When All Else Fails, Hope For More Stimulus

Mike Shedlock
Posted: May 04, 2012 12:01 AM

Eurozone Markit Final Manufacturing PMI numbers were released yesterday. The results, as I warned months in advance, were decidedly not pretty.

  • Final Markit Eurozone Manufacturing PMI at 34-month low of 45.9 
  • Production declines across big-four economies for first time in the year-to-date 
  • Weak demand and falling intra-Eurozone trade volumes hurting both output and employment

The weak PMI number reflected a drop in Eurozone manufacturing production for the second consecutive month, as new order inflows declined at the fastest pace since December. Austria was the only nation to see production rise in April.

Manufacturers reported weak demand from both domestic and export clients – with intra-Eurozone trade volumes also heavily impacted. This hurt even German manufacturers, who saw production fall for the first time in 2012-to-date as an accelerated rate of decline in new export volumes reverberated through the sector.

Further causes for concern were sharper rates of decline in output at Italian and Spanish manufacturers, plus an ongoing steep downturn in Greece. Meanwhile, French manufacturing output contracted at a weaker pace than that seen in March.

Finally Seeing the Light (Sort Of)

Once again the comments from Markit Economists are amusing. 

Even German manufacturing output showed a renewed decline, attributed by many firms to weak demand from southern Europe. As such, it is hard to see where growth will come from in coming months, unless export demand picks up strongly from countries outside of the Eurozone.

“The ECB’s latest forecast of merely a slight contraction of GDP this year is therefore already looking optimistic. However, with the survey also showing inflationary pressures to have waned, the door may be opening for further stimulus.”

Note the word "latest". Months ago, Markit said no recession, then no recession in Germany, then short recession. For some reason Markit only mentioned the ECB's latest forecasts and none of their own.

With that highlight in red (emphasis mine), Markit chief economist Chris Williamson finally got it right (had he only stopped right there). Instead, he is now hoping for more stimulus as if it would matter.

Here's a hint: it won't.

Dallas Fed Proposes Ending "Too Big To Fail", Urges Removal of Failed CEOs, Breakup of Banks

Richard Fisher, governor of Dallas Fed wants to end "Too Big To Fail" and Urges Removal of CEOs of Bailed-Out Banks

The Federal Reserve Bank of Dallas said taxpayer aid to failing banks should come only after the voiding of all employment and bonus contracts and the removal of chief executive officers and boards of directors.

“A set of harsh, non-negotiable consequences” for requesting U.S. Treasury assistance might also include “clawbacks” to gain cash and stock bonuses paid the top management team during the prior two years, the Dallas Fed said today in a slide presentation on its website.

The proposal reflects Dallas Fed President Richard Fisher’s view that large U.S. banks need to be split apart because they operate with an implied government safety net that puts their risks of failure on taxpayers.

End Too Big to Fail Now

Please consider the Dallas Fed Slideshow Why We Must End Too Big to Fail – Now

Concentration Intensifies the Impact of Mistakes

“Human weakness will cause occasional market disruptions. Big banks backed by government turn these manageable episodes into catastrophes.”

Close But Not Quite Correct

I have one major  disagreement with the proposal. Fisher said "taxpayer aid to failing banks should come only after the voiding of all employment and bonus contracts ..."

I say taxpayer aid to banks should never happen. Banks and bondholders should take the hit.

However, it is refreshing to see this kind of talk. It would be a major step in the right direction. Unfortunately, Bernanke is against it.

Mike "Mish" Shedlock