Saturday, December 14, 2013

French Hypocrisy at Its Finest: France Broadens Its Surveillance Power; "Susie Did It Too!"

In October, French Prime Minister Jean-Marc Ayrault said he was "deeply shocked" by reports that the US National Security Agency had secretly monitored tens of millions of phone conversations within France and demanded an explanation.

"Susie Did It Too!"

The U.S. response was 'All Nations' Spy as if that makes the practice of blanket spying on citizens OK.

Our response was like that of a 6-year old kid caught raiding the cookie jar, responding "Susie did it too!"

French Hypocricy at Its Finest

Two days ago the Voice of Russia noted France steps up net surveillance weeks after protesting against NSA spying.


The French government has adopted a bill allowing the authorities to access and gather internet user data in real time without judicial approval. The senate approved the legislation just weeks after France expressed outrage at NSA spying practices. The bill has been slammed by activists as going "against the principles of democracy".

The measures, given final parliamentary approval by the senate on Tuesday night, extend authority to gather digital information, previously limited to intelligence agencies, to the defense, interior, finance and budget ministries.

The law gives French intelligence services access to telephone and Internet usage data that would let them locate and follow the target of a terrorism investigation in real time. In addition, the law provides agents with access not just to meta data about users from website hosts but allows them to seize content stored on websites and in clouds. It also provides for access in real time to the location of mobile devices.

The information can be demanded without the prior approval of a judge, as previously required but there will be post-facto monitoring by national oversight bodies. Currently in France, authorities are required to apply for a warrant to access this information, a process that usually takes several months.
France Broadens Its Surveillance Power

Today the New York Times confirms the report in France Broadens Its Surveillance Power.

The upfront details are the same although Russia Today had more of them. In turn, the NYT has a few interesting items of its own. Let's pick up this story in the middle.
The Association des Services Internet Communautaires, or @sic, an advocacy group whose members include AOL, eBay, Facebook, Google, Microsoft and several top French Internet companies, discovered the new legislation essentially by chance.

“There was no consultation at all,” said Giuseppe de Martino, @sic’s director and an executive at Dailymotion, a French online video service. “No one said anything about it to us.”

The National Commission for Information Technology and Freedoms, a state administration meant to protect the rights and privacy of citizens, said it was not consulted on the contentious elements of the bill, though it was asked to review other provisions.

The government denied any effort to shield the law from public scrutiny. The bill went through four votes in Parliament, noted one government official. “Not exactly discreet, as maneuvers go,” he said, speaking on condition of anonymity because he was not authorized to speak publicly.
Please note the irony in that last paragraph.

French Citizens Should Have Been Angry for 23 Years

In still further irony, Jean-Pierre Sueur, a senator from President François Hollande’s Socialist Party, said identical provisions have been in place since the passage of an electronic intercepts law in 1991. “If they’re angry about this, they ought to have been angry for 23 years,” Mr. Sueur said.

PRECISELY!

Unfortunately, no one knew about the spying until now, because it was hidden.

Thus once again I sing the praises of U.S. and international public hero Edward Snowden, for revealing precisely what governments are doing.

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

How to Open a Wine Bottle With a Shoe

Have a bottle of wine but no corkscrew?

Should you ever find yourself in that situation, I offer the following video as a public service announcement.



Link if video does not play: How to Open a Wine Bottle With a Shoe

Thanks to reader "Bob" who sent me the video.

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

Friday, December 13, 2013

Stockton Doomed to Another Bankruptcy; Getting Out of bankruptcy the Worst Possible Way

Heading into bankruptcy Stockton, California had about $147 million in unfunded pension obligations and about $250 million in debt from various bond issues.

The city could have and should have shed some of those pension obligations and made changes in various pension agreements, but it didn't.

It did shed bond debt for one cent on the dollar, subject to lawsuits.

Stockton Doomed to Another "Stigma of Bankruptcy"

The New York Times reports Stockton Return to Solvency, With Pension Problem Unsolved
Battered by a collapse in real estate prices, a spike in pension and retiree health care costs, and unmanageable debt, this struggling city in the Central Valley has labored for months to find a way out of Chapter 9. Now having renegotiated its debt with most creditors, cobbled together layoffs and service cuts and raised the sales tax to 9 percent from 8.25 percent, Stockton is nearly ready to leave court protection.

But what Stockton, along with pretty much every other city in California that has gone into bankruptcy in recent years, has not done is address the skyrocketing public pensions that are at the heart of many of these cases.

“No city wants to take on the state pension system by itself,” said Stockton’s new mayor, Anthony Silva, referring to the California Public Employees’ Retirement System, or Calpers. “Every city thinks some other city will take care of it.”

“They wanted to get out of bankruptcy in the worst possible way, and that’s just what they did,” said Dean Andal of the San Joaquin County Taxpayers Association, which fought the sales-tax increase. “If they go ahead and hire those new police officers, the city will be back in insolvency in four years.”

City officials insist their plan will work. “We got the tax, and thank God it passed,” Councilman Holman said. “I have confidence that the numbers line up.”

Nor does the Detroit ruling this week make Stockton want to revisit pension reductions. Connie Cochran, a city spokeswoman, said that city workers had already seen their pay and retiree health benefits cut. In addition, she said, Calpers told the city that its only option was to pay a $970 million termination fee to leave the system, and Stockton could not afford it.

Mayor Silva said the city’s plan would help it out of bankruptcy sometime late next spring, if all goes well, after the judge hearing the case has time to rule on its fairness and viability and negotiations can be completed with one final bondholding creditor.

“We will lose the stigma of bankruptcy, and it will buy us time,” he said.
Getting Out of bankruptcy the Worst Possible Way

I am hoping the judge tells Stockton its plan is not viable (for the simple reason it isn't viable).

Raising taxes is not the way you deal with preposterous pension obligations.

When CalPERS  told the city "the only option was to pay a $970 million termination fee to leave the system" the city could have and should have spit in their face (not literally of course).

The polite way of doing that would have been a balanced blend of pension haircuts and bond haircuts.

Instead, by putting 100% of the burden on bondholders, the city virtually ensured inability to issue further bonds at a reasonable interest rate. Moreover, the city punished taxpayers, and did nothing to fix untenable pension obligations.

Stockton is doomed unless the bankruptcy judge handing the case sends Stockton back to the drawing board.

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

"Dirty Jobs" Mike Rowe on the High Cost of College; Get Ready to Get Dirty; What's Wrong With the College Model?

Mike Rowe, host of the Discovery Channel series Dirty Jobs chimes in on the US education system in an interview with Nick Gillespie on Reason.Com.



click on above link if video does not play

Rowe: If we are lending money that ostensibly we don't have to kids who have no hope of making it back in order to train them for jobs that clearly don't exist, I might suggest that we've gone around the bend a little bit.

Gillespie: We are doing everything we can to push every kid to go to a four-year college. What's wrong with that?
Rowe: It's not working. You have a trillion dollars in debt on the student loan side. You have a skills gap, something [interrupted by Gillespie]

Gillespie: What do you mean a skills gap?
Rowe: Right now you have about 3 million jobs in transportation, commerce, trades, that can't be filled.  

Gillespie: Anything from carpentry to electricians, plumbers,
Rowe: [interjects] Heating, electric, truck drivers, welders is a big one, jobs that typically parents don't sit down and say to their kids - look if all goes well, this is what you are going to do.

Rowe's advice is summed up in the following clip I took from the video.

Get Ready to Get Dirty



The video is a lengthy 41 minutes but Reason.com provides this synopsis so you can skip to topics that interest you.

  • His bad experience with a high school guidance counselor (3:20)
  • Why he provides scholarships based on work ethic (6:57)
  • The problem with taxpayer-supported college loans (8:40)
  • Why America demonizes dirty jobs (11:32)
  • The happiest day of his life (13:14)
  • Why following your passion is terrible advice (17:05)
  • Why it's so hard to hire good people (21:04)
  • The hidden cost of regulatory compliance (23:16)
  • The problem with Obama's promise to create shovel ready jobs (33:05)
  • Efficiency versus effectiveness (34:17)
  • Life after Dirty Jobs (38:24)

Work Smart, Not Hard



The 3:20 mark discusses this higher education ad campaign thrust upon Rowe by Mr. Dunbar, high school guidance counselor

Picking up at the 7:50 mark ...

Gillespie: When did the idea disappear that you should learn a skill that is actually useful or in need?
Rowe: That's a good question for a real social anthropologist. My own opinion is there is a kind of inertia that most parents would agree that it exists. And it's  a desire see something better for your kids than you had. The question of course is "what is better?" Is it better, right now today, to have $140,000 in debt but a degree from Georgetown, or is it better to be that kid I described in Butler.

It's an excellent interview, please listen to at least a portion of it.

My Take

  1. At the right price, college may be a good choice, but it's not always a good choice. 
  2. Government interference in education has so increased the cost of education, and so many kids are pushed into totally useless degrees, that college is an increasingly poor choice until costs come down. 
  3. Points one and two especially hold true for those in programs that qualify a person to do nothing but work as a retail clerk upon graduation.
  4. To help bring down education costs, we need more alternative courses, more two-year trade courses, more online courses, reduced administration costs, and termination of defined benefit pension plans for teachers. Simply put, we need more competition and reduced costs at every point in the system.
  5. The student loan program is an abysmal failure and should be abolished.

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

Italy's "Pitchfork Protests" Spread to Rome; Interior Minister Warns of "Drift Into Rebellion"

Over the past four days "pitchfork protests" have spread to numerous cities, disrupting road and rail travel in protest of the state of the economy.

The pitchfork movement started with a loose group of Sicilian farmers concerned about rising taxes and cuts to agricultural state funds, then evolved into a nationwide umbrella grouping of truckers, small businessman, the unemployed, low-paid workers, rightwing extremists and ultras football supporters according to IBTimes.

Map of Major Protests



Map courtesy of Stratfor.

Pitchfork Protests Spread to Rome

Reuters reports Italy's 'pitchfork protests,' in fourth day, spread to Rome.
Italy's "pitchfork" protests spread to Rome on Thursday when hundreds of students clashed with police and threw firecrackers outside a university where government ministers were attending a conference.

Truckers, small businessmen, the unemployed, students and low-paid workers have staged four days of rallies in cities from Turin in the north to Sicily in the south in the name of the "pitchfork" movement, originally a loosely organized group of farmers from Sicily.
"There are millions of us and we are growing by the hour. This government has to go," said Danilo Calvani, a farmer who has emerged as one of the leader of the protests.

Interior Minister Angelino Alfano told parliament the unrest could "lead to a spiral of rebellion against national and European institutions."

The protests are fuelled by falling incomes, unemployment above 12 percent and at a record 41 percent among people below 25, and graft and scandals among politicians widely seen as serving their own rather than the country's interests.

The protesters' precise aims remain vague beyond demanding the government be replaced and parliament dissolved. Targets range from tax collection agency Equitalia and high fuel prices to privileged elites and the euro.

Mario Borghezio, an outspoken Northern League member of the European Parliament, on Thursday used the protests to attack the euro and European Central Bank chief Mario Draghi.

"The wind of revolt that is blowing in Italy today is the direct result of the euro and the wrong choices made by the EU and the ECB," he said during the ECB chief's testimony to the European Parliament.

'Pitchfork' Protests Rattle Italian Government

The BBC reports 'Pitchfork' Protests Rattle Italian Government
First it was the anti-establishment Five Star Movement, led by charismatic comedian Beppe Grillo, that shook up Italy's political landscape.

Now a new populist movement headed by disgruntled farmers and lorry drivers has taken its anti-austerity message to Italy's streets and squares.

The past week has seen four days of rallies and protest actions across the country by the Forconi, or "Pitchforks". The name derives from the movement's roots among struggling farmers in Sicily, who in 2011 and 2012 staged strikes and roadblocks to demand more help from the government.

The loose-knit grouping has expanded nationwide and has drawn in a variety of groups who have suffered badly as Italy's economic crisis has dragged on. The protesters include road hauliers, small businessmen, low-paid workers, the unemployed and students.

Some of the protesters complain of excessive state regulation and are unhappy about austerity-driven tax hikes. Others have denounced capitalism and the euro.

All seem to be united in their contempt for Italy's politicians, who are accused of failing to address the country's grave economic problems.

'Drift into rebellion'

The Italian government on Thursday expressed its concern and Interior Minister Angelino Alfano warned of the danger of a "drift into rebellion" by the movement. He spoke of the protests drawing in elements bent on violence.
Beppe Grillo Urges Police to Join Movement

Reuters reports Italy's Grillo urges police to join "pitchfork" protests
The head of Italy's anti-establishment 5-Star Movement Beppe Grillo urged police on Tuesday to join protesters as a wave of "pitchfork" protests gave vent to bitter frustration after years of austerity and recession.

Grillo, whose movement has no direct connection with the protests, welcomed reports that several police officers took off their riot helmets and expressed sympathy with demonstrators on Monday.

"Italians are on your side. Join them. At the next demonstrations, tell your guys to take off their helmets and fraternize with the citizens," he wrote on his popular blog. "It will be an extreme, peaceful and revolutionary signal and Italy will change," he wrote.

Though there are no direct ties to Grillo's movement, both tap into the growing anger in many parts of Italy after the worst recession in postwar history.

Letta has warned repeatedly that opposition to the government and the EU is growing strongly, fuelled by sacrifices needed to keep public finances in order and which could result in a massive anti-EU vote in next year's European parliamentary elections.
Eventually, Will Come a Time When ....

I repeat once again my 2011 message Eventually, Will Come a Time When ....

Eventually, there will come a time when a populist office-seeker will stand before the voters, hold up a copy of the EU treaty and (correctly) declare all the "bail out" debt foisted on their country to be null and void. That person will be elected.

Greece, Finland, Germany, Belgium, and even France are possibilities. All it will take, is for one charismatic person, timing social mood correctly, to say precisely one right thing at exactly the right time. It will happen.

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

Using Universal Analytics to Measure Movement

The following is a guest post by Benjamin Mangold, Director of Digital & Analytics at Loves Data, a Google Analytics Certified Partner.

Universal Analytics includes new JavaScript tracking code for websites and new mobile SDKs. But Universal Analytics is a lot more than that - it also gives us the Measurement Protocol, which allows us to send data to Google Analytics without the need to use the tracking code or SDKs.

Earlier this year, the team at Loves Data used Universal Analytics and the Measurement Protocol to measure their caffeine consumption and tie it to the team’s productivity. Our next challenge: measuring our team’s movement into Google Analytics. With the help of an Xbox Kinect, movement recognition software, and of course the Measurement Protocol, we started getting creative!



Business Applications and Analysis Opportunities

So measuring movement is fun and although we can measure total and unique dance moves you might be wondering about the business applications. This is where the power of measuring offline interactions can really start to be seen. The Measurement Protocol enables business applications such as:
  • Measuring in-store purchases and tying purchases to your online data
  • Understanding behaviour across any connected device, including gaming consoles
  • Comparing offline billboard impressions to online display ad impressions
  • Getting insights into your audience’s online to offline journey
Once you have tied your online and offline data together you can begin to analyze the full impact of your different touch points. For example, if you are collecting contact details online, you can use Google Analytics to then understand who actually converts offline, whether this conversion is attending an information session or making a purchase at a cash register. The analysis possibilities made available by the Measurement Protocol are truly amazing.

Thursday, December 12, 2013

Does the US Have Enough Military Bases?

Inquiring minds might be interested in the analysis of artist Josh Begley who catalogs every U.S. military base in the world. Here is a representation.



Gizmodo comments on the Chilling Geometry of Every US Military Base Seen From Space.
The United States military is everywhere. It's so big that it's hard to quantify just how massive it is—any number used to describe it is so large that it defies the understanding of an ordinary human brain.

A self-described "data artist," Begley has started an ongoing effort to collect satellite imagery from every U.S. military installation in the world. The initial map, parked at Empire.is, collects all of the data listed in the Department of Defense's 2013 Base Structure Report. The official report doesn't include the military's secret bases, though, so Begley has included others that have been unearthed—and he encourages people to submit information for others that he's missing.

The resulting collection is mind-boggling. At the top, there's a zoomable world map with all of the installations plotted. Keep zooming in, and eventually the map will reveal the satellite imagery for each location, assuming it exists. As Begley points out, plenty of sites have been censored from public view.
Mapping the United States Military Footprint

Please consider Mapping the United States Military Footprint on Google Maps Mania (an unofficial Google Maps blog tracking the websites, mashups and tools being influenced by Google Maps).
The United States has well over 700 military bases across the planet with official facilities in at least 37 countries. Empire.is is a map showing the location of United States military installations, not only in the US but around the world.

As well as mapping known United States military installations Empire.es also provides aerial imagery of a large number of the bases, sourced from Google and Bing Maps.

The data for the military locations is from the 2013 Base Structure Report and from sites reported by journalists and geographers. The author of the map says that there are still many military bases missing from the map.

Image from Empire.Is 



Questions

  1. Given that any satellite can pick up this information, is there any rational reason to have "secret bases"?
  2. Is any base really a secret?
  3. Would US security be hampered if 25% of the bases were shut down? 50%? 80%?

The answers are 1-no, 2-no, 3-no, no, no.

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

Bank of Japan Vows to Stick with Easy Money Policy; If It Doesn't Work, Do More of It

The massive number of Yen shorts may be a caution signal, but fundamentally, Japan's prime minister Shinzo Abe is out of his mind with his inflation policies.

Abe hijacked the Bank of Japan with policy appointments under his influence and now the BoJ vows to stick with easy money policy even though over 100% of the recorded inflation is due to the declining yen, not higher wages as Abe wants.

The Financial Times reports Bank of Japan Vows to Stick with Easy Money Policy.
The Bank of Japan will keep its highly expansionary monetary policy in place until inflation hits and stabilises at its 2 per cent target, the central bank’s governor said on Thursday, adding it would take more easing measures if price rises flagged.

“We intend to achieve the 2 per cent inflation target and maintain that in a stable manner,” Haruhiko Kuroda told the Financial Times, suggesting ultra-easy money could remain

“It’s not good just to touch on 2 per cent inflation and then go down to 1 per cent or less than 1 per cent.”in place well beyond the two-year timeframe the BoJ has given itself to reach the goal.

Since his appointment by Mr Abe this spring, Mr Kuroda has committed the BoJ to buying some Y50tn of Japanese government bonds a year – a far more aggressive policy than his predecessors’ and enough to double the country’s monetary base by the end of next year.

Yet sceptics have noted that much of the inflation generated has been the result of a steep fall in the value of the yen, which has pushed up the cost of imports, most notably oil and gas.

Mr Kuroda, a former finance ministry official, reiterated his support for tighter fiscal policy to rein in Japan’s huge government debt, which is approaching two and a half years’ economic output. He reiterated his support for a planned doubling of the national sales tax, to 10 per cent by 2015, and said further tax rises or spending cuts would be needed to meet a goal of eliminating the deficit, minus interest payments, by 2020.
Arrogance, Incompetence

It is a sign of arrogance as well as incompetence to believe desires take precedence over reality. And with Abe's appointments, the bank of Japan is clearly way out of control.

Doubling taxes in a recession is insane. Supposedly Abe will make up for it with fiscal stimulus.

But even if Japan allocated 100% of tax revenues to stimulus, a fundamental economic point is governments do not spend money wisely.

Forcing down interest rates harms those on fixed income. And given Japan's huge demographic problem, spending money on more infrastructure (or whatever else Abe wants to spend the stimulus on) is a pure waste of money.

Those on fixed income actually welcome falling prices, but Abe wants them higher. So far, Abe's trashing of the Yen has prices has translated into higher energy costs and food costs, not wage hikes that Abe wants.

Is he concerned? Apparently not. Abe's policy (as with most politicians) is "If It Doesn't Work, Do More of It".

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

Spain's Catalonia Region to Hold "Independence Referendum" November 2014; Madrid Vows to Block Vote; Independencia!

Political anxiety is heating up in Spain. In a direct challenge to Spain's central government the Wall Street Journal reports Catalonia Political Parties Agree to Hold Independence Referendum.
Political leaders in Spain's wealthy Catalonia region set Nov. 9, 2014 as a date for a referendum on declaring independence from Spain, but the national government immediately said it would move to block such a vote as unconstitutional.

The latest announcement from Catalonia, which has long chafed under what it calls economic and cultural dominance from Madrid, sets Spain's leading industrial region on a collision course with the central government, with enormous stakes for both sides and an outcome that is difficult to predict.

Catalan regional leader Artur Mas said on Thursday that major political parties had agreed on the wording of a two-part question to be put on a ballot next November. The first part is: "Do you want Catalonia to be a State?" The second part is: "Do you want Catalonia to be an independent State?" Mr. Mas, who had pledged the referendum after elections last year, said the question was "inclusive, and at the same time clear and concrete." He added that there would be more details in coming days on how the vote would be conducted. 

Recent polls indicate that around 80% of Catalonia's 7.5 million citizens favor a referendum. Some polls show a much narrower majority favoring independence, though how the question is phrased has an important bearing on the results.

Strains have long existed between Madrid and Catalonia, the country's leading export region, which has a distinctive language and culture.

But the economic crisis that has battered Spain since 2008 has further frayed the relationship, with Catalans complaining they pay much more in taxes than they receive in investments. Some 43 cents of every euro Catalonia pays in taxes doesn't come home, according to data compiled by the Catalan government. Another factor fueling Catalan discontent was a move by Spanish courts in 2010 to strike down key parts of a statute that would have given more autonomy to Catalonia.

This past Sept. 11, a regional holiday in Catalonia, more than a million pro-independence activists showed their strength by turning out to form a 250-mile human chain running the length of the region.



Activists calling for the independence of Catalonia, currently a region of Spain, take part in a 'human chain' during a protest on Wednesday. Agence France-Presse/Getty Images

Independencia!

Here's an interesting image from International Business Times.



Spain to Block Poll

ABC News reports Spain to Block Independence Poll
The president of Spain's regional government of Catalonia said Thursday he wants to hold an independence referendum on Nov. 9, 2014, but the Spanish government immediately said no.

Justice Minister Alberto Ruiz Gallardon responded to Mas' announcement, saying a referendum would be illegal and would not be allowed.

Spain's Constitution says only the central government in Madrid can call a referendum, and Prime Minister Mariano Rajoy recently rejected a request by Mas to allow one. The government has not said what it might do to prevent a ballot.

Mas said the referendum date was set almost a year away so as to give ample time for negotiations with Madrid on "the way to stage the consultation legally."

Scotland is staging an independence referendum next year, on Sept. 18. That vote has been approved by the British government.

Mas began pushing for a referendum after he failed to clinch a better financial pact for Catalonia with the central government in 2012. The referendum proposal got the support of some 1 million people who turned out at two demonstrations held since then.

The possibility of a region having the right to decide its future has stirred much political debate and raised questions as to whether it is time to reform the 1978 Constitution to ease territorial discontent. The Basque region, which has traditionally sought greater powers, failed in a bid to hold a self-determination referendum several years ago.

Catalonia is one of the country's most powerful regions and represents roughly a fifth of Spain's 1.1 trillion euro ($1.5 trillion) GDP. Its population of 7.5 million is greater than those of EU members such as Denmark, Ireland or Finland.

Spain has 17 regions, each with substantial autonomy but with no control over key areas such as defense, foreign affairs, ports and airports, and in the making of national economic and financial decisions.
Questions

Will the central government send in troops to block the vote? If so, how much economic and social damage would that cause?

It's difficult to say precisely what will happen, but things are heating up politically to go along with huge economic strife in Spain.

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

Moody's Puts Puerto Rico on Downgrade to Junk Review Citing Very High Debt, Pension Obligations, Chronic Deficits; Exodus Underway

Deficit spending and untenable pension obligations frequently go together, and always cause problems when they do.

Coupled with a buildup of debt, and a very bloated public sector (which also go hand-in-hand) Puerto Rico is about to fall to junk level.

Please consider Moody's puts Puerto Rico on review for downgrade.
Citing Puerto Rico's weak finances and economy, Moody's Investors Service put the commonwealth's general obligation rating of Baa3, the company's lowest investment grade rating, on review for downgrade on Wednesday.

Moody's also placed ratings capped by or linked to Puerto Rico's general obligation rating on review, including the Puerto Rico Sales Tax Financing Corporation's senior and junior lien bonds.

The moves affect approximately $52 billion of rated debt, the rating agency said in a statement.

Moody's said it is concerned about Puerto Rico's "weakening liquidity, increasing reliance on external short-term debt, and constrained market access, within the context of a weakened and now sluggish economy."

"These developments exacerbate the longstanding financial strain brought by the commonwealth's very high debt load and pension obligations, as well as its chronic budget deficits," Moody's said.

A major issuer of municipal bonds, Puerto Rico has been in or near recession for eight years. It has suffered from a loss of U.S. federal government economic support, spending cuts by its own government, high oil prices and population decline.
Exodus Underway

The Washington Post reports Puerto Rico confronts a rising economic misery.
Boxes and wooden crates filled with household items bound for the U.S. mainland are stacked high in the Rosa del Monte moving company’s cavernous warehouse, evidence of the historic rush of people abandoning this beautiful island.

Puerto Rico lost 54,000 residents — 1.5 percent of its population — between 2010 and 2012 alone. Since recession struck in 2006, the population has shrunk by more than 138,000 to 3.7 million, with the vast majority of the outflow headed to the mainland.

And while government workers make up about a quarter of the commonwealth’s workforce — much higher than the U.S. average of 16 percent — their ranks are shrinking as the pervasive debt and economic problems careen toward a reckoning. Now, just over 41 percent of working-age Puerto Ricans are in a job or even looking for one.

As work has disappeared, more Puerto Ricans have relied on the government to survive: About a third of the commonwealth’s population relies on food stamps, and residents of the island are twice as likely as those on the mainland to receive Social Security disability benefits, according to researchers.
Puerto Rico Unemployment Rate



Expect Default

On December 1, in Puerto Rico the Next Detroit? I said ...
Puerto Rico has been in recession for 8 years. The unemployment rate is 15% and debt has piled up to the tune of $70 billion. How did Puerto Rico get into trouble? The short answer is the same way as Detroit: loss of industry coupled with lavish pensions.

Job flight, high crime rates, and huge pension woes in Puerto Rico seem similar to the problems in Detroit. However, there is no constitutional provision that allows US states and Commonwealths to declare bankruptcy.

Compounding the problem, Puerto Rico passed a massive set of tax hikes including corporate taxes, a broadened sales tax and a new gross receipts levy, hoping to get its budget under control. Given that tax hikes in the middle of a recession are about the worst possible choice, the situation is ominous.

So how is Puerto Rico's debt going to be paid back? The answer is it won't. Although, bankruptcy is out of the question, nothing can stop a default except a bailout by the US. Given that handouts from this Republican Congress are unlikely, look for Puerto Rico to default.
Puerto Rico is Toast

Of $70 billion in debt, $52 billion is subject to a downgrade to junk status. The rest may not even be rated.

A close friend with ties to the region writes ...
Those leaving are predominantly from the upper end of society, as they see opportunity melting away and fear a dead end for their children. Upper middle class Puerto Ricans are educated, speak English, and are absolutely free to move to the US and find jobs. As you noted, the upper 40% pay 106% of the taxes. So the exodus is obliterating the tax base. The feds don't want a run out of Puerto Rico.

But ultimately, the feds will have to step in, Republican Congress or not. The same policy that makes it completely easy for Puerto Ricans to move to the US means that if a panicked "run out of Puerto Rico" starts, it will be a smoking ruin. That would be extremely harmful to US foreign policy.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Loop: A Mobile Wallet Game Changer


Loop is an exciting new mobile wallet solution that has achieved near ubiquitous acceptance with more than 90% of POS terminals without any infrastructure change by the merchant, the acquirer, or the issuers. 


While other mobile wallet players are talking about NFC, EMV, barcodes, BLE and the cloud, Boston-based start-up Loop has invented an incredible mobile solution that intelligently communicates with the existing retail mag stripe reader interface today – without another plastic card and without the merchant needing to change anything!



Compared to the recently announced Coin solution that captured the hearts and more than 7M YouTube sets of eyes of consumers and the fintech world a few weeks ago (see Bank Marketing Strategy post on Coin), Loop has been amazingly under the payments 'next shiny object' radar during its funding process. There was a wave of fintech buzz in October, including several articles and a presentation at Money2020, but not much since.

In an exclusive interview with Will Graylin, CEO of LoopPay, Inc, he said, "Loop has been focused on product development and our soft launch which will take place in about 3 weeks. We did a small PR effort at the time of our Kickstarter campaign, but we did not want to blow a lot of hot air before we had our product ready for market and had happy users." He continued, "Many have overhyped their solution and have failed. We are more interested in the long run and are building solid a foundation for our future with solid partners."

Given that Loop is delivering a solution that automatically transforms virtually every existing POS terminal mag stripe reader into a contactless payment receiver, I don't expect Loop to be in the shadows much longer.

That's right, unlike other solutions that require merchant terminal conversion or a programmable card with limited security, memory, card or battery capacity, Loop integrates the highest level of Payment Card Industry (PCI) security and can store hundreds of payment, gift, loyalty, reward or ID cards into a smartphone.

To 'trick' the mag stripe reader into thinking a physical card is being swiped, the consumer will need one of several add on devices available from Loop to emulate the card swipe including a Fob (being sent to 2,000 pre-order customers and Kickstarter backers this month), smartphone charging cases (available for iPhone 5 and 5s in early 2014 and other devices shortly thereafter) and eventually wearable devices.

Once cards are 'swiped' into the LoopWallet app using the Square like device, the user can select the card they want to use at payments. While the process initially will use additional consumer hardware, ultimately, Loop would prefer that their Magnetic Secure Transmission (MST) technology be directly embedded into the mobile device itself, eliminating the need to carry any additional hardware.

Watch the video below and see if you agree with me that this is an ingenious new mobile payments innovation.


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What is Loop?


Loop co-founders Will Graylin and George Wallner think they have the killer mobile wallet solution. Their invention, which they've dubbed Loop, allows consumers to use their iPhone or Android phone to buy virtually anything anywhere they'd normally use a debit/credit card. 

The best part? It works with the existing mag stripe swipe terminals that nearly all merchants use today, so merchants don't need to make any changes to accept Loop payments . This is a major milestone in the mobile payments race! The loop app can also provide timely insight (gift card balance, reward points, available balance) and can serve offers from merchants and card issuers.

Oversubscribed in initial Kickstarter fund raising efforts, Loop has just collected $10 million in Series A funding, setting the stage for Series B funding in early 2014 to will fuel future growth.

In my exclusive interview Graylin said, "We see Loop as the only contactless solution that has ubiquitous acceptance on day one." He continued, "Given that all other technologies require changes in the POS to have contactless mobile transactions, or require infrastructure or system changes by merchants, that puts Loop in a very good position to lead the way as the first wallet solution that works across merchants."

This is a major distinction to other mobile wallet solutions. Beyond mag stripe POS system readers, the only new POS interface to have achieved more than 10% acceptance across merchants is EMV, and that took 2 decades to reach 50% worldwide acceptance and is still not here in the U.S. And while EMV will come eventually, it will most likely continue to co-exist with magstripe readers for decades. 

Since the mag stripe will continue to be used by most debit card, gift card and loyalty card holders, Loop could be either a 'bridge' to a full mobile solution or 'an end solution'. According to Cherian Abraham, mobile commerce and payments lead at Experian Global Consulting, "As far as acceptance, Loop has fair winds. No longer is there a need to search for merchants who accept your choice of payment. And guessing by the state of EMV – even when it's been called a 'bridge solution' – Loop can expect a very long bridge."

Tomorrow's Transactions interview with Will Graylin, CEO of Loop by David Birch, Director at U.K. based Consult Hyperion available here.


How Does Loop Work?

Unlike most other mobile wallet solutions, Loop doesn't require a special dedicated transaction network. Instead, it mimics the magnetic transmission frequency usually held on a card's mag stripe, allowing it to be received by a traditional POS card reader. When the Fob device or MST enabled ChargeCase is held close to the reader (about 4 inches), the transaction occurs exactly the same when a card is swiped.

Loop Fob Delivery Package
Loop Fob in Colorful Carrier

Initially, Loop will only work with a $34 Fob device that comes in a variety of colors (shown above). With initial shipments occurring this month, the Fob can be replaced early next year with an MST enabled charging case for owners of an iPhone 5 or 5s. 

The Fob is a small audio jack device with a card reader to scan a consumer's cards. This Fob is compatible with both iOS (app available this month) and Android devices (app available in early 2014). Since the Fob also holds your payment information, it doesn't need to be connected to your phone to make payments. It pays using whatever card you selected as your default payment card. If you want to change the card, you can reconnect the Fob to the phone and select the alternative card you want to use.

When a consumer receives their introductory kit, they follow these simple steps:
        1. Download the LoopWallet App
        2. Simply swipe debit, credit, loyalty, IDs, membership and gift cards using the swiping Fob device provided (similar to a Square device)
        3. Use the LoopWallet app to select the card you want to use
        4. Place the Fob (or ChargeCase) near the POS card reader and hit 'transmit' on the screen or device to make purchases
Loop gives the consumer control over what to include in their LoopWallet. Load what cards you want and the LoopWallet app allows a consumer to organize and manage the cards as desired. A consumer can even store passwords within the application and take photos of the cards (unlockable with a pin).



The Loop ChargeCase (available in early 2014 for iPhone 5 and 5s) is a protective case that serves as both a transmission device as well as providing 60% more battery power similar to a Mophie battery case. A swiping device is included with the ChargeCase solution.



Loop Security


From initial LoopWallet set-up, to ordering the Fob or ChargingCase to initiation of a transaction, it is clear that security has been a top priority for LoopPay designers.

When ordering the device itself, security measures are in place to ensure that the person ordering the device can be authenticated. When I purchased the Loop FOB and ChargeCase (yeah, I did both), Loop provided security questions ranging from the last four digits of my social security number to previous address validation. This ensures that if someone stole my Fob, they would still need to have access to my name and password to access my LoopWallet.

In addition, when the transaction is taking place, the device must be less than 4 inches away from the mag stripe reader and the encrypted information only gets transmitted for a few seconds. No sensitive data is stored in Loop's servers and all card information is secured by a 4-digit pin (beyond what you need to access your phone).

In an exclusive interview with Damien Balsan, COO of LoppPay, Inc., he provide a list of security measures their team has put into place for enhanced security:
      1. We are preventing cards from being used by anyone other than the owner himself/herself. The user has to register to LOOP Wallet thru a KYC Process and our server is authorizing any card loaded in the wallet. You could only enter cards with the users name.
      2. Our server is a Level 1PCI certified server. It does not store Track Data. The card information is stored in a Global Platform Secure Element.
      3. The LOOP experience is quite intuitive for a consumer: he/she loads all his cards one time whether payment cards or ID/Loyalty cards and he can chose the level of security he desires.
A great series of Loop usage and security FAQ's available here.

Potential Drawbacks


The two most likely drawbacks of Loop would probably be the cost ($34 for a Loop Fob and $99 for the ChargeCase) and the desire for more simplicity. There is also the issue of 'the other 10 percent' of places where Loop won't work.

Cost

Requiring consumers to invest in specialized hardware could be a significant obstacle to acceptance. While Coin may have been able to get people to invest in their card technology at $50 (early bird offer), there is no history on the potential mass appeal of a mobile payment device at any cost and certainly not at a cost of $99.

In response to this issue, Loop's Graylin told me, "Today, consumers pay $99 for a Mophie charge case. For the same price, we give them a mobile wallet that can be used at almost every store." He added, "Obviously, being able to claim 90%+ acceptance at current retail locations is a big plus, but it remains to be seen if consumers believe the cost offsets the current convenience afforded by carrying plastic."

He also added, "Just consider the benefit of being able to pay at a store the few times that you have forgotten your wallet. Many of our pilot users and testers remind us this all the time."

Simplicity

"In the payments space, Coin has almost an Apple-like simplicity to it, stated Deva Annamalai, SVP of marketing technology and data insights at Salt Lake City based Zions Bancorporation. "On the other hand, the Fob is a form factor that is almost a step back in time."

For any payments solution to stand the test of time with today's digital consumer, it will need to be easy to understand and simple to use on a daily basis. The iPhone 5 ChargeCase with integrated Loop technology is definitely a step in the right direction, but will need to be offered for other Android and Apple devices quickly for the solution to be embraced.

The 'Other 10%'

The fact that Loop works on approximately 92% of the POS systems in the country, there are the 'other 10%' of locations that users need to be aware of. For instance, Loop will not work on most gas station devices or at ATMs or on machines that that use 'two-sided' readers (older technology). For this reason, Loop recommends that users bring along a 'go to' card for those places that Loop may not work. That said, initial tests have shown that Loop will work in most locations.

The Future of Loop


In addition to the shipping of an MST enabled ChargeCase ($99, 1200 mAh battery) for the iPhone 5 and 5s in early 2014, a potential thinner and more powerful ChargeCase may follow. In addition, Graylin has hinted on several occasions that other form factors (possibly wearable technology) are in development. 

There have also been discussions of a Bluetooth LE-enabled plastic card (sounds like Coin) and a mobile wallet product aimed at students who prefer not to carry college IDs, payment cards, loyalty cards, etc.

Potentially more important to the industry, Loop has been having discussions with handset makers to see if Loop could be integrated into future phones. As mentioned by Cherian Abraham from Experian, "Loop's ultimate goal will be to be aggressive with its future form factors so that it no longer draws attention to itself and disappears – into phones or its accessories. Aesthetically it’s dongle has to be like Square, and that’s tough when you are not Square."

When I asked the team at Loop about the future, they said the main question that they get over and over is how will their solution work after EMV becomes more prevalent in the US. Their response was that the Loop solution will still be able to work. They referred to the fact that they will continue to co-exist with magstripe readers for decades to come and are confident that their dynamic data solutions will be appealing for many issuers. 

While Loop is definitely an ingenious solution for an industry looking for a go to mobile wallet solution, the road ahead is not all smooth sailing. Not only does Loop need to convince Customer 3.0 that a mobile wallet solution with a physical Fob or ChargeCase is a value added solution worth the cost, but they also need to persuade skeptical consumers who continue to worry about security and privacy issues around mobile payments.

LoopPay LinkedIn page

LoopPay Facebook page

LoopPay on Twitter

Additional Resources











Just in time for the holidays — viewability across the Google Display Network

Even the jingliest, jolliest ad of the season can’t work its magic unless it gets seen. That has been the driving force behind a number of investments we’ve been making over the past year to make viewability (or whether an ad is actually visible on a page) a core part of our products. Offering improved insights, transparency and actionability, viewability is key for brand advertisers to get the most out of the web.

Today, we’re taking an important step towards this goal by making it possible to buy based on viewability — in real time — across the more than two million sites in the Google Display Network. Viewability was already available for reservations buys on the Google Display Network, now this solution is available in the auction on a CPM basis globally as well, across desktop, mobile and tablet.  In other words, you can now choose to pay for ONLY those impressions where your ad has a chance to be seen.

This new buying option is based on Active View, our MRC-accredited viewability measurement solution. Through an algorithmic review of publisher sites, our systems will show ads only in ad slots most likely to be viewable, and you only pay for the ones measured as viewable according to the IAB/3MS standard: 50% of the ad visible on the page for one second or longer. You will also see a report of how many viewable impressions you received for any given campaign, which can help make future campaigns even more effective.
As we’ve said before, making viewability a basis for buying, selling and measuring media can help transform the digital marketplace. With access to more meaningful metrics, brand advertisers can unleash their most creative campaigns, knowing they’ll have a chance to shine. And publishers will be able to more fairly value all of their inventory, not just those spots considered “above-the-fold.” We’ll continue to work with our partners in the months to come to make this a reality, and to ensure that every ad has a chance for its holiday wish to come true.

For more information, check out the help center to get started.

Posted by James Beser, Group Product Manager

Wednesday, December 11, 2013

Introducing the Knightscope K5 Security Robot, Effective Cost $6.25 per Hour

Knightscope Inc. has introduced a crime-fighting R2D2 look-alike robot with an effective cost of $6.25 per hour.
Silicon Valley startup Knightscope Inc. is developing an "Autonomous Data Machine" with the potential to perform the oftentimes monotonous task of keeping watch over property more cost effectively and comprehensively than a human security guard. The company today revealed it has already started securing beta customers for its first two models, the Knightscope K5 and K10.

The robots, which share a passing resemblance to R2-D2, collect real-time data via a network of sensors. These sensors can include a 360-degree high definition video camera, high quality microphones, thermal imaging sensor, infrared sensor, radar, lidar, ultrasonic speed and distance sensors, air quality sensor, and optical character recognition technology for scanning things like license plates.

Knightscope says the K10 model is intended for vast open areas and on private roads, while the K5 robot is better suited to more space-constrained environments.
K5 vs. R2D2



K5 Closeup




Effective Cost $6.25 per Hour

Bloomberg reports Crime-Fighting Robotic Guard... for $6.25 an Hour



Above video: Knightscope CEO Bill Santana Li discusses the company's security robots with Emily Chang on Bloomberg Television's "Bloomberg West."

K5 ready for prime time yet? Perhaps not, but they do have a dozen beta customers lined up. Regardless, this introduction is an indication of where things are headed.

The most impressive thing to me is the company just started in April. Look at what they have done in a short time. The Knightscope Team Bio is impressive.

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

Rich Don't Pay Most of the Taxes (They Pay All of Them); Reflections on the "Almost Rich"

Counting transfer payments such as foods stamps, Medicaid, Medicare, and other government welfare, Congressional Budget Office (CBO) analysis shows the top 40% pay 106% of all taxes (more than all of them). In turn the bottom 60% get money back.

Please consider The rich do not pay the most taxes, they pay ALL the taxes by CNBC reporter Jane Wells.

Buried inside a Congressional Budget Office report this week was this nugget: when it comes to individual income taxes, the top 40 percent of wage earners in America pay 106 percent of the taxes. The bottom 40 percent...pay negative 9 percent.

The key table is in Box 1 on PDF page 11 (report page 7) of Distribution of Household Income and Taxes. The report was released in December 2013 but data is for 2010.

Highlighting is mine.



Key Facts

  • The bottom 20% had average income of $8,100 but received $22,700 in annual assistance, netting $30,800 in after-tax income.
  • The second quintile had average income of $30,700 but received $15,200 in annual assistance, netting $43,400 in after-tax income.
  • The middle quintile received a bit more than they paid out, with $2,600 in annual assistance to be precise.

That money had to come from somewhere, and it did.

  • The highest quintile paid $52,500 more in taxes each year than they got back.
  • The second-highest quintile paid $8,800 more in taxes each than they got back.

Wells concludes ...

Fair or not, I will let you be the judge. People who make more should pay more, generally speaking. In America, they are. Yes, the rich (and almost rich) are getting richer. When it comes to individual income taxes, they're also covering the entire bill. And leaving a tip.

Reflections on the "Almost Rich"

I would be hard-pressed to call the fourth quintile "almost rich". And I rather doubt they are getting much, if any richer, inflation-adjusted.

The benefits to this recovery are concentrated in the top 10%, with most of that in the top 1%. Thank the Fed for that outcome.

For further discussion, please see ...


Regardless of who you think is to blame for rising income inequality, the report sheds a great deal of light on where tax dollars are coming from, and where they go.

Fair is in the eyes of the beholder.

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

High-Powered Idiocy from Academic Wonderland; Three Reasons Banks Not Lending; Blinder is Blind

Alan Blinder, a professor of economics and public affairs at Princeton University and former vice chairman of the Federal Reserve, is back at it.

In an Op-Ed in the Wall Street Journal, Blinder says "Don't only drop the interest rate paid on banks' excess reserves, charge them."

Please consider The Fed Plan to Revive High-Powered Money.
Unless you are part of the tiny portion of humanity that dotes on every utterance of the Federal Open Market Committee, you probably missed an important statement regarding the arcane world of "excess reserves" buried deep in the minutes of its Oct. 29-30 policy meeting. It reads: "[M]ost participants thought that a reduction by the Board of Governors in the interest rate paid on excess reserves could be worth considering at some stage."

As perhaps the longest-running promoter of reducing the interest paid on excess reserves, even turning the rate negative, I can assure you that those buried words were momentous. The Fed is famously given to understatement. So when it says that "most" members of its policy committee think a change "could be worth considering," that's almost like saying they love the idea. That's news because they haven't loved it before.

Not long ago—say, until Lehman Brothers failed in September 2008—banks held virtually no excess reserves because idle cash earned them nothing. But today they hold a whopping $2.5 trillion in excess reserves, on which the Fed pays them an interest rate of 25 basis points—for an annual total of about $6.25 billion. That 25 basis points, what the Fed calls the IOER (interest on excess reserves), is the issue.

Unlike the Fed's main policy tool, the federal-funds rate, the IOER is not market-determined. It's completely controlled by the Fed. So instead of paying banks to hold all those excess reserves, it could charge banks a small fee, i.e., a negative interest rate, for the privilege.

At this point, you're probably thinking: "Wait. If the Fed charged banks rather than paid them, wouldn't bankers shun excess reserves?"

If the Fed turned the IOER negative, banks would hold fewer excess reserves, maybe a lot fewer. They'd find other uses for the money. One such use would be buying short-term securities. Another would probably be lending more, which is what we want.
Initial Thoughts

For starters, my first thought was not "Wait. If the Fed charged banks rather than paid them, wouldn't bankers shun excess reserves?"

Banks are not holding excess reserves because the Fed pays them 0.25% interest annually. Banks are holding excess reserves in spite of the fact the Fed pays them 0.25% interest annually!

The difference is huge. And the three-fold reason is simple.

Three Reasons Banks Not Lending

  1. Banks do not have credit-worthy customers.
  2. Credit-worthy customers do not want to borrow.
  3. Banks are capital impaired.

Is number 3 that unbelievable?

I think not. Banks still do not have to mark assets to market. What are they hiding?

Even if one assumes banks are not capital impaired, reasons 1 and 2 are sufficient enough to explain why banks are not lending.

Are Corporations Starved for Cash?

National Federation of Independent Business (NFIB) surveys businesses each month to see what their main issues are.

Loans are never high on the list. Here is the NFIB November 2013 report.

NFIB chief economist Bill Dunkelberg explains ... “The year is not ending on a high note in the small-business sector of the economy. The ‘bifurcation’ continues with the stock market hitting record high levels, but  the small-business sector is showing little growth beyond that driven by population growth. There is also a hint that employers are getting an inkling of what Obamacare might mean for labor costs, concern about the cost and availability of insurance bumped up 3 percentage points after a long period of no real change. Small-business owners who provide health insurance may soon find that their plans ‘unacceptable’ to Obamacare and be obliged to either pay more for the coverage or abandon it and pay the benefit in cash. This will be a major source of angst and uncertainty in 2014.

Most Important Issues Facing Small Businesses

 

22% of small businesses complain about government red tape (which I presume includes Obamacare), 21% complain about taxes, and 15% complain about poor sales.

Only 2% of small businesses complain about financing.

Large corporations are flush with cash (debt really). They don't want or need to borrow either (but they are happy to keep rolling over debts at lower-and-lower interest rates).

Blinder is Blind

Those in academic wonderland are too blind to see what should be perfectly obvious: Banks would not accept a paltry 0.25% if they thought they had creditworthy customers willing to borrow.

And although creditworthy customers don't want to borrow, Blinder wants the Fed to force banks to lend anyway! To Whom? Banks can only do so by lending to non-creditworthy customers. How would that work out?

Let's step back and ask a simple question: Why are there excess reserves?

The simple answer: The Fed is printing money banks don't want or can't lend because banks are capital constrained or lack of creditworthy borrowers.

I am 100% in favor of not paying interest on alleged excess reserves but not for reasons stated by Blinder. Rather, I am in favor of unwinding every bit of QE madness that created the excess reserves in the first place.

Clear Signal

That Blinder wants to pay negative interest rates on excess reserves ought to send a signal to Blinder and others the Fed's QE policy was a failure (assuming one believes the Fed's stated reason for QE was to spur borrowing and job growth).

I believe the real reason for paying interest on reserves was a backdoor way of recapitalizing banks slowly over time. Regardless, the primary result of QE was the creation of bubbles in stocks and bonds.

It's time to end the monetary madness, not double down on it with extremely ill-conceived and poorly-written notions of forcing banks to lend.

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

How attribution modeling increases profit for Baby Supermall

"Attribution modeling changes everything."

That's what Joe Meier of Baby Supermall told us recently.  If you're looking for alphabets or monkeys on your new baby bedding, Baby Supermall is the place to be. But those products have an unusually long buying cycle. "Our typical customer is a pregnant mother-to-be," says Meier. "They have months to make a decision."

In this video, Meier describes how Google Analytics’ attribution modeling tool let them measure the impact of different marketing touch points before customers finally made a purchase. So they could figure out which of their marketing activities led all those moms (and dads) to visit the Baby Supermall site. It also saved him from the monster 80-megabyte spreadsheets he'd been building as he tried to manually figure those patterns out. 

Result? “We’re spending our money more efficiently than we were before. We know what we’re getting for it,” says Meier. By linking their Google Analytics and Adwords accounts, Baby Supermall was able to see the impact of different keywords and optimize their AdWords ads, bringing in “tens of thousands of dollars in additional sales every week."

He calls the results "groundbreaking." Check out the video:


(PS: Don't miss their site if you happen to like very cute baby bedding.)

Happy Analyzing!

Posted by: Suzanne Mumford, Google Analytics Marketing

Milk Futures Set to Double if Farm Bill Does Not Pass

Unless a farm bill passes by the end of the year, the crop subsidy program will revert to 1949 policies and the government would be required to stockpile milk until it reached $37.20 per hundred pounds. The current price is about $19.00.

Why our legislators would write ridiculous laws like this is totally beyond me, but they did.

The House wants to pass an extension to resolve the issues, but the Senate says no. So here we sit wondering if the price of milk is going to double.

Bloomberg reports Extension of Farm Subsidies Rebuffed by Senate Democrats
An extension of U.S. agriculture subsidies to late January was rebuffed yesterday by Senate Democrats, who said they won’t pass any House plan for temporary funding before Congress breaks for the holidays.

“We’re not going to do an extension,” Senate Agriculture Committee Chairwoman Debbie Stabenow, a Michigan Democrat, told reporters. “If the House leadership would just stay through next week, like the Senate is staying, we would actually be able to get” a new five-year farm-policy bill, she said.

If Congress doesn’t act before year’s end, U.S. dairy support programs will revert to a 1949 statute that when fully implemented would double the wholesale price of milk.

The Agriculture Department hasn’t said when it could implement the law, which could take months. Lawmakers are reluctant to head home for the holidays to headlines about milk prices of $7-per-gallon in the new year.

Cuts to food stamps, along with changes to crop insurance programs and other farm aid, have been stumbling blocks as lawmakers seek to resolve differences in Senate and House versions of a reauthorization of agricultural programs.

The main effect of an extension to the end of January would be to allay fears of milk prices rising after Jan. 1, when dairy is the first crop program set to revert to the 1949 policies form the underlying language of all subsequent farm bills.

Under the law, the government would be required to stockpile milk until it reached $37.20 per hundred pounds, nearly double the current price of dairy futures traded in Chicago.

Other commodities, including corn and wheat, would see their programs revert to archaic programs later in the year.
I rather doubt it comes to this but stranger things have happened.

Lots of questions:

  • Why are food stamps tied to farm bills? 
  • Why do we have crop supports?
  • Why would legislators write bills that would revert to arcane 1949 provisions?

I propose the elimination of all price supports, elimination of all tariffs, and to make some common sense reforms to the food stamp program, but I expect none of that to happen.

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

Tuesday, December 10, 2013

About That Illinois Pension "Fix"

The highly touted Illinois plan to fix its pension system is largely hot air. I was waiting for details to prove just that and they came out today. Let's flashback to the initial claim.

A headline from six days ago reads Illinois lawmakers approve fix for $100b pension crisis
The Illinois Legislature approved a historic plan Tuesday to eliminate the state’s $100 billion pension shortfall, a vote that proponents described as critical to repairing the state’s deeply troubled finances but that faces the immediate threat of a legal challenge from labor unions.

The measure approved Tuesday emerged last week following negotiations by a bipartisan pension conference committee and then meetings of Illinois’ legislative leaders. They say it will save the state $160 billion over 30 years and fully fund the systems by 2044.

It would push back the retirement age for workers ages 45 and younger, on a sliding scale. The annual 3 percent cost-of-living increases for retirees would be replaced with a system that only provides the increases on a portion of benefits, based on how many years a beneficiary was in their job. Some workers would have the option of freezing their pension and starting a 401(k)-style defined contribution plan.

Workers will contribute 1 percent less to their own retirement under the plan. Legislative leaders say they included that provision, as well as language that says the retirement systems may sue the state if it does not make its annual payments, in hopes of boosting the measure’s odds of surviving the unions’ anticipated court challenge.
Actuarially Unsound

Unions are opposed to the plan, as always, and will file lawsuits, as always. But the plan does not even work.

Via email, Jonathan Ingram, at the Illinois Policy Institute explains...
House Speaker Mike Madigan and proponents of the temporary pension “fix” enacted last week promised taxpayers that it would immediately reduce the state’s unfunded pension liability by about $20 billion. But despite these promises, the credit rating agencies have indicated that they would be waiting for actuarial analyses before making any decisions on how the new law will affect Illinois’ worst-in-the-nation credit rating.

They’re wise to wait. It turns out that somewhere between $6 billion and $8 billion of Madigan’s promised reduction is solely the result of accounting gimmicks.

Part of the “fix” Madigan’s bill offers is to eventually move to what’s called the “Entry Age Normal” cost method for calculating how much the state should be contributing to pensions each year. That’s actually a good idea. This new accounting method helps make the pension ramp a little less steep. It’s also required by the new pension accounting rules promulgated by the Governmental Accounting Standards Board.

But here’s the problem: switching to this new accounting method actually increases the state’s unfunded liability by approximately $6 billion to $8 billion in the short term, because it attempts to spread the costs over the course of employees’ careers, rather than having them backloaded like we do now.

So how do you make up for that increase when you’re trying to reduce the state’s unfunded liability? Do you incorporate more comprehensive reforms to get that debt under control? Not if you’re Madigan.

Instead of addressing that increase, the pension bill simply delays implementing the accounting change until fiscal year 2016. This means that the state gets to pretend that at least $6 billion to $8 billion of the pension debt simply doesn’t exist for now. But when the new rules take effect in 2016, that pension debt is added back to the books. Instead of cutting $20 billion off the unfunded liability as promised, it looks like Madigan’s bill only really cuts $12 billion to $14 billion.

Actuaries for the state’s largest pension system recommended against delaying the new accounting rules. As they noted, the gimmick is being used to “maximize the amount of liability reduction,” even though 25% to 35% of that liability reduction will be added back to the pension debt in just a few years.

The rating agencies have already begun cracking down on state and local governments for using gimmicks to paper over their true pension debt.

Are lawmakers seriously hoping they’ll overlook this one, especially when our own actuaries are highlighting it?
Pension Fight Could Create Deeper Hole

The Washington Post reports Ill. pension fight could create deeper fiscal hole
With the fight over solving Illinois’ worst-in-the-nation pension shortfall now headed to the courts, the financially troubled state faces a grim possibility: The plan could be tossed, and Illinois could wind up in an even deeper fiscal hole than the one it’s in now.

Legislative leaders, anticipating a legal challenge from public-employee unions once the landmark bill approved Tuesday is signed, went extra lengths to bolster the law’s odds in the courtroom — including an unusual three-page preamble to the legislation in which they lay out their case for cutting worker and retiree benefits.

But legal experts say those efforts could mean little in a state that provides some of the country’s stronger constitutional protections of pension benefits.

They point to Arizona as a possible warning sign. In 2012, a judge there said a law raising the employee contribution to pension benefits was illegal, and ordered the state to repay the money to workers — with interest.

Illinois, Michigan and Arizona are among the seven states that have clauses in their state constitutions that protect pension benefits, according to the Center for Retirement Research at Boston College. The others are Alaska, Hawaii, Louisiana and New York.

Illinois and New York’s protections are considered to the strongest, however, because the language expressly states that it applies to current and future benefits.

A coalition of labor unions known as We Are One Illinois stated immediately after the bill passed that it will sue if Gov. Pat Quinn signs it, which the Chicago Democrat is expected to do as early as this week.

Quinn said he believes the legislation is constitutional and will ultimately be upheld by the Illinois Supreme Court.

“It is necessary for the economic good for the people of our state, and I think the court will see it that way,” he said.
Economic Good of the State

If Governor Quinn really wants to do something for the "economic good of the state" he can start by signing legislation that would ...

  1. End collective bargaining rights for Illinois public unions.
  2. Make Illinois a right-to-work state.
  3. Scrap prevailing wage laws.
  4. End defined benefit pension plans going forward.
  5. Lower taxes for the average citizen.
  6. Hike taxes on public union pension payments enough to make the system sound.

Plan Worth Fighting For

As long as there is going to be a court battle with the unions, you may as well go to court over a plan that will actually fix the system.

Illinois should figure pension liabilities at a reasonable rate of return, say the 30-year treasury rate. That would make the plan underfunding look far worse today, but so be it. The idea is sound.

Then after barring new entrants into the scheme, the state should hike taxes on pension recipients enough to make the system fully funded with no additional taxes on regular taxpayers.

I propose something along the lines of "taxing pension benefits above a specified amount at 80%, taken straight out of the check". The "specified amount" would be determined based on what it takes to make the system actuarially sound in a reasonable timeframe (say 15 years).

If you going to have a fight, make it a fight worthwhile.

As always, it's best to have a plan B. I propose a simple one: default on pension obligations above a certain level, but pay all other state obligations early to avoid bond market disruptions.

Public Unions Should Bear the Brunt of the Pain

Public unions (in conjunctions with pandering politicians) wrecked Detroit, and numerous cities in California and other states. Together they wrecked Illinois.

It's perfectly fair for unions to bear the brunt of the pain in working out a solution.

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