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Erik Dellith
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Erik Dellith is an adjunct professor. He teaches economics and finance to college and MBA students. Before entering academia, Erik worked for more than a decade as a securities analyst, covering US and foreign stocks, domestic and global equity and fixed-income mutual funds, ETFs and precious... More
My blog:
Economic Ideas
My book:
Necromancer's Madness
  • Spain's Pending Bailout

    The IMF summed up the situation in Spain perfectly in one line: "The past four years have witnessed a crisis in the Spanish financial sector unprecedented in its modern history." Yup, Spain is in a tough spot.

    Absent any financial assistance, and the economic problems there will easily eclipse Greece. The problem with this is that Spain is a much larger economy, reportedly ranking 13th in the world by the IMF. Greece? 42nd. (Source: Wikipedia) This means that, while it would be bad enough if Greece defaulted and left the euro, the impact on the European and global economies of Spain of defaulting on its debt and leaving the euro would be practically catastrophic.

    Spain has been hit by some of the same factors that slapped the financial systems in other countries, including plummeting real estate prices. To recapitalize its banks, the IMF says that Spain needs about $46 billion. Not a lot of money. Think about the numbers for Greece, and that's a smaller economy.

    Where to get the money? Clearly, the international financial markets aren't working out so well. The credit agencies have been cutting their rating on Spanish debt, and foreign investors have been leaving the country; according to, foreign investors held about 50% of Spanish debt at the end of last year, and only 37% in April.

    In the event that Spain does the smart thing, and begs for funds, then it will likely get the lifeline that it needs. That is the likely scenario. Take the loan. Just kick the can down the road and let someone else deal with the problem in the future. "Debt is okay, let the next generation pay for it, just as long as I don't see any further deterioration in my standard of living now."

    In the event that Spain completely screws this up, goes against current market expectations, and tries to take chances on its own, it would likely be the final straw in watching the euro zone collapse. Spain's unemployment rate, already holding around 25%, would likely skyrocket, as the economy implodes. Expect to see civil unrest and significant political change.

    Either way - now or later (and actually probably both) - the people of Spain are in a tough spot.

    Jun 09 10:15 AM | Link | Comment!
  • Greece Votes
    I write this early Sunday afternoon, as Greece Parliament discusses more austerity measures. Unfortunately, there remains no good answer for Greece, just differing degrees of less bad.

    If the austerity measures pass and Greece receives the additional 130 billion euros, the problem of meeting the debt payment is again kicked down the road a bit. The idea of pushing the problem farther off into the future is to allow Greece enough time to kickstart its economy so it can meet its debt obligations. However, it is also important to recognize that additional austerity measures now will further weaken an economy already in recession. That suggests that tax revenue might fall short of the current target, which will put additional pressure on the Greek government budget.

    One of the key bits of the new austerity program is a 20% reduction in the minimum wage. According to the CIA World Factbook, about 20% of the population of Greece lived below the poverty line. That is the estimate for 2009. The economy has contracted consdierably since then. I can't imagine a 20% pay cut to the lowest wage earners helping this group.

    I do not see an option for Greece, at this point, that will not further weaken its economy. Greece's economy will likely deteriorate through the rest of this year. Estimates to tax revenue will need to be revised. And, I anticipate that the poor performance of the Greek economy will continue to cast a shadow over growth through much of Europe.

    Feb 12 12:52 PM | Link | Comment!
  • Nice Improvement But Not Really A Game Changer

    January's employment situation figures from the Bureau of Labor Statistics (BLS) represent a nice improvement. The addition of 243,000 new jobs is definitely welcome. Apparently, this is particularly true in the stock market, where the DJIA, S&P 500, and NASDAQ are all up more than 1% a little after 11am.

    While the job gains are welcome, they reinforce the idea that the economy continues to hum along on a slow-growth pace. January's 243k jobs figure comes after the economy added 203k in December and 157k in November, so it seems that the pace of hiring is moving in the right direction. (All jobs figures from BLS.)

    But I want to temper enthusiasm a bit. Remember, in three of the first four months of last year, the economy added more than 200k jobs: February, 220k; March, 246k; April, 251k. At that point, too, it appeared that the job market was moving in the right direction, with the pace of hiring accelerating. What happened in May? The pace of job growth eased, and the economy added fewer than 100k jobs in each month over the summer. Even in 2010, we saw three months of job growth in excess of 200k, and one of those was over 500k.

    Clearly, there are reasons for these changing dynamics. Yet, some things remain. Many aspects of the domestic economy continue to show mild growth. Industrial production, for instance, advanced 0.4% in December, after dropping 0.3% in November, which followed a 0.6% gain in October and 0.2% improvements in both August and September. Are we seeing massive improvements that suggest hiring is really going to take off? Not really. Just more the same.

    At the same time, overseas risks seem to be growing. The IMF recently cut its growth forecasts. Let's face it, Europe, particularly southern Europe, doesn't look so hot, and that threatens much of the continent later this year. The UK is also suffering: Brad DeLong recently wrote about how the UK is doing worse now than during the Great Depression, and, as he writes, "the odds are high that British real GDP is headed down again."

    While I remain somewhat optimistic on the US economy moving along its current slow-growth path (good gravy, think about how conditions must be if I am using "optimistic" with "slow-growth"), we are unfortunately not in a vacuum. Weakening conditions externally can weigh on economic activity here, and that could hamper job growth later this year.
    Feb 03 11:23 AM | Link | Comment!
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