German Reader Tackles Question "What Percentage of the Vote will Anti-Euro Party AfD Receive in Upcoming Election?"

Polls show the support for the anti-euro Alternatives for Germany AfD party as high as 17% according to the Financial Times.

However that 17% is the number of voters who would “consider” voting for an anti-euro party, not the number of people committed to that outcome.

Specifically, the FT article states “AfD is a late entrant for the election on September 22 and might not be radical enough to attract protest voters it needs in order to make it over the five per cent vote threshold for seats in the Bundestag.“

The AfD, led by economics professor Bernd Lucke, is dominated by former CDU members who became disillusioned with the chancellor’s European policy that is broadly supported by a majority of the public.”

Underestimating the Vote

In contrast to the possibility AfD receives less than 5% of the vote as mentioned by the Financial Times, reader Bern who lives in Germany believes AfD is going to receive substantially more than 10% of the vote.

Bern writes ….

Hello Mish,

I just returned from the foundation congregation of AfD party in Berlin.

About 1500 party members from all parts of Germany came to Berlin to form the federal part of the party as per legal requirement in order to participate in the coming federal elections. The party is now legally formed, it has a legal party statute and an election program.

This means that about 50% of all legal requirements are now met. We have another 100 days to meet the other 50% (establish a State arm of the party in each federal State (16) and to collect 2000 signatures in each State). We do not expect any problems arising from these two obstacles.

It can now safely be assumed that AfD is “open for business” for the coming federal elections.

This party is something entirely new in Germany. It does no longer follow traditional “dividing lines” between left and right or conservative and liberal. Our members are clearly from the heart of the “bourgeois” society of Germany. Small entrepreneurs, self-employed people, teachers and professors, doctors and lawyers, skilled workers, craftsmen,…. in short, a wide variety of the so called “better educated” part of society, who naturally have a rather diverse ideological background.

The common theme uniting this varied crowd is the desire to get rid of the shackles of the Euro and to return to democratic values, both in Europe as well as in Germany.

With about 10,000 members and growing rapidly, I would be surprised if the party received less than 10% of the votes in the coming German federal elections. I am prepared to stick my neck out and predict a figure substantially higher.

AfD will have a considerable influence on German politics in the coming months. It is now no longer possible for the other parties to ignore this new movement.

CDU, SPD, FDP and the Green Party can no longer avoid the Euro as the dominant and overriding theme of the coming German elections.

Chancellor Merkel had wanted to do a “sleeping pill” campaign on such peculiar subjects as “fairness”, “family values” and the like. SPD and Green Party were happy to follow. FDP added some “lowering taxes” issues to the mix.

As of today, Merkel can kiss that objective goodbye.

The Euro and democracy will be the overriding themes of the coming elections. This will catapult AfD into the minds of the people here.

As the Euro comes under attack from all sides. I wonder if an orderly dissolution is still possible or if the result is a disorderly collapse. I still believe the latter is more likely.

Best wishes
Bernd

Given that the nannycrats have underestimated the backlash of every policy decision and every important vote, especially in Italy, I am a firm believer that reader Bern is correct.

In a followup post, we will discuss what this means for chancellor Merkel. Here’s a hint. If you are a Merkel supporter, the result won’t be pretty.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Mish’s Global Economic Trend Analysis

German Reader Tackles Question "What Percentage of the Vote will Anti-Euro Party AfD Receive in Upcoming Election?"

Reader Asks "Where"s the Money?"

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Reader Robert at Americans for Limited Government asks an interesting question.

Robert writes …

Hello Mish

We are led to believe that taxing Cypriot deposits in the amount of 5.8 billion euros will make the banks solvent. I have a question: Why the need for capital controls after “recapitalization”? How can deposits be used for taxation but not withdrawals?

Robert

I believe that’s a rhetorical question. Robert knows the answer. Even with the EU kicking in 10 billion euros (a loan not a gift), the money is not there.

If the banks were sufficiently capitalized, there would not be a need for capital controls.

End of the Single Currency in All but Name

Jeremy Warner at the Financial Times has an interesting article on this very subject. Warner says If capital controls are introduced in Cyprus, it is the end of the single currency in all but name.

With the European Central Bank threatening to pull the plug on Monday by denying further liquidity support, and showing absolutely no sign of blinking, Cypriots have little choice in the matter. The present plan is only slightly more palatable than the last. The two most problematic banks are to be restructured, with uninsured creditors taking a 40 per cent hair cut. That gets the Cypriot authorities some of the way towards the €5.8bn they need, or is that €6.7bn? Reports suggest the beastly Troika has upped the ante. In any case, the balance, whatever it might be, is going to come from “taxing” uninsured deposits above €100,000 in other banks in the way originally proposed.

However, the perhaps more widely significant part of the proposal is the planned application of capital controls. This is of course entirely necessary to prevent a further run on the banks the moment they open their doors on Monday. Many Russian depositors are threatening to remove their spoils if they are subjected to any kind of a haircut. This would quickly render these organisations essentially insolvent regardless of the recapitalisations. Almost no amount of capital is sufficient for a bank which has lost the confidence of its depositors.

Yet the point is that if capital controls are introduced, it basically makes Cypriot euros into a national currency, rather than part of wider monetary union. The capital controls will severely limit your ability to get your euros out of Cyprus, rending them essentially worthless in the wider eurozone. It would be a bit like telling Scots they can’t spend their UK pounds in England. Monetary union is many things, but above all it is about free movement of money and a uniform value wherever it is spent. When these functions are disabled, then you cease to be part of a single currency.

This is precisely what happens in a fractional reserve lending system when faith is lost. And faith certainly has been lost. Why shouldn’t it be lost? The entire global financial system would be recognized as insolvent if even 25% of the people tried to get their deposits.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Mish’s Global Economic Trend Analysis

Reader Asks "Where"s the Money?"

Reader Asks "Where"s the Money?"

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Reader Robert at Americans for Limited Government asks an interesting question.

Robert writes …

Hello Mish

We are led to believe that taxing Cypriot deposits in the amount of 5.8 billion euros will make the banks solvent. I have a question: Why the need for capital controls after “recapitalization”? How can deposits be used for taxation but not withdrawals?

Robert

I believe that’s a rhetorical question. Robert knows the answer. Even with the EU kicking in 10 billion euros (a loan not a gift), the money is not there.

If the banks were sufficiently capitalized, there would not be a need for capital controls.

End of the Single Currency in All but Name

Jeremy Warner at the Financial Times has an interesting article on this very subject. Warner says If capital controls are introduced in Cyprus, it is the end of the single currency in all but name.

With the European Central Bank threatening to pull the plug on Monday by denying further liquidity support, and showing absolutely no sign of blinking, Cypriots have little choice in the matter. The present plan is only slightly more palatable than the last. The two most problematic banks are to be restructured, with uninsured creditors taking a 40 per cent hair cut. That gets the Cypriot authorities some of the way towards the €5.8bn they need, or is that €6.7bn? Reports suggest the beastly Troika has upped the ante. In any case, the balance, whatever it might be, is going to come from “taxing” uninsured deposits above €100,000 in other banks in the way originally proposed.

However, the perhaps more widely significant part of the proposal is the planned application of capital controls. This is of course entirely necessary to prevent a further run on the banks the moment they open their doors on Monday. Many Russian depositors are threatening to remove their spoils if they are subjected to any kind of a haircut. This would quickly render these organisations essentially insolvent regardless of the recapitalisations. Almost no amount of capital is sufficient for a bank which has lost the confidence of its depositors.

Yet the point is that if capital controls are introduced, it basically makes Cypriot euros into a national currency, rather than part of wider monetary union. The capital controls will severely limit your ability to get your euros out of Cyprus, rending them essentially worthless in the wider eurozone. It would be a bit like telling Scots they can’t spend their UK pounds in England. Monetary union is many things, but above all it is about free movement of money and a uniform value wherever it is spent. When these functions are disabled, then you cease to be part of a single currency.

This is precisely what happens in a fractional reserve lending system when faith is lost. And faith certainly has been lost. Why shouldn’t it be lost? The entire global financial system would be recognized as insolvent if even 25% of the people tried to get their deposits.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Mish’s Global Economic Trend Analysis

Reader Asks "Where"s the Money?"

Reader Asks Me to Prove "Inflation Benefits the Wealthy" (At the Expense of Everyone Else)

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In response to Top 1% Received 121% of Income Gains During the Recovery I received a couple of emails from readers that I would like to share.

Reader “Gordon” wondered how it was possible for a group to get 121% of income gains. Here is the example I sent Gordon.

Mary, Tom, and Joe work for the XYZ Corporation. They are the only three employees. Mary’s salary rose from $ 100,000 to $ 200,000. Tom and Joe were informed of hardships in the corporation and their salaries fell from $ 100,000 to $ 80,000 each.

In the above example, net salaries rose by $ 60,000. Mary’s salary rose by $ 100,000 (more than 100% of the total).

Quantifying Inequality

Reader “Z” writes … “Inequality in the US has been rising since the 80s. How do you justify your theory that inflation benefits the wealthy? Not qualitatively, quantitatively.“

First, let’s take a look at inflation as measured by the CPI (any alternative measure of inflation would suffice for this example).

CPI Percent Change From Year Ago

click on any chart for sharper image

Except for a brief period in 2009, price inflation has been positive. The question is “Who Benefited?”

I claim it is those with “first access to money” namely banks and the already wealthy. A few charts courtesy of Doug Short at Advisor Perspectives will prove my point.

Nominal US Household Incomes

From the above chart it appears the average and median households income has been growing nicely since 1967. If that’s what you believe, think again.

Real US Household Incomes

In “real” (CPI-adjusted) terms, 50% of households are no better off than they were in 1988. Let’s dig a litter deeper.

Growth in Real Household Income by Quintile

The above chart shows percentage income growth by quintile since 1967. Since 1988, the bottom, 4th and middle quintiles (a combined 60% of households) have negative real income growth.  The next chart shows the same thing in a different way.

Real Household Income by Quintile

No matter what your timeframe, only the top quintile did well. And from 1980 until 2000 the top 5% got the lion’s share of income gains.

Ponder on that for a bit, then consider the following charts on total net worth.

Nominal Total Net Worth

Real Total Net Worth

Total net worth includes stocks, bonds, real estate, pensions, etc. I cannot precise quantify quintiles but we all know (at least we should) who has the assets and who doesn’t. The top 5 or 10% have most of the assets, the next 15% or so are OK and nearly everyone else is asset poor and high in debt.

Millionaire Households

The Wall Street Journal has some interesting stats on the Millionaire Population.

According to the Chicago-based Spectrem group, there are now 8.6 million households in the U.S. with a total net worth (minus principal residence) of $ 1 million or more. There are now 1,078,000 households worth $ 5 million or more and about 107,000 people worth $ 25 million or more.

The report also broke down today’s millionaires by occupation and former occupation if retired. Managers make up the largest group, with 17%, followed by educators (12%), corporate executives (7%), entrepreneur/business owners (6%) and attorneys and accounts.

The $ 5 million-plus crowd, is dominated by senior corporate executives (17%) and entrepreneurs/owners (12%).

Household Net Worth

Chart from Spectrem Group

There are about 114 million households. Of that number 8.6 million (7.5%) have a net worth of $ 1 million or more.

37 million households have a total net worth of $ 100,000 or more. Thus, 77 million households (67.5%) have a net worth less than $ 100,000. Counting underwater houses, I suspect most of them live paycheck to paycheck and have minimal if not negative net worth.

So who did inflation benefit? The answer is those with assets and those with first access to money: the banks and the already wealthy.

The poor do not have assets, they have debt.

In spite of the often-heard mantra that “inflation wipes away debt”, I suggest otherwise. Income typically does not keep up with expenses, and most have too few assets to inflate. The poor (last on the credit totem pole) overpay for their assets with cheap credit given to them at precisely the wrong times (as happened right before the housing bust).

Inflation Clobbers Those on Fixed Income

In case you missed it, please consider Hello Ben Bernanke, Meet “Stephanie”, my response to a reader on fixed income attempting to live on Social Security plus interest on a $ 16,000 CD.

If routine price inflation did not benefit the banks and the wealthy at the expense of everyone else, we probably would not have it. The word that best describes the process is “theft”.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

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Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Mish’s Global Economic Trend Analysis

Reader Asks Me to Prove "Inflation Benefits the Wealthy" (At the Expense of Everyone Else)