How to Get to Mars

In the spirit of Labor Day weekend, and a well-deserved break from grim economic news, please consider "How to Get to Mars"



Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Asia Export Machine Cracks Wide Open: South Korea Production Falls at Fastest Rate in Eight Months; Taiwan Exports Deteriorate Sharply; Global Recession Call Revisited

It's not just Chinese manufacturers that are struggling. It is also Japan, South Korea, and Taiwan. In other words, the Asian export machine has cracked wide open.

South Korea

The Markit South Korea Manufacturing PMI® shows Production Falls at Fastest Rate in Eight Months.

Key points

• New orders contract at sharp rate
• New export orders decrease for third month running
• Falling output prices signalled

Summary

Output contracted at the fastest pace in eight months amid reports of a strike in the auto sector. Moreover, respondents stated that the global recession had adversely affected production. Total new business fell and, although sharp, the rate of contraction was slower than in July. New export business also decreased, though at a slight rate. Panellists stated that weaker domestic demand and a downturn in the global economy had both fed through to the latest contraction in order book volumes

Purchasing activity at manufacturing firms in South Korea decreased for the third successive month in August. The rate of contraction was solid, but eased from that recorded in July.

Taiwan

The Markit Taiwan Manufacturing PMI™ shows Output contracts at steepest pace in the year-to-date.

Key points

• New orders and new export orders fall for third month running
• Workforces contract slightly
• Input and output prices fall in line with weaker demand

Summary

Weaker national and international demand led to a third successive fall in output at manufacturing firms in Taiwan. The pace of the latest contraction was steep and the fastest since December 2011. New orders and new export business both declined, extending the current sequence of contraction to three months. According to panellists, the slowdown in the wider economy resulted in weaker demand for manufactured goods.

In line with falling production, backlogs of work decreased for the third month running. Furthermore, the pace of contraction was the sharpest in 2012 so far.

Input prices at Taiwanese manufacturing firms fell for the fourth consecutive month in August. Although marked, the pace of decrease was slower than that recorded in July. Panellists reported that input costs fell in line with decreasing metal and raw material prices. Moreover, it was mentioned that weaker demand also contributed to the latest decline. In line with input costs, charges fell at a solid rate as manufacturers attempted to maintain competitiveness and attract new business, it was reported.

China

Earlier today I noted China New Export Orders Drop Most Since March 2009, Operating Conditions Down 10th Consecutive Month

Japan

On August 31, I noted Japan Manufacturing PMI Hits 16 Month Low, New Orders Plunge

Global Recession

In the South Korea report it was interesting to see the line "respondents stated that the global recession had adversely affected production".

I certainly believe the global economy is in recession and stated so on July 11 in Case for US and Global Recession Right Here, Right Now.

Recession Definitions

Contrary to popular myth, recession does not mean two consecutive quarters of economic contraction. Rather, two consecutive quarters of economic contraction is a sufficient, but not necessary condition.

In the US, the NBER is the official designator of recession start and end points. Many recessions have started with GDP still growing.

The "Conditions for Global Recession" are even looser. "The International Monetary Fund (IMF) considers a global recession as a period where gross domestic product (GDP) growth is at 3% or less. In addition to that, the IMF looks at declines in real per-capita world GDP along with several global macroeconomic factors before confirming a global recession."

Global GDP will struggle to rise 1% and it may even contract. Even 2% is in recession territory, and that is a given.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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China New Export Orders Drop Most Since March 2009, Operating Conditions Down 10th Consecutive Month; China's Export Machine Grind to a Halt

The HSBC China Manufacturing PMI™ shows Manufacturing sector operating conditions worsened at the sharpest rate in 41 months.

Summary

August data signalled a renewed decline in Chinese manufacturing output, as new business decreased at the sharpest rate in nine months. Consequently, backlogs of work fell modestly, and job shedding was recorded for the sixth month in succession. On the price front, average input costs declined at the sharpest rate in 41 months, while the rate of output price discounting remained sharp.



The pace of reduction in new orders was solid, and the most marked in nine months. Meanwhile, new export orders also decreased during August, and at the sharpest rate since March 2009.

With new business decreasing further, companies depleted their volumes of work-in-hand (but not yet completed) over the month. Although only modest, the rate of decline in outstanding business was the sharpest since January 2009.

Commenting on the China Manufacturing PMI™ survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:

“The final reading of the HSBC manufacturing PMI (August) confirmed that China's manufacturing sector still faces intensifying downward pressure. New export orders contracted at the fastest pace since March 2009, this, combined with a record high in stocks of finished goods sub-index, and a 41-month low employment index, suggests China's exporters are facing increasing difficulties amid stronger global headwinds. Beijing must step up policy easing to stabilize growth and foster job market conditions.”

China's Export Machine Grind to a Halt

Notice the last sentence above regarding what China allegedly "must" do. Also note the faith in "easing" to stabilize growth.

Economists seem to believe the role of central banks is to prevent every recession. That policy works for a while, then as happened in the US with the housing crash, an even bigger recession occurs that the central bank is unable to stop or even slow.

The US economy is cooling substantially and Europe is a complete basket case. Moreover, China's infrastructure is already seriously overbuilt. There are no magic solutions for China.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Most Economically Illiterate Journalist In History Proposes "Gold is Backed by Nothing, but US Dollar Backed by Federal Reserve"

Congratulations to Canadian journalist Bridget Brown, a CTV news field reporter for being the most economically illiterate TV journalist in history. Brown proposes gold is not backed by anything but the US Dollar is backed by the Federal Reserve which will be around a year from now.

This story is actually about a year old, appearing as early as September 30, 2011 on Natural News with a story headline of The most moronic TV news journalist ever?

I offer this story and the following video for entertainment on this Labor Day weekend.



Should that video be pulled, you may wish to click on Natural News which is keeping the video alive even with legal threats from CTV. You will need to flash forward to the 13:45 mark to skip past a lengthy Natural News lead-in as to why their posting of the video constitutes fair rights.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Who Do You Blame for the Woes of the Middle-Class?

The Pew Research center ponders The Lost Decade of the Middle Class.

Since 2000, the middle class has shrunk in size, fallen backward in income and wealth, and shed some—but by no means all—of its characteristic faith in the future.

These stark assessments are based on findings from a new nationally representative Pew Research Center survey that includes 1,287 adults who describe themselves as middle class, supplemented by the Center’s analysis of data from the U.S. Census Bureau and Federal Reserve Board of Governors.

Median Income



Median Net Worth



Fully 85% of self-described middle-class adults say it is more difficult now than it was a decade ago for middle-class people to maintain their standard of living. Of those who feel this way, 62% say “a lot” of the blame lies with Congress, while 54% say the same about banks and financial institutions, 47% about large corporations, 44% about the Bush administration, 39% about foreign competition and 34% about the Obama administration. Just 8% blame the middle class itself a lot.

Who Is To Blame?

Three Lost Decades!

Median net worth is back to a level first seen in the 1980s. By that measure, the US has had three lost decades. Wow.

62% Blame Politicians, Only 8% Blame Themselves

Note that 62% blame politicians and 54% blame financial institutions, but only 8% blame themselves.

Five Questions

1. Did banks force people to take out loans they could not pay back, or did people do so voluntarily?
2. Who elects congress? 
3. Do people make enough effort to understand interest rates, debt, the economic policies of politicians, exponential math and its implications, the untenable nature of public union pension plans and promises?
4. Do a significant number of people (if not the majority) get their economic views (assuming they have any economic views) from The View, Oprah, The Talk, or CNBC?
5. Why did PEW leave off the Fed and Fractional Reserve Lending from the list of answers?

Two Bonus Questions

1. Would the majority of respondents know anything at all about the Fed and Fractional Reserve lending had the PEW listed those options?
2. Who is really to blame for what is happening?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Harrisburg to Run Out of Money in October; Inside America's Most Indebted City; Labyrinth of Fraud

Congratulations to Harrisburg, the capital of Pennsylvania, for having the highest per capita debt of any city in the country.

The town's 50,000 citizens are on the hook for $1.5 billion according to the NPR article Inside America's Most Indebted City.

The city has delayed payments to light bulb venders and paper sellers. Restaurants have hired their own security. A local strip club paid to keep the street light on. The city is projected to run out of money entirely in October.

A judge has recently ordered a 1% income tax hike on the people still left in Harrisburg. But the city council has promised to fight it.

$1.5 Billion Does Not Include Schools, Pensions, Unfunded Liabilities

The Patriot News notes Harrisburg's eye-popping debt total is just one piece of city's bleak financial puzzle

It’s almost impossible to say exactly how much money the elected and appointed officials of Harrisburg have borrowed.

Missing financial audits, complicated transactions and intertwining finances create a labyrinth of money that stretches decades into Harrisburg’s history.

At best estimates, based upon reviews of independent reports and audited financial statements, the amount of debt owed by the city and its affiliated entities — with interest — stands somewhere north of $1.5 billion.

That’s roughly $30,285 for each of the 49,528 men, women and children living in the city and almost twice the income of the average city resident.

While the amount of debt is eye-popping, it is only one piece of the jigsaw puzzle that is the city’s bleak financial background.

It does not account for past-due debt payments or unfunded pension and healthcare obligations. Nor does it include the estimated annual deficits in the city’s and school district’s budgets, which this year are so far estimated at $6.8 million for the city and at least $7 million for the school district, even with drastic cuts such as eliminating kindergarten.

A declining tax base contributes to the overall problem — between 2009 and 2012, the assessed value of property in the city dropped by more than $30 million, according to a school district report.

Meanwhile, each time property taxes increase, fewer people pay them. According to a school district report, property tax collection rates have fallen from 87 percent to 83 percent.

THE DOMINO EFFECT

City schools may find themselves in a similar situation.

In 2009, the district refinanced almost $280 million of outstanding debt to exit swap agreements and lower debt payments over the first few years by securing lower interest rates. It also borrowed an additional $10 million for building projects and equipment purchases.

In his recovery plan, former Receiver David Unkovic noted that according to the last completed financial audit of the city — and the letter of the law — the city could borrow still more money.

According to his office’s calculations, the city could legally borrow up to an additional $117 million.

Whether anyone would agree to offer the city another loan, however, is an entirely different question.

Labyrinth of Fraud

Whenever you see stories like this, you can bet your last dime that massive amounts of fraud are in play.

The NPR article profiled David Unkovic, the man appointed by the state of Pennsylvania to fix the Harrisburg debt problem.

Unkovic resigned in May, then completely vanished from public life after scrawling out a hand-written letter of resignation.

Months later, NPR tracked him down and now Unkovic believes there is something more sinister than gross mismanagement at play.

From NPR

"Illegal conduct occurred," Bill Cluck, who serves on the board that runs Harrisburg's incinerator, told me. "I think false statements were submitted under penalty of law to the state government in connection with the financing."

Stephen Reed was the mayor of Harrisburg from 1980 to 2009. People in town famously say he never met a bond he didn't like. He used the money borrowed on the incinerator to do all sorts of things.

He bought strange artifacts from all over the country, dreaming of building a Wild West museum. The city borrowed money to buy a baseball team and build a stadium; the team was later sold at a loss.

"The fundamental problem is he was borrowing more than he was really allowed to under state law," Unkovic says.

In 2007, Harrisburg filed a document called an 8110 b certificate. It was a promise, Bill Cluck says, that all the previous debt borrowed on the incinerator was still self-liquidating — that the incinerator would bring in enough money to pay the money that had been already borrowed on it.

"They knew it wasn't true when it was submitted, and it's never been corrected to this day," Cluck says.

And that, according to Cluck, was a crime.

There were 17 different revenue projections showing that the incinerator could never earn back all the money that had been borrowed.

So how was it that nobody — none of the law firms, none of the financial advisers — raised questions about the wisdom of this loan?

We asked, but they refused to respond on the record. And, Cluck notes, all those advisers made hundreds of thousands of dollars in fees from the loan.

Almost none of the $30 million the city borrowed in 2007 went to the actual incinerator upgrade. It went to pay back old debt, and to pay fees to the many firms that set up the deal in the first place. The same firms ended up on virtually every deal, Cluck says.

To make matters worse, the city ultimately was on the hook. If the incinerator couldn't make the money back, it would fall to the taxpayers of Harrisburg. And this makes Bill Cluck crazy.

"Where's the advocate for the city to say, 'Hey, you're getting screwed by the terms of these deals,'" he says. "It never happened."

Where Did the Money Go?

Stories like this irritate me because they always seem to stop short. Citing Cluck, NRR says money went to "pay fees to the many firms that set up the deal in the first place. The same firms ended up on virtually every deal".

I can certainly believe that. Indeed I would be shocked to find out otherwise. But where is the list of names? What banks and politicians profited from these shady deals? Inquiring minds and taxpayers have a right to know.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Foreclosure Stats From You Walk Away

Here are some interesting stats courtesy of Jon Maddux, CEO of You Walk Away.

State	% of You Walk Away Clients With No Foreclosure Notice	Average Months Without Foreclosure Notice
Washington	79%	13
Nevada	79%	13
Georgia	75%	12
Michigan	73%	18
Virginia	72%	18
Oregon	69%	13
Pennsylvania	66%	12
Hawaii	60%	21
California	59%	15
New York	57%	16
New Jersey	53%	14
Arizona	52%	14
Colorado	52%	8
Florida	45%	17
Ohio	37%	19

Says Maddux

In Florida, 45% of our clients are in pre-foreclosure status. On average, these Florida homeowners are 17 months delinquent and have yet to receive even their first formal foreclosure notice. 59% of our California clients are in pre-foreclosure status. These California borrowers are an average of 15 months delinquent and also have yet to receive their first formal foreclosure notice. Eighty-five percent of the homeowners we’re working with are in pre-foreclosure and have not made a mortgage payment for an average of 14 months.

Structural Issues

• Kids graduating from college are deep in debt and holding off home buying, getting married, and starting families.
• Boomers looking to retire and downsize have few candidates able and willing to buy larger homes, even with deep discounts
• Shadow inventory and the pent-up foreclosure list are huge forces in play.

Maddux believes the data points to significant backlog, eventual foreclosure activity and a drop in value for home prices.

I think home prices are bottoming in many areas, but even if so, prices in general are not going anywhere fast because of aforementioned structural issues.

Addendum

Questions came up regarding the size of the sample.

You Walk Away has 7,000 clients.

Is that a representative enough sample?

I do not know. It is certainly not scientific sampling. However, I suspect it is at least reasonable.

From Maddux ...

Information Regarding Our Methodology:

YouWalkAway.com has worked with over 7000 clients nationwide. One part of the service includes monitoring their foreclosure and providing weekly updates and a personalized foreclosure timeline. Once enrolled, we begin by asking each client when was the date of their last mortgage payment and weekly research each client’s property to determine if a foreclosure start notice has been filed. We then continue to monitor every property and record each milestone of the foreclosure process until the home goes back to the bank or is sold in a short sale.

The data was compiled using our current client database we compiled lists of the number of active clients in every state and compared the number of borrowers who had received their foreclosure start notice and those who have defaulted, but not yet received the foreclosure start notice. This was done to see what percentage of our clients had defaulted, but were not yet in the formal foreclosure process. After realizing that the numbers were higher than expected, especially in light of recent news indicating that lenders had picked up the pace as a result of the $26 billion mortgage settlement, we decided to see how many months delinquent on average these “pre-foreclosure” borrowers were. Again, the numbers came back much higher than expected. This indicates that, while there may have been a recent uptick in foreclosure filings, lenders are still dealing with years of backlog.

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