With all the focus on stock market gyrations this past week, here are a few stories of interest you may have missed.
EU Upset With Moody’s, S&P;, Threaten to Create Own Rating Agency
EU’s Financial Services Chief To Probe Credit Rating Agencies
“I think we need to go further to look at the impact of the ratings on the financial system or economic system as a whole…,” European Internal Markets Commissioner Michel Barnier told members of the European Parliament.
“If you look at Greece, for example, I was quite surprised by the quite rapid deterioration in rating.”
As the European commissioner in charge of financial services regulation, Barnier could propose new rules governing rating agencies. He said on Tuesday it could be possible to start a European agency to rate countries’ creditworthiness.
I guess if you do not like the ratings you create a company that will rate you however you want. It seems we tried that with subprime and it did not work out very well.
Gold Futures Top $1,200
Gold Futures Top $1,200, Approach Record on Demand for Haven
Gold prices topped $1,200 an ounce, approaching a record, on demand for a haven from financial turmoil.
“The monetary situation is rapidly deteriorating in Europe,” said Philip Gotthelf, the president of Equidex Brokerage Group Inc. in Closter, New Jersey. “Gold can shine even if the dollar soars.”
“There is still panic in the Forex air,” said Dennis Gartman, an economist and the editor of the Suffolk, Virginia- based Gartman Letter.
The metal denominated in euros, U.K. pounds and Swiss francs rallied to records today.
“You can’t rely on fiat currencies,” said Michael Pento, the chief economist at Delta Global Advisors Inc. in Huntington Beach, California. “This is a watershed moment. People are finally realizing that gold will supplant all fiat currencies.”
It was a great week for treasuries, the US dollar, and gold. That’s a combination that no inflationist and only a small subset of deflationists would think likely.
Pentagon Lobbies Against Raises For The troops
Pentagon asking Congress to hold back on generous increases in troop pay
The Pentagon, not usually known for its frugality, is pleading with Congress to stop spending so much money on the troops.
In the midst of two long-running wars in Iraq and Afghanistan, defense officials are increasingly worried that the government’s generosity is unsustainable and that it will leave them with less money to buy weapons and take care of equipment.
Now, Pentagon officials see fiscal calamity.
Clifford L. Stanley, the undersecretary of defense for personnel, told a Senate committee in March that rising personnel costs could “dramatically affect the readiness of the department” by leaving less money to pay for operations and maintenance. Overall, personnel expenses constitute about one-quarter of defense spending.
Health care alone is projected to cost the military $51 billion next year, nearly one-tenth of the Pentagon’s budget, excluding the costs of the wars in Iraq and Afghanistan. Since 2002, wages have risen 42 percent, compared with about 32 percent for the private sector. Housing and subsistence allowances, which troops receive tax-free, have gone up even more….
I have a better idea. Let’s stop needless wars and bring our troops home from 140 countries where they do not belong. What troops we keep, we can afford to pay well.
However, raising the military retirement age at which benefits could be collected (currently 20 years of service regardless of age) is a great idea.
I have quite a problem with someone retiring at age 38 with a full pension, on taxpayer dollars.
State Laws Prohibit Grass Roots Lobbying
Lawsuit Seeks to Protect Americans’ Right To Most-Basic Political Speech: Talking to Their Neighbors
There are few things more distinctly American than grassroots political activism. From town hall meetings and statehouse rallies to talk radio, blogs and “meet ups,” Americans are constantly finding new and innovative ways to participate in politics.
But little-known laws existing in a majority of states threaten to strangle this kind of political participation with red tape, ensuring that the public square is occupied by only those established voices that have enough resources to overcome the immense burdens imposed by so-called “grassroots lobbying” laws. These laws require groups to register with the state and file frequent and detailed reports about their contributions, expenditures and activities.
Under Washington’s “grassroots lobbying” law, if you urge your fellow citizens to contact government officials and spend more than the state’s arbitrarily low ceiling (only $500 in one month or $1,000 in three months), the government forces you to register with it and report your name, address, business and occupation, as well as the names and addresses of anyone with whom you are working to spread your message. The state also demands to know the names and addresses of each person who contributes more than $25 to your efforts.
Simply put: Even if you never talk to an elected official but spend as little as $500 merely to communicate with your neighbors and friends about state policies, you must register with, and provide information to, the government, which then proceeds to disseminate the information on the Internet. Failure to register can lead to an investigation, significant penalties (including treble damages, the costs of the investigation and the government’s attorney’s fees), and a revocation of the ability to engage in any political activity that might qualify as “grassroots lobbying.”
Such laws are ridiculous. Piece by piece, we keep losing our freedoms.
Mutual Fund Redemptions Blocked In Germany
Germany’s Property-Writedown Plan Prompts Fund Sales
Two German real estate mutual funds with 10.5 billion euros ($13 billion) of assets closed for redemptions yesterday after government proposals to impose writedowns prompted investors to try to withdraw their money.
SEB Asset Management AG closed its ImmoInvest fund and KanAm Grund KAG closed Grundinvest Fonds after German Finance Minister Wolfgang Schaeuble released a draft bill on May 3 that recommended a 10 percent cut in asset values across the industry.
The writedown plan triggered “massive uncertainty among investors” and significant outflows, Frankfurt-based SEB said in a statement, without giving the scale of the redemptions.
KanAm said it was “compelled” to halt redemptions in response to “fears of losses among investors and asset managers, resulting in those parties liquidating portfolios as a precaution.” Susanne Ludwig, a spokeswoman for the Munich-based asset manager, said outflows since May 3 totaled “hundreds of millions of euros.”
Lawmakers from Chancellor Angela Merkel’s Christian Democratic bloc said today that they plan to amend the bill to remove the writedown proposal and “regret causing anxiety among investors,” Hans Michelbach, a deputy finance spokesman, said in an e-mailed statement.
How long before some boneheads in Congress propose the same maneuver here?
In Europe It’s Everybody For Himself
Will German voters cut the cord?
Throughout the long Greek drama, observers of German politics noted how different the debate sounded from previous ones. The mass-circulation tabloid Bild-Zeitung ran stories about ‘those lazy Greeks’ that bordered on demagoguery. Backbenchers from Merkel’s coalition government publically recommended that Greece should rather sell a few of its islands than ask for German help. And Merkel herself attempted to lead the way by presenting herself as a new ‘Iron Chancellor’, a ‘Madame Nein’ against a Greek bailout.
Polls show that vast majorities of between 80 and 90 per cent of the Germans reject any taxpayer involvement in the Greek crisis. But since Merkel did not succeed in holding off the rescue package until after the state election, her party is bracing for a massive backlash. Voters are furious about the prospect of paying up to €40 billion for Greece’s decades-long mistakes, and they will vent their anger at the polls.
Just as Angela Merkel had to learn the hard way that she cannot win elections by promising reforms, she is now learning that she will lose elections by being too pro-European. The state election may turn out to be traumatic to her in this respect. It will also have an impact on Germany’s future role in Europe.
No longer will the Germans, least of Angela Merkel, lead the way towards ever closer union. From now on, in Europe it is everybody for himself. The sorry state of public finances in most European countries (including Germany) puts a natural limit on their ability to rescue each other anyway.
Should other countries find themselves in difficulties like Greece, they should not even bother asking for help. Angela Merkel has learnt her lesson that German taxpayers are no longer willing to be Europe’s paymasters. Ironically, the Greek rescue package may have increased the chance of a future sovereign default in Europe – other nations struggling under massive debt burdens are likely to find there is nobody left willing to bail them out.
The s*** really hits the fan as soon as credit spreads in Spain widen significantly. That could be next week, or months from now, but it is highly likely to happen.
Mike “Mish” Shedlock
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