that.

I would take the billions spent on collecting records of suspicionless Americans and spend it instead on FBI agents to monitor suspects who have given probable cause that they are a danger to us.

Individual warrants every day are used to arrest dangerous people. I see no reason we can’t defend ourselves using the same Constitutional processes we’ve used for over two centuries.

Our country was founded on the principle of individual—not general—warrants.

After the current illegal powers end Sunday night the government could still get a warrant. It will just have to say on it Mr. John Smith, not Mr. Verizon.

One suspect, one warrant. Not hundreds of millions of records swept up in one illegal order.

I would argue this will make us more safe, not less. It has been said that finding a terrorist is like finding a needle in a haystack. Well, for years, your government’s answer has been to make the haystack bigger by gobbling up every American’s information.

That must end.

This president could fix the problem by himself but he hasn’t done so. I stand ready to help lead the way on this important matter. On Sunday I will stop the illegal NSA spying.

Rand Paul Under Pressure

Of course, all the war-hawk constitutional hypocrites want the bill extended as does president Obama. Thus, Rand Paul is Under Pressure as Deadline Clock Ticks.

Rand Paul came under mounting pressure to prevent a full lapse in US surveillance authorities on Sunday, as allies of the Kentucky senator joined hawks at the opposite end of the political spectrum in calling for the swift passage of the compromise USA Freedom Act.

The USA Freedom Act would ban the government collection of bulk phone records first revealed in the Guardian by Edward Snowden, forcing the National Security Agency (NSA) to make specific requests from telecom providers instead. It is supported by the Obama administration.

On Sunday morning, the Utah Republican senator Mike Lee, a sponsor of the USA Freedom Act and close ally of Paul, distanced himself from his colleague’s tactics.

“I do believe we have the votes,” said Lee. “So at this point the question is not really whether we get this passed but when it will happen: tonight or Wednesday, or sometime between then.”

Despite the ability of Senate leaders to eventually force through a vote against his wishes, Senator Paul was in defiant mood, reveling in his lonely stand against both parties and ability to force a temporary lapse in the Patriot Act provisions.

“On Sunday I will stop the illegal NSA spying,” he wrote in an opinion piece for Time magazine.

“We should not be debating modifying an illegal programme. We should simply end this illegal programme,” he added.

In comments to supporters in South Carolina and a statement issued to Politico, Paul hinted that he would not give majority leader McConnell the unanimous consent needed to move to a final vote on USA Freedom Act when the Senate resumes for an unusual Sunday session at 4pm.

“It’s not a violation of civl liberties,” insisted presidential hopeful Jeb Bush in an interview with CBS, in which he warned the nation’s security would be endangered if the bulk collection programme was allowed to expire.

“There is no evidence, not a shred of evidence that the metadata programme has violated anybody’s civil liberties,” Bush claimed.

Jeb Bush Unable to Reason

Apparently Jeb Bush can neither read nor think because on May 7, 2015, a Top Federal Court Ruled Against NSA's Phone Records Program.

A federal court has decided that the National Security Agency’s bulk, warrantless collection of millions of Americans’ phone records is illegal.

The sweeping decision from the Second Circuit Court of Appeals on Thursday represents a major court victory for opponents of the NSA and comes just as Congress begins a fight over whether to renew the underlying law used to justify the program. 

That program “exceeds the scope of what Congress has authorized,” Judge Gerard Lynch wrote on behalf of the three-judge panel.

The law “cannot be interpreted in a way that defies any meaningful limit,” he added.

Additionally, the government’s rationale behind the program represents “a monumental shift in our approach to combating terrorism,” which was not grounded in a clear explanation of the law.

The Second Circuit’s decision provides the most significant legal blow to the NSA operations to date and comes more than a year after a lower court called the program “almost-Orwellian” and likely unconstitutional. The appeals court did not examine the constitutionality of the surveillance program in its ruling on Thursday.

No Shred of Evidence

Let's modify Jeb Bush's statement so that it actually makes sense: "There is no evidence, not a shred of evidence that the metadata programme has stopped any terrorist acts. Bulk data gathering is not only a colossal waste of money, it violates the constitution."

Nonetheless, I suspect Lee is correct when he says "I do believe we have the votes".

Pitiful Alignment

Republicans pitifully align themselves with Obama in support of a preposterously named USA Freedom Act, a bill 100% guaranteed to curtail freedom.

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

Odds of losing a Job to Automation: Which Jobs are at Risk, Which Aren't?

A number of articles now circulating are all based on a 2013 study The Future of Employment: How Susceptible are Jobs to Computerization?.

It's interesting that the 2013 report is now seeing the light of day in various places just this week. The best of the lot is the NPR Planet Money report Will Your Job Be Done By A Machine?

The article lets you select from two drop boxes, the first is job field, the second is a specific job within that field.

Here are some random results

• Cartographers and Photogrammetrists: 87.9%
• Electrical Drafters: 80.8%
• Umpires and Referees: 98.3%
• Technical Writers: 88.8%
• Translators: 38.4%
• Tax Preparers: 98.7%
• Accountants and Auditors: 93.5%
• Credit Counselors: 4.0%
• Editors: 5.5%
• Maids and Housekeepers: 68.8%
• Janitors: 66.3%
• Computer Programmers: 48.1%
• Actuaries: 20.6%
• Computer Systems Analysts: 0.6%
• Roofers: 89.7%
• Rail Track Laying: 89.1%
• Carpenters: 72.4%
• Paralegals: 94.5%
• Court Reporters: 50.2%
• Timing Device Assemblers: 98.5%
• Packaging: 98.0%
• Bakers: 88.8%
• Jewelers: 95.5%
• Optometrists: 13.7%
• Dentists: 0.4%
• Occupational Therapists: 0.3%
• Telemarketers: 99.0%
• Fashion Models 97.6%
• Cashiers: 97.1%
• Insurance Agents: 91.9%
• Librarians: 64%
• College Professors: 3.2%

I disagree with some of those. For example, there is absolutely no need for relics like librarians as libraries will become extinct.

Paralegal jobs are already vanishing rapidly as are packaging jobs. Telemarketing has already been replaced by auto-dialers that say "Hi this is Heather, your account specialist".

I fail to see why we need court reporters. And why can't actuaries be replaced by a computer model?

On the positive side, I have better hopes for janitors than the study. And while baseball umpires may vanish, football referees won't. I highly doubt maid services and home cleaning will go away, but those will be low paying jobs.

I could not find categories for truck and taxi drivers, two fields that will shed millions of jobs over the next decade.

It's easy to quibble with individual assessments. Yet, the overall picture is clearly quite grim for numerous occupations.

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

Five Chicago Suburbs Headed for Bankruptcy (More Illinois Cities Will Follow)

Illinois House Bill 298 would allow Illinois municipalities to file for Chapter 9 bankruptcy. That bill is endorsed by Governor Bruce Rauner, and currently rests in the house rules committee.

As soon as Illinois passes Bill 298, a number of Illinois cities are highly likely to file bankruptcy as noted by Bond Buyer in Illinois' Candidates for Municipal Bankruptcy.

If HB298 was enacted, which local governments might use the new bankruptcy option? To help answer this question, our team reviewed audited financial statements that all but the smallest municipalities must file. Most of these financial audits can be found on the state comptroller’s local government Finance Warehouse.

Among the indicators we considered were government-wide unrestricted net position and general fund balance. The first indicator shows the degree to which assets held by the government entity as a whole exceed its liabilities and are not locked up in buildings and other illiquid forms. The second indicator, general fund balance, focuses more narrowly on the government’s main fund – which is roughly analogous to an individual’s checking account. Low or negative general fund balances were cited in the bankruptcies of Vallejo and Stockton, California. It is worth noting that the five municipalities we identified are all located in Cook County, which also faces fiscal challenges. Our list does not include Chicago. Although that city’s financial struggles have made frequent headlines, several of its smaller suburbs appear to be in much greater fiscal distress. The five communities we identified are: Maywood, Sauk Village, Blue Island, Country Club Hills and Dalton.

Distress Summary

Maywood: Village of Maywood reported an unrestricted net position of -$47.4 million, and a general fund balance of -$8.2 million. While we found a number of jurisdictions with negative balances, these levels are quite pronounced for a relatively small municipality. With general fund revenues of only $23.3 million and government-wide revenues of $44.1 million, it will take the village a long time to eliminate these shortfalls.

Sauk Village: Sauk Village reported an unrestricted net position of negative $36.7 million – a very large negative position considering that the village had only $29.6 million in assets and government-wide revenues of $13.4 million. Sauk Village also showed a negative general fund balance and unusually high interest costs. The village’s $2.1 million of interest expense accounted for over 15% of total revenue. The Village received an adverse audit opinion for its reporting of “Aggregate Remaining Fund Information” and a qualified opinion for its reporting of “Governmental Activities.” The Police Pension Fund information was not included and has not been subject to an actuarial evaluation since May 1, 2011.

Blue Island: The City of Blue Island reported an unrestricted net position of negative $15.2 million and a general fund balance of negative $10.5 million in its 2013 financial statements – the latest available. The negative general fund balance is especially pronounced because the city only recorded $16.3 million in general fund revenue during fiscal year 2013. The city’s negative net unrestricted position appears to be understated because Blue Island did not report an Other Post-Employment Benefit (OPEB) liability.

Country Club Hills: The City of Country Club Hills has yet to file audited financial statements for the 2013 fiscal year – making it the most delinquent filer among the municipalities we reviewed. The city’s 2012 financial statements show a slightly negative unrestricted net position and a large negative general fund balance. Further, the city’s auditor was unable to render an opinion on the accuracy of these statements, saying:

Dolton: The Village of Dolton reported a small negative net unrestricted position in its 2013 financial statements – the latest available. Although its general fund balance was positive, the amount was well below Government Finance Officers Association guidelines. Dolton’s $1.3 million general fund balance would cover less than a month of general fund expenditures, which were $22.1 million for the 2013 fiscal year. Further, the village reported a $5.2 million general fund deficit. If this deficit persisted into 2014, Dolton may now be facing a negative general fund balance.

Modification to Bill 298 Needed

The Bond Buyer concludes "As Detroit and other cities filing Chapter 9 have found, municipal bankruptcy is an expensive process that transfers community resources to lawyers and financial advisors. While it may be unavoidable, bankruptcy should always be treated as the least best option."

I agree with that statement and that is why I advocate a rules change to Bill 298 that will give bondholders, not pensioners, a secured first lien.

Such a provision would lower borrowing costs to the benefit of taxpayers and it would get public unions to bargain upfront rather than drag processes out for years as happened in Detroit.

For further discussion on Bill 298 and why bondholders should have first lien rights, please see Calpers Wins Pension Lawsuit, Not Good News for Chicago (or Bondholders in General).

In the case of the five cities listed above, bankruptcy appears inevitable although the village administrator of Dolton strongly rebutted the report's findings as noted in a separate Bond Buyer article on Illinois Bankruptcy Candidates.

Bankrupt Candidate Populations

1. Maywood: 24,160 (2013)
2. Dolton: 23,333 (2013)
3. Country Club Hills: 16,866 (2013)
4. Blue Island: 23,793 (2013)
5. Sauk Village: 10,549 (2013)

I am aware of at least one other Illinois city potentially ready to file if allowed, and I suspect there are far more waiting in the wings.

Meanwhile, the outlook for the Illinois economy is not a good one. For details, please see Chicago PMI Unexpectedly Crashes: New Orders, Production and Employment Down by More Than 10%

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

Chicago PMI Unexpectedly Crashes: New Orders, Production and Employment Down by More Than 10%

Unexpected Chicago PMI Crash

Looking for signs of strength? You will not find them in today's Chicago PMI report.

The Bloomberg Consensus estimate was for a 53.1 expansion reading. Instead, the PMI came in at 46.2, well below the bottom of the consensus range of 51.0 to 54.0.

Readings below 50.0 indicate contraction.

New Orders, Production and Employment Down by More Than 10%

For details, let's turn to the Chicago ISM Report that shows Business Barometer Back into Contraction in May.

The Chicago Business Barometer fell sharply back into contraction in May, reversing all of April’s gain and casting doubt on the strength of the widely expected bounceback in the US economy in the second quarter. The Barometer fell 6.1 points to 46.2 in May from 52.3 in April. All five components of the Barometer weakened with three dropping by more than 10% and all of them now below the 50 breakeven mark.

April’s positive move had suggested that the first quarter slowdown was transitory and had been impacted by the cold snap and port strikes. May’s weakness points to a more fundamental slowdown with the Barometer running only slightly above February’s 5½-year low of 45.8. The three month average, although little changed on the month at 48.3, is significantly down from 61.3 in Q4 2014 and barring a sharp rebound in June points to continued sluggish growth in the second quarter.

The decline was led by a 13.8% fall in New Orders to 47.5 from 55.1 in April, pushing it into contraction for the third time this year. In line with the lower order intake, both Production and Employment Indicators suffered double-digit losses in percentage terms between April and May, with the latter falling to the lowest since April 2013. Order Backlogs declined more moderately, remaining in contraction for the fourth consecutive month.

There was further evidence that the period of oil driven softer prices has run its course. Prices Paid jumped sharply back into expansion in May to the highest since December.

Chicago PMI



Telling Stats

Unlike strict manufacturing PMI reports, the Chicago PMI is a survey of manufacturing and non-manufacturing (services), tracking all aspects of the Chicago economy.

Here is one more telling stat from the report: "42% of companies said their current inventory level was too high compared with 12% in a comparable question asked in November 2014. 53.2% said stock levels were about right, with less than 5% reporting them as too low."

So don't go looking for an inventory rebuild to lead the way out of this slump.

Recession Call

I don't believe this is a "Chicago Only" problem. But it could be an indication that Illinois will be harder hit by the next recession than other areas.

Nationally, economists are looking for close to 3% annualized growth for second quarter. I am sticking with my recession call made back on January 31.

• Diving Into the GDP Report - Some Ominous Trends - Yellen Yap - Decoupling or Not?
• Canada in Recession, US Will Follow in 2015

For comments on current recession odds, first quarter GDP revisions, and second quarter GDP estimates, please see First Quarter GDP -0.7%; GDPNow Second Quarter Forecast +0.8%; Economists Get Zero Accolades; Smoothed Recession Odds from earlier today.

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

First Quarter GDP -0.7%; GDPNow Second Quarter Forecast +0.8%; Economists Get Zero Accolades; Smoothed Recession Odds

First quarter GDP came in at -0.7% pretty much in line with the Bloomberg Consensus estimate of -0.8%.

First-quarter GDP was revised down about as expected, to minus 0.7 percent vs expectations for minus 0.8 and compared with an initial reading of plus 0.2 percent. Updated source data made for a bigger negative contribution from net exports as imports spiked 5.6 percent from an initial gain of 1.8 percent. The change here is tied to the port strike and the sudden unloading of imports in March. A lower estimate for inventory growth was also a negative. Turning to demand, final sales were revised downward to minus 1.1 percent from minus 0.5 percent.

On the positive side, the contribution from residential fixed investment rose to 5.0 percent from 1.3 percent while the negative contribution from business spending improved 6 tenths to minus 2.8 percent.

The first quarter was definitely weak, showing the first contraction since first-quarter 2014 when GDP fell 2.1 percent in another winter quarter affected by unusually severe weather. The Fed itself has been noting the risk that the pattern of first quarter weakness could reflect how the numbers are crunched by government statisticians to account for seasonal variations. This process may have exaggerated the underlying weakness in the quarter.

Where is GDP currently tracking? Early estimates were in the 3.0 percent range but, due to weak consumer spending, have been slipping to the 2.0 percent range.

Economists Get Zero Accolades

Economists get zero credit for guessing this one correct. Their negative estimate was in arrears after consumer spending unexpectedly collapsed.

This is what the "Blue Chip" economists thought about first quarter GDP on April 2.

GDPNow Estimate for 1st Quarter, April 2



Note the "Blue Chip" consensus at the end of the first quarter was for 1.7% annualized growth. They were off by 2.4 percentage points.

Pathetic.

Bloomberg notes the "port strike and the sudden unloading of imports in March." Question of the day: Had they not unloaded merchandise in March, would they have done so in April?

Of course they would. So instead of whining about the sudden unloading in March, mentally shift -0.4% or so from first quarter to the second quarter.

That brings us to the today's GDPNow Forecast.

Second Quarter GDPNow Estimate



The "Blue Chip" forecasters who were off by a massive 2.4 percentage points at the end of the first quarter are now back at it.

They are looking for 2.9% GDP growth vs. the Atlanta Fed GDPNow model of 0.8%.

Had that port strike settled in April, first quarter would still have been negative due to the revision in final sales to minus 1.1 percent from minus 0.5 percent. And second quarter GDP would now be barely positive according to the GDPNow model.

Smoothed Recession Odds



As of May first, the smoothed recession odds of recession stand at 1.2%.

On Verge of Recession

I think second quarter GDP will come in even lower than GDPNow. Consumers show no inclination to spend, despite economists persistent belief they will.

We are on the verge of recession, if indeed not already in one. First quarter GDP was negative and if for any reason second quarter GDP is negative the US will be in recession.

Regardless of whether or not one believes second quarter GDP will be negative, the odds are far better than 1.2%.

Besides, it does not even take two quarters of negative GDP for there to be a recession. Rather, two quarters of negative GDP is a sufficient but not necessary condition.

The smoothed recession odds model is clearly a joke.

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

Introducing the Zero Labor Factory (90% Free Actually); Robots at Chili's, Applebees, Panera

In the strive for zero labor factories we are nearly there. Is 90% good enough?

China Daily reports Manufacturing Hub Starts Work on First Zero-Labor Factory.

A manufacturing hub in South China's Guangdong province has begun constructing the city's first zero-labor factory, a signal that the local authorities are bringing into effect its "robot assembling line" strategy.

Dongguan-based private company Everwin Precision Technology Ltd is pushing toward putting 1,000 robots in use in its first phase of the zero-labor project, China National Radio reported. It said the company has already put first 100 robots on the assembly line.

"The 'zero-labor factory' does not mean we will not employ any humans, but what it means is that we will scale down the size of workers by up to 90 percent," said Chen Qixing, the company's board chairman.

After the work on smart factory started, Chen predicted that instead of 2,000 workers, the current strength of the workforce, the company will require only 200 to operate software system and backstage management.

"It is necessary to replace human workers with robots, given the severe labor shortage and mounting labor costs," said Di Suoling, head of Dongguan-based Taiwan Business Association.

Manufacturers in the PRD have been hit by a shortage of an estimated 600,000 to 800,000 workers, according to data released after the Spring Festival in February.

Tens of thousands of migrant workers had earlier gone back home to inlands for a family get-together and some of them decided to settle down in their hometown where the living costs are much less than the coastal cities.

Shortage of Labor?

There is no shortage of labor. There is no shortage of skills either. Rather, there is a shortage of people willing to work for what factory owners are willing to pay.

And with cheap money everywhere you look, there is plenty of money at low rates to buy robots.

Meanwhile, back in the US, McDonald's employees think they are worth $15 an hour for taking orders and handing people a sack of crap.

Robots at Chili's, Applebees, Panera

High wages means fewer jobs. CNN accurately reports Robots will Replace Fast-Food Workers.

Panera Bread (PNRA) is the latest chain to introduce automated service, announcing in April that it plans to bring self-service ordering kiosks as well as a mobile ordering option to all its locations within the next three years. The news follows moves from Chili's and Applebee's to place tablets on their tables, allowing diners to order and pay without interacting with human wait staff at all.

In a widely cited paper released last year, University of Oxford researchers estimated that there is a 92% chance that fast-food preparation and serving will be automated in the coming decades.

Delivery drivers could be replaced en masse by self-driving cars, which are likely to hit the market within a decade or two, or even drones. In food preparation, there are start-ups offering robots for bartending and gourmet hamburger preparation. A food processing company in Spain now uses robots to inspect heads of lettuce on a conveyor belt, throwing out those that don't meet company standards, the Oxford researchers report.

Darren Tristano, a food industry expert with the research firm Technomic, said digital technology will "slowly, over time, create efficiency and labor savings" for restaurants. He guessed that work forces would only drop as a result by 5% or 10% at a maximum in the decades to come, however, given the expectations that customers have for the dining experience.

"If you look at the thousands of years that consumers have been served alcohol and food by people, it's hard to imagine that things will change that quickly," he said.

I think Darren Tristano is in fantasyland. The higher the wage, the bigger the incentive to get rid of people.

Central banks have mush for brains in their attempts force wages and prices up in this type of environment.

Question of the Day

How much do you tip a human server, when the server did not even take your order? The question will eventually be moot when robots bring food to the table.

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

April Greek Capital Flight €5 Billion; Eurozone Liabilities Hit €115 Billion

Chalk up another €5 billion in capital flight from Greece in April. Total eurozone exposure to Greek currency liabilities now sits at €115 Billion, not counting accelerated capital flight in recent weeks.

The following two charts produced with data from EuroCrisis Monitor.

Greece Target2 Imbalance Since February 2008



Greece Target2 Imbalance Detail Since June 2014



The chart shows a rise of €2 billion but that does not count cash.

Target2 Explanation

For a refresher course on Target2, please see Reader From Europe Asks "Can You Please Explain Target2?"

Intra-Eurosystem Liabilities 

The latest Intra-Eurosystem Liabilities from the Bank of Greece are €114.95 billion as shown below.



Change From Last Month

Last month, eurozone exposure to Greek liabilities was €96.427 billion of Target2 imbalances plus another €14.028 billion net liabilities related to the allocation of euro banknotes.

"The past week in May was more challenging compared to the previous ones in the month, with daily outflows of 200 to 300 million euros in the last few days," a senior Greek banker said yesterday.

In the last week alone, it seems likely another €2 billion was pulled from Greek banks. The total May drain will not be reported until June 10.

The ECB is attempting to stem the flow by not upping emergency liquidity assistance (ELA) as noted yesterday in Run on Greek Banks Accelerates; ECB Halts Emergency Funding Hike; Untangling the Lies

Everyone Prepared?
When the ECB and Germany say they are prepared for Grexit, do they include taxpayers who will have to foot the bill for default?

My friend Lars from Norway pinged me with this observation today...

Greek GDP is about €180 billion. Public sector is 60% of the total. That makes the private sector contribution to GDP about €72 billion.

Total public sector debt is close to €500 billion (not €320 billion as quoted by the mainstream media). So a private sector with €72 billion final sales will have to service a debt load of €500 billion.

Isn’t the conclusion obvious?

Regards

Lars

Since June of 2014, Greek banks shed about €70 billion in deposits, an amount roughly equivalent to Greek private GDP.

Not to worry, everything is clearly under control.

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

Swede Has Had Enough

A Swedish man reached the absolute end of what he can take anymore and profanely complains about Swedish politicians. The man is the founder of a new political party called Riksdemokraterna.

Warning: graphic language.



Link if video does not play: Swede Has Had Enough

My comment: Beggar-thy-neighbor policies, deflationary conditions, and the rise of extremist political parties all go hand in hand.

Discontent is spreading in spite of the alleged recovery.

What happens when the next recession hits?

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

"Bond Girl" on Chicago and the Quality of Credit Analysis in the Municipal Bond Market

On May 13, Moody's shocked the municipal bond market by downgrading Chicago to junk.

At that time S&P rated Chicago five notches higher, the widest spread between bond raters in history.

Kristi Culpepper, AKA "Bond Girl" comments on the event in What Chicago’s Fiscal Emergency says about the Quality of Credit Analysis in the Municipal Bond Market.

In a sense, Moody’s was only validating the bond market’s opinion of the city’s creditworthiness — the bonds had already been trading at junk levels for several months. This should have been a straightforward event for the chattering class to process intellectually. Rating actions tend to lag the market rather than lead it.

Oddly, however, Moody’s downgrade sparked a debate over whether Moody’s was being “fair” to Chicago.

How could Moody’s cut the city to junk when the other rating agencies rate the city so much higher? (That has obviously never happened before in an era of ratings shopping and superdowngrades.) Wouldn't having a diverse economy and large tax base cancel out the costs associated with machine politics? (It’s not like this is Chicago’s third fiscal crisis in the past century.)

This was probably the first instance in the history of the capital markets that a rating agency was accused of having too radical an attitude toward risk.

There is a conversation to be had about how politics influences the perception of financial commitments and whether bond structures can further evolve to protect bondholders. If the general obligation pledge — absent a statutory lien, which few states have — lacks teeth in court, why isn’t it obsolete? Why is this bond structure still the foundation for credit analysis? Does the general obligation pledge allow governments to over-commit themselves financially in certain political contexts? I would submit to you that this absolutely the case with Chicago.

What financial risks does Chicago pose to investors?

Let’s examine Chicago’s credit profile and you can decide whether or not the city’s bonds are speculative investments.

From Nuveen:

Chicago’s combined annual debt and pension costs are substantially higher than any [of the ten largest US cities] when these obligations are indexed to total governmental revenue. Chicago’s fiscal 2015 debt service and annual pension costs account for 44.8% of fiscal 2013 governmental revenue. San Jose is the next closest city at 27.8%. The nine cities other than Chicago averaged 22.4% of revenue.

Most municipal market analysts assume that the city will address its unfunded pension liabilities and relatively high debt burden by increasing residents’ property taxes by nearly 50%.

Chicago officials have been unwilling to raise property taxes for at least a decade.

If officials lack the political will to raise taxes when their bonds are trading at 300 basis points (3%) over the AAA benchmark, will there ever be a resolution short of insolvency?

As I described at length in my earlier essay, How Chicago Has Used Financial Engineering to Paper Over its Massive Budget Gap, the city has also been using long-term debt to: (1) finance everyday expenses and maintenance; (2) finance judgments and settlements, including police brutality cases and retroactive wage increases and pension contributions for unionized employees; (3) restructure the city’s existing debt to extend the the maturities on its bonds far out into the future, in order to avoid having to pay the debt as it was coming due; and (4) provide slush funds for the city’s 50 alderman to undertake projects in their respective areas (i.e., pork).

Chicago has incurred literally billions of dollars of debt where residents have nothing to show for it.

The municipal bond market has not seen a liquidity problem of this magnitude for a local government borrower since the financial crisis. And S&P calls this situation “short-term interference.”

According to the Chicago Tribune: Chicago’s population grew by only 82 residents last year, giving it the dubious distinction of being the slowest-growing city among the top 10 US cities with one million or more residents.

“Texas, as an example, has been a magnet for a lot of lower-paying jobs and has the benefit of lower housing costs. If you’re making $15 an hour, the difference between making it where a house costs $100,000 and $300,000 is great.”

Few Assets Left to Sell

Chicago has already blown through the reserves it established from the Skyway and lease of its parking meters. It could try to hawk Midway Airport, but that has already failed three times.

The city’s other tax districts have their own problems

The Chicago Board of Education is also heavily indebted and its recent downgrade likewise triggered events of default. These will force the school system to pay penalty interest rates ranging from 9% to 13.5% and make swap termination payments. The board has significant unfunded pension liabilities and a $1 billion deficit.

All of the recent insolvencies in the municipal bond market have combined protracted fiscal mismanagement with a reliance on innovative financial products (e.g., interest rate swaps and pension obligation bonds). This epiphany continues to elude many market participants, especially those who believe credit analysis is as simple as financial ratios.

Perhaps Chicago will successfully navigate through this storm, but it is insane to disregard the risk involved.

Damning Report

There is much more in Culpepper's report, and all of it damning.

Chicago is on the verge of shrinking. Meanwhile, Illinois is already losing jobs to Indiana, Texas, and Wisconsin. A number of Illinois cities are on the verge of bankruptcy (more on that point in a subsequent post).

And what does Illinois have to show for all this?

Nothing!

Bankruptcy is the only sensible answer.

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

Run on Greek Banks Accelerates; ECB Halts Emergency Funding Hike; Untangling the Lies

The curious story of the day is back-to-back reports, minutes apart, by the same news agency, saying different things.

I commented on that just a bit ago in Greece Says Creditor Agreement Deal Close, Senior Eurozone Official Says "I Wish it Were True".

There is no proof Greece is the one lying, but Greece certainly benefits more from such a lie, two different ways.

1. Lies buy Greece more time to prepare capital controls
2. Lies may stop some panic out of Greek banks

Assuming point number two is in play, I did a search for "Greek bank deposit outflows". Three stories from today popped right up. Here are two of them.

Run on Banks Accelerates

Please consider ECB Halts Emergency Funding Hike to Greek Banks.

The European Central Bank on Wednesday did not raise a ceiling on emergency funding for Greek banks in a weekly review for the first time since February, a banking source said, adding financial pressure as the country scrambles to stay solvent.

Greek banks have survived on the emergency liquidity assistance (ELA) since largely losing access to capital markets and the ECB's main funding window.

The ECB has been raising the cap on ELA in increments, but there has been opposition from within the bank to doing so each week on concerns it helps finance the Greek government. The banking source said the ceiling was unchanged because deposit outflows had slowed to low levels, leaving an untapped liquidity cushion.

But Greek newspaper Kathimerini reported on Wednesday that deposit outflows had picked up in the last days on worries over the possibility of capital controls. Official data on deposit outflows in April will be released on Thursday.

The ECB declined to comment.

Greek Bank Outflows Accelerate, Reached 5 Billion Euros in April

CNBC reports Greek Bank Outflows Accelerate, Reached 5 Billion Euros in April.

Greek banks have seen deposit outflows accelerate over the past week as fears rise that the euro zone country will default on debt, two banking sources said on Wednesday.

The spike follows a steady outflow of money from Greek lenders this year as Athens and its creditors struggle to agree an aid-for-reforms deal before Greece runs out of money.

"The past week in May was more challenging compared to the previous ones in the month, with daily outflows of 200 to 300 million euros in the last few days," a senior Greek banker said.

Outflows picked up in April to about 5 billion euros ($5.44 billion) from 1.91 billion euros in March, three Greek bankers told Reuters. Official data on April deposits will be released by the Bank of Greece on Thursday.

Speculation about capital controls has resurfaced after a prominent lawmaker from the conservative opposition said she was worried about the prospect if no deal is reached with creditors and Athens defaults on an IMF payment next month. The government's spokesman has dismissed such a scenario.

Untangling the Lies

It's possible that Greece will reach an agreement, but here are the lies as I see them now.

1. Greece is not close to an agreement with creditors as Greek officials claim.
2. The ECB is telling a whopper about outflows from Greek banks slowing.
3. In contrast to official statements, capital control measures are in the works.

To untangle the lies, all one had to do was look at what's really happening. Here is the single most believable statement made by anyone ...

"The past week in May was more challenging compared to the previous ones in the month, with daily outflows of 200 to 300 million euros in the last few days," a senior Greek banker said.

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

Greece Says Creditor Agreement Deal Close, Senior Eurozone Official Says "I Wish it Were True"

The curious story of the day is back-to-back reports, minutes apart, by the same news agency, saying different things.

Greece Says has Begun Drawing Up Agreement with Creditors

Here is Reuters headline number one: Greece Says has Begun Drawing Up Agreement with Creditors

Greece and its creditors are starting to draft a technical-level agreement, a government official said on Wednesday, signalling progress in long-running talks to unlock aid for the cash-strapped country.

"At the Brussels Group (of credit negotiators) today procedures to draw up a staff-level agreement are beginning," the official said, adding that Prime Minister Alexis Tsipras would be in constant touch with other leaders to conclude a deal.

The official said the deal would avoid wage and pension cuts, include reform of value-added taxes and include a lower target for a primary surplus in the first year.

The Greek official also cited differences between the EU and IMF as holding up an overall deal and called on the creditors to do their part to ensure a deal was struck.

"There remains a problem with the differing stance among the institutions. If an agreement by the IMF was not needed, the deal would have closed by now," the official said.

Eurozone Officials Dismiss Greek Comments

Here is Reuters headline number two (actually 8 minutes before the above): Euro Zone Officials Dismiss Greek Comments on Deal Being Drafted.

Greece's European creditors cannot confirm a statement by Athens that it is starting the process of drafting a technical-level agreement with creditors to secure aid, an EU official told Reuters on Wednesday.

"I wish it were true," a senior euro zone official said.

Loop of Lies?

It's vaguely possible no one is lying here, but that's only possible if the senior eurozone official does not know what is going on.

Another curious aspect is the Greek official blaming the IMF, when actually it is the IMF and not the eurozone creditors that have admitted Greek debt needs another haircut.

I suppose it is possible the IMF wants harsher terms on a new deal than Germany and the creditors, but somehow that seems unlikely.

Who Benefits?

Who benefits more from a lie?

The answer to that question is Greece, two ways.

1. It buys Greece more time to prepare capital controls
2. It may stop some panic out of Greek banks

Just because someone benefits from a lie is no proof a lie is in progress. Yet, lie or not, both of those two points are in play.

Greece needs to prepare for capital controls to stop a run on banks should talks fail.

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

Livestream of Rand Paul "Unleashing the American Dream" 12:45 PM Central

U.S. Sen. Rand Paul joins the Illinois Policy Institute at the 1871 Center for a discussion about how to transform Chicago, the state of Illinois and the U.S. with liberty-based public policy solutions.

Tickets are completely sold out, but you can watch the livestream at 12:45 p.m. CST.

Paul's speech is on unequal economic opportunity, failing schools and a broken criminal-justice system.

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

Robo-Journalism Will Produce 1 Billion Web Stories in 2015 (This Isn't One of Them); McJournalism Coming Up

Replaced by a Robot

I sometimes get asked what I am going to do when I am replaced by a robot. On other occasions, I get emails from people hoping I get replaced by a robot.

Those in the second group typically accuse me of not knowing what it is like to not have a job.

Actually, I do know what it is like to be without a job for an extended period because I was jobless for several years between 2001 and 2004.

I started this blog hoping someone would hire me as writer. The Motley Fool had an opening for a writer and turned me down for the position.

With the exception of the bit about the Fool position that I wanted and needed, I have written about this before on several occasions, most recently on January 30, 2015, in Financial Blogger Profile of "Mish" on Equities.Com.

McJournalism Coming Up

With that journalism backdrop, please consider You’ll be Sorry When the Robot Journalists Take Over by Irish Times writer Jennifer O’Connell.

If you consume much of your daily news diet online, you’re probably already acquainted with the work of “robot journalists”, you just don’t know it yet.

AP relies on a content generation package called Wordsmith to produce some of its quarterly-earnings business stories and will soon be using it for sports coverage too. You’ve never heard of Wordsmith but you’re probably familiar with its work: it produced 300 million stories last year and is aiming for one billion this year. A rival company, Narrative Science, provides content to Forbes, Fortune and others.

“We sort of flip the traditional content creation model on its head,” Robbie Allen, creator of Wordsmith told the New York Times. “Instead of one story with a million page views, we’ll have a million stories with one page view each.”

The cheerleaders for this new technology – who includes some journalists (New York magazine declared that “the stories that today’s robots can write are, frankly, the kinds of stories that humans hate writing anyway”) – claim that it will free journalists up to do more meaningful pieces, while algorithms churn out rewrites of press releases, mine longer texts for insights, or produce entirely personalised packages of content tailored for individuals.

That’s nonsense. As always, “freeing people up” invariably means “liberating them of their jobs”. But leaving aside the prospect of fewer people in employment, the notion that algorithms may end up taking over even the quotidian aspects of content production is depressing, and not just for journalists.

This isn’t just another whine from a journalist on the state of this troubled industry. Well, maybe it is. Journalists in every organisation are already under pressure to produce more for less. I was recently offered a freelance job writing content for a US-based website. Each piece would have taken most of a day and some travel to research, and a couple of hours to write. The pay was $50 per piece, expenses included.

As a news consumer, you may not care whether the copy you read was produced by a robot in 0.01 of a second, or by a human in half a day (for $50), if it tells you what you need to know. You may not care that the humans in my industry are being replaced by robots – although yours could be next. But in the end, it’s you, the reader, who will suffer. Algorithms may be good at crunching numbers and putting them in some kind of context, but journalists are good at noticing things no one else has. They’re good at asking annoying questions. They’re nosy and persistent and willing to challenge authority to dig out a story. They’re good at provoking irritation, devastation, laughter or controversy.

Wildly efficient robot journalists may offer hope to an industry beset by falling advertising rates and disappearing readers. The world will have fewer human journalists as a result, which may not be altogether a bad thing. But the question is: does it really need a billion more pieces of McJournalism?

Will Anyone Be Sorry?

Jennifer O’Connell says "You’ll be Sorry When the Robot Journalists Take Over".

I wonder how many will even notice.

More importantly, those who would notice are likely not paying much precedence to mainstream media anyway.

Except for Hollywood scandals, murders, and other meaningless but sensational stories, national news needs to be condensed down to 30 second soundbites.

Can most stories be generated by a robot?

The sad truth is "probably" for the simple reason most want to be spoon fed garbage.

O’Connell says journalists are "good at asking annoying questions. They’re nosy and persistent and willing to challenge authority to dig out a story. They’re good at provoking irritation, devastation, laughter or controversy."

That's true as well.

So who will survive?

1. The Robots
2. The very best at provoking irritation, devastation, laughter, controversy, and asking annoying questions.

Until robots can do number two in a thought-provoking, educational, and random manner that encompasses minority and anti-establishment views, alternative journalism will survive.

Media parrots, however, will be replaced by robots. No one will be sorry because no one will notice.

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

$500 Million LA Home - Built on Spec

To highlight the enormous and growing income inequality issue, please consider California Dreaming: Record $500 Million Tag on L.A. Home.

Nile Niami, a film producer and speculative residential developer, is pouring concrete in L.A.’s Bel Air neighborhood for a compound with a 74,000-square-foot (6,900-square-meter) main residence and three smaller homes, according to city records. The project, which will take at least 20 more months to complete, will exceed 100,000 square feet, including a 5,000-square-foot master bedroom, a 30-car garage and a “Monaco-style casino,” Niami said.



“The house will have almost every amenity available in the world,” he wrote in an e-mail. “The asking price will be $500 million.”

The priciest home ever sold was a $221 million London penthouse purchased in 2011, according to Christie’s. The most expensive properties on the market include a $425 million estate in France’s Cote d’Azur, a $400 million penthouse in Monaco and a $365 million London manor.

Whether Niami can get more than double the previous record for his mansion remains to be seen.

Under Construction



Nile Niami House at 944 Airole Way stands in Bel Air, California, U.S., on Monday, May 18, 2015.
Photographer: David Paul Morris/Bloomberg

Questions of the Day

1. What is the estimated profit on this monstrosity?
2. What are the construction carrying costs if this thing goes unsold?
3. What about insurance?
4. Who wants to lay $500 million to live in LA?
5. How many people in the world can afford a half-billion dollar home?
6. Does anyone who can afford such a home, want one?
7. Could a single California mudslide wipe the entire property off the map?

I don't have any answers, I am just asking.

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

Regional Manufacturing Comparative Wrap-Up: Empire State, Philly, Kansas City, Richmond, Dallas

Two more regional manufacturing reports came out today, from Dallas and Richmond.

The Dallas region was the weakest in six years thanks to oil. For details, please see Dallas Fed Manufacturing Index Collapses: Lowest Production Reading in 6 Years, Orders Contract 7th Month, New Orders 5th Month.

Comparative Wrap-Up

Component	Richmond	Kansas City	Phillly	Empire State	Dallas
Date	26-May	21-May	15-May	5-May	26-May
Index	1.0	-13.0	6.7	3.1	-20.8
Production	N/A	-13.0	N/A	N/A	-13.5
Shipments	-1.0	-9.0	1.0	14.9	-11.6
New Orders	2.0	-19.0	4.0	3.9	-14.1
Order Backlog	-10.0	-21.0	-1.1	-11.5	-10.6
Employees	3.0	-17.0	6.7	5.2	-8.2
Workweek	6.0	-14.0	-5.6	-2.1	-11.6
Prices Received	N/A	-4.0	-5.4	1.0	-8.7
Prices Paid	N/A	-6.0	-14.2	9.4	-1.7

Reports

May 05: Empire State
May 15: Philly
May 21: Kansas City
May 26: Richmond
May 26: Dallas

Notes:

• Some regions use the term "order backlog" others "unfilled orders"
• Some regions had a production index component, others not.
• Richmond discussed prices paid and received on an annualized basis, not an index component that could be directly compared to the others.

Significant Points

• The Dallas and Kansas City regions were both hammered by collapse in oil prices and oil related services.
• Order Backlog was negative across the board.
• Employee Workweek was down in four of five regions.
• Prices Received was down in three of four regions.

In aggregate, these are weak to very weak reports.

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

Dallas Fed Manufacturing Index Collapses: Lowest Production Reading in 6 Years, Orders Contract 7th Month, New Orders 5th Month

Dallas Fed Manufacturing Index Plunges Below Any Economist's Estimate

Fed manufacturing surveys remain weak at best. Today the Dallas Fed Business Activity Index fell to negative 20.8, well below the bottom end of any Bloomberg  Estimate.

Contraction in the energy sector continues to pull the Dallas Fed report into deeply negative ground, to a headline minus 20.8 vs minus 16.0 and minus 17.4 in the prior two months. Production shows a turn for the worse, at minus 13.5 vs April's minus 4.7, as does employment, at minus 8.2 vs plus 1.8. New orders remain deeply negative, at minus 14.1 vs minus 14.0. Prices paid also fell further though the decline is easing, to minus 1.7 from minus 11.2.

The regional Fed reports all point to another slow month for the manufacturing sector which is struggling with energy contraction, especially evident in this report, as well as weakness in exports.

Dallas Fed Production Index Lowest in 6 Years



Orders Contract 7th Month, New Orders 5th Month

For additional details, let's dive into the Dallas Fed Texas Manufacturing Outlook Survey.

Texas factory activity declined again in May, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell to -13.5, its lowest reading in six years.

Other measures of current manufacturing activity reflected continued contraction in May. The new orders index held steady at -14.1, and the growth rate of orders index held steady at -15.2, marking the fifth and seventh negative reading in a row for these indexes. The capacity utilization index edged down to -11.6. The shipments index fell nearly 8 points to -13.2, with more than 30 percent of firms noting lower shipment volumes in May than in April.

Perceptions of broader business conditions worsened further this month. The general business activity index fell to -20.8 in May, its lowest reading since June 2009. The company outlook index moved down to -10.5, also hitting a low not seen since summer 2009.

Labor market indicators reflected employment declines and shorter workweeks. The May employment index declined 10 points to -8.2, after rebounding slightly above zero last month. Twelve percent of firms reported net hiring, compared with 21 percent reporting net layoffs. The hours worked index fell from -5 to -11.6.

Changes in prices and wages were mixed in May. Downward pressure on input costs abated, as the raw materials prices index pushed up toward zero, coming in at -1.7. The finished goods prices index edged down to -8.7, its fifth negative reading in a row and suggestive of falling selling prices. Meanwhile, the wages and benefits index remained positive and little changed at 14.7.

As I suggested last month, the jobs rebound in April was an outlier.

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

New Home Sales Bounce From Dismal April Numbers

New Home Sales Rebound

Last month, new home sales fell a very steep 11.4 percent to a 481,000 annual rate. Given the volatile nature of this series one might have expected a bounce in May and sure enough we got one, albeit not enough to wipe out April's dismal performance.

May new home sales came in at an annualized rate of 517,000 units, stronger than the Bloomberg Consensus Estimate of 509,000 but pretty much in the middle of the consensus range of 485,000 to 540,000.

New home sales bounced back solidly in April, up 6.8 percent to a 517,000 annual rate that is on the high side of Econoday expectations. Strength is centered in the South which is the largest and important housing region and where sales rose 5.8 percent, this however fails to reverse the region's 11.8 percent drop in the prior month.

Supply rose slightly in the month, to 205,000 new homes on the market, but supply relative to sales fell to 4.8 months from 5.1 month. Low supply should encourage builders to bring more homes on the market but at the same time low supply hurts current sales. Price readings are mostly favorable led by a 4.1 percent rise in the median price to $297,300 for a strong 8.3 percent year-on-year gain.

Readings in this report are always volatile month-to-month but the gains for April underscore the recent surge in housing starts & permits and help offset last week's disappointing weakness in existing home sales. The housing sector is still trying to get off the ground but indications, taken together, are improving.

New Home Sales



The above chart should help put the rebound of new home sales into proper perspective.

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

Polish Voters Elect Eurosceptic President; Disenchantment with Brussels Spreads

Andrzej Duda outed president Bronisław Komorowski, the pro-Brussels incumbent centrist Civic Platform party president, in an election over the weekend. Komorowski was expected to win.

The Duda Victory Sent Shockwaves Through Polish Politics, and no doubt Brussels as well.

The win for the socially conservative, nationalist, eurosceptic party, which saw Mr Duda oust Bronisław Komorowski, the government-backed incumbent from the presidential palace, represents a significant lurch to the right in Polish politics. It has sent shockwaves through the country’s political establishment that could ultimately topple the ruling party in October after eight years in power.

Backed by both the country’s restless, anti-establishment youth and its conservative pensioners, Mr Duda’s election, which was unthinkable just a few months ago, represents a significant and far-reaching rejection of the ruling Civic Platform party.

Mr Duda has called for a repatriation of more powers from Brussels to individual member states, an effort that chimes with British prime minister David Cameron’s attempts to renegotiate the UK’s relationship with Europe ahead of a referendum on its EU membership.

The vote illustrated deep divides in Polish society. Despite headline growth figures since 2008 that are almost twice as large as any other EU member, the fruits of Poland’s economic boom have not been equally shared.

Strikingly, all of the country’s poorer eastern regions backed Mr Duda, while the more prosperous western regions supported Mr Komorowski without exception.

In rural areas, 62 per cent of voters backed Mr Duda, according to an exit poll, while Mr Komorowski carried 59 per cent of votes from the country’s cities.

Poland Vote




Disenchantment with Brussels Spreads

The Polish unemployment rate is a modest 7.8%. Youth unemployment is 20.5% as of March. Both numbers are better than France and far better than Spain.

See Spain's Unemployment Rate Increases to 23.7%; 114,300 Jobs Vanish in First Quarter, Public Sector Jobs Rise.

Poland and Spain are two countries with the highest growth rates, yet voters are increasingly agitated, as they should be.

The nannycrat policies of the eurozone (and EU in general), are not good for growth prospects or jobs. 

Yesterday I reported Angry Voters Handed Spain’s Ruling Party Heavy Regional Losses; Podemos Scores Upset Victories in Barcelona, Madrid.

Euroscepticism and/or general disenchantment with Brussels is on the rise in Spain, France, Greece, the UK, and now Poland.

On March 29, I reported Sarkozy, Le Pen Triumph Over Socialists in Second Round of Local Elections.

In the May UK election a Clean Sweep by UK Conservatives Masks Huge Rifts.

Cameron's party unexpectedly received a majority of votes UKIP, the eurosceptic UK Independence Party is now the third largest party in the UK although it only won a single parliamentary seat.

There is much disenchantment with Brussels, and it is spreading.

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

Angry Voters Hand Spain’s Ruling Party Heavy Regional Losses; Podemos Scores Upset Victories in Barcelona, Madrid

The Spanish economy will supposedly grow at three percent. The bad news is Spanish employment is well over 20 percent and is also expected to stay that way.

Angry voters unhappy with that setup took it out big time on PP, the party of prime minister Mariano Rajoy.

Please consider PP Suffers Heavy Regional Losses.

Spain’s ruling Popular party suffered heavy losses in Sunday’s string of regional and local elections, as two upstart movements made dramatic gains at the expense of the country’s established parties.

The PP still emerged as the biggest party in nine of the 13 regional contests, but its ability to head governments at both the regional and local level was severely curtailed. According to preliminary results, the party of Mariano Rajoy, Spain’s prime minister, failed to obtain an absolute majority even in its historical strongholds — meaning it can govern only with the support of at least one of its rivals.

The PP suffered a particularly marked decline in Madrid. Esperanza Aguirre, its high-profile candidate for mayor, beat a coalition of leftwing groups only by the smallest of margins but has little prospect of forming an administration. A similar leftist alliance also scored an upset triumph in Barcelona, meaning Spain’s two principal cities are now likely to be led by a pair of charismatic, leftwing women from outside the political establishment: Manuela Carmena in Madrid and Ada Colau in Barcelona.

The ruling party’s losses were mostly the gain of two political newcomers, the anti-austerity Podemos movement and the centrist Ciudadanos party. Both were on track to enter regional parliaments in force in several key regions, potentially handing them the role of kingmakers. Podemos was also the leading force behind the two municipal victories in Madrid and Barcelona.

Sunday´s elections took place in 13 of Spain’s 17 regions and in more than 8,100 municipalities, providing a crucial test of the national mood ahead of general elections later this year. The overall picture, based on preliminary results, confirm what polls have been saying for months: frustrated voters are turning away from the established parties in ever greater numbers, converting Spain’s decades-old two-party regime into a much more volatile four-horse race.

Like Syriza in Greece, Podemos had been running on an anti-austerity platform. Podemos went even further, threatening to exit the euro.

Voters simply do not believe in the recovery. Nor should they with youth unemployment near 50% and overall unemployment near 23%.

For discussion of Spanish unemployment, please see Spain's Unemployment Rate Increases to 23.7%; 114,300 Jobs Vanish in First Quarter, Public Sector Jobs Rise.

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

Greece Will Default on June IMF Repayment Says Interior Minister; Greek Choice Same As It's Always Been

One way or another the crisis in Greece is highly likely to come to a head in June.

Greek finances are in such sorry shape it needs a third bailout or it will be unable to meet payment obligations in August. And unless an agreement in June is reached to unleash more funds, Greece will not make it to August.

Today we learn, Interior minister warns Greece will default on June IMF repayment.

Greece has again threatened to default on loan repayments due to the International Monetary Fund, saying it will be unable to meet pension and wage bills in June and also reimburse €1.6bn owed to the IMF without a bailout deal with creditors.

“The money won’t be given . . . It isn’t there to be given,” Nikos Voutsis, the interior minister, told the Greek television station Mega.

He claimed the EU and IMF were pressuring Greece to make unacceptable concessions in the current bailout talks in return for unlocking €7.2bn of aid frozen since last year.

Predicting when Athens will run out of cash has proven a fraught affair for eurozone officials, who have been bracing for default since March.

Given the repeated warnings from Greek officials that bankruptcy is imminent, some officials have begun to disregard such threats, believing Athens is now using them as a negotiating tactic.

But a senior Greek official with knowledge of the government’s funding position confirmed that Athens would be unable to make the IMF payments, which fall due in four separate instalments of more than €300m each between June 5 and June 19, unless a deal is struck.

“We won’t accept blackmail that says it’s either liquidity with a memorandum [the Greek term for a bailout programme] or bankruptcy”, Mr Voutsis said.

The government has ruled out a domestic default on payment obligations to Greece’s 2.9m pensioners and 600,000 public sector workers, saying they have first claim on the country’s shrinking resources.

People who have spoken to Mr Tsipras say he is in a dour mood and willing to acknowledge the serious risk of an accident in coming weeks.

One official in contact with the prime minister said: “The negotiations are going badly. Germany is playing hard. Even Merkel isn’t as open to helping as before.”

Recall that Greece was only able to make the May IMF payment by borrowing money from the IMF.

That emergency credit line has been entirely used up. For details, please see Greece Empties IMF Reserve Account to Pay IMF; Liquidity "Terribly Urgent" Says Finance Minister.

Although we have seen crisis after crisis come and go with various kick-the can mechanisms, at some point there is no can left to kick. Is this finally the time?

'Catastrophic' Eurozone Rupture

The Telegraph reports Greece to Miss IMF payments Amid Fears of 'Catastrophic' Eurozone Rupture.

Finance minister [Yanis Varoufakis] said that the Syriza-led Greek government has now “made enormous strides at reaching a deal”, and that it is now up to the ECB, IMF and EU “to do their bit” and “meet us one-quarter of the way”.

One possible alternative if talks do not progress is that Greece would leave the common currency and return to the drachma. This would be “catastrophic”, Mr Varoufakis warned, and not just for Greece itself.

“Whatever some analysts are saying about firewalls, these firewalls won’t last long once you put and infuse into people’s minds, into investors’ minds, that the eurozone is not indivisible,” he added.

Mr Varoufakis' and Mr Voutsis' words followed a declaration from Alexis Tsipras, the Greek prime minister, that bargaining with Greece's creditors would soon come to a close.

"Rest assured that in this negotiation we will not accept humiliating terms," Mr Tsipras told Syriza's central committee. "The overwhelming majority of Greek people want a solution and not just an agreement ... it supports the government in this tough negotiation," he added.

For Greece itself, using the common currency is now like using a “foreign currency”, and any exit from the eurozone would be “a disaster”, Mr Varoufakis said.

He continued: “Trying to get out of it is tantamount to announcing a devaluation 10 months in advanced.” Economists warn that if Greece were to leave the euro area, it could trigger huge levels of capital flight.

In turn, Greece would almost certainly have to resort to capital controls in order to stem the tide of money out of the domestic economy.

Ratings agency Moody's has warned that there is now a "high likelihood" of such controls, which might be necessary to keep the Greek financial system alive. An estimated €30bn has been withdrawn from the country's banks since snap elections were called in December 2014.

Mr Varoufakis said that at some point the Greek government would have to make a choice between paying salaries and paying international creditors.

Greek Choice Same As It's Always Been

The choice Greece faces now is precisely the same choice four years ago: Whom to pay.

Greek citizens overwhelmingly want to stay on the euro, but they do not want further cuts in pensions accompanied by higher taxes and more layoffs.

So which is it? By fighting to retain pensions, Tsipras will at least have some cover if and when Greece returns to the Drachma.

Meanwhile, the smart money has already left. Those with euro deposits in Greek banks above and beyond what is needed to make immediate payments are fools.

I have been pounding the table for months warning Greek citizens to pull their money out. This may be the last chance.

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

Project Bookend: BoE Emails Guardian Top Secret Documents on Brexit, Including PR Notes on How to Deny the Project

Incompetence at Its Finest

Here's a major laugh for a long holiday weekend in the US: Secret Bank of England taskforce investigates financial fallout of Brexit

Bank of England officials are secretly researching the financial shocks that could hit Britain if there is a vote to leave the European Union in the forthcoming referendum.

The Bank blew its cover on Friday when it accidentally emailed details of the project – including how the bank intended to fend off any inquiries about its work – direct to the Guardian.

According to the confidential email, the press and most staff in Threadneedle Street must be kept in the dark about the work underway, which has been dubbed Project Bookend.

The revelation is likely to embarrass the bank governor, Mark Carney, who has overhauled the central bank’s operations and promised greater transparency over its decision-making.

MPs are now likely to ask whether the Bank intended to inform parliament that a major review of Britain’s prospects outside the EU was being undertaken by the institution that acts as the UK’s main financial regulator. Carney is also likely to come under pressure within the Bank to reveal whether there are other undercover projects underway.

Officials are likely to have kept the project under wraps to avoid entering the highly charged debate around the EU referendum, which has jumped to the top of the political agenda since the Conservatives secured an overall majority. Many business leaders and pro-EU campaigners have warned that “Brexit” would hit British exports and damage the standing of the City of London.

The email indicates that a small group of senior staff are to examine the effect of a Brexit under the authority of Sir Jon Cunliffe, who as deputy director for financial stability has responsibility for monitoring the risk of another market crash.

The email, from Cunliffe’s private secretary to four senior executives, was written on 21 May and forwarded by mistake to a Guardian editor by the Bank’s head of press, Jeremy Harrison.

Secret Agent Man

I offer the following musical tribute in "honor" of secret projects of the Bank of England.



Link if video does not play: Jonny Rivers - Secret Agent Man 1966

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

Rand Paul: Unleashing the American Dream

Those living in or near Chicago have the opportunity to hear Senator Rand Paul in a discussion about how to transform Chicago, the state of Illinois and the U.S. with liberty-based public policy solutions.

• Date:  Wednesday, May 27, 2015 from 12:30 PM to 2:00 PM (CDT)
• Location: The 1871 Center at the Merchandise Mart, 222 West Merchandise Mart Plaza Chicago, IL 60654.

Cost of the event is $10.

The topic is "Unequal economic opportunity, failing schools and a broken criminal-justice system," as opposed to the Chicago pension crisis that I have been talking about lately.

Senator Paul is reaching out to minorities in inner cities, and that is a good thing.

I am trying to see if they can arrange a live video feed, but the preliminary indication is no.

The Illinois Policy Institute is sponsoring the event. To purchase a ticket or for media queries, please contact Eventbrite at Unleashing the American Dream.

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

Yellen Yap: Point by Point Rebuttal

Inquiring minds are reading Fed Chair Janet Yellen's Outlook for the Economy speech, delivered today at the Providence, Rhode Island Chamber of Commerce.

Here are a few snips from what I believe to believe is a way over-optimistic assessment. I provide rebuttals following each statement.

Yellen: The U.S. economy seems well positioned for continued growth. Households are seeing the benefits of the improving jobs situation, and consumer confidence has been solid.

Mish: The economy is not positioned for much, if any, growth. Consumer confidence is not solid, and consumer spending plans have been sinking like a rock. See Consumer Confidence Plunges Below Any Economist's Estimate; Consumers Shock Economists.

Yellen: The drop in oil prices amounts to a sizable boost in household purchasing power. The annual savings in gasoline costs has been estimated at about $700 per household, on average, and savings on heating costs--especially here in the Northeast, where it was so cold this winter--are also large. Given these energy savings on top of the job gains, real disposable income has risen almost 4 percent nationally over the past four quarters. Households and businesses also are benefiting from favorable financial conditions. Borrowing costs are low, supported by the Fed's accommodative monetary policies. And credit availability to both households and small businesses has improved. 

Mish: Any savings on energy went up in smoke on rental increases and rising health care costs. See CPI Shows Sharply Rising Medical Costs; Huge Obamacare Hikes Planned.

Yellen: In recent months, as I noted earlier, there has been some softness in the economic data. Recent indicators of both household spending and business investment have slowed, and industrial output has declined. The Commerce Department's initial estimate was that real gross domestic product was nearly flat in the first quarter of 2015. If confirmed by further estimates, my guess is that this apparent slowdown was largely the result of a variety of transitory factors that occurred at the same time, including the unusually cold and snowy winter and the labor disputes at ports on the West Coast, both of which likely disrupted some economic activity. And some of this apparent weakness may just be statistical noise. I therefore expect the economic data to strengthen.

Mish: In a shock to economists, consumers are doing exactly what they said they would do, not what economist's models predicted consumers would do.



For what consumers said they would do, please see Household Spending Growth Expectations Plunge; Recession Already Started?

For what consumers actually did, please see Dismal Retail Sales Numbers Suggest Recession Likely Underway.

Yellen: Putting it all together, the economic projections of most members of the FOMC call for growth in real gross domestic product of roughly 2-1/2 percent per year over the next couple of years, a little faster than the pace of the recovery thus far, with the unemployment rate continuing to move down to near 5 percent by the end of this year. And for inflation, as I noted earlier, my colleagues and I expect inflation to move up toward our objective of 2 percent as the economy strengthens further and as transitory influences wane.

Mish: The economic projections of the Fed have been and remain laughable.

Here is an amusing chart of the Fed's own pathetic performance from Honey I Shrunk the Kids.

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Yellen: Given this economic outlook and the attendant uncertainty, how is monetary policy likely to evolve over the next few years? Because of the substantial lags in the effects of monetary policy on the economy, we must make policy in a forward-looking manner. Delaying action to tighten monetary policy until employment and inflation are already back to our objectives would risk overheating the economy.

Mish: The Fed is far too late. The obvious bubbles in equities and junk bonds are proof enough. The Fed has never once in history tightened in a forward-looking manner. Panic reactions are the norm.

Yellen: If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy. To support taking this step, however, I will need to see continued improvement in labor market conditions, and I will need to be reasonably confident that inflation will move back to 2 percent over the medium term.

Mish: The idea that consumer price deflation is damaging is downright idiotic. Even the BIS recognizes that fact. For discussion, please see Historical Perspective on CPI Deflations: How Damaging are They?

Fed Consistently Wrong

The Fed has been consistently wrong as discussed in Why Are Economists' Predictions So Damn Awful?

The Fed has been so wrong, so many times, and in so many ways. Why anyone bothers to listen to such speeches other than to poke fun at them remains a mystery.

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