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Wednesday, May 1, 2013

Paper Money Has A Long History But Short Existence

In one of the most popular articles that appeared on this site, we explained how 600 different forms of paper based money have all disappeared. Recorded history shows not one case where a form of paper based money has continued its existence. At best, some have survived a bit longer than the others.

When talking about paper based money, we refer to forms of money that are not backed by any tangible assets like gold or silver. A promissory note or coin was once used to redeem a predefined amount of gold or silver. Since 1971, only the note or coin has left with a promise to fulfill the function of money (hence fiat money).

In their latest report, PIMCO, who oversees more than $ 2 trillion in assets with a focus on fixed income investments, points to the effects of creating unlimited amounts of money. While doing so, they loudly ask the question what money is (source).

http://goldsilverworlds.com/gold-silver-insights/paper-money-has-a-long-history-but-short-existence/

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Paper Money Has A Long History But Short Existence

North Korea Sentences US Citizen To 15 Years "Hard Labor"

While details are somewhat sketchy of the reasons, Kenneth Bae (a US Citizen known by the Korean rendering Pae Jun-Ho and likely unrelated to this gentleman) has been sentenced to 15 years ‘hard labor’ for committing ‘hostile crimes’ against the regime. As AP notes, Bae was arrested in November after entering the China/North-Korea special economic zone city of Rason as a tourist. Of course, there could be well-reasoned facts that lead to the need for this man to serve this sentence – though it seems former-President Jimmy Carter may soon be traveling to North Korea (likely without Dennis Rodman) to seek Bae’s release. We hope this is not a temper-tantrum from the nation’s leader for not causing enough uproar with his rhetoric earlier in the month…mirroring 2009′s US-vs-North Korea standoff.

Via AP,

An American detained for nearly six months in North Korea has been sentenced to 15 years of “compulsory labor” for unspecified crimes against the state, Pyongyang announced Thursday.

The sentencing of Kenneth Bae, described by friends as a devout Christian and a tour operator, will further complicate already strained relations between Pyongyang and Washington as the countries pursue tentative diplomacy following weeks of warlike threats from North Korea.

Pyongyang’s official state media said Bae’s trial took place Tuesday, but the dispatch provided few new details. Bae was tried in the country’s Supreme Court on charges of plotting to overthrow the government. He could’ve faced the death penalty.

The exact nature of his alleged crimes has not been revealed.

Bae was arrested in early November in Rason, a special economic zone in North Korea’s far northeastern region bordering China and Russia, North Korea said.

The trial mirrors a similar situation in 2009, when the U.S. and North Korea were locked in a standoff over Pyongyang’s decision to launch a long-range rocket and conduct an underground nuclear test. At the time, North Korea had detained two American journalists, whose eventual release after being sentenced to 12 years of hard labor paved the way for diplomacy following months of tensions.

In North Korean dispatches, Bae, a Korean American from Washington state, is called Pae Jun Ho, the North Korean spelling of his Korean name.

Zero Hedge

North Korea Sentences US Citizen To 15 Years "Hard Labor"

Why inflation can be a good thing

David Gura has a report on Marketplace today making the case for inflation — a little bit of it, anyhow. Economists generally agree that a touch of inflation can have a positive effect. They point out that inflation can erode the cost of debt over time. More importantly, perhaps, it can boost wages and growth. Here’s an example from my book of how this can work.

Imagine a man with 10 children. He moves to a small town in the country that has just one store, which sells stuff that people in the country need, like hammers and tarps and animal feed. The McGivens store has some candy, but not much, because there aren’t that many kids in the town.

The newcomers kids love candy, however, and the first thing they do when they arrive is go exploring the town, to see what they can buy with their pocket money. Rose, the eldest, leads the procession, and it doesn’t take them long to find the McGivens store.

Children (in unison): Hello Mister!

Mr. McGivens: Good heavens! Where did you lot spring from?

Rose: We’ve come from Chicago.

Mr. McGivens: Well, that’s a long way away.

Rose: Yes it is, and we’re hungry.

Children: We want candy!

Mr. McGivens: Well, I don’t have much in the way of candy here. I have some Red Strings and some lemon chews, and a big jar of hard candies. What would you like?

Rose: We’ve each got two dollars in pocket money, so that’s $ 20 altogether. How much are the hard candies?

Mr McGivens thinks for a moment. Usually he charges five cents a candy, because so few people want to buy them. But today the situation has changed. Now there is suddenly a lot more candy money in the town, and only one place to spend it: his shop. An opportunity has presented itself.

Mr. McGivens: The hard candies are eight cents each. The lemon chews are ten cents.

Rose: Okay. We’ll take a hundred lemon drops and … 125 hard candies, please. Here’s $ 20.

Mr. McGivens: Here’s your candy

Children (in unison): Thank you!

They march out of the ship, just as Henry Tomkins enters.

Henry Tomkins: Afternoon, John.

Mr. McGivens: Afternoon, Henry.

Henry Tomkins: I need a new shovel and a bag of fertilizer, please. And I’ll take a dozen of those lemon drops.

Mr. McGivens: That’s $ 30 for the shovel, $ 25 for the fertilizer, and a dollar twenty for the candy.

Henry Tomkins: A dollar twenty? They were sixty cents yesterday!

Mr. McGivens: Sorry Henry. Inflation.

The problem with inflation is that it makes your money worth less. Mr. McGivens store is a micro economy that has been flooded by the children’s candy money. The introduction of their $ 20 has doubled the price of the candy that Henry Tomkins likes to buy, or in other words his dollar can only buy half the candy it was able to buy the previous day. His dollar, then, has been devalued by 50 percent.

But inflation isn’t all bad. In fact, governments quite like inflation – in moderation. Inflation may devalue existing currencies a little bit, but that can be offset by the fact that there’s a lot more money coming into the system: money to spend, or invest, or build, or even hire more staff. So, in moderation, inflation can help keep people employed.

Take Mr. McGivens. Now that’s he’s making a bit more money from his candy, he has to think about how to use those profits. He could spend the money. Or he could plow it back into his business. Either way, that keeps the money in the system. Say he spends the money on a new tie for himself. That helps the retailer who sells him the tie, plus the tie-makers, and the silk growers: there’s a whole chain reaction through the tie business that can help keep people employed. In plowing the money back into his business, Mr. McGivens could refurbish his store, which would help local lumber suppliers and building workers. Or he could hire someone one day a week, to help him with a stock count. That would give that employee an income, some of which she would likely spend, again sending positive, job-sustaining ripples through Mr. McGivens’ hometown.

Excerpt taken from my book, Man vs Markets, Economics Explained, Plain and Simple. Available most everywhere books are sold.

Family sedans losing ground to crossovers on convenience, price

A Toyota Camry is seen at the Chicago Auto Show February 9, 2010.

Credit: Reuters/John Gress

By Deepa Seetharaman and Bernie Woodall

DETROIT | Wed May 1, 2013 8:20pm EDT

DETROIT (Reuters) – Family sedans like the Toyota Camry and Honda Accord are losing ground this year as American families and empty-nest baby boomers find they would rather handle life’s daily chores in a crossover.

Midsize sedans remain the single largest segment of the U.S. auto industry. But their share of the industry has shrunk this year, alongside a gain for vehicles like the Ford Escape, executives and analysts said on Wednesday.

“While the segment is still growing year-over-year, it’s nowhere near what it was growing last year as the industry was launching a lot of new midsize cars,” Bill Fay, the U.S. head of the Toyota brand, said during a call with reporters to discuss U.S. auto sales in April.

U.S. auto sales are being propelled by pickup trucks and sport-utility vehicles, as shown by U.S. auto sales in April by major automakers.

Crossovers, which are SUVs built on a car-based platform, are appealing because they offer more space for groceries and golf clubs than the typical sedan, and they are easier for people to enter and exit. And fuel mileage is improving.

Perhaps most importantly, the price gap has narrowed between midsize sedans and compact crossovers like the Ford Motor Co Escape, and the Toyota Motor Corp RAV4 and the Honda Motor Co CR-V.

A small crossover costs just $ 1,300 more than the typical family sedan, according to Kelley Blue Book. Excluding state taxes, this amounts to less than $ 20 in monthly payments in some cases.

“Fundamentally, both serve the family market,” said Mustafa Mohatarem, General Motors Co’s chief economist.

“Midsize cars have gotten smaller and more expensive, because of a variety of factors,” he said. “People are switching to crossovers, because they satisfy the family needs very well.”

JAPANESE AUTOMAKERS HIT HARD

The closing gap in price is encouraging some buyers to consider paying more for a crossover for the additional space and flexibility, said Jeff Schuster, senior vice president of forecasting with LMC Automotive.

“When there was a further separation between the two, there weren’t so much a substitution for each other,” he said.

Midsize sedans accounted for 17 percent of the U.S. auto market during the first quarter, compared with 17.7 percent during the same period last year, according to LMC Automotive.

The shift has hit Japanese automakers, which dominate the sedan segment. Camry sales fell 14 percent in April as overall U.S. auto sales rose 8.5 percent. Sales of the Accord, which Honda redesigned last year, fell 5 percent.

The falloff in sedan sales is also due to tough competition in the segment, where several top-selling models have been recently redesigned, including the Ford Fusion.

Midsize sedans also got smaller incentive during the month. Incentives on mid-size sedans averaged $ 2,098 in April, nearly 10 percent lower than industry incentives overall, according to data from Edmunds.com.

Toyota Motor Corp’s April sales fell short of estimates in due in part to tighter competition for the Camry in this bread-and-butter segment, said KBB analyst Alec Gutierrez. Camry is Toyota’s top-selling vehicle in the U.S. market.

“Camry will likely be quite strong but not as strong as if it were not facing Fusion, Altima and Accord,” Gutierrez said.

(Reporting by Deepa Seetharaman and Bernie Woodall)

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Reuters: Business News

Family sedans losing ground to crossovers on convenience, price

S&P Predicts 20% Drop in Spain"s Housing Prices Over Next 4 Years; Bad Bank to Dump Distressed Properties on Market

Spain’s “bad bank”, Sareb to speed up distressed property sales in an ambitious new timetable for liquidation.

The bad bank is hoping to sell almost 42,000 housing units in the next five years. This is about half of the properties in its €50 billion (£42.5 billion approximately) portfolio.
However, falling house prices and a desire among buyers for modern properties in prime locations could hamper these plans for swift sale. Already the value of assets is being slashed by Sareb to clear their books, but attracting investors is proving to be no easy task.

At the beginning of March the International Monetary Fund (IMF) declared: “The clean-up of undercapitalised banks has reached an advanced stage, and key reforms of Spain’s financial sector have been either adopted or designed.” Sareb has also been praised for its receipt of distressed real estate assets from the country’s weakest banks. The bad bank has also finalised agreements with participating banks to manage the transfer of assets.

Cleanup “Advance Stage” Nonsense from IMF

To suggest the cleanup of undercapitalized banks is in an “advance stage” is complete nonsense. It only makes partial sense if there is a zero percent probability of haircuts on Spanish sovereign debt.

I suggest the probability of haircuts on Spanish government bonds is far greater than 50%. And since Spanish banks are loaded to the gills with sovereign debt, the banks are severely undercapitalized by implication.

S&P Predicts 20% Drop in Spain’s Housing Prices

Courtesy of Mish-Modified google translate from El Economista, please consider S&P predicts that housing in Spain fall by 20% over the next four years.

The credit rating agency Standard & Poor’s does not see “signs of improvement” in the Spanish property market given the “precarious economic conditions and the heavy weight of the ‘stock’ of unsold homes,” and anticipates that home prices will fall 20% over the next four years.
“We see little chance of that Spanish households become more solvent, as prices continue to fall, the purchasing power continues to decline and interest rates are stabilizing. This should keep demand very depressed,” said S&P in a report on the European property market.

Sareb’s plans to sell 45,500 homes in the next five years, about half of its portfolio, will likely determine the pace of declines in housing prices.

Should the divestiture from Sareb be gradual, housing prices in Spain will fall 8% in 2013 and 5% in 2014, after falling 10.5% in 2012 and 28% from their highs reached in March 2008.

Falls widespread in Europe

On the whole of Europe, the agency notes that the downward trend in most European property markets continue this year as a result of the economic downturn. In most countries housing prices will continue on a path “down” this year and only start to stabilize or slowdown in 2014.

After Spain, the largest decreases will occur in the Netherlands (-5.5%) and France (-5%).

S&P Optimistic

I am of the opinion the S&P is overly optimistic about Spain, about France, and about the Netherlands.

The European recession is worsening, credit conditions are awful, employment conditions are awful, and there are scant buyers of property because discounts are not large enough and credit is nowhere to be found.

None of this remotely takes into consideration the very strong likelihood of a Spanish debt writedown in the next year or so.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Mish’s Global Economic Trend Analysis

S&P Predicts 20% Drop in Spain"s Housing Prices Over Next 4 Years; Bad Bank to Dump Distressed Properties on Market

Pentagon prepares to ask Congress for break from "sequester"

U.S. Defense Secretary Chuck Hagel speaks during a joint news conference with Japanese Defense Minister Itsunori Onodera at the Pentagon in Washington April 29, 2013.

Credit: Reuters/Kevin Lamarque

By David Lawder and David Alexander

WASHINGTON | Wed May 1, 2013 7:14pm EDT

WASHINGTON (Reuters) – The Pentagon is preparing to ask Congress soon for more authority to shift funds to cope with automatic spending cuts, confronting lawmakers with another exception to the “sequester” just days after they gave a break to the flying public and the airline industry.

The request may be sent to the House of Representatives’ Appropriations Committee as early as next week, a House Republican aide said on Wednesday.

The Pentagon won increased budget flexibility in March, but officials have told members of Congress they believe it was insufficient to cover shortfalls in training and operations.

The Defense Department move would follow closely the fix last week to ease airline flight delays caused by the temporary furloughs of air-traffic controllers by the Federal Aviation Administration.

The cuts, known as “sequestration,” were originally hatched by Washington in 2011 as a way to force the White House and Congress to find an alternative budget deal rather than have spending cuts kick in automatically.

But policymakers failed to reach such a deal earlier this year and the cuts – totaling $ 109 billion for the current fiscal year – took effect on March 1.

Defense spending has taken the single biggest hit from the automatic cuts, with a $ 46 billion reduction through the September 30 end of the fiscal year.

One House aide said the request would cite a shortfall in war-fighting because of higher than expected costs of withdrawing from Afghanistan.

Pentagon officials paved the way for the move in testimony to congressional committees over the past few weeks in which they expressed worries about the sequester’s impact on military readiness, particularly with tensions rising in Syria and Korea.

“With the events in the world today, with Korea, Syria, Iran, the continued fight in Afghanistan … the discussion on readiness could not come at a more critical time,” General John Campbell, Army vice chief of staff, told a U.S. Senate panel on April 17.

“The reality is that if sequestration continues as it is … we risk becoming a hollow force,” he added.

Members of Congress from states with a heavy military presence have been urging a shift of funds since the sequester took effect and might be hard-pressed to vote against it.

An April 18 bipartisan letter from Virginia senators and representatives urged Defense Secretary Chuck Hagel to move quickly to prevent furloughs and loss of pay for “thousands of Virginians.”

‘REPROGRAMMING’

The Defense Department is preparing the request to shift funds, said Lieutenant Colonel Elizabeth Robbins, a Pentagon spokeswoman, but has not “yet specified the timing or the amount” it wants to transfer, or “reprogram” in budget jargon.

Congress last week approved a similar request from the Justice Department to shift $ 313 million within its budget to avoid furloughing some 60,000 employees.

Robbins said it was not yet clear whether the Pentagon would submit several different reprogramming requests or one large omnibus-style request, but the budget shifts would be sought “soon.”

The Pentagon was one of several government agencies that won some budget flexibility in a stop-gap government funding measure passed in late March.

That allowed more than $ 10 billion that was locked up in other accounts to be shifted to the Pentagon’s operations and maintenance account, which funds training exercises and military readiness.

While that has helped, it did not make up for the deep budget cuts brought on by the sequester. The Army alone is facing about a $ 13 billion shortfall in training, operations and Afghanistan war costs, Army Secretary John McHugh and Army Chief of Staff General Ray Odierno told lawmakers last week.

(Editing by Fred Barbash and Peter Cooney)

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Pentagon prepares to ask Congress for break from "sequester"