First Coke, Now Bloody Center – Government Feed-tervention Escalates

The personal freedom to indulge in 32 ounces of sugary corn-syrup-filled fizzy drinks left New Yorkers with a nasty libertarian taste in their mouths. Now, a few months later, as The Telegraph reports that UK council officials are cracking down on the freedom to choose how your burger is done, warning restaurants not to offer them rare or even medium-rare. Of course, this is proposed to be in the best interests of the eating public focused on “making sure customers are eating meat that is a not a threat to their health.” This policy, set to the subject of a legal ruling shortly, leavs some to suggest it could destroy the gourmet burger industry (by mandating lengthy cooking times): “Not only that but you’re opening a Pandora’s box, because where do you finish? Steak tartare, runny eggs … the list is endless.” Soylent Green anyone?


Via The Telegraph:

Now council officials are cracking down on the freedom to choose how your burger is done, warning restaurants not to offer them rare or even medium-rare.


A number of celebrity chefs are affected by the move, including Gordon Ramsay, whose Maze Grill restaurant sells a burger for £12, Angela Hartnett, whose York and Albany’s bar menu includes burgers, and the Soho House chain, run by Nick Jones, the husband of broadcaster Kirsty Young.


All face being asked at their next routine inspection how they offer their burgers after the decision by Westminster city council, which regulates food safety in more restaurants than any other local authority.


The decision is expected to be followed by other councils, but critics fear it could lead to questions over the safety of rare steaks and raw meat dishes such as steak tartare.


The policy is to be the subject of a legal ruling.


After routine inspections by environmental health officers, Westminster council challenged the way Davy’s was serving its £13.95 burgers at one of its restaurants in central London. Davy’s has taken the case to the High Court, which experts say could set a legal precedent as to whether or not diners will be able to order meat rare.


A Davy’s spokesman said: “The burgers are produced from high quality ingredients and Davy’s contends that it has safe measures in place to serve rare or medium-rare burgers.”


James Armitage, the council’s food health and safety manager, said: “This is about making sure customers are eating meat that is not a threat to their health. It is possible to produce burgers that can be eaten undercooked, but strict controls are essential.


“We have enlisted the UK’s top expert on E. coli, Prof Hugh Pennington, to get this matter resolved and he has outlined that rare minced meat that is not correctly cooked and prepared can kill.”


But John Cadieux, the executive head chef for the Burger and Lobster chain, said: “If you follow the guidelines to the letter then you’re going to destroy the burger industry.


“Not only that but you’re opening a Pandora’s box, because where do you finish? Steak tartare, runny eggs … the list is endless.”


According to the Food Standards Agency (FSA), there are no rules banning the sale of raw or rare meat by restaurants or caterers.


Tony Lewis, of the Chartered Institute of Environmental Health, said: the case would have “nationwide implications”.


“At present the guidance from the FSA is that for burgers the meat should be cooked at 158F (70C) for two minutes,” he said. “If Westminster loses the case we will have to reassess.”

Italy Trumps Greece


News that the Greek bond buy scheme did not get sufficient takers to reach the 30 bln euro target set the commentariat ablaze.  This may prove to be a minor technicality as Greek banks initially offered 75% of the Greek bonds but were prepared to pitch them all if necessary to ensure EU aid is forthcoming, which is the source of their recapitalization funds.


The bigger story is the fall of the Monti technocrat government in Italy.  Berlusconi’s PDL party pulled support by abstaining economic reform votes at the end of last week.   After a series of consultations with the Italian president, it appears that parliament will not be dissolved until two important pieces of legislation are approved, the 2013 budget and financial stability measures.  The former is needed for obvious domestic reasons.  The latter is needed to maintain credibility in  EMU; assuring its partners.


As the situation was unfolding on December 7, Italian bonds fared well, with the 10-year benchmark yield dropping 5 bp.  In comparison, 10-year Spanish yields fell 2 bp.  On the week, the Italian yield rose 3 bp, while Spain rose 14.  Italy’s 10-year generic yield is about 93 bp below Spain’s.  This is at the wider end of the  in recent months.  Recall that end of 2011, Italy was paying a 200 bp premium.


With parliament likely to have been dissolved in any event by the middle of next month to prepare for spring parliamentary elections (must be held within 70 days of the dissolution of parliament), it is not exactly clear why Berlusconi chose now to pull the plug.  As in many things of this nature, the decision may have been over-determined.


There are PDL politics to consider.  It was to hold a primary and Berlusconi had to make a decision whether to run or not.  There are politics in among the opposition to consider.  The PD had just picked their leader.  The old guard carried the day as the party leader Bersani turn aside a challenge by the charismatic Renzi.  Berlusconi may have seen this as an opportunity.  Recall that last year when Berlusconi was pushed out, it was not because of a convincing alternative by the opposition, but because of the hostility he arose internationally.  Proof of that, of course, is Monti’s technocrat government.


Berlusconi may have also been emboldened by the economic data. Unemployment continues to rise.  The economy remains mired in a recession.   As this Great Graphic showed Monti’s support continues to slump, and he draws little support from the sharp decline in bond yields over the past year.  Berlusconi’s timing also corresponds to the new property tax that goes into effect.


S&P warned before the weekend that it would consider lowering Italy’s rating if the recession continued well into 2013.  The Bloomberg consensus currently forecasts precisely that.  The economy is expected to contract through Q3 13.  Last week, the ECB staff cuts its 2013 euro area growth forecasts too.


The latest polls show the center-left PD with a 15 pt lead over Berlusconi’s PDL.  There is also the 5-Star movement, which is the protest party, which like in other countries has emerged during the crisis.  On programmatic grounds, the 5-Star shares much in common with the PDL, including a skepticism of participating in monetary union.  Both 5-Star and the PDL are based on single personalities and it is not clear that all of Italy is big enough for the egos of Berlusconi and Grillo.


More worrisome for investors, is a renewed alliance between the Northern League and the PDL.  The risk is that it retracts, dilutes or in other ways backtrack from the necessary, even if insufficient reforms of Monti’s government.


There are still numerous moving pieces.  It is not clear whether Monti government can pass electoral reform during its waning days.  It is not clear if the local elections, in which the left tends to do better, will be held before, with the national election (as the PDL wants) or afterwards.  If the PD wins, it is possible Monti becomes the next President of Italy.  A hung parliament could see Monti remain Prime Minister, either in a technocrat form or as a compromise candidate with a parliamentary majority.


Regardless of the particular details, the political risk in Italy has risen and Italian bonds will likely suffer as a result.  It could have knock negative repercussions for the euro.  With the latest turn in Italian politics, Italy may leap frog over both Greece and Spain as the source of angst for investors and policy makers.  


Inside The Bank Of England's Gold Vault

For those who think any documented presentation of the physical gold held by the world’s oldest central bank usually takes place on a movie set in Burbank, CA here is a video featuring University of Nottingham’s chemistry professor Professor Martyn Poliakoff (of all people) from within the bowels of the world’s second largest gold repository supposedly disproving this (whose comment “one’s first reaction is that it can’t possibly be real” may be far more accurate than he can possibly imagine). Why the BOE would change its long held tradition of keeping its gold miles away from the public’s eye (very much the same way Bob Pisani’s dramatic descent into the GLD vault was a straight-to-DVD B-grade thriller) is anyone’s guess, especially now that Goldman is about to take the helm of this most venerable of money-printing institutions. But we are delighted they have: we are confident with this precedent set, that the New York Fed will promptly grant some US chemistry professor the right to inspect and “document” the hundreds of tons of flood-resistant gold it too holds safely 80 feet underground, it not a member of the German parliament of course. Finally, if anyone can see Bundesbank’s gold bars, please raise your hand.


h/t hockey

It’s Official: The Consumer (And The Economy) Is Alive and Dead

Wolf Richter

Friday’s plunge in consumer sentiment—from 82.7 during the post-election glory days to 74.5—was hastily ascribed to the Fiscal Cliff which, much like Sandy, is recruited to explain everything that doesn’t go according to plan. And a lot hasn’t gone according to plan.

On Thursday, it was the Gallup/Wells Fargo survey of small-business owners that had thrown a monkey wrench into the hope machinery. Small-business owners are generally an optimistic bunch, and they’re key job creators. But they suddenly decimated their hiring plans to the record low set in November 2008, the catastrophic post-Lehman days. Back then, it was followed by massive and brutally rapid layoffs.

“An eye-opening drop in optimism,” mused Marc Bernstein, head of Small Business for Wells Fargo.

Consumers have been giving mixed signals. For example, the Restaurant Performance Index, released on November 30, fell in October for the second month in a row and hit 99.5, the lowest level in 14 months. It was the first time during that period that it dropped below 100, indicating contraction.

Then on Friday, Gallup’s consumer spending report was a bit lumpy. At $73 in self-reported daily spending, it was flat in November compared to the prior two months, and down from a post-crisis high of $77 in August. Still, it was up two bucks from last year. Ominous sign: those making more than $90,000 a year throttled back their spending to $113, the worst November since 2008. Spending by lower income Americans, who have to shell out just about everything they to keep their chin above water, remained stagnant. But, but… spending picked up around Black Friday and Cyber Monday and is tracking higher in early December.

Hours later, the Fed’s Consumer Credit report, a stalwart indicator of how much consumers are borrowing to prop up the economy, shed more light on our strung-out heroes. Not seasonally adjusted, consumer credit increased by $10.3 billion in October, the third month in a row of increases, raising hopes in some quarters that the unemployed, the underemployed, and those working for wages that haven’t kept up with inflation would somehow summersault over their income hole by borrowing from the future—a strategy that has been a key driver of economic growth in the US, and that has hit a wall during the Great Recession.

But credit cards and other forms of revolving credit edged up only $1.4 billion, after a swoon in September. What did jump was non-revolving credit. By $8.9 billion. Alas, almost $7 billion of it was student loan debt held by the government. Consumers aren’t splurging. They’re borrowing to pay for essentials. And for education.

But wasn’t there a shining example of the growing strength of the economy? Indeed: the jobs report’s soothing numbers. Unemployment dropped to 7.7% and 146,000 jobs were created, despite Sandy! It inspired the usual mix of derision and controversy. But its sausage-like innards and self-contradictions include the fairly reliable Employment-Population ratio that had deteriorated to 58.7%. It had dropped into that range in late 2009, for the first time since 1983, from a peak of 64.7% in April, 2000. The stagnating ratio confirms that barely enough jobs have been created since 2009 to keep up with the growth of the working-age population. And now, it has taken a turn for the worse [Has unemployment become a cultural thing? Read…  Making Heroes of Those Who Slash Jobs].

The BLS headline numbers slammed into another vision of realty, released the day before. Gallup’s unemployment rate leapt from 7.4% to 8.3%—though it’s still lower than it was in November last year. Underemployment shot to 17.2% from October’s post-crisis low of 15.9%. A nasty reverse, after months of uneven improvements.

Gallup’s own Payroll-to-Population rate—the percentage of the adult population who are employed by an employer, not self-employed, for at least 30 hours per week—took the sharpest nosedive since the data series began in 2010, down two percentage points, hitting 43.7% in November.

Sandy’s fault? Not so fast, Gallup says. The Payroll to Population rate “declined across all regions, and the East had the smallest October to November decline, while the Midwest saw the biggest decline.”

More sobering still: The size of the workforce—those working plus those actively looking for a job—skidded in November to 67.2% from 68.3% in October and is now lower than it had been in November 2011 (67.7%). “When Americans drop out of the workforce, as happened in November, it masks a decline in jobs,” Gallup explained. Hence, also the BLS’s rosy unemployment number.

This is the background to the staged posturing, tragic-funny theatrics, and lurid special effects in Washington about the Fiscal Cliff—and whether to fall off, jump off, fly off, dive off, climb down, or somehow avoid it altogether. It has become an inescapable media zoo, much like Y2K once was. I remember well the worldwide letdown on January 1, 2000. Read…. The Majestic US Debt.

Guest Post: The Icelandic Success Story

Submitted by John Aziz of Azizonomics

The Icelandic Success Story

Emotionally, I love Iceland’s financial policies since the crash of 2008:


Iceland went after the people who caused the crisis — the bankers who created and sold the junk products — and tried to shield the general population.

But what Iceland did is not just emotionally satisfying. Iceland is recovering, while the rest of the Western world — which bailed out the bankers and left the general population to pay for the bankers’ excess — is not.

Bloomberg reports:

Few countries blew up more spectacularly than Iceland in the 2008 financial crisis. The local stock market plunged 90 percent; unemployment rose ninefold; inflation shot to more than 18 percent; the country’s biggest banks all failed.

This was no post-Lehman Brothers recession: It was a depression. 


Since then, Iceland has turned in a pretty impressive performance. It has repaid International Monetary Fund rescue loans ahead of schedule. Growth this year will be about 2.5 percent, better than most developed economies. Unemployment has fallen by half. In February, Fitch Ratings restored the country’s investment-grade status, approvingly citing its “unorthodox crisis policy response.”

So what exactly did Iceland do?

First, they create an aid package for homeowners:

To homeowners with negative equity, the country offered write-offs that would wipe out debt above 110 percent of the property value. The government also provided means-tested subsidies to reduce mortgage-interest expenses: Those with lower earnings, less home equity and children were granted the most generous support.

Then, they redenominated foreign currency debt into devalued krone, effectively giving creditors a big haircut:

In June 2010, the nation’s Supreme Court gave debtors another break: Bank loans that were indexed to foreign currencies were declared illegal. Because the Icelandic krona plunged 80 percent during the crisis, the cost of repaying foreign debt more than doubled. The ruling let consumers repay the banks as if the loans were in krona.


These policies helped consumers erase debt equal to 13 percent of Iceland’s $14 billion economy. Now, consumers have money to spend on other things. It is no accident that the IMF, which granted Iceland loans without imposing its usual austerity strictures, says the recovery is driven by domestic demand.

What this meant is that unsustainable junk was liquidated. While I am no fan of nationalised banks and believe that eventually they should be sold off, there were no quick and easy bailouts that allowed the financial sector to continue with the same unsustainable bubble-based folly they practiced before the crisis (as has happened throughout the rest of the Western world).  

And best of all, Iceland prosecuted the people who caused the crisis, providing a real disincentive (as opposed to more bailouts and bonuses):

Iceland’s special prosecutor has said it may indict as many as 90 people, while more than 200, including the former chief executives at the three biggest banks, face criminal charges.


Larus Welding, the former CEO of Glitnir Bank hf, once Iceland’s second biggest, was indicted in December for granting illegal loans and is now waiting to stand trial. The former CEO of Landsbanki Islands hf, Sigurjon Arnason, has endured stints of solitary confinement as his criminal investigation continues.


That compares with the U.S., where no top bank executives have faced criminal prosecution for their roles in the subprime mortgage meltdown. The Securities and Exchange Commission said last year it had sanctioned 39 senior officers for conduct related to the housing market meltdown.

Iceland’s approach is very much akin to what I have been advocating — write down the unsustainable debt, liquidate the junk corporations and banks that failed, disincentivise the behaviour that caused the crisis, and provide help to the ordinary individuals in the real economy (as opposed to phoney “stimulus” cash to campaign donors and big finance).

And Iceland has snapped out of its depression. The rest of the West, where banks continue to behave exactly as they did prior to the crisis, not so much.

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