Credit Writedowns - Latest Comments

Re: China’s real estate bubble

Bill Bishop — Tue, 05 Mar 2013 19:42:12 -0000

you might appreciate this take on the 60 minutes story, from my dealbook column this week:
http://dealbook.nytimes.com...

Re: The Product is the Promise: Finance and Social Values

Roger Lindsley — Mon, 04 Mar 2013 18:24:57 -0000

Thanks for the redemption. I have CDS options on a loan made to company that I believe will fail. If the company fails, and it has sold down 35% since its earnings report so I am considering selling the CDS options now or holding out for a better margin. I do not have any other interest other than the the CDS options and some pretty good research so I am contributing to market efficiency and price discovery. While primitive people might wonder why I should profit on the transactions of others (they may or may not value market efficiency and leveraged capital to facilitate price discovery) modern finance makes this not only possible, but one way to still make a "living"... In related news, co-location and HFT are another form of arbitrage, sort of a time competitive pattern detection war, that also contributes to market efficiency and price discovery. Again primitive peoples may consider this type of debt/credit activity as again purely parasitical, but that is why they are primitive. Now I have Nietzsche (a really great individual, whose writings have proved to be ever adaptable by parties with agendas that might otherwise be construed as... well parasitical to the point of genocidal) who elevates the financial sector bailout as an act of "mercy".

Forget about regulating, this is so complex... a transaction fee, the uptick rule, requiring residual interest in the CDS market, delaying performance bonuses to the maturity (or reasonable term thereof) of the trades made, segregating investment banking from consumer financial services, defining what is a reserve security, performing risk analysis for counter positions, not allowing counter positions to clients ... all of this is far to complicated to enact as regulation. Especially given that acts of Mercy for TBTF's are not only more "efficient" but in fact a virtue.

Re: Consolidated balance sheet approach gains traction as BOJ considers QE

Roger Lindsley — Mon, 04 Mar 2013 15:41:34 -0000

If Abenomics works,as much as Austerity has failed (during economic contraction), critics of stim-sterity will have to go much deeper into the rabbit hole to come up with their arguments. They should get their little mining caps now and be prepared.

Re: The Dutch will miss targets in 2013 but refuse to institute more austerity

David_Lazarus — Sat, 02 Mar 2013 14:52:34 -0000

The problem is that in countries like the UK they are cutting spending in the areas with the highest multipliers like welfare. Unfortunately I do not see anyone appreciating this until they have devastated the economy.

Re: The Dutch will miss targets in 2013 but refuse to institute more austerity

Roger Lindsley — Sat, 02 Mar 2013 13:49:13 -0000

Consequences like other countries taking the IMF Dec 2012 paper seriously, the one that showed that for every 1 of spending cuts 1.8 of GDP disappeared? Bad multiplier during periods of contraction... Will counter-cyclical reason spread like the plague across the continent? Dubious

Re: The Unsustainable US Economy

David_Lazarus — Fri, 01 Mar 2013 20:36:16 -0000

I never thought that the US housing market had bottomed, it was one of those stable periods when people test the market. Though the premise that wages have to go up or spending will fall is correct, but with so many people under employed the prospect of wages going up is close to zero. The japanese property market fell for decades and I think that will also apply to the US market, simply because wages are continuing to fall and that shows no sign of stopping.

Re: Is Spain’s economic contraction now self-perpetuating?

verweht — Fri, 01 Mar 2013 03:54:20 -0000

Yes, you're right. Spain faced a far worse situation in the 40s, and the fact is that -by the early 60s- the economy was growing strongly and unemployment was close to zero. But there are important differences between now and then, as the country has changed a lot in 70 years. After the war, most people forgot about politics (anyway, a dangerous activity at the time...) and centered into personal improvement. The demographics were also far more favorable, with a younger population, not the present, aged one.

In my personal opinion, and in the course of 20-30 years, Spain's real GDP will descend to the levels of the mid-50s and stabilize there. To find how to grow will be a big problem, since Spain has 'lost his job' to the 'new economies' of Eastern Europe and China, and it may take decades to find 'a new job' for the country, well-paid enough to return to the prosperity of the last years of the 20th century.

Re: On Bernanke’s testimony

Roger Lindsley — Tue, 26 Feb 2013 19:42:56 -0000

100% agreed. Stim-Sterity fiscal policy would be welcome. Good luck getting that past the minority in the House who have higher agendas than recovering the US and World economy.

Reading a prescription does not make a man well.- Confucius

Re: Bulgaria: De-population on a massive scale

David_Lazarus — Mon, 25 Feb 2013 19:35:23 -0000

It is nothing to do with that. It is down to a lack of investment. Bulgaria never really recovered from the era of soviet control. France had a decade of right wing governments but that has not stopped its demise. The UK had a socialist party running with free market policies which killed wage growth from 2003. The problem is that it is not as simple as which party is in power, if they run policies that reduce domestic demand though wage stagnation for the benefit of investors.

Re: Has the UK finally lost its safe haven status?

David_Lazarus — Mon, 25 Feb 2013 18:58:33 -0000

There are also other limitations on safe haven status and that is the ability of governments to bail out foreign investors. It is the excessive leverage of Icelandic banks that eliminated Iceland's ability to bail out its banks. That same risk applies to many banks, across the EU, in the UK France and Germany. While a government may be able to bail out a bank or two if the risks are clear in other banks then even Germany will lose its safe haven status.

The UK only has a surplus because of financial services but they also borrowed very heavily from abroad and so UK banks are seriously leveraged, and while the public are paying down their debts the prospects for banks is still dire. Everything that the government has done is to keep the confidence fairy alive in the hope that the bubble economy can resume. It is extend and pretend, though I do not think that the public accept this version. They are paying debts off and retails sales continue to remain sluggish.

Longer term though governments cannot offer safe haven bail outs to non citizens. It is beyond their abilities to tax their population to do so. At some point this reality has to be accepted.

Re: Bulgaria: De-population on a massive scale

Tel — Mon, 25 Feb 2013 11:56:59 -0000

It's very simple really. In all of those nice graphs, the depopulation waves coincide with the soc/communists power periods. Now they are preparing to take over again. So take a guess when the next big depopulation wave will come.

Re: Why Moody’s downgrade of UK sovereign debt is meaningless

Linus Huber — Sat, 23 Feb 2013 20:00:58 -0000

I still am able to remember certain events taking place during my childhood and value those episodes, simply due to the fact that they stayed in my memory like for ever and, therefore, they must have made a great impression onto my still developing personality. It is not a matter of assessing those experiences in themselves but to consider their significance in how they influenced my future conduct as adult. It also explains the notion that changes in the individual's behaviour take place in a very slow motion as we were exposed to past principles during the years when our personality was formed.

Monday was the most important work day in my father's working life. Furnished with a substantial amount of cash he went early morning between 3 and 5 a.m. on his way to collect all those calves he purchased the previous week by driving from farmstead to farmstead in order arrive with the fully loaded truck at the marketplace by latest 8 a.m. As earlier as better, as the purchasing agents of slaughter houses and feeding operators may otherwise have covered their needs already. Of course, his long experience and net work was helpful to him, nevertheless, a minor doubt seemed to always remain, as he had to work hard to arrive at the present situation in his life when he dared the first step into independence after having worked as a simply employee at the train station where, beyond other duties, he was assigned to attend the station's large weighing scale and consequently was able to establish some contacts within and knowledge of the cattle trade. He was fully aware that the wellbeing of his 6 children and wife at home depended on his success. His irregular anxiety attacks during the prior evening often produced a relentless itching sensation on the bottom of his feet and he treated those symptoms with the rigorous employment of a rather rough cloth-brush.

These episodes signify the fact that risk taking can produce a great deal of stress and is quite an unpleasant experience for an individual. However, the question we have to ask ourselves is whether such experiences prove to have a positive longterm effect on the individual person as well as on society at large or whether we should try to prevent such occurrence (e.g. by issuing a government program that guarantees the purchase of all cattle reaching the market). Although the individual detests stress, different studies prove that stress changes the individual's behaviour in as far as the individual strives to reduce risk which will enhance the values of sustainability, responsibility and accountability. In addition, it is a rather questionable theory that when we redistribute risk to the public domain that the individual person will experience less stress as his attention will shift to other areas of potential sources of stress. In actuality, it is human nature that requires and is looking for challenges as we otherwise will suffer a slow death. This aspect is best demonstrated by the fact that people exposed to a life-changing experiences, e.g. end of one's career or the death of one's partner, often fall into a sluggish, dull and depressive state as the stimulating effects of challenges and stress are lacking. In other words, the anguish experienced due to a risky and challenging situation produces in itself a positive outcome for the individual person.

The next question, we should ask ourselves, considers the effect on society when the insecurities are reduced from the individual and therefore the costs of such measures redistributed to society at large and how this will effect the individual's behaviour in such a society. It is hardly refutable that the above listed qualities of risk-averse behaviour (sustainability, responsibility, accountability) will be effected in the opposite direction. The knowledge of such reflexivity is much better developed in scientists than in today's economists as they are much better equipped to evaluate the impact of manipulative action on a living organism as compared to a mainly mathematical approach taken by economists that emphasises mechanical and physical attributes. To further the comprehension for the word "reflexivity", let me use an example that fits well into our time period.

I seldom am sick, however, whenever an non-life-threatening illness befalls me, I will investigate the potential sources of the symptoms in the internet on my own. In my own capacity, I evaluate the most probable cause of my discomfort and consult people close to me for further advice. Thereafter, I make my own decision on how to treat the sickness, which often means that I simply do nothing and let the body do its job while it is trained to increase its capacity of resistance at the same time. At other times I will visit a trusted pharmacist, discuss the best and most cost-effective medication for the purpose, administer it and the matter has been brought to its conclusion. Of course, unforeseen difficulties may arise, but this is possible as well, when I use the advice of a trained medical doctor. However, the the important aspect of this example lays in the fact that I take full responsibility, assuming the full risk, instead of delegating it. Unfortunately, this procedure of dealing with one's minor illnesses is not possible in most Western countries, as the health insurance will reject any costs occurred from such behaviour and/or the medication will not be available without a prescription by a approved practitioner of the medical profession. Under the circumstances that the individual would be forced to cover medical expenses from his own pocket (no health insurance), the number of visits to the physicians office may drop by 50% and result in a major reduction in this increasing share of economic activity as well as increase sustainability and personal responsibility. I, therefore, can conclude that the present system produces the wrong incentives by delegating self-reliance and risk to the grey area of the general public and the rules therefore undermine the sustainability of the system as a whole, a fact that produces negative consequences for society. The example is not chosen to criticise present health policies but simply to show the longterm effects on the individual's behaviour and to demonstrate the meaning of reflexivity. Just as an aside, I did not even mention the enormous administrative costs that arise from a managed system.

"He never cashed in his cheque" were my father's words. I was unable to recognise whether he considered this to be a delightful or dissatisfying fact as the sound of those spoken words projected a sense of apprehensiveness. Shortly prior to this day, my father was involved in a court case in which the seller of some pigs filed a lawsuit. After having sold those pigs to my father concluding the deal with a handshake and after the completion delivery, the seller felt the agreed price too low and felt cheated, resulting in him taking legal action. In the cattle trade it was/is a common feature to seal a deal with a handshake without the use of any documentation. The seller lost his case in the court and had to pay for the costs of the court proceedings of both parties. The original payment in the form of a cheque, however, never took place as the seller did not present the cheque to the bank. After some deliberation I concluded that the seller's lack of claiming his dues must have been the result of one of the following reasonings. Perhaps, during a burst of temper, he tore the cheque into pieces and was now too proud to ask for a newly issued cheque. Maybe, the seller believed that he did not have the right to claim payment as part of the court's decision in that this represented part of the punishment in his eyes. Perhaps, he wanted to demonstrate his disdain by refusing any payment from a contemptible person as my father must have appeared to him by that time. Whatever the reason might have been, all of them show a deeply rooted sense of personal responsibility and concomitant respectability. The court must have arrived at the conclusion that my father did not deceive the seller and the deal, therefore, was valid. In consequence, the seller was forced to scrutinise his own honesty and probably felt embarrassed and accused of dishonourable conduct. When comparing this behavioural pattern with today's commonly applied conduct we certainly are able to recognise a change in the behavioural model. Honour, respectability, tradition and honesty have lost in weight in today's world where often nothing but the figure on the bottom line counts. The ease of commerce, that depended on mutual trust, has been replaced by countless clauses and provisions based on an extensive regulatory frame work. Within this context, we now should ask ourselves whether, under the present development of increasing regulation, we arrived at a more just, honest and rule of law observing environment in our society or whether the feeling of real justice (not formal law observance) and legal certainty has been undermined. I do not want to rate the changes but simply state that, under the influence of the numerous regulatory measures, personal responsibility and values like honour and respectability have declined. Respectable and responsible behaviour cannot be decreed by laws but are human values that define us as humans. As more and more aspects of social interaction are regulated, the more the human's inherent need of respectability and personal responsibility is reduced as those aspects of ensuring a coherent social order have been delegated to the rule makers. This represents another example of reflexivity.

In the attempt to reduce the risk of the individual member of society, we have created many systems and regulations. The management and enforcement of these rules take a huge administrative effort and we created or expanded corresponding institutions. Like society, an institution is better regarded as a living organism and one should avoid to view them simply in terms of their function. From nature we know that an organism tries to grow and, when under attack, will defend itself. It is rather easy to comprehend this aspect as it is obvious that each employee within such an organisation will act to enhance his job security by expanding his/her sphere of influence. It is a normal human behaviour and should be considered a positive trait in itself. However, this behaviour of an institution's members may entail negative implications for society at large in its interaction with the increasing size of the regulatory frame work. It acts like a booster to the above development and more and more rules become institutionalised resulting in reduced flexibility and sustainability of the overall system in the long term. The idea to eliminate every risk by centrally planned measures produces increasingly difficulties with sustainability and vitality for the whole system. With the reduction of personal liberty, qualities like self reliance, personal responsibility, accountability, community spirit, empathy, respectability and many other important values for a well functioning society are weakened. Those human qualities are replaced by the struggle to influence the rules themselves and to find ways to profit from existing rules and this simply due to the fact that we have delegated the responsibility for a smoothly functioning social order away from the individual. Honourable and respectable behaviour has lost its importance and simply the rules decide. Those who feel disadvantaged by the rules, try to change them in their favour (generally an option reserved for the elite) or, like probably the most of us, fall into a state of resignation. For economic reasons rules and laws are increasingly irrelevant (bending or disregard of constitutional law and reinterpretation of laws that violate the spirit they were written in) to the decision makers as they project the seemingly overwhelming important task of saving the system, while ignoring the fact that the system is damaged by exactly those actions of increased arbitrariness and insecurity that may inflict much larger wounds to the fabric of society than a temporary set-back in economic growth.

"This is a real man" my father exclaimed when the buyer of my, due to an motorcycle accident, recently deceased brother's apartment in Zürich paid with a bundle of bills in cash. I was no more a child but still the sound and dynamics of those spoken words were filled with conviction and produced an lasting imprint on me. It was not simply the fact that my father admired the buyers ability to pay in cash but an air of respectability was transferred to the buyer. There are numerous sayings that glorify the meaning of cash money. My father's perspective, as well as the viewpoint of many others of his generation, was probably formed in the difficult years after 1929 and he stuck to his conviction even in view of empirical evidence that proved the incorrectness of that notion since the middle of the last century at the very least since money in whatever form including cash lost purchasing power, no matter what currency one looks at. It represents a behavioural pattern that has been etched on his mind for good.

Most people of that generation are probably not alive anymore today or have hardly any direct influence on today's events. When discussing the matter of money with young people, I often get an unambiguous reply that I do not have a clue about the meaning of money in today's world and that a currency's function is simply a means for payment. Numerous economists have developed abstruse ideas and theories as well and sneer at the idea of sound money. It was in 2001, when I purchased a new vehicle in Singapore (due to high taxes a rather expensive endeavour) and when, after completion of negotiations, I explained that I plan to pay in cash and therefore an additional cash-payment discount should apply, the salesman was close to cancelling the agreed transaction. The reason for this notion was the fact that the salesman was counting on earning an additional commission when getting a credit agreement signed which in my case did obviously cease to apply. At that time already, I was wondering what type of implication this kind of incentive system will take on social values and which kind of values will be promoted as well as which ones weakened as a consequence. The value system of a society can never be contemplated in isolation because when one type of value increases some other value must lose in degree of relative importance. It can never be a moot objective to investigate the origins of changes in society's value scale.

The power of suggestion plays an important role in the field of psychology for the purpose of changing the subject's self-image. This insight is applied in the area of education as well as when raising a child in order to promote a desired mode of conduct. The behaviour of society at large as well as the individual's behaviour within society can be modified over time in applying the same principle. Each law or regulation exerts an influence on at least two levels. In one way, the desired improvement in terms of quality of life is achieved for a part of the population and in another way, due to the adaptive capabilities of organisms, a minor change in one's behavioural mode can be registered. The changed pattern of behaviour can itself be divided into two areas, namely into the area of the rules affecting the individual's action directly and into the area where the new rules have an implied impact on the individual's self-image as member of said society. As higher the regulatory density the lower will be the level of personal responsibility and accountability, self-reliance, honourable and respectful attitudes, individual freedom and other factors essential for a successful society.

The effectiveness of a taken measure on the behavioural pattern of the individuals within a society is strongest when all members are subjected to the measure on a continuous basis to produce a maximum impact on the self-image. There hardly is any other system created by humans that outweighs its influence on people's self-image and the social order to a greater degree than money. Money is omnipresent, used daily by everyone and everywhere, measures economical success and contributes decisive to the self-image of an individual. The influence of this medium on a currency area's people is not limited to monetary and economic aspects only but, on the basis of its overwhelming relevance, affects the intangible values within the concerned society. The attributes of a currency that rests mainly on the monetary policies of the respective Central Bank, therefore are of enormous societal significance.

Without exception, Central Banks the world over pursue a policy of currency devaluation. It actually is surprising that not even one exception to the rule exists and all of the currencies presently in use are devalued, especially when viewed from a longterm perspective. Some devalue faster others slower but all of them are subjected to debasement. Is this a natural phenomena and an inherent trait of a currency or is it man-made? Upon closer inspection we, of course, can detect that a deliberate manipulation takes place by sacrificing the currencies value for arriving at short term economically favourable outcomes. In other words, the property rights of the currency owner is violated in order to achieve a statistically measurable and therefore quantitative improvement of economic performance. Growth, however, is measurable in quantitative terms only unable to assess the quality of that growth (e.g. by evaluating factors of sustainability). It is not difficult to conclude that economic growth arrived at by manipulative monetary policy will produce negative results for society that are not directly measurable but, over time, will influence society in a negative way. Hereinafter I like to explain some of those negative consequences which should be evaluated in context with the above explanations of reflexivity to arrive at a comprehensive picture of the jigsaw puzzle.

We just explained that the manipulation of currencies (persistent longterm devaluation) violates the property rights of the holders of currency. When the currency is devalued, the corresponding loss of purchasing power of the currency holder of let us say 20% in 10 years does not evaporate but someone else within the currency area has benefited correspondingly. In general, those net in-debted in currency terms reaped those benefits. It simply is a wealth transfer and society has been conditioned to consider this aspect in their behaviour as normal. The real result is an environment that enhances the volume of credit creation and benefits the financial sector as the net currency debtor benefits without corresponding effort and is able to register a profit, even after the deduction of the costs of the financial transaction. In spirit this situation does violate the property rights stated in most constitutions and consequently undermines the spirit of the rule of law.

The partial expropriation of the currency holder's purchasing power produces some additional side effects in that money turns to adopting more of the attributes attached to possessions than property. E.g. we can possess a car without being the owner of that car. This is best demonstrated when comparing a rented car to a car owned by the driver. Do we behave in exactly the same manner when the car is owned or rented? Some drivers may have those qualities and not act differently at all. Nevertheless, the sentiment of care and sustainable maintenance for a rented item are limited. Ownership does not simply has benefits but entails the obligation to take care of the item in question on a sustainable basis. When property rights are weakened, people are being conditioned over time to think in a short term and unsustainable way. When this way of thinking is practiced by a small number of the population only, the effect on society will probably be negligible. However, when on the basis of conditioning over many decades an ever increasing percentage of the population is changing their behaviour in the described direction, there will be damaging consequences for society in that short term thinking and unsustainable behaviour will be entrenched in the system.

Another effect is the culture of immediate gratification that is expressed by the wish to possess an item today and now without saving first for it. One prefers to in-debt oneself than to exercise patience and forbearance and to budget responsibly. This development leads to a behaviour that undermines the value of sustainability. The concept that one has to first work hard to arrive at a certain level of living standard is weakened. However, living on credit, to use a popular expression, is promoted. Today and now is more important than the uncertain future that is no more calculable. The consumer and throw-away society is born.

The behaviour toward risk changes also in that the risk increasingly is transferred away from the risk taker to society at large. This development did not start with the bail-outs in 2008 but reached its temporary climax in that eventful year. Such a constellation increases the preparedness to run high risks and undermines the virtue of diligence, a necessary requirement for sustainable development. The relief from negative consequences of risk taking undermines the virtuous values indispensable to a successful and free society like diligence, responsibility, accountability and honesty.

As money will be worthless in the long run, people focus more on tangibles to escape the value deterioration of the currency. The idea to save your nest egg or for some future emergency in the form of a simple savings account is frowned upon and is being replaced by investments in tangible assets. This enhances a materialistic ideology in which ethical principles and other values important for a smoothly running society lose their significance. It feeds the notion of mistrust towards decision makers (no one likes to be manipulated) and produces tendencies of individualism with a reduction of empathy towards other members of society.

The economic well-being of the population depends increasingly on growth that is based on the devaluation of the currency and the high power concentration with the monetary authorities is elevated to a degree that they must feel like pontiffs. Incrementally it becomes unavoidable to disguise the non-existent sustainability and the game of perception management starts. As the population clings to the status quo, the proclamations of the decision makers are desperately received and accepted with enthusiasm, although those claims are contradicting logical thoughts. Respectability, honesty, responsibility, accountability and sustainability are replaced by a culture of lies and deception.

Another aspect of the reduction in property rights is the fact that actually theft is being legalised. The consequential undermining of the rule of law reduces the protection of personal freedom. Of course, some aspects of personal freedom must be limited, but outside the spectrum of those aspects, the rules of the state should mainly aim at protecting the personal freedom and consequently the associated personal responsibility and similar positive traits that enhance a smoothly functioning social order. I do place central banks to the functions of government despite the fact that they do enjoy formal independence. Each intervention, regulation and manipulation must be evaluated on its longterm effect on the value scale of society. These are not measurable aspects but qualitative values. As economists are trained in measurable changes, this kind of analysis that includes psychological effects is alien to them.

In order to conclude my short essay, I would like to give you, dear reader, a way to remind yourself of the above contents: When you manipulate people like lab rats, do not wonder, when increasingly they will adopt the attributes of a rat (conditioning). Or in other words, who devalues money, devalues humaneness.

Re: US Dollar Pushing Through Trendline vs Canadian Dollar

Mike Sankowski — Sat, 23 Feb 2013 09:16:49 -0000

Marc, It seems to me (from my data investigations) like the correlation between USDCAD and crude is weaker above $90/barrel, stronger below $90 a barrel. If oil prices do head lower, expect the CAD to become weaker as this correlation becomes stronger again. It's not a slam dunk, but it sure seems like the CAD tracks oil when it's between $65 and $90.

Re: Peak oil: light sweet crude production has peaked globally

LafayetteCoboll — Sat, 23 Feb 2013 06:57:27 -0000

Remarkable. This Doug both believes the world has peaked in light sweet crude oil production, and simultaneously believes we have nothing to worry about. Just remarkable.

Re: Full text: Moody’s downgrades UK’s bond rating to Aa1 from Aaa; outlook stable

David_Lazarus — Fri, 22 Feb 2013 18:25:03 -0000

I think that the outlook is negative. The austerity is going to kick in this April, plus the government have already extended the period of austerity another year, in addition to the two that they added last year. So we will have eight lost years. Most of the problems in the banks are still there and the UK banks are among the biggest in the world yet the UK government will struggle to bail them out if there is another crash.

Re: Is Spain’s economic contraction now self-perpetuating?

Endimion — Fri, 22 Feb 2013 07:51:31 -0000

how can you say self perpetuing contraction? I guess there are solutions to the problems and soon or late they will be solved. Spain had much worse problems after the civil war for expample, during a period of 10 years there was no enough food for everybody!!! so you can imagine which graphics we had. But it could become a modern industrialized country. without Marshall plan. I hate all those extreme and apocaliptic predictions. Pure sensationalism.

Re: Is Spain’s economic contraction now self-perpetuating?

Gemma Just Antelo — Thu, 21 Feb 2013 18:48:50 -0000

Totally agree, unfortunately, here in Spain there's no future in a long, long, time. Me and my husband are not as young, but we're leaving the country with our two daughters in a few months. The most sad is that we could be growing yet if our political leaders had intelligently invested our taxes instead of stole them.

Re: Is Spain’s economic contraction now self-perpetuating?

David_Lazarus — Thu, 21 Feb 2013 15:42:07 -0000

I doubt that it is down to the cost of unemployment benefits. From what I know they are capped to two years, which with the length of this crisis means that many have simply exhausted their entitlement already. This is what has lowered the unemployment rate in the US. The impact will be to for people to move to find work outside the country and they may not return. If these people are younger they may marry and stay abroad. This reduction of the young tilt the demographic make up so that the population ages rapidly.

Re: A brief history of the Chinese growth model

HarryofMoore — Thu, 21 Feb 2013 14:42:03 -0000

Good job, ther eis one thing I remember from history that aided the New World (more so America than Canada/Mexico) the implementing of assembly line production. This Idea was introduced in France but not highly promoted as France had an exploded its population under the Sun King. In America it was grabbed with both hands.

Re: Is Spain’s economic contraction now self-perpetuating?

Miguel A — Thu, 21 Feb 2013 10:14:53 -0000

"Migrants are still arriving..." you say somewhere in the article. Maybe we spaniards should be wondering as to why they are still arriving since there is no clear future in our country. Can we really afford that? Maybe our more and more spoilt and unaffordable welfare state has something to do with it.

Re: A brief history of the Chinese growth model

Oldrich — Thu, 21 Feb 2013 08:42:30 -0000

Thank you for the article. About the same topic - for instance the book "Bad Samaritans -The myth of free trade and the secret history of capitalism" [Ha-Joon Chang]

Re: Mercantalism: exports lower a nation’s living standards

Juan Gonzales — Thu, 21 Feb 2013 08:12:59 -0000

Article is in lines of Silvio Gesell's and Gotfried Feder's Natural economic order. Output is exactly what they said 100 years ago

Re: Is Spain’s economic contraction now self-perpetuating?

spain13 — Thu, 21 Feb 2013 07:58:21 -0000

Excellent article. I work as an English professor in the University of Rey Juan Carlos in Madrid and I can verify that the only sector of the Spanish economy that seems to be doing well is English study. This is for the simple reason that most students study English because they´re planning on leaving the country. Other departments - German, Chinese - have enrolled a lot of students as well and for the same reason. In a country with 2 million ¨ni-ni´s¨ (young people classified as not working or studying) it´s terrifying to think what will happen when the best and brightest have gone. I´d like to encourage my students to stay but I can´t think of a single reason why. And they´re not stupid. They realize that in a country with one of the lowest birthrates in the world, completely inept and corrupt politicians and an education system that has been decimated there simply is no future here.

Re: Is Spain’s economic contraction now self-perpetuating?

Spaniard Inmigrant — Thu, 21 Feb 2013 07:01:04 -0000

Thanks, absolutely agree with the article. Population problem in Spain has been here since the late 90´s, and nobody focused on it, probably because of short term minded politicians, for them this wasn´t an issue at all. Now what? How can this economic meltdown be stopped? Probably it can´t.

Re: Panic-driven austerity in the Eurozone and its implications

David_Lazarus — Thu, 21 Feb 2013 00:22:10 -0000

I think that you have come to the wrong conclusions.

Let me start where I think your conclusions start to go wrong. The wrong signals to the European authorities. I actually think that the signals were right but the interpretation of them was wrong. The UK fearing that it would lose its triple A credit rating entered into austerity and while most of the cuts have yet to be made the impact on confidence was such that we have had a see-sawing economy ever since and are about to enter another recession. The markets signalled that there was default risk in the periphery, which was correct. So the risks of defaults on Germany meant that the EU authorities imposed a 100% state guarantee of all unsecured creditors on Ireland. So while its exports have done well as a result of an weaker euro its domestic economy is still struggling. It will still need another bailout and default is still a possibility. Greece would now have a balanced budget were it not for the interest on its debts. So default is still likely.

Overall I think that the problem is that governments are willing to throw their populations under the wheels to save the banks. So the young are leaving the weak nations and they will make the demographic situations in those countries worse. Just look at the impact on Spain and Ireland. Italy will probably be next.

The real crisis all along was a solvency crisis in the banks. One of the major flaws of the Eurozone's construction was leaving role of lender of last resort status to governments who no longer had the means to bail them out. Though the proposed changes are no better. What governments have done is provide trillions in liquidity to the banks, take on higher deficits to fund the unemployment caused by the failure of banks lending policies and now even more debts as the banks insolvency becomes more apparent.

Greece could start to recover but that would mean total default and that includes the IMF loans. Greece might be excluded from capital markets but that might not be a bad thing for a few years anyway. It forces the government to balance its books.

What most people forget to appreciate that once these debts are defaulted on the problems start to grow in the core nations. Germany will have to face the problems of insolvent banks, and what to do about them.