Mish's Global Economic Trend Analysis

---

• IMF Pressures Spain to Lower Salaries, Raise the VAT, Eliminate Housing Deduction
• Institutional Advisor Bob Hoye Explains Why Gold Miners are Winners During Deflation
• Casino Bar Shall Remain Open: ECB "On Standby" Promising Liquidity for Greek Election Fallout; Bank of England Launches Two New Stimulus Packages
• 100% of U.S. Jobs Added Since 2010 Have Been Self-Employment, Contractor, or Other Jobs Without Unemployment Insurance Benefits

IMF Pressures Spain to Lower Salaries, Raise the VAT, Eliminate Housing Deduction Posted: 15 Jun 2012 08:18 PM PDT My friend Bran reports from Spain that IMF urging Spain to raise VAT, reduce public pay and positions, and eliminate housing deduction is the headline of every main news broadcast and newspaper. The International Monetary Fund (IMF) has recommended Spain to cut the salaries of employees and increase the VAT and excise duties temporarily to compensate for the uncertainty over planned spending cuts, while the Government has claimed that eliminate the deduction of home buying and accelerate privatization. The report comes the same day it is known that the country's debt in the first quarter reached a record high of 72.1%. In the annual analysis of the Spanish economy for the Article IV of the institution, the IMF notes that spending cuts are planned in the "right areas", but warns that "take time to identify them, will be difficult to implement and the results are uncertain. " Therefore emphasizes that to assure that the projected savings will materialize, "future cuts in public wages and increases in VAT or excise duties could be approved now and cancel only if the objectives are achieved." "Given the size of the necessary consolidation, no option should be ruled out," the IMF said in its report, which emphasizes that measures the revenue side should play "a more important role." Christine Lagarde also suggests that to smooth projections of public debt should be given greater emphasis to privatization and coincides with the European Commission (EC) that the "reintroduced shelter deduction should be eliminated" . Raising the VAT is Pure Insanity Raising the VAT or any taxes in the midst of an economic depression is pure insanity. So what will Spain do? My guess is pay lip service to reducing public workers and salaries, pay lip service to badly needed reforms that would make it easier to fire people, but raise taxes as the IMF asks. In other words, expect Spain to make token attempts to do what is really needed, yet fully embrace tax hikes that will cause major economic damage. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Institutional Advisor Bob Hoye Explains Why Gold Miners are Winners During Deflation Posted: 15 Jun 2012 12:03 PM PDT In an interview with GoldMoney, institutional advisor Bob Hoye explains Why Gold Miners are Winners During Deflation Market historian, geologist and Pivotal Events author Bob Hoye, talks to the GoldMoney Foundation's Dominic Frisby about the real price of gold in times of post-bubble deleveraging, and the opportunities in gold mining shares – which he thinks could be on the verge of a great new bull market. Click on Link For Video To see a video with Bob Hoye, please click on the above link. I point out in advance that I do have a relationship with GoldMoney, and that I also own shares of miners as well as physical gold and silver at GoldMoney. If anyone wants information about GoldMoney or investing in physical gold and silver in general, please Email Mish. I have been in the same boat with Bob Hoye for as long as I can remember. Mish Thoughts on Gold in Deflation It is important to point out upfront what "deflation" means to me. Deflation is not about rising prices, so please do not send me emails telling me about the price of gasoline or food (or anything else), especially if you are going to ignore trillions of dollars of debt and equity wiped off the books in the housing bust. My definition of inflation is a net increase of money supply and credit, with credit marked to market. Deflation is a net decrease of money supply and credit, with credit marked to market. We have been in generally deflationary times since 2007 along with the housing bust. Bernanke and central bankers in general have poured on the liquidity spigots fighting the collapse in credit, and as I expected (but other deflationists like Robert Prechter did not), gold advanced. Here are some specific references to things I have written: Dear Nouriel Roubini: The Fundamental Case for Gold Has Not Changed; To Understand, All Roubini Need Do is Look in a Mirror Dec 14, 2011 ... Reasons to Own Gold Have Not Changed The fact of the matter is gold does well in deflation. It also does well in times of credit stress. How does one invest for inflation and deflation? Dec 27, 2007 ... Money is hoarded in deflation so gold should act well in deflation. Do not make the mistake of thinking that gold always does well. It does not. So What's Behind Moves In Gold? Sep 2, 2009 ... One final point: Gold does well in "real" terms during deflations. It can do better in nominal terms at other times. "Real" means purchasing power How Will China Handle The Yuan? Sep 1, 2009 ... And please don't think that gold does well in times of inflation and deflation because it doesn't. Proof is simple ... Rear View Mirror Hyperinflation Dec 16, 2007 ... Money does well in deflation. Perhaps there is another big pullback first, perhaps not, but the hyperinflation argument for owning gold does not ... Bizarro World Inflation; About that 2011 Hyperinflation Call ... Sep 22, 2011 ... It's not that I am in love with the dollar. Indeed I am not. I like gold. Historically, gold does well in periods of deflation and periods of credit stress. Is The Inflation Scare Over Yet? Jun 26, 2008 ... Historically, there are times gold does well: Hyperinflationary times and Deflationary times. Gold does poorly under more normal conditions, ... Myths About "What's Economically Important" Sep 17, 2010 ... Gold is money and as money it should do well in deflation in the country of the senior currency. It did. In credit-based system, especially where ... Ten Pages of References about Gold in Deflation The above links were from the first of 10 pages of articles searching my blog for the phrase gold does well in deflation. The Google search mechanism on the upper right of my blog performs fabulously for things you are looking for. I use it all the time myself. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Casino Bar Shall Remain Open: ECB "On Standby" Promising Liquidity for Greek Election Fallout; Bank of England Launches Two New Stimulus Packages Posted: 15 Jun 2012 10:28 AM PDT The message of the day is "damn the consequences, the casino bar shall remain open", whatever it takes, no matter the consequences to taxpayers who will be responsible for the bar tab. Bank of England Launches Two New Stimulus Packages The BBC reports Bank shares jump on new business support plans Bank shares have jumped in the wake of plans from the Bank of England to launch two new stimulus packages. The Bank of England's announcement of the plans on Thursday comes in response to the worsening economic outlook, governor Sir Mervyn King [Chairman of BOE] has said. Together with the government, it will provide billions of pounds of cheap credit to banks to lend to companies. Banks will also have access to short-term money to deal with "exceptional market stresses". The chancellor said the measures would "inject confidence". But Labour's shadow chancellor Ed Balls said the plans did "not go far enough". Rather than further QE to stimulate the economy, the Bank will now offer cheap loans to banks on the basis that they increase lending. "Today's exceptional circumstances create a case for a temporary bank funding scheme to bridge to calmer times," Sir Mervyn said. "The Bank and the Treasury are working together on a 'funding for lending' scheme that would provide funding to banks for an extended period of several years, at rates below current market rates and linked to the performance of banks in sustaining or expanding their lending to the UK non-financial sector during the present period of heightened uncertainty." More Balls Clearly Ed Balls is not satisfied with QE, with below market rates loans to banks for an extended period of several years, or anything else the BOE has done. Apparently Balls is waiting for the BOE to do things even more foolish such as forcing banks to lend or for the BOE to simply drop money from helicopters so that people and businesses can spend. Meanwhile, please note the Bank of England is committed to the same theory as the Fed. If it doesn't work do more of it, and for longer periods of time. So much for Balls and the BOE. Let's take a look at ECB promises to keep the casino bar open. ECB "On Standby" Promising Liquidity for Greek Election Fallout The Financial Times reports ECB "On Standby" for Greek Election Fallout. The European Central Bank is on standby to keep banks flush with liquidity if Greece creates fresh financial market turmoil, its president has indicated, joining a chorus of central bankers pledging support ahead of Sunday's elections. Mario Draghi's comments on Friday followed the announcement by the UK's central bank of plans to pump £100bn into the ailing British economy. "The ECB has the crucial role of providing liquidity to sound bank counterparties in return for adequate collateral. This is what we have done throughout the crisis . . . and this is what we will continue to do," Mr Draghi said. Shares rallied in Asia and Europe on hopes that central banks would act to stem any negative impact from Sunday's election in Greece. The euro was stable and the yields on Spanish and Italian government bonds, which had been approaching dangerous levels, fell. Let's take a  look at that reported drop in Spanish bond yields from "dangerous levels". A quick check on Bloomberg of Spanish 10-Year Bonds currently yield 6.84% - a drop of .04 percentage points since yesterday. Japan Ready, Willing, Able Continuing from the Financial Times, it appears Japan wants in on the liquidity drop. Masaaki Shirakawa on Friday said Japan's central bank was ready to take any necessary steps to maintain financial sector stability. Meeting journalists after a regular bank policy board meeting, Mr Shirakawa did not comment on whether central banks might take co-ordinated action to deal with possible market jitters after the Greek election. But he said central banks had a common understanding of the importance of stability. Common Understanding Yes indeed, the common understanding is Central Banks will do whatever it takes to bail out banks, regardless of what stupid lending decisions banks make that get them in trouble. If that fails (and it has), then central banks work out schemes with varying governments to force taxpayers to pay the bill. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

100% of U.S. Jobs Added Since 2010 Have Been Self-Employment, Contractor, or Other Jobs Without Unemployment Insurance Benefits Posted: 15 Jun 2012 12:44 AM PDT Here are some charts from Reader Tim Wallace that help explain my report a few days ago that 23% of Small Business Owners (Approximately 6.21 million) Report "No Pay for a Year"; New Zealand, Singapore, US, Best Places to Start and Run a Business The first chart below shows actual employment of covered workers compared to the civilian population and labor force. Covered employees are those eligible for unemployment benefits (working or not). Some are currently collecting those benefits. In the following charts, "covered employment" or "net employment" refers to those with benefits and currently working. Population, Labor Force, Covered Employment click on any chart for sharper image Self-employed workers and contractors are not eligible for unemployment benefits even though they have to contribute to state unemployment insurance schemes. It believe it is government-sponsored fraud to have to pay unemployment insurance when there is no chance of ever collecting it. The next chart shows state level employment data. Net covered employees (those currently with a job covered with unemployment benefits) was calculated by subtracting continuing unemployment claims from the pool of all covered workers. Covered Employees, Net Covered Employees, Continuing Claims The next chart compares BLS employment numbers to net covered employees (those actually working). BLS Employment , Covered Employment, Non-Covered Employment Notice the widening gap between covered employment and employment as reported by the BLS. In 2008 and again in 2010 the difference between BLS employment and Covered Employment as noted by the green line (right axis) was about 15 million. This month the difference is nearly 19 million. The table below shows the precise numbers. Year Covered Employees BLS Employment Non-Covered Employment 2003 123,193,833 137,687,000 14,493,167 2004 123,717,669 138,867,000 15,149,331 2005 124,663,546 141,591,000 16,927,454 2006 127,217,409 144,041,000 16,823,591 2007 129,399,094 145,864,000 16,464,906 2008 130,553,967 145,927,000 15,373,033 2009 127,539,427 140,363,000 12,823,573 2010 124,096,266 139,497,000 15,400,734 2011 122,146,266 140,028,000 17,881,734 2012 123,996,700 142,727,000 18,730,300 Since 2010, the economy has added 3.23 million jobs according to the BLS. Of those 3.23 million jobs, 3.33 million (slightly greater than 100%) have been self-employment, contractor, family-business jobs, or other jobs with insufficient wages and therefore ineligible to collect unemployment insurance. Since 2009 the numbers look much worse. In that timeframe the economy added 2.36 million jobs according to the BLS. Of those 2.36 million jobs, 5.91 million (250%) were self-employment or jobs otherwise not covered by unemployment insurance benefits. Unemployment insurance benefits vary state to state. Bouncing around between temporary jobs may also make one ineligible, especially if there are lengthy lapses between jobs. Inquiring minds may be interested in Unemployment Insurance Eligibility FAQs for Connecticut. You need to consult rules for your state. Non-Covered Employment Percentage Hits All-Time High Year "Non-Covered Employment" 2003 10.5% 2004 10.9% 2005 12.0% 2006 11.7% 2007 11.3% 2008 10.5% 2009 9.1% 2010 11.0% 2011 12.8% 2012 13.1% Non-Covered Employment in the above table means any job that does not provide unemployment insurance benefits. Notes About Unemployment (From the Link at Top) Bear in mind, that making money or receiving a paycheck is irrelevant to the BLS when they compute the unemployment rate. If you work as little as 1 hour, whether you collect a paycheck or not, you are considered employed. In addition to the 6.21 million business owners with no paycheck, factor in those selling trinkets on EBay out of desperation and collecting a few dimes in the process. Also factor in all those starting multi-level marketing schemes and calling it a business. How many get sucked into that losing proposition every year? Yet, to the BLS, it's a job if you worked any hours. The ease of starting a business in the US is a great thing. Unfortunately, making money in a small business startup is not so easy. Historic trends suggest half of small businesses will fail within 5 years, and I highly suspect future trends will be much worse. See article for additional stats on working with no pay as well as a county-by-country comparison as to the best places to start and run a business. Also note that Doing Business offers economic rankings of 183 countries on numerous categories including starting a business, ease of doing a business, getting construction permits, etc. Conclusion 6.21 million working without pay in conjunction with the reported boom in self-employment looks rather believable in light of excellent charts from reader Tim Wallace. Factor in disability fraud (see 2.2 Million Go On Disability Since Mid-2010; Fraud Explains Falling Unemployment Rate; Will Higher Disability Taxes Fix the Problem?) and the realistic conclusion is the unemployment rate is much higher than reported while the alleged recovery is much weaker than reported. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Li