Europe’s problem is Austerity?

[miami_thomas]

Thanks. I think I will. Analyst's projections are what they are: educated guesses.

Thus I stick with what is. (all facts, no estimates) Growth, even slow growth, is not going under. And France's debt is far from unmanageable, given the size of its economy and depth of its national product.

It's not going away, nor will it become Greece 2.0. Not even close.

Quote regarding the economic power France published today.

We forecast that the French economy will be in recession around the turn of the year, seeing a 0.2% contraction in GDP during 2013. Domestic demand dynamics have been weakening for some time, amid rising unemployment, falling consumer confidence and a challenging picture for household disposable income.
[...]At the end of 2011, employee compensation amounted to 67.4% of gross value added in French industrial firms (up 6.7 ppt since 1999) compared to 59.9% in Germany (down 9.7ppt). A similar story emerges when comparing real unit labour costs. France has recorded an increase of 2.8ppt since 1Q 1999, while Germany has posted a decline of 2.3ppt (see Figure 3).
French employment levels have been largely stable in the last two-and-a-half years (up 0.7% since 4Q-09) despite a larger gain in GDP worth around 3% (see Figure 4). Among other things, this relationship suggests that the labour market lacks flexibility. While productivity remains elevated, growth in the working age population means that an increasing number of potential workers are struggling to find jobs. Some categories such as the under 25s have been affected disproportionately: youth unemployment has risen by nearly 25k since the end of 2009, with a jobless rate of 22.7% in 2Q 2012 vs. only 8.1% in Germany.

Debt crisis: as it happened, November 16, 2012 - Telegraph

Let me know when forecasts prove accurate, or don't. We can pick it up from there.

Thanks in advance,

-K

Only the first line was forecast the rest was facts that led to that forecast. So if someone tells you the house is on fire you are going to say let me know when it burns down.

 

[Koios]

Quote regarding the economic power France published today.

We forecast that the French economy will be in recession around the turn of the year, seeing a 0.2% contraction in GDP during 2013. Domestic demand dynamics have been weakening for some time, amid rising unemployment, falling consumer confidence and a challenging picture for household disposable income.
[...]At the end of 2011, employee compensation amounted to 67.4% of gross value added in French industrial firms (up 6.7 ppt since 1999) compared to 59.9% in Germany (down 9.7ppt). A similar story emerges when comparing real unit labour costs. France has recorded an increase of 2.8ppt since 1Q 1999, while Germany has posted a decline of 2.3ppt (see Figure 3).
French employment levels have been largely stable in the last two-and-a-half years (up 0.7% since 4Q-09) despite a larger gain in GDP worth around 3% (see Figure 4). Among other things, this relationship suggests that the labour market lacks flexibility. While productivity remains elevated, growth in the working age population means that an increasing number of potential workers are struggling to find jobs. Some categories such as the under 25s have been affected disproportionately: youth unemployment has risen by nearly 25k since the end of 2009, with a jobless rate of 22.7% in 2Q 2012 vs. only 8.1% in Germany.

Debt crisis: as it happened, November 16, 2012 - Telegraph

Let me know when forecasts prove accurate, or don't. We can pick it up from there.

Thanks in advance,

-K

Only the first line was forecast the rest was facts that led to that forecast. So if someone tells you the house is on fire you are going to say let me know when it burns down.

Gotcha. Sorry for assuming it was the point you'd keyed in on simply because you'd emphasized only the forecasts and expectations.

Plus, facts are a bit over rated. Facts: sky is blue; cobalt is blue; my eyes are blue. What does that tell us about blue? (are you seeing?)

So if may inquire, which facts do you think salient, and how so?

 

[ilia25]

Lets hope those crafty European socialists are smart enough to tax and spend their way to prosperity............LOl

Those that have, are. Look at Germany, France or the Nordic Model countries. They're remarkably stable, prosperous and have higher middle class standards of living than we do, despite the US being the richest country on earth, by a mile.

But other EU member countries are struggling, because they borrowed and spent. Remind you of anyone? Hmmm?

You are correct -- Germany is more socialist than Spain, it it is not the welfare state that caused the "fiscal crisis". But it is not the excessive borrowing/spending either -- Germany is also more indebted than Spain.

 

[LogikAndReazon]

Austerity measures don't work in the midst of an economic depression/recession. Greece is a perfect example: the more the Greeks cut, the deeper they go into an economic breakdown crisis. When you cut salaries and lay people off, even in the state sector, you decrease tax receipts and tax revenue. People also have way less money to purchase goods and services. It's sad the Greeks were sold out by their corrupt leaders to pay back a bunch of French and German bondholders and banks. We're witnessing a form of genocide in real time.

Yep, its massive taxes, massive spending, massive govt intervention, centrally planned stimulus, and civil servant employment that will turn those economies around......

 

[Koios]

You are correct -- Germany is more socialist than Spain, it it is not the welfare state that caused the "fiscal crisis". But it is not the excessive borrowing/spending either -- Germany is also more indebted than Spain.

Indeed, albeit, both Germany (80% ish) and Spain (70% ish) rank low among nations for debt as a percent of their GDP.

 

[ilia25]

Made it safely to dinner and back. One beer, it seems, is not over my limit. But thanks for having my back on that.

Meanwhile, why size matters:

Consider : With the US being its #1 customer, by a huge margin, and thus vital to China's continuing growth, which is slowing now that other, even lower-cost producers, are entering the market, what would the impact on China be if it allowed us to slip into economic disaster, or even a significant slump? Pretty devistating to China; yeah?

So they'll do everything they can to keep us afloat, economically. Other countries will, too, since the world's #1 economy, to them, equals: Their best customer, and vital to their success in making and selling stuff.

Does that bring it into focus?

1) You assume that China buying the US helps to keep us afloat -- and that is not true. China buys dollars by truckloads to keep its currency artificially low and there aren't many places when you can park a trillion -- the US government debt is one of them. But on the whole, Chinese policy is bad for the US economy.
2) It is not just US. Every developed country that borrows in its own currency can do so at historically low rates. Some of them are more in debt than US, and all of them are smaller. So there in nothing exceptional in the US situation.
3) The only developed countries that can't borrow at low rates are all located in eurozone periphery. You think that is a coincidence?

1) I do not assume that nor did I state it.

1a) China manipulates its currency, as all countries do. Thus I think it's a hypocritical gripe on the part of the US. JMO.

2) I was merely stating why size matters. Have you additional questions in that regard, or was what I described sufficient.

Excuse me, but didn't you state that size matters in case of the US because -- and I quote -- "China, and its willingness to up the amount we're borrowing from them"?

And my point is that China, by manipulating its currency is hurting the US economy, instead of helping it. So if size matters, it hurts the US, instead of helping it.

3) No. Nor do I think it's true. What is the source of your information, or can you better explain it yourself? Either works for me. TIA

It's easy -- try to name a single developed country that borrows in its own currency and has floating exchange rate that does NOT enjoy the low borrowing rates?

The only developed countries that have trouble borrowing are from eurozone perifery, namely: Ireland, Portugal, Spain and Greece. The biggest of them -- Spain -- also has very low debt level, less than that of Germany or Belgium, or eurozone average.

It is pretty obvious, that there some other factor, not the debt, that caused troubles in there.

 

[ilia25]

You are correct -- Germany is more socialist than Spain, it it is not the welfare state that caused the "fiscal crisis". But it is not the excessive borrowing/spending either -- Germany is also more indebted than Spain.

Indeed, albeit, both Germany (80% ish) and Spain (70% ish) rank low among nations for debt as a percent of their GDP.

Yes, but Germany borrows at 0%, and Spain is struggling to borrow at 5%, which is unsustainable in the long term. Don;t you think there is some other factor in play here, aside form the debt levels?

 

[miami_thomas]

Austerity measures don't work in the midst of an economic depression/recession. Greece is a perfect example: the more the Greeks cut, the deeper they go into an economic breakdown crisis. When you cut salaries and lay people off, even in the state sector, you decrease tax receipts and tax revenue. People also have way less money to purchase goods and services. It's sad the Greeks were sold out by their corrupt leaders to pay back a bunch of French and German bondholders and banks. We're witnessing a form of genocide in real time.

Again this idea that countries can just keep borrowing regardless of the interest rates and keep spending is going to fix this are just not thinking straight. The Greek people were not complaining when they were enjoying their fake economy built on borrowed money. Just like many Americans have no problem with the US pumping over a trillion dollars a year of borrowed money into our economy the past 4 years. Say our interest rates went up to 7 percent that would almost instantaneously increase our interest payments from 120 billion to nearly 1.2 trillion. Then you would say we can’t cut spending we need to instead keep pumping the trillion of borrowed money a year into our economy while also borrowing the 1.2 trillion to pay the interest on the debt. If you think this math will work out in the end, then I would say you need to go back to math class.

 

[Sundial]

It is absolutely incredible that they are still blaming all the problems in Europe on the austerity measures and not on the debt. Austerity measures are a result of too much spending accumulating into a huge deficit that grew into too much debt. What are they supposed to do if not raise taxes and make cuts? They can’t keep spending and borrowing at the interest rates being offered. They think things will get better but they are mistaken because they think eventually we can just go back to spending enormous amounts of money with low taxes and borrowing to cover the difference. That and they obviously are not taking into consideration the fact that the US will be the next credit bubble to bust and it is going to be so big that it will certainly set of a chain reaction unlike any ever seen. We thought all the previous credit bursts were bad just wait until this one hits.


Euro zone falls into second recession since 2009 | Reuters

There are six ways for a country to mitigate debt:

1. External devaluation, a.k.a. "printing money". This option is not available to countries like Greece because they are part of the Euro. Only the ECB can devalue the currency. The ECB has resisted doing this, but is now giving it serious consideration.

"Printing money" ("quantitative easing") doesn't necessarily devalue currencies. If it results in economic growth, the increase in goods and services in the marketplace will match the increase in spending, leading to little or no inflation (example: the United States).

2. Internal devaluation. Raise taxes and lower wages, a.k.a. "austerity measures". This is what the troubled countries have been trying. But the problem is that their austerity measure cannot go deep enough to cover the bills that are due, so they have to keep rolling over their debt by borrowing ever larger sums of money to pay the old debt plus interest, thus creating a snowball effect.

The problem with austerity isn't just that governments can't cut enough, it's that it shrinks the economy, leading to more unemployment and less revenue. It's chasing water down the drain hole.

3. Interest rate deduction. Negotiate with one's creditors for lower interest rates. The troubled countries have been doing this as well, via the ECB. But the troubled countries STILL can't pay down their debts because their economies are shrinking faster than their debts.

...because they're pursuing austerity, which is destroying their economies.

4. GDP growth. The GDP of the troubled countries has been shrinking. The exact opposite of where they need to go. Less GDP means less revenue, which means less ability to service one's debts.

Which is why countries must increase spending and cut taxes in a recession.

5. Default. Throw up one's hands and give creditors a haircut. This is the inevitable outcome for the troubled countries in Europe. Right now, creditors are playing a game of hot potato. Rotating the debt hoping not to be the last one holding the potato and taking the loss. Sooner or later, the day of reckoning is coming, and then the shit really hits the fan. It's the second collapse of the global derivatives bubble, identical to the one in 2008.

That depends on the ECB. Because it's a central bank, it can do what any central bank can do, and what every other central bank routinely does: buy sovereign debt.

6. Bailout. Getting rich countries to pay your debts. Figure the odds of that happening. Zilch.

.

 

[ilia25]

Say our interest rates went up to 7 percent that would almost instantaneously increase our interest payments from 120 billion to nearly 1.2 trillion.

Yes, but the interest rates do not move at random! Something has to happen to cause the rates increase. And that something will affect other things, not just rates. Other things like the government revenues.

You cannot compare the future rates with the current level of revenues -- that is a bogus approach.

 

[ilia25]

This cannot last forever. In fact, the longer interest rates are artificially repressed, the more and more short term becomes the rollover of our debt

Why is that? The long term rates are very low too, why would the rollover become shorter?

and this will blow up in our faces when interest rates rise again.

No, it won't -- the economy has to recover before the rates can rise. So by the time we see high rates our fiscal situation will be much better because the government revenues will be much higher.

 

[Koios]

You are correct -- Germany is more socialist than Spain, it it is not the welfare state that caused the "fiscal crisis". But it is not the excessive borrowing/spending either -- Germany is also more indebted than Spain.

Indeed, albeit, both Germany (80% ish) and Spain (70% ish) rank low among nations for debt as a percent of their GDP.

Yes, but Germany borrows at 0%, and Spain is struggling to borrow at 5%, which is unsustainable in the long term. Don;t you think there is some other factor in play here, aside form the debt levels?

It's a credit rating thing. Spain ain't Germany. Best olive oil on the planet, hands down. But no German cars, precision instruments, etc, etc, etc. German manufacture, espcially in precision tooling, is at the top of the food-chain. Since to mill a precision device, you need a more precise tool to do it ... look to Germany.

And that's the product of a socialist business / government partnership: German education system, where folks not college bound are trained and equally-educated (and respected) in the trades. There's literally no prestige distinction between college educated and trade school educated. VW's prior CEO came up through the trades, for example.

 

[Kimura]

Austerity measures don't work in the midst of an economic depression/recession. Greece is a perfect example: the more the Greeks cut, the deeper they go into an economic breakdown crisis. When you cut salaries and lay people off, even in the state sector, you decrease tax receipts and tax revenue. People also have way less money to purchase goods and services. It's sad the Greeks were sold out by their corrupt leaders to pay back a bunch of French and German bondholders and banks. We're witnessing a form of genocide in real time.

Yep, its massive taxes, massive spending, massive govt intervention, centrally planned stimulus, and civil servant employment that will turn those economies around......

If the genocidal austerity forced on the Greeks is some magic bullet, why has the Greek economy continued to contract quarter after quarter for the last 5 years?

 

[ilia25]

Indeed, albeit, both Germany (80% ish) and Spain (70% ish) rank low among nations for debt as a percent of their GDP.

Yes, but Germany borrows at 0%, and Spain is struggling to borrow at 5%, which is unsustainable in the long term. Don;t you think there is some other factor in play here, aside form the debt levels?

It's a credit rating thing. Spain ain't Germany. Best olive oil on the planet, hands down. But no German cars, precision instruments, etc, etc, etc.

Look, what you are doing is just listing the differences between the countries and claiming, w/o any evidence, that they are responsible for the differences in borrowing rates.

I mean how the euros earned by selling the best olive oil are somehow less credible than euros earned by selling best cars? The creditors would somehow refuse to accept the olive oil euros, and demand the car euros instead?

It just does not make sense.

 

[Koios]

Yes, but Germany borrows at 0%, and Spain is struggling to borrow at 5%, which is unsustainable in the long term. Don;t you think there is some other factor in play here, aside form the debt levels?

It's a credit rating thing. Spain ain't Germany. Best olive oil on the planet, hands down. But no German cars, precision instruments, etc, etc, etc.

Look, what you are doing is just listing the differences between the countries and claiming, w/o any evidence, that they are responsible for the differences in borrowing rates.

I mean how the euros earned by selling the best olive oil are somehow less credible than euros earned by selling best cars? The creditors would somehow refuse to accept the olive oil euros, and demand the car euros instead?

It just does not make sense.

Come on. You can do better than that. What have you got, that makes Spain's output potential look as rosy as Germany's? Anything?

 

[miami_thomas]

Lets hope those crafty European socialists are smart enough to tax and spend their way to prosperity............LOl

Those that have, are. Look at Germany, France or the Nordic Model countries. They're remarkably stable, prosperous and have higher middle class standards of living than we do, despite the US being the richest country on earth, by a mile.

But other EU member countries are struggling, because they borrowed and spent. Remind you of anyone? Hmmm?

You are correct -- Germany is more socialist than Spain, it it is not the welfare state that caused the "fiscal crisis". But it is not the excessive borrowing/spending either -- Germany is also more indebted than Spain.

It is not debt alone it includes many factors. At the end of the day, it is a risky treasury to invest in so Spain has to off a higher rate to get people to invest. More people are willing to invest in Germany and the US because at this point it does not see risky. When it does and people start to invest elsewhere that is when trouble starts when you have a large amount of debt because the interest can eat up all your revenue.

 

[miami_thomas]

1) You assume that China buying the US helps to keep us afloat -- and that is not true. China buys dollars by truckloads to keep its currency artificially low and there aren't many places when you can park a trillion -- the US government debt is one of them. But on the whole, Chinese policy is bad for the US economy.
2) It is not just US. Every developed country that borrows in its own currency can do so at historically low rates. Some of them are more in debt than US, and all of them are smaller. So there in nothing exceptional in the US situation.
3) The only developed countries that can't borrow at low rates are all located in eurozone periphery. You think that is a coincidence?

1) I do not assume that nor did I state it.

1a) China manipulates its currency, as all countries do. Thus I think it's a hypocritical gripe on the part of the US. JMO.

2) I was merely stating why size matters. Have you additional questions in that regard, or was what I described sufficient.

Excuse me, but didn't you state that size matters in case of the US because -- and I quote -- "China, and its willingness to up the amount we're borrowing from them"?

And my point is that China, by manipulating its currency is hurting the US economy, instead of helping it. So if size matters, it hurts the US, instead of helping it.

3) No. Nor do I think it's true. What is the source of your information, or can you better explain it yourself? Either works for me. TIA

It's easy -- try to name a single developed country that borrows in its own currency and has floating exchange rate that does NOT enjoy the low borrowing rates?

The only developed countries that have trouble borrowing are from eurozone perifery, namely: Ireland, Portugal, Spain and Greece. The biggest of them -- Spain -- also has very low debt level, less than that of Germany or Belgium, or eurozone average.

It is pretty obvious, that there some other factor, not the debt, that caused troubles in there.

So what you are saying is you believe that you can borrow for ever and never have to payback the debt ever? You also may want to check our history of interest rates

http://3.bp.blogspot.com/-Lg2bsmGzy.../U.S.+Treasury+Bond+Interest+Rate+History.jpg

 

[miami_thomas]

Say our interest rates went up to 7 percent that would almost instantaneously increase our interest payments from 120 billion to nearly 1.2 trillion.

Yes, but the interest rates do not move at random! Something has to happen to cause the rates increase. And that something will affect other things, not just rates. Other things like the government revenues.

You cannot compare the future rates with the current level of revenues -- that is a bogus approach.

Rates can also go up if there is fear that the US cannot afford to pay its debt and either will have to default or devalue its currency. That is why there is a current movement to replace the dollar as the world reserve currency to ensure the devaluation of the dollar has a lesser impact on the world economy.

 

[miami_thomas]

Austerity measures don't work in the midst of an economic depression/recession. Greece is a perfect example: the more the Greeks cut, the deeper they go into an economic breakdown crisis. When you cut salaries and lay people off, even in the state sector, you decrease tax receipts and tax revenue. People also have way less money to purchase goods and services. It's sad the Greeks were sold out by their corrupt leaders to pay back a bunch of French and German bondholders and banks. We're witnessing a form of genocide in real time.

Yep, its massive taxes, massive spending, massive govt intervention, centrally planned stimulus, and civil servant employment that will turn those economies around......

If the genocidal austerity forced on the Greeks is some magic bullet, why has the Greek economy continued to contract quarter after quarter for the last 5 years?

It is forced by them. They spent too much and there was a fear they could not pay their debts so Greece had to increase rates and that in turn increased their spending and caused even higher deficits causing even higher interest rates to the point of collapse. The rest of Europe is trying to prevent that from happening to save their own economies because Greece could cause a panic on bonds and then boom bubble bursts. This is not over trust me.

 

[Koios]

Say our interest rates went up to 7 percent that would almost instantaneously increase our interest payments from 120 billion to nearly 1.2 trillion.

Yes, but the interest rates do not move at random! Something has to happen to cause the rates increase. And that something will affect other things, not just rates. Other things like the government revenues.

You cannot compare the future rates with the current level of revenues -- that is a bogus approach.

Rates can also go up if there is fear that the US cannot afford to pay its debt and either will have to default or devalue its currency. That is why there is a current movement to replace the dollar as the world reserve currency to ensure the devaluation of the dollar has a lesser impact on the world economy.

We can thank Boehner's Tea/Rep Congress for that. Upping the borrowing limit, prior, was never an issue. It passed with ease, since obviously, it funded what Congress had already appropriated. Stupid, and it hurt our credit rating, which has real effects, which are negative. But then they can blame Obama, and say he shouldn't be re-elected, in part because our lower credit rating is a sign of a bad economy, which it was not. It was because our full faith a credit was made less certain, by a lunatic Congress.