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    Daily Digest 11/13 – EU Financial Bailout, Cut Social Security?, End of Growth

    by DailyDigest

    Saturday, November 13, 2010, 4:00 PM

  • Government Campaigns to Avoid EU Financial Bailout
  • Japan Hopes for U.S. Help in Row With China
  • Cut Social Security Benefits? Yes, Some Say
  • Price Volume Action Signals Countertrend Move in US Dollar, Gold
  • The End of Growth
  • Crude Falls on Economic Growth Fears
  • EPA Bid for Carbon-Rule Clarity Fails to Satisfy U.S. Business, Lawmakers

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Government Campaigns to Avoid EU Financial Bailout 

Uncertainty about Ireland’s frail position will come to the fore again on Tuesday when euro finance ministers gather in Brussels for their monthly meeting. Minister for Finance Brian Lenihan will be asked to provide an update on the bank rescue and on preparations for the 2011 budget and the four-year plan. Three sources familiar with ongoing European scrutiny of Ireland’s plans said there is concern to ensure the Government manages to pass the budget and demonstrate to the markets it is executing the promised measures. They also acknowledged worries that the €45 billion bank bailout bill might rise.

Japan Hopes for U.S. Help in Row With China

A Chinese fishing crew collided with two Japan coast guard vessels near islands in the East China Sea. Japan and China both claim the island as their territory. The Japanese coast guard detained the Chinese crew and captain, sparking an international dispute between the two countries and dragging relations to new lows. China, flexing its growing economic muscle in the region, canceled high level ministerial meetings and, according to multiple Japanese importers, cut off supply of rare earth materials Japan relies on to produce high tech products. Thousands of Chinese tourists canceled vacations to Japan, an increasingly important source of income for Japan’s tourism trade.

Cut Social Security Benefits? Yes, Some Say

In its draft plan to rescue Social Security and prevent what some see as inevitable in the absence of action — a sudden 22% reduction in benefits for all beneficiaries in 2037 — the deficit commission wants to tax 90% of covered earnings by 2050, make the benefit formula more progressive so that high-income recipients receive relatively less, index the retirement age to longevity gains, and dampen COLAs, among other measures. In the main, retirement experts applaud the commission’s big plan, though some are doubtful and some are reminding us of the need for immediate action, whatever it might be.

Price Volume Action Signals Countertrend Move in US Dollar, Gold 

Price action that comes after a major announcement reveals a lot about underlying economic trends and the psychology of the market. Leading up to the election, investors became enthusiastic on precious metals and commodities as QE2 was celebrated. Then the official announcement of QE2 caused the precious metals to gap higher as euphoria of the Fed’s move was celebrated. As the celebration continued for gold bugs, as hard as it was, I believed it was time to fight the investment herd and take profits. I warned readers that a healthy correction could begin and to not buy the recent breakout. Key high volume reversal days and negative divergences indicated there could be a 15% to 20% correction and a countertrend rally in the dollar.

The End of Growth 

The “growth” we are talking about consists of the expansion of the overall size of the economy (with more people being served and more money changing hands) and of the quantities of energy and material goods flowing through it. The economic crisis that began in 2007-2008 was both foreseeable and inevitable, and it marks a permanent, fundamental break from past decades—a period during which most economists adopted the unrealistic view that perpetual economic growth is necessary and also possible to achieve. There are now fundamental barriers to ongoing economic expansion, and the world is colliding with those barriers.



Crude Falls on Economic Growth Fears 

In a report issued Friday, the International Energy Agency said that booming demand for crude from emerging economies like China has “stoked expectations of inexorably higher prices,” but that many traders have not taken into account the slowing rates of growth the agency expects in coming months.


EPA Bid for Carbon-Rule Clarity Fails to Satisfy U.S. Business, Lawmakers

The agency said yesterday that states can determine what pollution-cutting technologies power plants and oil refineries should use when the first national carbon-dioxide emission rules take effect next year. Environmental activists praised EPA’s flexibility. Opponents said the rules were too vague and would damage the economy. “The energy and manufacturing sectors will essentially be in a construction moratorium that could materially hamper economic recovery,” said Scott Segal, a Washington lawyer at Bracewell & Giuliani LLP who lobbies for utilities such as Southern Co. and Duke Energy Corp. that burn coal to make power.

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