Europe's Worsening Economic Disaster 14 comments
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I didn’t get around to the European economic numbers Friday which is inexcusable because in many ways they may have been the biggest news item of the day. The data is simply ghastly, and that may be putting it too mildly.
From the Economist:
The euro area is falling into such a deep hole that the recovery, when it eventually comes, will be a long, hard journey. Figures released on Friday May 15th showed that GDP in the 16-country currency zone fell by 2.5% in the first quarter, an annualised rate of some 10%, far worse than many analysts had feared. Germany, the largest economy in the group, fell even harder: its GDP shrank by 3.8% in the three months to March and has plunged by almost 7% since its recession began a year ago. Italy’s GDP fell by 2.4% in the quarter; Spain’s by 1.8%. The 1.2% fall in France, large by any normal standards, almost counts as a boom.
Here are the quarterly figures for select countries:
- Germany: -3.8%
- Austria: -2.8%
- Netherlands: -2.8%
- Spain: -1.8%
- France: -1.2%
- U.K.: -1.9%
- Italy: -2.4%
You should note that these are not annualized rates but the actual decline in the economy for the quarter. In the U.S. we report on an annualized basis, so the 6.1% decline in GDP for the first quarter was actually an actual decline of about 1.5%. If you translated for example Italy’s decline in to an annual rate, it would be 9.6%, Germany would be 15.2% — nearing depression levels.
The Economist article points out that many of the European countries didn’t have credit or housing booms but that they’re suffering as much or more than the United States and the U.K.
It may be true that they didn’t have housing busts but they certainly participated in and benefited from the credit bubble. They effectively leveraged themselves against the U.S. consumer and just as China has discovered that seemingly perpetual motion machine really wasn’t one. They created the problems which they now have to solve.
The infamous second derivative argument is now in full bloom in Europe. Things are getting worse at a declining rate, but that’s really the only good news. Like Asia, a number of European countries do have to make some hard decisions about how to restructure their economies to a reality of diminished demand from the U.S.
However, many of the European countries do not have the financial flexibility of China and certainly all are more constrained by internal politics than is China.
Europe has a very deep hole to climb out of.
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This article has 14 comments:
We hear China is growing yet,...Chineseexports and imports(even more) have plunged, 30 million deperately poor rural floatinng workers have become unemployed in the past 6 months and the opaque Government is furiously trying to reinflate the stock market while stemming a free fall in urban real estate via a tsunami of cheap credit........and India is doing failry well. However, neither China nor India combined can be global engines of growth, especially the latter which is now focussed on developing internal demand for mostly internal goods and services( the most basic necessities of survival) amongst is very poor rural citizens.
It is unreasonable to suppose foreign trade will be a positive for the US in the next 6 months(maybe a negative) or that the consumer, real estate and manufacturing markets can drive growth. The services sector certainly cannot.
The US government is spending astonishing amounts of money, it is true but the bulk of it is flinging good ( or less bad i.e fiat money) money after bad(or terrible)money via serial, unending and socially demoralizing bailiouts and social transfer payments. This spending may well , for a season, stem panic but it is no engine of sustainable, quality growth. Indeed this kind of government spending is creating serious constraints on the mid and term wealth generating capacity of the economy.
The sad thing is, European money doesn't have a safe place to land. Like the US, it's banks are in tatters with hidden losses. Like the US, it has had its fling with underfunded social programs. The Euro countries can't abide by any of their monetary or fiscal rules. And like the US, their population is also aging and in some cases shrinking.
The global recessionary blight we are in is global simply because the mega banks and central bankers that helped form this predicament all participated. They all participated in manipulating artificially low interest rates, lacked enforcing acceptable credit standards for their financial institutions. Accepted gambling rather than investment as their central tennants. Embraced Trillions in derivatives liability without batting an eye. Failed at creating even the most basic and rudamentary derivatives regulation. Failed at spotting asset bubbles or doing anything about it. Failed at spotting or doing anything about ridiculous gearing. Allowed investment houses to hawk their products to investors without requiring them to sell them honestly or adequately disclose the risks involved. Failed to keep insurance companies from selling financial instruments with inadequate capital. Basically, they accepted fraud as the dynamo for short term prosperity.
Certainly there is enough blame to go around. However, the simple fact is Europe is suffering worse than the US simply because they were the greater fool in a liars poker game. Goldman Sacs is laughing their heads off at them. At least Paulson threw them a bone with taxpayer money through AIG. The remaining trillions of dollars in losses they will have to pass on to their own citizens.
Thanks Tom for the article and for pointing out that the US is not suffering alone for their financial institutions inpropriety.
Your comment that Europe was suckered by Goldman Sachs would, for anyone who believes that one reaps what one sows, actually rather revealing.
Bear Stearns was the only major bank that didn't participate in the rescue of LTCM and lots of folks on Wall Street never forgave them for it.
I think we will manage very well using our own proven structures, and hopefully not rely on US suggestions how to get out of this.
On May 17 06:59 AM Dave Wrixon wrote:
> Yes, but who actually believes the US data anyway?
The problem has been that punishment of crimes is only relevent to those who arent in power. Peolple who are trusted with the quality of life for all the people have been dismissed from accountability. A obvious double standard. The bigger the problem gets the more they claim unattentional results and the atrocities are being committed by others below the ladder of rank on thier own behalf and greed. And the "planners and designers " escape thier due punishment. The system of banking is an "evil" instrument the way it exist today. The political system is a disfuntional system permitting " evil" and both must fail painfully so that a new improved system can be created.
Be prepared for the worst if you can. Being prepared is a insurance policy that you alone insure. Top priority a paid off mortgage if you can. A stockpile of food. Water purifier,ect. New exchangeable currancy Silver, Gold, tools, food supplies, healthcare products,ect. Read books to be prepared for a period of a new low point of society just in case.
The next shoe to drop will be the actions taken by the Roman Catholic Church. They have been all to quiet during this crisis. Deception in the details..........
That about sums it up. What will our next dynamo be?
1. " The US is digging its own grave with its experimentation in how much funny money they can dump at one time."
2. "Basically, they accepted fraud as the dynamo for short term prosperity."
I also my view that the two items above as the major drivers of the present financial & economic catastrophe.
However, there is another major contributor to the present events: the world neo-colonial system that, highly benefited the West (specifically the USA and EU) allowing their populous parasitic ways of life without paying for it, is coming to a crushing end. China is not about endlessly support American and European high standards of living at the expense of their own citizens. The same is about true for the other developing Asian and Latin American countries.
The times when Japan, China, etc., where providing the Western world with free products and services (in exchange for IOU called US Treasury obligations) are about over. A major world geopolitical realignment is taking place.
Taking into account major US military limitations, the West can do noting to prevent this present major world realignment process.
PS
It is a total nonsense when workers in China are paid 5-10 times less than their US and European counterparts for doing the same job.
The bottom line is that if you are in serious trouble, the last you do is own up, or everyone stops lending and starts hiking up interest rates. It is even obvious to a simpleton like me that Uncle Sam is trying to bluff his way through. The problem is that it is not working and his cover is just about blown, and the steps he has taken to avoid the consequences are about to make the consequences, which would already have been severe, much much much worse.
On May 17 07:43 AM User 353732 wrote:
> To complete the global perspective add the even bigger decline in
> Russia, the comprable decline in Japan, the compression in Canada,
> Mexico and Brazil. Africa, the Middle East and most of Latin America/Pacific
> Rim are in trouble.We cannot expand if our trading partners are
> compressing.
> We hear China is growing yet,...Chineseexports and imports(even more)
> have plunged, 30 million deperately poor rural floatinng workers
> have become unemployed in the past 6 months and the opaque Government
> is furiously trying to reinflate the stock market while stemming
> a free fall in urban real estate via a tsunami of cheap credit........and
> India is doing failry well. However, neither China nor India combined
> can be global engines of growth, especially the latter which is now
> focussed on developing internal demand for mostly internal goods
> and services( the most basic necessities of survival) amongst is
> very poor rural citizens.
> It is unreasonable to suppose foreign trade will be a positive for
> the US in the next 6 months(maybe a negative) or that the consumer,
> real estate and manufacturing markets can drive growth. The services
> sector certainly cannot.
> The US government is spending astonishing amounts of money, it is
> true but the bulk of it is flinging good ( or less bad i.e fiat
> money) money after bad(or terrible)money via serial, unending and
> socially demoralizing bailiouts and social transfer payments. This
> spending may well , for a season, stem panic but it is no engine
> of sustainable, quality growth. Indeed this kind of government spending
> is creating serious constraints on the mid and term wealth generating
> capacity of the economy.
Read here about the "Quiet Coup" (May 2009)
www.theatlantic.com/do...
But even if you wanted to preserve this distortion, first you must recognize it exists. Most American's still actually believe that they are much more productive than anyone else. And why shouldn't they. Uncle Sam has told them it is so.
The first step to recovery is going to be re-educating the masses to understand the new harsh economic reality. But of course they will learn that anyway. It all depends how long you consider you have to piss about putting your house in order.
On May 17 11:03 AM nova wrote:
> Moon Kil Woong wrote:
>
> 1. " The US is digging its own grave with its experimentation in
> how much funny money they can dump at one time."
>
> 2. "Basically, they accepted fraud as the dynamo for short term prosperity."
>
>
> I also my view that the two items above as the major drivers of the
> present financial & economic catastrophe.
>
> However, there is another major contributor to the present events:
> the world neo-colonial system that, highly benefited the West (specifically
> the USA and EU) allowing their populous parasitic ways of life without
> paying for it, is coming to a crushing end. China is not about endlessly
> support American and European high standards of living at the expense
> of their own citizens. The same is about true for the other developing
> Asian and Latin American countries.
>
> The times when Japan, China, etc., where providing the Western world
> with free products and services (in exchange for IOU called US Treasury
> obligations) are about over. A major world geopolitical realignment
> is taking place.
>
> Taking into account major US military limitations, the West can do
> noting to prevent this present major world realignment process.<br/>
>
> PS
> It is a total nonsense when workers in China are paid 5-10 times
> less than their US and European counterparts for doing the same job.
"PS
It is a total nonsense when workers in China are paid 5-10 times less than their US and European counterparts for doing the same job."
.....Tell that to the ruling elite of China. It seems a lot of investors take pride in the fact that China has a vast pool of workers who are willing to work for peanuts.
Over there in China, it is still a very archaic system coming out from a feudalistic society that dates back to 1500 B.C.Xia Dynasty. Unlike here, where humans are guaranteed certain rights; over there, humans have to start from zero rights. The 1949 Communist Revolution was supposedly modeled after the Sovets but essentially was a peasants' revolution.
The so-called labor workers are now the party elites - they are the rulers who set the rules. (Of course they kids enjoy the overseas educational opportunities). And ironically they (the labor leaders) ban unions.
That probably partially answers some of your queries why "...China has a vast pool of workers who are willing to work for peanuts..."
We could work for 25% of our wages if we were not financially enslaved to our present government.
They no longer consider us citizens. We have become an income stream for the government and now our govt is enslaving the unborn.
Until govt controls spending the chains of slavery will never be broken.
On May 17 11:03 AM nova wrote:
> PS
> It is a total nonsense when workers in China are paid 5-10 times
> less than their US and European counterparts for doing the same job.