O'Brien Homes started holding a monthly housing lottery for its 228-unit development called Fusion in Sunnyvale, Calf., after seeing throngs of prospective buyers camp out at the openings of other new condo complexes in the area.
Each month, as new sections of the development came under construction, roughly 50 buyers would show up at O'Brien Homes' sales office hoping to be picked for one of the 10 or so sites available. The participants were already pre-qualified for a mortgage and had their down payment in place. After being assigned a number, they crossed their fingers and waited for each bingo ball to be plucked from the tumbler.
"Some people would come back month after month," said Frimel. "It got very frustrating for them."
Adding to that frustration was that home prices rose virtually every time a new group of homes went on sale. The two-, three- and four-bedroom homes started out between $420,000 and $620,000. The last grouping went for $555,000 to $815,000, a 32% increase.
Even with the price hikes, buyers kept returning. O'Brien started issuing returnees an extra bingo ball. If they lost for four straight months, they would get five chances the next time.
Here's my Greenspan imitation: "Don't worry, it's only some sections of the country. Besides it's well supported by the fundamentals. And as we all know, home prices never drop."
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
March data is more of the same. Sales have fallen 33 consecutive months coupled with 56 months of job destruction.
This month overall sales fell by 10.9%. Accounting for seasonal effects, sales are down 8.9%. The Corporate sales fell 14.1% (10.9% accounting for seasonal effects). Small business spending is down 12.7% (9.2% seasonally adjusted).
Spain is in a national emergency with no consumer spending, no credit, and no job creation, coupled with strongly rising unemployment.
Austerity the Wrong Way
This is what happens when you implement austerity the wrong way, by raising taxes instead of cutting needless bureaucrats.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Given the constant chatter from the Obama administration and from teachers' unions on the need to spend more for public education, let's address the question "Is the US spending enough on education?"
I propose we look at the stats in graphical form starting with charts of population and total spending, culminating with education spending per child.
The above charts are from reader Tim Wallace who writes ...
Hello Mish
Last week I saw a comment on one of your blogs regarding there would soon be one non-worker for every worker in the country. Here are some charts I put together that highlight the current trends.
1. Total Population vs. Civilian Workers - Ratio Right Axis -- This is a chart of our country's population by year, with the number of people employed in March of that year, starting in 1950. You can see that there is a significant growth in the ratio of people to workers early on, up until the mid 1960's. This is mostly because of an explosion in the number of children in the USA in that time period, starting at 47.3 million in 1950 and surging to 69.7 million in 1964. The child population then flat lined for several years, decreasing as a percentage of the overall population. The ratio since the 1980's mostly seems to be affected by recessions periods with increases in the early '90's and '00's. There has been a slight drop in the ratio the past two years, but nowhere near the number necessary to return us to the levels of the alleged "balanced budget" time period in the late '90's.
2. Budget Per Civilian Employed In Constant 2009/2010 Dollars -- This chart shows the federal budget divided by the number of people employed, how many dollars it ends up being per person employed. Obviously a lot of tax dollars come from other sources, but it is still illuminating to see the huge increases under the current administration on a per worker basis. From $20,000 per worker in 2007 to around $28,000 now, an increase of $8,000 per, or about 40%. I don't recall getting a raise that large. Yet somehow we cannot afford a measly 2-3% budget cut.
3. US Total Population and Children Population - Pct. Right Axis -- The chart shows children as a percentage of the population plummeting from 1964 - where they peaked at over 36% to today where they are just 24% of the population. The number of children in '64 was about 69.7 million, today up to 76.7 million, a growth of 7 million while the overall population grew 123.7 million! The real problem here is that a growing economy is always dependent on the growth of the upcoming population. We are in deep trouble here.
4. Number of Children and Per Child Spending On Education in Constant 2009-10 Dollars -- I cannot understand how this spending, so absurdly high, is continually pointed out as too little to spend on education! In constant dollars we are spending 7 times the amount on education as the 1950's - the generation of students that put the man on the moon, invented computers, the list goes on and on. At 1/7th the cost!
Hope these are informative.
Tim
Where Did the Money Go?
Where the money went should be intuitively obvious: Teachers' salaries, teachers' pensions, administration salaries, administration pensions, sports programs, sports staff, union maintenance crews, etc.
Please keep these charts in mind the next time someone says we need higher taxes "for the kids".
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Following my April 23 political prediction Merkel Loses Chancellorship in September as Support for AfD Soars, I received many emails from readers suggesting I was engaged in wishful thinking, that German polls are unreliable, that I was following the wrong polls, etc.
I am sticking with what I said. I simply do not see how any sort of stable coalition can form either with or without Merkel.
The Green party has now ruled out a coalition with Merkel, SPD wants Merkel gone, and the math for a Merkel-led coalition is simply not there.
Germany’s main centre-left opposition parties closed ranks over the weekend in their uphill battle against Angela Merkel, with the Greens signalling a decisive shift to the left.
During a three-day party congress in Berlin five months before national elections, the Greens positioned themselves to the left of the Social Democrats (SPD) with calls for higher income tax and a property levy on the rich.
The party pledged to raise the top rate of income tax from 45 to 49 per cent, and to levy a 1.5 per cent tax on property worth more than €1m, aiming to raise €100bn over 10 years.
Making the first appearance by a Social Democrat leader at a Green congress, Sigmar Gabriel, the party’s national chairman, delivered a passionate plea to the Greens to stop flirting with Ms Merkel’s conservatives. He said only an SPD-Green coalition could take on the financial markets, which he blamed for the recent economic turmoil in Europe.
“There are only two parties in Germany that can tame the financial markets, and that’s you and us,” he told delegates, to loud cheers.
Jürgen Trittin, the Green’s parliamentary leader, declared: “The SPD is the only coalition partner that will help us make Germany greener.”
Coalitions Mathematically Going Nowhere
So where is the SPD-Green Coalition Going? Better yet, where is any coalition going?
Last week I noted AfD has risen from 5% of the vote to 6.6%. Now support is a 6.9%. "Sonst" stands for other.
If the Greens will not form a coalition with CDU/CSU, and SPD puts the ouster of Merkel as the price of a coalition, then what is in store for Merkel?
A SPD/Green coalition cannot come close to a majority. A CDU/CSU coalition with AfD could do just that if Afd rises above 10% of the vote.
I am sticking with my prediction AfD gets 12% of the vote as previous non-voters come out of the woodwork, spotting a chance to make something happen.
For a closer look at German political parties and their stated platforms, please see Understanding German Politics written by reader Bernd (not Bernd Lucke, the economist and AfD elected speaker).
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Of all the topics that readers have pleaded me to write about for months but I never did until now, "bitcoins" are at the top of the list.
In private emails, I stated on many occasions "bitcoins are a scam". I now take that back, "scam" is not the correct word. Others whose opinions I highly respect, state the same thing.
For example, Geoff Turk at GoldMoney stated in an email response:
"I have spent quite a bit of time researching Bitcoins and have not found anything scam-like about them. Price volatility is another matter, and that is a result of an increasing demand for a relatively scarce resource. There may be individuals attempting to manipulate the price in some way, which we know is possible in any small (or even not-so-small) market. However, in my opinion the Bitcoin protocol itself is quite sound, and it creates an interesting hybrid of a commodity without corporeal existence that is nonetheless limited in supply."
That was not an endorsement of bitcoin, rather it was a statement that my labeling of bitcoin as a scam was incorrect. I agree, with apologies offered to bitcoin.
OK But What Is Bitcoin
If bitcoin isn't a scam, then what is it? I have struggled with that question, which explains why I never have written about it.
For months I would search for companies accepting bitcoins as payment and found scant offerings. The same could be said for gold.
Yet, the total value of gold at a price of $1,600/oz would be something like $7.9 trillion. The total value of bitcoins is extremely volatile, fluctuating around $1 billion. Simply put, there is no comparison in terms of total price or volatility.
The record 9 percent drop in the price of gold was matched by a 70% plunge in the price of bitcoins in a similar timeframe.
Bitcoin Store
A few weeks ago I decided to do another search for businesses that accepted bitcoins. I was surprised to discover that a new entity, the Bitcoin Store, offers 500,000 electronic products for sale, accepting only bitcoins a payment. The products include high-end digital cameras.
I decided to call the store up and ask a few questions. My timing was fortuitous. The owner of the Bitcoin Store, Roger Ver, answered the phone.
This was unusual since Ver lives in Japan and he just happened to be back in California, and he is the one who answered the phone.
After some small talk and he told me that he was known as "Bitcoin Jesus". I told him who I was and that I had some questions about bitcoins. He recognized my name from Coast-to-Coast AM radio where he tunes in as a subscriber from Japan.
The interview that follows is via a subsequent chain of emails.
"Bitcoin Jesus" Interview
Mish: How did you get started in Bitcoin? BJ: I heard about them on freetalklive in late 2010.
Mish: When did you start your business? BJ: I founded MemoryDealers in 1999 and started building BitcoinStore in 2012. BitcoinStore launched March 1st 2013.
Mish: What is your volume in business, assuming a value on bitcoins of $100. BJ: So far this month we have averaged 115 BTC per day. $11,500 per day, $350,000 per month. We disabled international orders on the site because we were getting so many orders that we couldn't process them all each day.
Mish: How many products do you sell? BJ: More than 500,000 line items currently. In the near future we will add additional distributors, bringing our line card to over 1,000,000 items.
Mish: How many employees did you have when you started? How many do you have now? BJ: Bitcoin store started with one, now there are seven. I need to hire at least two more ASAP.
Mish: Are your employees paid in bitcoins or US$? BJ: US employees are paid in USD because the tax laws are not clear. Most of them would prefer to be paid in BTC. The international contractors are paid %100 in BTC. I don't know for sure what they do with them, but I suspect they keep them in BTC.
Mish: Who is your merchandise supplier? BJ: Ingram Micro. They are the world's largest.
Mish: Do you pay them in bitcoins or $US? BJ: I pay them in USD, but I hope to get them to accept at least partial payment in Bitcoin in the future.
Mish: Are all of your profits kept in bitcoins? What about expenses before profits? Describe your bitcoin currency risk. BJ: All of BitcoinStore's sales are kept in Bitcoin. Expenses are paid via Bitcoin or USD depending on the vendor. I want to be exposed to as much Bitcoin currency risk as possible. I hold on to as many Bitcoins as I can.
Mish: What happens to you and your business if the value of bitcoins plunges to $10? BJ: Personally I would lose a lot of money on the value of my Bitcoins, but it wouldn't affect the business model of BitcoinStore at any time. If needed, the bitcoin payment processor, Bitpay, can instantly convert the Bitcoins to USD at the time of each sale, so a guaranteed USD profit can be achieved on each sale.
Mish: Why did you move to Japan? BJ: I moved to Japan following an unwarranted conviction for selling firecrackers. I wrote up some of the details in a Daily Anarchist article Bitcoin Venture Capitalist Roger Ver's Journey to Anarchism.
Mish note: Please read the article. It's fascinating. Ver is a libertarian student of Ludwig von Mises, Adam Smith, Fredric Bastiat, Leonard Reed, Henry Hazlitt, Friedrich Hayek, and especially Murray Rothbard.
Mish: Please explain how you got the name "Bitcoin Jesus". BJ: Not only am I a true believer in the model, I have converted numerous skeptics who are now true believers as well. Everywhere I go, I tell everyone about bitcoin, from taxi drivers, to restaurant workers, to girls at night clubs. It doesn't matter when or where, I'm so excited about Bitcoin that I feel the need to tell everyone about it. Someone along the way said you are like a "Bitcoin Jesus" and the nickname kind of stuck.
I also give out $1 worth of Bitcoins to everyone I meet who doesn't already have any. I just did an interview on Fox News on April 12 and I gave the sound guy at the studio his first $1 worth of Bitcoin after he installed the Blockchain App on his iPhone.
Mish: Anything else you wish to add? BJ: Yes thanks. It is important to realize that Bitcoin has two independent functions:
1. As a currency 2. As a payment system
To use Bitcoin as a payment system, it doesn't matter if they are worth $1 or $100,000 each. You simply buy the correct USD amount, and send it to the recipient who immediately exchanges them back into whatever other currency they want.
I don't think Bitcoin's usefulness as an unblockable, uncontrollable, potentially anonymous payment system can be disputed. Time will tell how useful the bitcoins within the Bitcoin payment system become as an actual currency.
I'm sure all your readers will enjoy the article. Thank you for letting me contribute.
Mish: Thanks Roger. Good luck to you and Bitcoin Store.
Not A Convert
I am neither a convert nor a true believer. I will stick to gold thank-you. I see things similarly to Ron Paul who said in a Bloomberg Interview "If I can't put it in my pocket, I have some reservations about that."
My friend Hugo Salinas Price had some pertinent thoughts regarding bitcoins on April 10 in his piece Of bubbles and Bitcoins
The newest invention in monetary affairs are the so-called Bitcoins. Their creators and promoters explain them as follows: 'Bitcoins are digital money. They are transferred person to person through Internet without going a bank or a clearing house, so they are independent of the current monetary system. Several currency exchanges exists where you can trade your Bitcoins for dollars or euros, and some small business and freelancers are starting to accept them in payment'.
The Bitcoin is a game. We live in a highly confused and perplexed world regarding what real money has to be. Let's get this straight: real money has to be the commodity that is generally accepted by society as payment in full for goods or services received.
Throughout history, the commodity most generally accepted in payment has been gold. Silver has taken the second place after gold. Gold and silver were chosen by humanity thousands of years ago, as the commodities with which to make payments.
The Bitcoin is an example of the tremendous hold that the idea of the omnipotence of technology to solve human problems has upon humanity. However, technology cannot create matter; it cannot create commodity-money, as it cannot create petroleum. Technology may give various forms to matter, but it cannot create matter or substance, and money must be the substance that is most accepted in commerce. All the Ph.D.s and Nobels in Economics are playing games to keep the world entertained. The less their pronouncements make sense, the wiser they think we will consider them.
You tell me: What is the future that awaits a humanity so confused that it can no longer distinguish between an abstract concept and what is real and material? Very confused people are participating in speculations in imitation currencies – dollars, pounds, euros, yen, yuans, Bitcoins - in the hopes of obtaining some profit or benefit, because unable to think for themselves, they can do nothing but speculate – and ruin themselves.
Understanding the Game
Even though I am not a bitcoin convert, it's easy to understand why people gravitate towards them.
Yes, people like games and speculation, but they are also fed up with unlimited monetary expansion of Central Banks, especially the Fed and the Bank of Japan.
Purchase bitcoins, leave the country, convert the bitcoins to a currency of your liking, and voilà!
Yet, should that happen or even be suspected, how long will it take before there is a government crackdown on bitcoin? Should such a thing happen, the value of bitcoin can plunge to next to nothing if confidence is lost.
It's quite amazing to me that it soared to over $260 at one point. Is it so inconceivable that the value of bitcoin would plunge back to 6 cents?
Perhaps, but what about $1 or $5. A drop from $260 to $5 would wipe out 98% of the value. Should that happen, in a short time frame, what else would you call it but hyperinflation? Curiously such a plunge would not be associated with printing.
Bitcoin Jesus would say that is unlikely, but is it?
I do not know, but I do know history. And when given a choice, the free market has always decided on gold and silver as money, when available.
In my Presentation at the Wine Country Conference, I stated "I cast my vote with history". I still do. Yet, I offer encouragement to those like Roger Ver willing to "fight the Fed" in a literal sense.
To see my video presentation, scroll down and look for Mike “Mish” Shedlock: A Brief Lesson in History
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
During the first two years of the nation’s economic recovery, the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%, according to a Pew Research Center analysis of newly released Census Bureau data.
From 2009 to 2011, the mean wealth of the 8 million households in the more affluent group rose to an estimated $3,173,895 from an estimated $2,476,244, while the mean wealth of the 111 million households in the less affluent group fell to an estimated $133,817 from an estimated $139,896.
Uneven Household Recovery
What Happened?
Some seriously misguided souls blame free market capitalism for this event.
I blame the Fed, fractional reserve lending, political corruption, unions, and the Military Industrial Complex that president Eisenhower warned us about in aSpeech in 1961.
In short, the problems we face are not the result of free market capitalism, but rather the results of Fed sponsored corporate and military fascism.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Yes, capitalism is working ... for the Forbes 1,000 Global Billionaires whose ranks swelled from 322 in 2000 to 1,426 recently. Billionaires control the vast majority of the world’s wealth, while the income of American workers stagnated.
Over the years we’ve explored the reasons capitalism blindly continues on its self-destructive path. Recently we found someone who brilliantly explains why free-market capitalism is destined to destroy the world, absent a historic paradigm shift: That is Harvard philosopher Michael Sandel, author of the new best-seller, “What Money Can’t Buy: The Moral Limits of Markets,” and his earlier classic, “Justice: What’s the Right Thing to Do?”
New free-market capitalism trapped in American brains. Yes, it’s everywhere: “Markets to allocate health, education, public safety, national security, criminal justice, environmental protection, recreation, procreation, and other social goods unheard-of 30 years ago. Today, we take them largely for granted.”
Examples ... for-profit schools, hospitals, prisons ... outsourcing war to private contractors ... police forces by private guards “almost twice the number of public police officers” ... drug “companies aggressive marketing of prescription drugs directly to consumers, a practice ... prohibited in most other countries.”
Something Trapped in Our Brains
Yes something is trapped in our brains, or rather the brains of Farrell, Harvard philosopher Michael Sandel, and those who think like them.
The first problem is Farrell and Sandel do not know what free market capitalism is. We certainly do not have it.
The free market would not have fractional reserve lending. The free market would have gold and silver as money.
The primary reason for the major disparity in wealth is bank leverage of fiat money created at will via fractional reserve lending. The most redeeming feature of capitalism is failure, but the Fed has a moral hazard policy of "too big to fail" that promotes massive risk-taking.
There would be no Fed in a free market and there would be bank failures, not bailouts on the backs of taxpayers.
In a free market, money would not be inflated at will, nor would credit be handed out to anyone who could breathe as happened in the housing bubble.
Anyone who equates what is happening now with "free market economics" has something much smellier than mush for brains. So does anyone who thinks the socialist model would serve us better. If it the socialist model was better, and more regulation and rules was the solution for everything, France would be the booming leader of the world economy.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Click on the link and scroll down to find the correct video. Allow 45 minutes or so for viewing.
The videos are the actual presentations, and we are making a couple of them available each week for three weeks.
John Hussman’s presentation "An Unstable Equilibrium" was posted last week. My Presentation "A Brief Lesson in History" is also available as are my "Opening Remarks".
Speaker presentation material, Yahoo! Finance media interviews, and associated articles on Advisor Perspectives are now available online at Wine Country Conference Speaker Slides.
If you enjoy the videos and slides please consider making a Donation to the Les Turner ALS Foundation. Specify "Mish Campaign" on the donation to earmark funds for research.
All told, we raised nearly $500,000 for ALS research, subject to final audit. $100,000 of that came from a very generous matching donation from the Hussman Foundation.
Thanks again for a successful 2013 WCC and we look forward to many more! The 2014 conference will raise money for autism research and programs.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Buried in a transportation bill that President Obama signed on July 6, 2012, was a change to make it appear pension plans are better funded than they really are.
The bill was called Map-21 "Moving Ahead for Progress in the 21st Century Act".
Here is a catchy logo and stated goals.
Supposedly the three core principles of the bill are:
Raise the bar to enter the industry and operate on our roads;
Hold motor carrier and drivers to the highest safety standards to continue operations; and
Remove the highest risk drivers, vehicles, and carriers from our roads and prevent them from operating.
MAP-21 took effect October 1, 2012. Budget is $561 million in fiscal year (FY) 2013 and $572 million in FY 2014 for the Agency's administrative expenses and grant programs.
Pension Progress?
So what does this have to do with pensions? Nothing of course (except for the fact that this is another one of those bills that you have to pass to see what's in it, and more importantly how the bill works in real life.)
Buried in the Text of Map-21 is SEC. 40312. PENSION FUNDING STABILIZATION.
"(I) IN GENERAL- If a segment rate described in clause (i), (ii), or (iii) with respect to any applicable month (determined without regard to this clause) is less than the applicable minimum percentage, or more than the applicable maximum percentage, of the average of the segment rates described in such clause for years in the 25-year period ending with September 30 of the calendar year preceding the calendar year in which the plan year begins, then the segment rate described in such clause with respect to the applicable month shall be equal to the applicable minimum percentage or the applicable maximum percentage of such average, whichever is closest. The Secretary shall determine such average on an annual basis and may prescribe equivalent rates for years in any such 25-year period for which the rates described in any such clause are not available."
No one reading that would likely figure out the implication (at least without a great deal of effort). However I can give you a real life example.
Implications of the Bill
Reader Mark writes.
Hello Mish
I wasn't aware that the federal laws had been altered to make the pensions seem more solvent.
Apparently there is a new federal law, MAP-21 (Moving Ahead for Progress in the 21st century Act), that changes how pension plans are allowed to project future earnings/liabilities based on the interest rate calculation period.
Attached is a recent notice we received as plan participants, and how our pension plan magically improved due to the law.
Mark
Map-21 Real Life Progress Report
click on image for better view
Details
This company went from being 77.80% funded to 90.93% funded.
This company had a shortfall of $713 million but it's now $249 million.
The company's minimum contribution dropped from $197 million to $123 million.
How did this magic happen?
Easy: Prior to Map-21 pension plans had to determine liabilities based on a 2-year average of interest rates. After Map-21 companies could use a 25-year average of interest rates. As a result, companies get to contribute less when interest rates are low.
I would like to point out this is precisely when companies ought to be contributing more! It is extremely difficult to meet plan assumptions when corporate bond yields are in the gutter.
Ain't "Transportation" Grand?
Here's two more questions: What was the "real" purpose of this bill? Did it have anything to do with transportation?
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
In spite of fact the Yen is down about 12% on the year, consumer prices in Japan are still falling and some are already clamoring for still more monetary stimulus.
Consumer prices excluding fresh food slid 0.5 percent in March from a year earlier, the statistics bureau said today. The median estimate of 25 economists surveyed by Bloomberg News was for a 0.4 percent decline. Overall prices dropped 0.9 percent. The BOJ this month said that it expects prices to keep declining for “the time being.”
Eisuke Sakakibara, an ex-Finance Ministry colleague, has predicted Kuroda will fail to achieve the 2 percent price goal, and former BOJ board member Atsushi Mizuno sees the central bank hitting a “wall of reality” as bond purchases escalate risks of a market bubble.
Policy makers may come under pressure to expand stimulus should prices continue to drop.
“It’s unrealistic -- they won’t be able to reach their target in two years, or even in five,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo and a former BOJ official. Extra easing may be needed as early as October, when the BOJ releases new price forecasts, he said.
Policy board members themselves are divided over the outlook for inflation, with some anticipating that consumer prices won’t even rise at half the rate they set as a target this month. While the highest of their projections for fiscal 2015 is for a 2.3 percent consumer-price gain excluding the tax increase, the lowest is 0.8 percent.
Belief Bubble?
This is really quite stunning. It seems no one believes the Bank of Japan can do anything to stop prices from falling. JPMorgan chief Japan economist thinks Japan will fail to hit price targets for another 5 years!
Wow. This is precisely the kind of sentiment one sees at the end of trends. Nearly everyone thinks the trend will last forever, and nothing can stop it.
Instead, I suggest Japan will eventually succeed in spades and will be extremely unhappy with the result once it happens.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Today Spain has reached a record number of unemployed. Although we do not like the current state of things, no one seems to know against whom to direct their anger.
Actually, we are under a dictatorship perhaps worse than the Portuguese or Spanish forty years ago because it is more subtle and works almost invisibly. And we can embody it, too, not in an institution or a person, but with a symbol: the euro.
There are many reasons to believe that Spain would not be as bad off out of the single currency. To explore this question we must look at least three things: First, what is the profile of the countries that have left monetary unions? Second, what does empirical evidence tells us regarding effectiveness of countries have left currency unions? Third, what are the economic and social conditions that need to be taken into account in making such a decision?
Spain fits he profile of the countries that have tended to get out of currency unions: large countries economically developed with well-established democracies.
Second, what empirical evidence tell us? According to the IMF, no countries have been able to make needed fiscal consolidation without a mixture of structural reforms and monetary policy changes. Spain compares favorably in this respect to Argentina and Korean cases. Argentina went off the dollar peg in 2002. Although initially the Argentina economy suffered a severe recession, the year of the return to the country was growing weight (and in fact has grown at an average rate of over 7% from that year until 2011).
Third, we must take into account, the real exchange rate, the financing capacity of a country, and the behavior of its exports. In relation to the three aspects, Spain has bad fundamentals including a competitiveness problem that comes largely from an overvalued euro and a long-term funding problem with interest rates far higher than other countries in the eurozone.
To all this we must add the "social" setting: in addition to more than six million unemployed, we now know, Spain has become the second most unequal country in the eurozone and in the fourth of the entire European Union in terms of income distribution.
It is difficult to plan in advance what would be the results of a euro exit for the Spanish economy. Initially this would mean an impoverishment of the population, but classical theory tells us is that the recovery of monetary sovereignty coupled with the devaluation of our new currency push exports and thus growth, so that the country would create jobs. Job creation would without doubt have a positive impact on the reduction of our current levels of inequality.
The shackles of yesterday's dictatorships are different than today. Or are they? It depends on how you look at things. Will we also be free of these shackles?
The author of the above article is Antonio Estella, Professor of European Union Law and Professor of Administrative Law at the University Carlos III of Madrid. He holds a PhD in law from the European University Institute and holds a Master in European Law from the Free University of Brussels.
The important point is not agreement or disagreement with the author, but rather that a eurozone exit is now openly presented as a viable option in a mainstream Spanish newspaper.
Expect such sentiment to grow along with rising unemployment and a sinking Spanish economy.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Reminder: Those in the greater Chicago area should plan on attending the Chicago Natural Resources Expo on April 26 for a discussion about gold, silver, hard assets, inflation, currencies (or whatever else is on your mind). You also have the opportunity to meet with various natural resource company executives.
Venue change: Previously this was a Friday evening-Saturday Afternoon event. This year, the event is Noon-11:00 PM Friday only.
Once again, I am pleased to announce the magic words: "It's free".
Originally known as the Chicago Natural Resource Conference and Exhibition, this is one of the oldest natural resource conferences in the United States. The conference is a semi-annual event and offers opportunities to learn about new and undervalued companies in the natural resource industry.
The event is directed by Rich Radez, who started the conference back in 1977. Rich, and his son Eric, created the unique format which focuses on resource companies and provides maximum exposure to both investors and sponsors.
There is no cost for those who pre-register to attend the conference. The Expo is held at the Rolling Meadows Holiday Inn and Convention Center in Rolling Meadows, IL. The Holiday Inn is located at 3405 Algonquin Road, Rolling Meadows, IL 60008. The hotel can be contacted at 847-259-5000.
I will be on a panel Friday evening taking questions taken from the audience on gold, silver, Europe, inflation, or any aspect of the global economy that is on your mind.
The panel runs from 7:00-9:00 PM. If you enjoy the panel, you can buy me a drink afterwards (If you don't, I will graciously accept a free drink anyway).
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Spain's budget deficits are out of control, home prices are still falling, GDP is down 2% annualized in the first quarter, production is down, the unemployment rate soared a full percentage point to 27.16%, and a record 6.2 million are out of work.
Here are some stats from Spain's National Statistics Office as noted in the Financial Times.
Almost 240,000 people lost their jobs in the first three months of the year.
The overall number of jobless is 6.2 million.
The unemployment rate rose by more than 1 point to 27.16%
2 million out of 17.4 million Spanish households are without a single person holding a job.
Job losses were particularly heavy in the services sector, but also in industry and farming.
Construction has shed more than 1.6 million jobs since 2008 as a result of the bursting of Spain’s housing bubble.
These numbers are an indication of a freefall, not a bottom. Yet, Rajoy says the Spanish economy has bottomed and Spain will return to growth this year. Such talk is ridiculous.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Noodle peelers should probably start looking for other things to do around the kitchen – there’s just no competing with these robots.
Runguan’s robots peel noodle strips from a firm piece of dough and tosses them directly into boiling water “before diners’ eyes can follow the whole process.” While a cook doing the same job would make about 40,000 yuan ($6,400) per year, the robot cost just 10,000 yuan ($1,600). And no human chef can work so tirelessly.
Price is already down from $2,000 this past August, which is no doubt a big reason why more than 3,000 restaurants that have already relegated their noodle-making to the robot.
That humans can be replaced by robots that do the job faster and cheaper is an idea that now pervades Chinese employers. “Chinese companies usually start considering robots when the payment for a skilled worker exceeds 50,000 yuan ($8,060) a year.”
In Japan robots are already being used to make sushi, and a robot in San Francisco can serve up 340 hamburgers an hour. But while robotic cooks provide restaurants a novelty for customers and savings for owners, other robots are invading China’s workplace on a much grander scale. Most notably is Foxconn who, last November, began replacing 1 million jobs performed by humans with robotic automation. The metamorphosis is advancing quickly. In late February the company announced it put a freeze on hiring new entry-level workers. This was due in part to a high worker retention rate following pay increases, but it’s also a conscious decision to accelerate the automation of their factories.
Robot Chefs Take Over
Who to Blame for "Robotic Outsourcing"
It's easy to see what is happening. But who is to blame, and what can be done about it?
The simple fact of the matter is technology marches on and we all eventually benefit from it. To the extent it appears we do not, let me point out a six facts.
The Fed (central banks in general) have made the cost of capital so cheap that it encourages employers to replace workers with cheaper alternatives.
The Fed (central banks in general) can enhance trends, but cannot change them. Thus, I am not stating the Fed is the cause of "Robotic Outsourcing". Rather, I am stating that cheap money has accelerated that trend.
Minimum wage laws, protectionism, unions in general, and inane government policies also encourage "Robotic Outsourcing".
Long-term, everyone benefits from productivity improvements and associated cheaper prices.
Unfortunately, Keynesian clowns as well as the clowns at the Fed (central banks in general) see cheaper prices as the enemy.
In their effort to prevent falling prices, the Fed has lowered the cost of money so much that it is a no-brainer to replace human workers with technology at an increasing pace.
Outsourcing Progression
Increasing the minimum wage encourages more outsourcing. Obamacare and other mandated benefits also encourages outsourcing.
Outsourcing went first to Mexico, then to China, and now to robots. Manufacturing is returning to the US, but human jobs have not.
Central Thesis
The Fed (central banks in general) can enhance trends, but cannot change them. The Fed is not the cause of "Robotic Outsourcing" but cheap money has certainly accelerated that trend.
With the Fed hell-bent on causing price inflation, Obama on causing wage inflation, and unions on keeping an unsustainable trend in wages and benefits, look for an accelerated trend towards elimination of human jobs.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
“Jennifer Muir, a spokeswoman for the Orange County Employees’ Association, which represents more than 18,000 public employees in Orange County, said the California Public Policy Center’s study was a politically motivated attack on public employees and unions. Aside from promoting the center’s anti-public employee union agenda, Muir said, the reports are misleading and shift focus away from the discussions that matter most. Union leaders have long urged for people to consider the possibility that private-industry employees are being undercompensated and should receive retirement benefits and health coverage.” Orange County Register, April 19, 2013
The study Muir refers to, entitled “Irvine, California – City Employee Compensation Analysis,” was published on April 8th, 2013, by our parent organization, the California Public Policy Center. To call this study “a politically motivated attack on public employees and unions,” as Muir alleges, is itself a distraction. It’s easy, and necessary, to impugn the motives behind information when the information itself is so embarrassing.
As noted, Muir went on to accuse the study of “shifting focus away from the discussions that matter most… that private-industry employees are being undercompensated.”
Let’s recap some of the facts regarding Irvine’s city employee compensation, drawing both from the CPPC study (which itself used payroll data provided by the City of Irvine), as well as from the Orange County Employee Retirement Systems 2011 Annual Report:
The average City of Irvine employee receives direct pay of $95,751 per year, and when the cost of employer paid benefits is included, this average goes up to $143,691 per year (Source: CPPC Study, Table 1.
The average participant in the Orange County Employee Retirement system who worked 25-30 years and retired last year collects a pension of $70,920 per year. If they worked 30 years or more, like virtually every private sector worker, that average goes up to $81,192 per year (Source: OCERS Annual Report, page 109.
Now let’s suppose that private industry employees are indeed being undercompensated. What are the economic implications of paying them a proper living wage ala Irvine – and every other unionized public sector job in California? Here are some facts:
In 2010 there were 8.3 million residents in California over the age of 55, which is the age by which a public employee may reasonably be assumed to have logged 30 years – assuming they completed their education by age 25 and entered the workforce for a full career in public service (source: U.S. Census Bureau. Also In 2010, the GDP of California – its entire economic output – was $1.9 trillion (source: LA Times).This means that if everyone over the age of 55 in California got a pension of $70,000 per year, it would cost $581 billion per year, 31% of California’s entire economic output. Ms. Muir is invited to explain exactly how we’re going to accomplish this.
Using the same census data, in 2010 there were 15.8 million people between the ages of 25 and 55. Assume that two-thirds of these people work full-time, and the other one-third are unemployed spouses, stay-at-home parents, or are otherwise supported by a working partner. If every one of these 10.5 million people collected total compensation of $140,000 per year, this would cost $1.47 trillion per year, or 77% of California’s entire economic output.
So according to this utopian vision, if everyone could just receive the same compensation packages as the average full-time worker for the City of Irvine, it would consume 108% of California’s entire economic output.
There’s a bit more to this, however. In the real world, wages and salaries fluctuate between around 44% and 54% of GDP (source: TelltaleChart.org). We may argue over what share of GDP legitimately belongs to workers vs. corporations – bearing in mind that corporate profits are an absolute necessity for a public sector pension plan to have any hope of remaining solvent, and these profits are also necessary to invest in equipment and conduct R&D if we are to have any hope of remaining an economically viable nation – but let’s use an unprecedentedly generous proportion.
Let’s assume that 60% of California’s GDP is comprised of wages, benefits, and pension payments. To complete this thought, we’re now going to have to indulge in some basic algebra (T=trillion), one of those nasty tools of analysis that never plays well in a 30 second TV commercial, but nonetheless is an ideal tool to express cold quantitative reality, rather than utopian union fantasies:
[ .58T (pensions) + 1.47T (wages) ] / .6 (40% for corp. profits) = GDP of 3.48T
Isn’t that terrific? All we have to do is wave a wand and instantly, we’ll nearly double California’s GDP from $1.9 trillion per year to 3.5 trillion per year. Nobody will be “undercompensated” any more! Then we can afford to implement this compelling vision of social justice – total compensation of $140,000 per year for every full-time worker, then after 30 years, a pension of $70,000 per year. It should be easy. Perhaps new legislation is called for.
End Guest Post
Ed and I frequently trade guest posts on subjects related to unions wages, pensions, and the precarious state of California's economy.
The Spanish economy fell 0.5% in the first quarter and declined 2% year on year, according to economic bulletin of the Bank of Spain , which estimates a fall of 4.5% of employment in the same period, two tenths less than in the previous quarter.
The monetary authority notes that Spain continued the "contraction pattern" of activity in the first quarter, although at a "more muted" than in the final last year, where the GDP contracted by 0.8 % quarterly rate. However, he warns that this improvement could "have dimmed" in the latter part of the quarter, under "decreasing profile" of some indicators.
The Bank of Spain estimates that domestic demand fell by 0.8%, also lower than in the previous quarter, to reverse the impact of temporary factors that had a negative impact on domestic spending in the final months of 2012, as raising indirect taxes and the abolition of the bonus for public employees.
However, the central bank indicated that the reduced capacity of household savings, the fall of his wealth, the persistence of job outlook "uncertain" and a high debt leaves little room for recovery of short-term consumption. For residential investment, it also highlights that demand continues to show "great weakness".
Thus, private consumption fell by 0.3%, against a fall of 2% in the previous quarter, while gross capital formation contracted by 1.8%, also well below the 3.9% decline previous quarter.
Don't Cheer Yet
Spain is contracting less than last quarter, and although unemployment is still rising, it's also at a less pace than last year. Is this something to cheer about?
Not really. Spain's budget deficit targets missed by a mile, and had they been closer, everything else would have been worse.
The U.S. Mint ran out its smallest American Eagle gold coin after demand surged following the biggest drop in futures prices in 33 years.
Sales of the coins weighing a 10th of an ounce were suspended after demand more than doubled in 2013 from a year earlier, the Mint said today in a statement. Total sales of American Eagles in April have almost tripled from a month earlier, according to Mint data on the website.
On April 15, gold futures in New York plunged 9.3 percent, the most since 1980. Retail sales and jewelry demand soared in India, the world’s top buyer, and China, the second-biggest. Coin sales also surged in Australia.
The Mint also sells 22-karat American Eagle coins of 1 ounce, half an ounce and a quarter of an ounce.
The U.S. Mint suspended sales of silver coins in January for more than a week because of lack of inventory. Sales of the coins jumped to a record that month.
Bullish or Bearish?
It's possible to make a bullish or bearish argument out of this shortage. The bullish argument is simple: demand is strong. The bearish argument is small investors are a contrarian indicator just as they were with silver in January.
I am not taking a short-term stance one way or another, so don't ask. I do like my chances longer-term as I explained at the Wine Country Conference. See Mike “Mish” Shedlock: A Brief Lesson in History.
Shortage of Physical Gold?
Some writers have spun this story into the message there is a shortage of physical gold. No there isn't. There is a temporary shortage of certain coins, no more no less.
Divergence Between Physical Gold and Paper Gold?
Other writers have noticed the price premium on small denomination coins and concluded there is some sort of "divergence between physical gold and paper gold".
Once again, that's nonsense. Premiums on small denomination coins is not the same a general premium on physical gold itself.
How do I know?
Easy: If I went to buy or sell at GoldMoney (and GoldMoney only deals in physical metals with allocated, audited storage), I would pay the same small markup as before, based on the current futures price.
Here is another way to tell. Go buy or sell a one ounce bar and see how much it costs or how much you can get. Here's a hint: your selling price will not fetch $1900 as it once did, nor would it cost you over $1900 to buy.
Smackdown by Naked Shorts?
Many claim blatant manipulation by naked shorts. Mercy! Under this theory, shorts piled on to the tune of 163,000 gold futures. Really?
Keith Weiner tackles that theory for the Acting Man Blog in The Last Contango. Here is the pertinent chart.
Weiner asks "If someone had sold 163,000 futures to cause the price to drop, then wouldn’t the open interest [in futures] have risen? If Santa went down chimneys, wouldn’t there be soot on his red and white uniform?"
The answer to both questions is of course "yes". Instead, the chart shows a 16,000 open interest drop in gold futures and a 12,000 drop in silver futures. Ignore the Hype in Both Directions
Bulls blame every drop on manipulation and frequently tout preposterous price targets. Bears cite jewelry demand and other nonsense as if it's important (and it isn't).
It is best to ignore the hype and silliness on both sides.
Fundamentally, what has changed? I suggest nothing.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Unlike the speaker presentations, my opening speech is a short 7 minutes or so.
We are making a couple of video presentations available each week for three weeks.
John Hussman’s presentation "An Unstable Equilibrium" was posted last week. My presentation "A Brief Lesson in History" is also available.
Speaker presentation material, Yahoo! Finance media interviews, and associated articles on Advisor Perspectives are now available online at Wine Country Conference Speaker Slides.
If you enjoy the videos and slides please consider making a Donation to the Les Turner ALS Foundation. Specify "Mish Campaign" on the donation to earmark funds for research.
All told, we raised nearly $500,000 for ALS research, subject to final audit. $100,000 of that came from a very generous matching donation from the Hussman Foundation.
Thanks again for a successful 2013 WCC and we look forward to many more! The 2014 conference will raise money for autism research and programs.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
Now that we have an Understanding German Political Parties let's consider some scenarios from reader Bernd who lives in Germany about how the election on September 22 plays out.
In past elections, as many as 40% of the eligible population did not vote. This brings a very large pool of voters that may turn out for the anti-Euro AfD party.
Bernd comments "All indications show that AfD has a huge potential to convert nonvoters to voters. If election turnout is high, seats in Parliament may look drastically different than today."
For the past two weeks I have been watching the iPhone app Wahl-O-Meter and AfD has risen from 5% of the vote to 6.6% now.
Not only has AfD been rising, but today is the first day I have seen AfD above Die Linke. In the same timeframe, support for FDP has been sinking.
FDP is right on the bubble, polling 5% down from 5.4% or so. It takes 5% of the vote to stay in parliament.
This is significant because FDP currently has the third largest representation in parliament and is the junior partner in Merkel's existing CDU/CSU/FDP coalition. The very real danger to Merkel is FDP goes to zero percent representation.
In theory CDU, CSU, and SPD could easily form a coalition that totals over 50% of parliament. However, the SPD political party leadership has ruled out a coalition government that includes Merkel as chancellor.
AfD Support Rises to 19% in Handelsblatt Online Poll
The new anti-euro party alternative for Germany (AFD) has a good chance to collect in autumn in the Bundestag. The result of a representative survey of online market research company market research on behalf of Handelsblatt Online. 19.2 percent of the 1,003 respondents affirmed therefore the question of whether they would give the party their vote in the general election (24.9 percent of men and 14.8 percent of women).
54.6 percent of respondents (56.7 percent of men, 53 percent of women) would not choose the AFD on the other hand, 26 percent of respondents stated that they have not made a choice decision (18.4 percent of men, 32.2 percent of women).
Their greatest potential voters, the party in the 46 - to 65-year-olds: 23.1 percent of this age group, the AFD would give their vote (in the 31 - to 45-year-olds: 19.3 percent among 18 - to 30 - year: 14.2 percent).
Online polls are notoriously inaccurate, so the key takeaway is continually rising interest.
A few weeks ago many news agencies were stating AfD would not reach the five percent threshold. Bernd and I think 12% or more is easily achievable.
With that backdrop out of the way, let's take a look at reader Bernd's speculative estimates for the September election.
Bernd's Speculative Estimates
CDU/CSU: 36%
SPD: 23%
Grünen: 13%
AfD: 12%
Die Linke: 06%
FDP: 04%
Piraten: 03%
Others: 03%
Should that scenario or any close approximation play out, it will be quite difficult for Merkel to stay in power.
A "natural coalition" between CDU/CSU and AfD could in theory work, and it might not take 50% of the popular vote to form such a coalition on account of the parties losing representation. Yet, even in such scenario, the price to pay for CDU/CSU would likely be Merkel's chancellorship.
Bernd outlines four possibilities
Four Possibilities
SPD, CDU, CSU form a coalition in which Merkel steps aside or is forced out.
SPD forms a coalition with half term Merkel (CDU) and half term Steinbrück (SPD) as chancellor.
The politics splinters as happened in Italy with unknown effects for the coming government.
CDU/CSU and AfD form a coalition under a new and unknown chancellor. Together they reform EU politics.
Bernd states option four would be ideal but right now such a possibility is wishful thinking as opposed to a strong likelihood.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
China’s stocks fell, dragging the benchmark index down the most in three weeks, as data showed the country’s manufacturing growing at a slower pace.
The Shanghai Composite has slumped 9.7 percent from a Feb. 6 high, on concern slowing growth will hurt earnings. China’s economy expanded 7.7 percent in the first quarter, missing estimates, as industrial production and fixed-asset investments in March fell short of forecasts. Rising Chinese home prices may limit scope for stimulus as President Xi Jinping seeks to prevent a real-estate bubble.
“This has been a very narrowly based recovery, predominantly driven by infrastructure investment, but now even infrastructure investment is also apparently slowing down,” said Tao Dong, head of Asia economics excluding Japan at Credit Suisse Group AG in Hong Kong.
China PMI barely Above Contraction
As I have said on numerous occasions, China's infrastructure build-out is both ridiculous and unsustainable. Yet that does not stop for one second the cheerleading.
It is really tough to spin that stagnation, assuming you even believe it (I don't), into something positive. Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC managed to do just that.
Qu stated "The HSBC Flash China Manufacturing PMI came in at a two-month low, but still managed to expand modestly in April, albeit at a much slower pace. However, new export orders contracted after a temporary rebound in March, suggesting external demand for China’s exporters remains weak. Weaker overall demand has also started to weigh on employment in the manufacturing sector. Beijing is expected to respond strongly to sustain the economic recovery by increasing efforts to boost domestic investment and consumption in the coming months.”
Really?
50.5 is "modest expansion"?! Would 49.5 have been "modest contraction?"
Let's at least be honest about this. At best China is stagnating and this is in spite of an unwarranted and unsustainable infrastructure build-out.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
The videos are the actual presentations, and we are making a couple of them available each week for three weeks.
John Hussman’s presentation "An Unstable Equilibrium" was posted last week.
Speaker presentation material, Yahoo! Finance media interviews, and associated articles on Advisor Perspectives are now available online at Wine Country Conference Speaker Slides.
If you enjoy the videos and slides please consider making a Donation to the Les Turner ALS Foundation. Specify "Mish Campaign" on the donation to earmark funds for research.
All told, we raised nearly $500,000 for ALS research, subject to final audit. $100,000 of that came from a very generous matching donation from the Hussman Foundation.
Thanks again for a successful 2013 WCC and we look forward to many more! The 2014 conference will raise money for autism research and programs.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
The above response was humorous because the math shows a large number of people are unhappy even though thy pay no income taxes at all. Nowhere did I state or imply any hatred of anyone.
I asked Ironman to explain the chart. Here is his reply.
We used U.S. Census data to model the total aggregate income earned by individual Americans for each $100 increment of income in 2009 to create the "blue" income distribution bell curve using regression analysis, which we originally did as part of another project, where we modeled the total money income distribution of Americans.
We then took the Tax Policy Center's data for the percentage of tax units without income tax liability for given levels of income and modeled that as well - and in doing that, we also get the percentage of tax units that do have income tax liability over the same income range.
We then multiplied the percentage of tax units with income tax liability by the total amount of aggregate income earned within a given amount of income to determine the portion of that aggregate U.S. income that is subject to income taxes. That result is represented as the "red"-shaded bell curve on the chart.
The unshaded region under the "blue" total aggregate income curve is then the portion of income earned by Americans that is not subject to income taxes.
What If?
In a followup email, I asked Ironman what the result would have been, if a 100% tax on all income above $1 million been in place. To that question he replied ...
"By our calculation, the U.S. government would have taken in $800 billion more in tax revenue if it had taxed people making more than $1 million at 100 percent, according to IRS data from 2008, the year Ryan used as his base point."
Thus, even taxing people making over $1 million at a rate of 100% would not have balanced the budget. Of course, if you tax anything at 100%, you are not going to get anywhere near the amount theoretically expected.
Simply put, if you pay people enough to do nothing at all, you are going to encourage a lot of fraud by people willing to do nothing.
Regardless of what you think about top income earners, the system is setup to encourage fraud and avoidance at both ends of the scale.
Who suffers? Those in the middle.
Perhaps it's time for a consumption tax, excluding food, medicine, and essential clothes. Perhaps some combination of flat income tax in conjunction with a consumption tax excluding food, medicine, and essential clothes.
My only fear in suggesting such a thing is government nearly always screws things up by implementing things in a matter that will make matters worse.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
More than a decade ago, the Dutch central bank recognized the dangers of [the housing] euphoria, but its warnings went unheeded. Only last year did the new government, under conservative-liberal Prime Minister Mark Rutte, amend the generous tax loopholes, which gradually began to expire in January. But now it's almost too late. No nation in the euro zone is as deeply in debt as the Netherlands, where banks have a total of about €650 billion in mortgage loans on their books.
Consumer debt amounts to about 250 percent of available income. By comparison, in 2011 even the Spaniards only reached a debt ratio of 125 percent.
The Netherlands is still one of the most competitive countries in the European Union, but now that the real estate bubble has burst, it threatens to take down the entire economy with it. Unemployment is on the rise, consumption is down and growth has come to a standstill.
Even €46 billion in austerity measures are apparently not enough to remain within the EU debt limit. Although [Dutch Finance Minister and Euro Group Chief] Jeroen Dijsselbloem has announced another €4.3 billion in cuts in public service and healthcare, they will only take effect in 2014.
"Sticking the knife in even more deeply" would be "very, very unreasonable," Social Democrat Dijsselbloem told German daily Frankfurter Allgemeine Zeitung, in an attempt to justify the delay.
Dijsselbloem's Hypocrisy
Note how Dijsselbloem is ready and willing to stick austerity measures of any kind on every other eurozone economy but his own.
Earlier this month, I posted on how the Netherlands was facing a potential economic crisis on the back a severe housing correction, whereby house prices fell by -8% in the year to December 2012 to be down -18% since prices peaked in 2008, pulling many Dutch households into negative equity (see next chart).
The release of labour force data overnight suggested the Netherlands’ economy has deteriorated further, with Dutch unemployment increasing to 8.1%, a level not seen since the 1980s, with job losses most accute in the building industry (see next chart).
The jump in unemployment follows the contraction in the Dutch economy, whereby GDP has contracted by -1.2% over the past year (see next chart).
The sharp deterioration in the Dutch economy is placing pressure on the central government to abandon austerity measures, which it has pursued for the best part of two years and is partly responsible for the contraction in demand.
Best is Yet to Come
As noted, the hypocrites want austerity for everyone but themselves. Regardless, the Netherlands economy is headed for a much sharper contraction as is France.
Simply put, the entire eurozone is in deep trouble even as the nannycrats insist the worst is behind. Ironically, the best is indeed ahead, and the best is a breakup of the eurozone.
Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
