Category Archives: Deficit

Noda Makes Consumption Tax Hike Pledge At G-20 Summit

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The world’s poster child for losing decades looks to stay a step ahead:

(Nikkei)–Prime Minister Yoshihiko Noda vowed Thursday to gradually raise the nation’s consumption tax to 10% by mid the 2010s during a summit meeting of the Group of 20 leading economies in Cannes, France.

The announcement at the summit has effectively made the tax hike an international pledge, and is expected to be included in an action program due out Friday.

Noda stressed the importance of rebuilding debt-ridden Japanese finances and told G-20 leaders that fiscal consolidation is a must “for Japan to be put back on a sound economic growth path, regardless of the debt crisis in the euro zone.”

He also spoke to reporters that a Diet dissolution should be carried out before implementing the tax hike. “If we go to the people in a general election (to seek a mandate on the consumption tax hike), we should do so after passing related bills but before implementing them,” he said.

As to Japan’s participation in the Trans-Pacific Partnership free trade pact, Noda told reporters he will accelerate efforts to iron out differences within the Democratic Party of Japan, which he leads. “We have to close ranks and shouldn’t be split,” he said.

Noda showed his flexibility in making concessions to a controversial redemption period of reconstruction bonds aimed at funding rebuilding efforts of the March 11 disaster, in hopes of enlisting support from the Liberal Democratic Party and New Komeito, the main opposition parties.

“Our policy chief said that we envisage a 15-year period (for the redemption of reconstruction bonds), but there’s room for concessions,” he said.

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President Obama entering the fray

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More of the blind leading the blind. The one thing they all agree on, at great expense to global well being, is the budget deficits are all too large and the need for shared sacrifice and all that.

No chance for anything constructive to come out of any of this.

And these masters of their money machines don’t even know how to inflate, as they all desperately try to inflate with their versions of quantitative easing, which, functionally, is just another demand draining tax.

*DJ Merkel, Obama Discussed How To Boost EFSF Firepower Without ECB
*DJ Obama To Merkel: We Are Totally Invested In Your Success – Source
*DJ Geithner, Schaeuble May Meet To Discuss IMF Role In Euro Crisis -Source

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Greek Vote Threatens Bailout

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The obvious hasn’t been making the headlines:

A no vote means a lot more immediate austerity than a yes vote.

A no vote means Greece can’t borrow at all, and therefore govt. checks will only clear if Greece immediately cuts back to where it is only spending tax revenue.

A yes vote means Greece can continue to spend quite a bit more than tax revenues, to the tune of the check from the benefactors.

And with no one in government at any level having any kind of a plan to leave the euro, and no idea how to manage a new currency in any case, that option continues to have no political support.

So the choices are:
Yes, we accept a relatively modest deficit cut as per the EU proposal.
No, we prefer to go cold turkey to a balanced budget and a seriously draconian cut.

Meanwhile, tick, tick, tick, the entire euro economy continues to slow, and continuously nudge up the entire region’s budget deficit, as they all work their way towards the same fate as Greece.

And, tick, tick, tick, the US deficit reduction process moves forward, with multi trillion dollar reductions already proposed by both parties.

Greek Vote Threatens Bailout

By Alkman Granitsas, Marcus Walker, and Costas Paris

November 1 (WSJ) — ATHENS—Greek Prime Minister George Papandreou stunned Europe by announcing a referendum on his country’s latest bailout—a high-stakes gamble that could undermine the international effort to preserve the euro.

A “yes” vote in the referendum could deflate the massive street protests and strikes that threaten to paralyze Greece as it tries to enact a brutal austerity program to earn rescue loans from the euro zone and the International Monetary Fund.

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Early Holiday Cheer…

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As discussed last week, the latest euro package just announced is unravelling quickly as markets again realize there is no actual substance, and no operational path with regards to carrying any of it out. So things will deteriorate as described until markets again force further ‘action.’

At the same time, the austerity continues to weaken the euro economies, with Q4 potentially going negative, driving deficits that much higher in the process.

The ‘answer’ remains the ECB writing the check, which they’ve sort of seemed to recognize, but they remain (errantly) concerned that reliance on the ECB is inherently inflationary, and thereby violates the ECB’s mandate for price stability. So it won’t happen until things again get bad enough to force it to happen.

The catastrophic risk remains a failure, when push comes to shove, to allow the ECB to write the check as they have been doing to allow it all to muddle through.

The range of outcomes couldn’t be wider. Write the check and not much happens, don’t write the check and there is unthinkable collapse.

Meanwhile, the 1% running the US looks to be trying to take the lead in the global austerity race to the bottom as the Democrats in the super committee on deficit reduction have led off by proposing a $4 trillion deficit reduction package.

Toss in West Texas crude prices heading to Brent levels of about $110/barrel as the strategic petroleum reserve release winds down over the next three weeks and the looks to me like the US consumer crawls back into his foxhole just in time for the holiday season.

Not to mention Japan now darning the torpedoes and buying dollars to take back a bit of the export market they lost by kowtowing to former tsy sec paulson’s demands to not be a ‘currency manipulator’ in the context of still weakening global demand in general.

The number one threat to world order remains a failure to sustain demand. The good news is sustaining aggregate demand is a simple matter once the monetary system is understood. The bad news is there seems to be no one of authority who doesn’t have it all backwards.

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Crude Oil Update

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Still seems to me that the idea that WTI appreciates to Brent as the Strategic Petroleum Reserve release winds down over the next few weeks is playing out as previously discussed. The WTI discount depends on a serious glut condition persisting, and the wind down of the approx 3.8 million barrels a week being delivered from the strategic petroleum reserve will work to reduce the glut by that amount.

If so, WTI is marching towards $110/barrel which seems to me could trigger substantial market reactions.

And about the same time the super committee deficit reduction talks will be in full swing, euro financing stresses elevated, exacerbated by confirmation of the 0 gdp growth forecasts hit the headlines, and further slowdown news from China complicating things as well.

The ‘answer’ remains as simple as it is further away from political reality than ever, even though the right policy responses couldn’t be more attractive to both sides:

The US budget deficit is too small.

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MERKEL: ECB INVOLVEMENT IN EFSF LEVERAGE RULED OUT

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Looks like Merkel is speaking purely for political effect, which may be all she’s capable of, unfortunately.

Fact is, from the beginning, without the ECB ultimately writing the check, it’s all been in ponzi.

And like all ponzi’s, it seems to work on the way up, and disintegrates on the way down.

With the ECB writing the check, deficits can be determined by further political/public purpose, without concern of ‘market forces’ undermining finance.

Without the ECB writing the check, it all probably keeps disintegrating, as none of the member nations can be inherently solvent without some form of ECB support.

MERKEL SAYS GOAL OF TONIGHTS DISCUSSIONS MUST BE TO HAVE A SOLUT ION WHICH PUTS GREECE AT A DEBT TO GDP RATIO OF 120 PCT BY 2020
MERKEL: ECB INVOLVEMENT IN EFSF LEVERAGE RULED OUT
MERKEL: GERMAN EFSF CONTRIBUTION WON’T EXCEED E211 BLN
MERKEL: BANK RECAP NECESSARY TO PREVENT CONTAGION
MERKEL: NEED PERMANENT SUPERVISION OF GREECE
MERKEL: TROIKA SUPERVISION DOESN’T SUFFICE
MERKEL: GREEK BOND HAIRCUT ALONE WON’T SOLVE PROBLEMS
MERKEL:PSI MUST BE MUCH HIGHER THAN AGREED ON JULY 21
MERKEL: NEED SIGNIFICANT PSI IN GREEK RESCUE

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Sarkozy Yields on ECB Crisis Role

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He’ll be back…The way things are going there is no alternative, a point market forces continue to make.

And no amount of tea from China, at any price, would be sufficient given current institutional structure and policy.

And more discussion on whether Greece should be allowed to default, even as haircut talk rises to 60%, and as the notion of ‘voluntary’ comes under further discussion. After all, if they don’t have to pay their debts, why should any other member nation have to pay its debts? etc.

Sarkozy yields on ECB crisis role, pressure on Italy

By Julien Toyer and Andreas Rinke

October 24 (Reuters) — European Union leaders made some progress towards a strategy to fight the euro zone’s sovereign debt crisis on Sunday, nearing agreement on bank recapitalization and on how to leverage their rescue fund to try to stop bond market contagion.

But final decisions were deferred until a second summit on Wednesday and sharp differences remain over the size of losses private holders of Greek government bonds will have to accept.

French President Nicolas Sarkozy backed down in the face of implacable German opposition to his desire to use unlimited European Central Bank funds to fight the crisis.

Instead, the euro zone may turn to emerging economies such as China and Brazil for help in underpinning its sickly bond market.

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