“There has been an intensification of labour unrest in the past week that is probably the most significant spike in unrest since the summer of 2010,” said Geoffrey Crothall of China Labour Bulletin, a Hong Kong-based labour advocacy group that monitors unrest in China.
….Factories are cutting the overtime that workers depend on to supplement their modest base salaries, after a drop in overseas orders.
U.S. Undersecretary of State Robert Hormats:
“What I am saying quite simply is that the U.S. is not passing judgment on whether or not China chooses to have state owned enterprises. Our concern is that to the extent they do, those SOEs should not receive benefits (e.g., preferred financing, exemption from anti-monopoly laws, generous export credits, etc) that put them at an artificial competitive advantage vis a vis private enterprises — of the U.S. or indeed any other country.
And I did not make the term ‘competitive neutrality’ up. This broad theme is incorporated in the (proposed trade deal called the) Trans Pacific Partnership and more specifically in Organization for Economic Cooperation and Development work.
My point is not to challenge the Chinese SOE model, it is to say that SOEs should operate within a system of global rules and norms, and that Chinese government support measures should not distort competition within that system….”
via Hormats Argues for ‘Competitive Neutrality’ Between U.S., China Firms – China Real Time Report – WSJ.
All components of private debt grew significantly in the decade leading up to the financial crisis which consumer debt leading the way. The household sector, in particular, already squeezed for liquidity by the move to build increasing federal surpluses during the Clinton era, were enticed by lower interest rates and the vehement marketing strategies of the financial engineers to borrow increasing amounts…..While this strategy sustained consumption growth for a time it was unsustainable because it relied on the private sector becoming increasingly indebted. ……With growth being maintained by increasing credit the balance sheets of private households and firms became increasingly precarious and it was only a matter of time before households and firms realized they had to restore some semblance of security by resuming saving.
via A radical redistribution of income undermined US entrepreneurship | Bill Mitchell – billy blog.
PARIS — Quashing recent speculation of a softening in Germany’s hard-line stance on the euro, Chancellor Angela Merkel repeated on Thursday her firm opposition either to bonds issued jointly by the euro zone countries or to an expansion of the role of the European Central Bank as quick responses to the sovereign debt crisis.
“Nothing has changed in my position,” she said at a news conference…..[but] The German newspaper Bild reported Thursday that the Merkel government was inching towards accepting so-called eurobonds, at least in some form, even if the public stance remained against them, and that some of her party said they could be a tradeoff for treaty changes.
via Merkel Rejects Rapid Action on the Euro – NYTimes.com.
Colin Twiggs: ~ I am getting a sense that Angela Merkel already knows the outcome. As a consummate negotiator she is using the debt crisis to force her EU colleagues to make concessions that in normal times would be politically unthinkable. Germany does not want to abandon the euro which has served them well over the last two decades. They also does not want to risk inflation — so an ECB solution is ruled out. But euro-bonds may be acceptable to the German public — provided that there are strict controls throughout the EMU to ensure fiscal discipline. That, I suspect, is her desired outcome — she just has to make her EU counterparts feel the heat long enough that they fully appreciate the concessions she makes — and do not start back-tracking on their commitments.
A European Commission discussion paper on euro bonds to be released on Wednesday puts forward….three possible approaches for issuing common government bonds in the euro zone.Two would carry “joint and several” guarantees, making euro zone states responsible for repaying the debts of others. Option 1 envisions all national government bond issues in the euro zone being converted to common euro bonds, while option 2 envisages a partial replacement of national bonds with euro bonds. Option 3 would be for the partial replacement of national government bonds with euro bonds carrying ”several” but not joint guarantees, making each state responsible for its own share of euro bonds. The third approach would be easier to implement, in part because it wouldn’t require changes to European Union Treaties, but would carry fewer benefits.
via Euro Bonds: The Pros and Cons, According to the European Commission – Real Time Brussels – WSJ.
The US dollar broke out above its descending triangle, indicating another advance, with a (conservative) medium-term target of 8.80*.
* Target calculation: 8.10 + ( 8.40 – 7.70 ) = 8.80
The euro is headed for a test of primary support at $1.32. The peak below zero on 63-day Twiggs Momentum indicates a strong primary down-trend. Failure of support would offer a target of $1.22*.
* Target calculation: 1.32 – ( 1.42 – 1.32 ) = 1.22
Commodities are weakening and dragging the Aussie and Loonie lower. The Aussie dollar shows a similar iceberg pattern on 63-day Twiggs Momentum, warning of a primary down-trend. Breakout below primary support at $0.94 would offer a long-term target of $0.80*.
* Target calculation: 0.94 – ( 1.08 – 0.94 ) = 0.80
Canada’s Loonie is also headed for a test of $0.94 against the greenback. The peak below zero on 63-day Twiggs Momentum indicates a strong down-trend. Failure of primary support (0.94) would offer a target of $0.87*.
* Target calculation: 0.94 – ( 1.01 – 0.94 ) = 0.87
Extract from Press release regarding European Commission proposal for a common euro-zone bond market and tighter budgetary controls for members:
The proposed Regulation strengthening surveillance of budgetary policies in euro area Member States would require these countries to present their draft budgets at the same time each year and give the Commission the right to assess and, if necessary, issue an opinion on them. The Commission could request that these drafts be revised, should it consider them to be seriously non-compliant with the policy obligations laid down in the Stability and Growth Pact. All of this would be done publicly to ensure full transparency. The Regulation also proposes closer monitoring and reporting requirements for euro area countries in Excessive Deficit Procedure, to apply on an ongoing basis throughout the budgetary cycle. And euro area Member States would be required to have in place independent fiscal councils and to base their budgets on independent forecasts.
The proposed Regulation strengthening economic and fiscal surveillance of euro area countries facing or threatened with serious financial instability would ensure that the surveillance of these Member States under a financial assistance programme, or facing a serious threat of financial instability, is robust, follows clear procedures and is embedded in EU law. The Commission would be able to decide whether a Member State experiencing severe difficulties with regard to its financial stability should be subject to enhanced surveillance. The Council would be able to issue a recommendation to such Member States to request financial assistance.
The Green Paper on Stability Bonds analyses the potential benefits and challenges of three approaches to the joint issuance of debt in the euro area. The paper sets out the likely effects of each of these approaches on Member States’ funding costs, European financial integration, financial market stability and the global attractiveness of EU financial markets. It also considers the risks of moral hazard posed by each approach, as well as its implications in terms of Treaty change. Stability Bonds are seen by some as a potentially highly effective long-term response to the sovereign debt crisis, while others are concerned that they would remove the market incentive for fiscal discipline and encourage moral hazard. The Commission makes clear that any move towards introducing Stability Bonds would only be feasible and desirable if there were a simultaneous strengthening of budgetary discipline. The extent of this strengthening needs to be commensurate with the ambition of the approach chosen.
via EUROPA – Press Releases – New action for growth, governance and stability.
BRUSSELS—The European Commission proposed Wednesday significantly tighter controls over euro-zone members’ budgets, alongside options for a common euro-zone bond market.
….The commission said the deteriorating economic climate requires greater reform efforts from member states.
If a government doesn’t comply with the EU’s demands, they could be locked out of European Union budget funding, which can amount to billions of euros a year.
….The proposals are designed to strengthen the way the euro zone is governed and they go as far as the Commission has said it can go without changing the European Union treaty. Closer integration would set the groundwork for issuing joint bonds among the euro currency’s 17 governments.
