Translator
May 2012 Economic Overview
The global economies are slowly improving. World GDP is set to rise 3.5% this year and just over 4% for 2013. There are still risks ahead: the euro crisis, fiscal austerity in the rich world, and upheaval in the Middle East and a hard landing in India and China, to name the obvious. Growth will certainly be hurt by deleveraging at the European banks as they boost capital and dispose of unprofitable businesses. A welcome to HSBC’s Yuan denominated bond issue in London which heralds the emergence of a brand new offshore market. Birth of the next euro dollar market?
The economic crisis rumbles on. The Economist constructed a ‘lost time index’ that shows Greece has lost over 11 years, Italy, Spain, Portugal lost over seven. Britain lost eight years and the US has lost ten years as the result of the world economic meltdown. There are seven categories ranging from household wealth to annual output, to real wages, unemployment measured to make the index. Of the G7 group, only Germany has not gone backwards. America’s is already growing. But for some, the lost time to the crisis, will never be recovered. As for stock markets, It took the US 25 years for stocks to regain their 1929 highs, and Japanese stocks have never regained it back to their peaks.
US Economy
The fragile economy is painstakingly coming back with a variety of remedies: zero interest rates, extended tax cuts, the Detroit bailout and the stimulus spending on infrastructure projects. However, soaring energy prices threaten to undo it all. The rise stalls creation of jobs and lays groundwork for spiraling inflation. In the U.S. consumers stepped up their spending in February even as incomes rose only modestly, partly reflecting higher energy costs and lower savings. Personal spending jumped 0.8% last month, the best gain since July, while incomes increased 0.2%, the Commerce.
America has what it takes to bounce back. As hegemons go, it has been exceptional. American style democracy has spread over the planet. No combination of nations has felt the need to come together to counter that power. The world, it can be argued is more stable because of its hegemony. The American system is uniquely one of relative freedom, and is uniquely capable of recovering and adapting. It must wrestle down its debt, steady the financial system, deal with inequality, rebuild its infrastructure, and fix its political gridlock. No small order of events. Can China supplant such a machine? Not likely. America’s power stands on its health at home. If its economy is restored, the world can rest easy.
There are some few pesky autocrats that will test the next US leader:
- China seriously challenges the US global leadership economically and from its growing military force. As America’s banker there is little room to maneuver.
- Russia in the person of Putin is talking tough to America. We must engage its leaders as was done during the cold war.
- Arab World’s incoming governments must be pressed for essential tools of freedom, especially in elections and in a free press and in a free judiciary.
- Iran- the new leader must head off any military action against Iran. Its race for nuclear capability will test the world.
- North Korea must prove its sincerity to reset the nuclear clock. Its recent insistence in launching a satellite is not helpful to build that credibility.
- Pakistan must be helped to turn their failing nation into a thriving one. A little frankness and honesty would be helpful in this relationship.
The Eurozone could breakup and trigger a ‘full blown panic in financial markets and depositor flight’ and a global economic slump to rival the Great Depression, the IMF recently warned. In its World Economic Outlook the IMF said the collapse of the single currency could not be ruled out. It warned that disorderly exit of one member state would have untold knock-on effects.
.
Eurozone
The euro zone is risking a “prolonged period of deflation” if it doesn’t do more to address the vicious circles that its debt crisis is creating, said the IMF. The ECB has been sustaining the euro but yields on Italian and Spanish debt are too high. The remedy, austerity, is insufficient. It merely makes weak economies, weaker. As yet, there seems no coherent plan for addressing the single currency’s ills. There is no lender of last resort. The euro zone needs a Eurobond. The euro may be recovering, but Europe is flirting dangerously with protectionism. It can hardly argue against ‘buy American’, restrictions while adopting ‘buy European’ ones.
Free trade benefits countries that open their markets by promoting productivity. Everyone benefits from cheaper foreign goods that save money; therefore, it seems perverse for countries to deny themselves a means of controlling spending, by putting producers above those of consumers. It’s all about Politics. If the EU were serious, it would encourage its members to take a page out of Germany’s playbook and encourage its industries to export more. A better form of reciprocity is the mutual opening of markets, not favoring ‘home’ producers.
Europe needs to be bolder and create some form of joint liability for countries’ debts. Having said that, ‘the euro crisis is still far from resolved’ and Germany remains steadfastly opposed to anything that reeks of Eurobonds. Spain’s ten year government bond yield is over 6%; its budget deficit is 8.5%; its economy is in recession. Lots of bank loans have turned sour and over 93% of Spain’s private debt is owed to foreigners. They want repaying. Greece and Portugal have similar foreign debts profiles. Italy is scarcely in less trouble. Look out for France. The Eurozone bail-out fund is not large enough to remedy any of these problems… The clock continues to tick.
April 2012 Economic Overview
The world economy seems to be showing slight signs of life…though there are still large risks out there. A stronger employment picture fuels income and spending and the drag of the housing bust is passing. House prices remain soft, but both house sales and construction have begun to rise. The US economy will probably grow around 2.5%. Europe however, remains a long way from recovery. The European recession is shallow.
China’s trade figures were dismal, swinging to a massive trade deficit in February, due mainly to seasonal distortions, but also to faltering demand for its exports. Being a managed economy, the government will not allow too sharp a slowdown. Japan has upgraded its view of consumer spending, business spending, and public investment. The Japanese economy too, is picking up slowly. UK retailers sold fewer goods than expected in the last two months. Consumer spending remains under pressure. Europe needs to create growth, and the US needs a plan to reduce the budget deficit without stifling the nascent recovery. A sudden oil shock could threaten the fragile global recovery. The question of Iran’s nuclear ambitions is a continuing conundrum that could have major consequences.
U.S.
Since mid 2009, the US economy has been bogged down repeatedly. There was an awful lot of ‘worse’ in past years. It is no longer getting ‘worse’. Rising oil prices, Europe’s debt crisis, the hangover of the recession, consumers paying off debt, lenders reluctant to lend and the housing market being moribund made for a tasteless stew of my bad news. Some of those impediments have gone away. Unemployment rate fell a bit as did the number of people filing claims for government unemployment benefits; The Fed is toying with a new round of quantitative easing; Stock markets have jumped to life; Retail sales figures are improving and the major banks, with some exceptions, passed the Fed’s stress tests.
However, GDP numbers are not looking healthy. Growth is likely to be meager. The construction industry is improving, but housing prices may continue weak to negative. Europe’s recession seems to be mild. Crude oil prices moving higher can be a major damper on growth, worldwide. The US economy is rebalancing itself, but it still needs to export and invest more. Manufacturing employment is finally rising and time factories work is higher than at any time in 60 years. The CPI rose 0.4 % in February on higher gasoline prices and on almost every other consumer item from cereal to medical care. Rising petrol prices remain a big worry. The hint… inflation.
Fresh U.S. Treasury data suggest that China has lost its taste for investing as much of its $3.2 trillion in foreign-exchange reserves in U.S. dollars and may be increasing its holding of euro-denominated securities during a time that a debt crisis has roiled European markets. Economists have long warned that if China started to cut back its purchases of U.S. securities, U.S. interest rates could climb, damaging the U.S. economy. China’s diversification of its vast reserves, however, hasn’t caused disruption so far, partly because of strong global demand for U.S. securities as a safe haven during troubled times.
Eurozone
The question must be asked- Can the EU live within its means? Stricter rules, of late make growth, the essential element lacking in Europe today, remote. The world criticizes Germany for being strong, though its regime is born out of experience, its models and its stability and its cutting out of debt. Germany stresses responsibility and competitiveness. It keeps wages low, builds quality products, exports around the world, and its labor force works, rather than strike. Germany favors rules and fiscal rectitude.
But the rest of Europe has a severe demand problem. Austerity without growth, with high unemployment makes a terrible mess for its citizens. The rest of Europe asks a very un-German question: If measures inflict severe social injuries on its weakest citizens, is the Eurozone worth saving?
March 2012 Economic Overview
We look selectively at the BRICs….Namely India.
India Seems to becoming a mess. Its economic growth has slowed. Government reforms have stalled. The government seems to have fallen out of love with reform. Tainted money lies beneath balance sheets of far too many companies. The boom in high rise construction in Mumbai may be an indication of excess credit. Investors are nervous. Corruption in high places and depreciation in the rupee evidences the slowdown. India is as corrupt as Russia, without the violence. Governance stinks and infrastructure improvements have been slipshod. Indian industry is finding it increasingly difficult to compete internally and in external markets. When India’s economy was closed, it was moribund and hopeless. New money swirls in volume, but hope has grown many times faster still. Over 500 million people are under the age of 35, an indication of colossal opportunity or of phenomenal potential unemployment battles it out.
Some of the key findings from the Globalization survey conducted by the Economist are intriguing:
• Business executives expect the world economy to be in recession soon; confidence in emerging markets wavering too
• A worsening international business environment could get compounded by a rise in protectionism.
• Businesses see expansion in rapid-growth markets as crucial but increasingly challenging.
• Corporate supply chains are becoming ever more global and complex.
• Finding the right talent in rapid-growth markets is emerging as a key business challenge.
While the gains so far may be modest, evidence suggests the US recovery is gathering strength and could finally be on track to regaining its old form.
Unemployment is at a three-year low and consumer spending is slowly starting to rise. But there are concerns that two events outside the United States could put an end to the recovery before it can get truly established. Of the two external threats, the growing risk of recession in the Eurozone is garnering the most attention. However, the possibility of a slowdown in China is equally capable of sending the US economy into another tailspin.
Earlier this week, and in the midst of some of the most violent demonstrations of the past two years, the Greek parliament passed a series of new austerity measures under pressure from the “troika” of lenders – comprising the European Central Bank, the European Union, and the International Monetary Fund. So far, Greece’s efforts to deal with a widening deficit gap have been underwhelming. Spending continues, for the most part, unabated.
The government also promised to raise funds by selling roughly €50 billion ($65.8 billion) worth of government assets. The reality, however, is that in the past two years, the government has raised only €1.7 billion through asset sales. It now appears efforts to sell additional properties have been abandoned.
Understandably, certain eurozone members – the ones footing the lion’s share of the rescue package –are rapidly losing patience. The uncertainty arising from these events appear to almost certainly lead to a similar fate for Portugal and possibly Spain. The hurt will continue.
For the first time in two years, monthly exports fell in China this past January. The Eurozone played its part. This shows that consumer spending in China is on the decline. Continuing weakness is bad news for the global economy.
The euro-crisis script has not changed much over the past year.
February 2012 Economic Overview
The world economy is sluggish, but not moribund. Pessimism is overdone. Latest statistics especially in manufacturing were better than expected. The world economy is sick. Politicians are doing little to help matters. Yes the world seems to have slipped into recession, but it is expected to be short and shallow. Uncertainty is still acute and there appears to be a pernicious cycle of weak growth, bigger deficits and more austerity is setting in.
China’s economy is clearly cooling. Commodity prices are weakening, creating a weaker export picture for Latin America. India faces a big budget deficit, declining confidence and high inflation. The Euro crisis will hit growth in Eastern Europe and in Turkey. Perhaps there will be surprisingly good news out of the US, if Americans could believe in themselves a bit more. Household debt has fallen, the housing market shows signs of life, though meager and unemployment made a modest down tick. Of course the US being in its election year cycle, makes for a darkened political environment with its attendant uncertainty.
2012 is shaping up to be the year of self-induced sluggishness. The pragmatic commitment to growth seen in Asia stands in stark contrast to the West’s misguided policies that seem driven by ideology and vested interests that almost guarantee no Growth.
US Economy
The Fed is not expected to raise interest rate until late 2014. Nearly one third of Americans raised middle class have dropped down the economic ladder, before this Great Recession hit them. Things have only gotten worse. Pity is that recovery may take longer than traditionally. Employment is tacking higher, but not by much.
Unemployment stands at 8.5% the lowest since 2009 and is seen edging below 8% only by the end of 2013. The economy still faces a headwind of heavily indebted consumers, moribund home sales, and fiscal austerity at all levels of government. As we’ve said before, the US needs more entrepreneurs. The dismal housing market is keeping people in place people who could otherwise, move to where jobs are. New approaches need to be tried to slow down foreclosures and lighten household debt. The Fed should set a target for the growth of bank credit, especially after it lowered its projection for economic growth to between 2.2% and 2.7% in 2012 and 2.8-3.2% in 2013.
Energy independence through the growth of energy exploration of natural gas and shale oil production is being recommended by many. With unemployment too high and inflation still weak, more monetary stimulus is easily justified. It’s going to be a hard slog.
Eurozone
The impression of growing stress across much of the Eurozone economy is inescapable. Trouble is Brewing, but can no one stop this brewing? The World Bank forecasts that the Eurozone economy will shrink 0.3%. Talk between Greece and its private sector are not going well. Though the EU has said that the Greek deal will not set a precedent, no one believes it. More likely, the deal will become a starting point for fellow travelers. Nonetheless, the Greek deal is crucial. Europe will figure out that austerity alone will not solve its problems. In fact austerity will only make things worse.
What is really needed is a plan for economic growth. Without Growth, the debt crisis, and the euro crisis will only worsen. The euro will continue to fray nerves. It is at a two year low against the US dollar. Fitch is expected to lower Italy’s sovereign debt rating and warned that Italy was in the front line of the Eurozone crisis. More hopefully, France and Germany seem to be turning their attention to growth. Make no mistake, Europe is increasingly a German-led and –managed continent. Today, everyone prefers an active Germany. We think that is the right move for both countries. Unemployment throughout the zone is over 10% with few glimmers of light.
From the policy perspective, the EU has only two choices: break up the euro as currently constituted, or try to force greater political and fiscal centralization. The latter seems filled with unsavory risks. George Soros was quoted saying that it is not too late for the euro and the EU. A two-part plan of first restructuring the single currency block to provide economic stimulus such as what we suggested several months ago – Create a single Eurobond that can be issued at 1%.
January 2012 Economic Overview
As sure as spring follows winter, prosperity and economic growth follows recession.
Despite glimmers of improvement, the US economy remains lackluster. Things are worse in Europe; Japan still struggles; even highflying China and Brasil are experiencing slowing economies; The Euro does not make sense for economically tiny Greece. The core challenge for the US as well as Europe is how to grow while households and governments are basically in retrenchment mode – tempering their spending after years of fast-rising debt.
US
Existing-home sales rose again in November and remain above a year ago. A new wave of real estate investors may be starting to snap up deals and holding them for the long term. However, the housing market may still be uncomfortably, as much as 25%, over valued. There is no evidence of an imminent bounce. Unemployment rate fell to 8.6% but much of the decline is accounted for by people just giving up trying to find employment. US factory orders fell for the second straight month. The nonmanufacturing sector grew slower than hoped.
Headlines are filled with the oinks of those who are occupying Wall Street at a time when the world and our nation are being severely economically tested. Are we acting out of wisdom and knowledge or are we acting out of fear? Risk taking is indispensable to capitalism. Economies seize up when we shrink from taking risks. Where is our self-reliance? Where are our John Gaults? Our shoulders need to be against the wheel, not slumped in a corner feeling sorry for ourselves.
Eurozone
The good news is that the ECB is cutting interest rates. It even eased reserve requirements to help free up cash to combat the banking crisis which reduces the pressure on euro area banks to shed assets to rebuild capital. The ECB also broadened collateral acceptances, a backdoor way for banks to potentially recapitalize. Financial markets remain unconvinced that the latest grand plan to fight the debt crisis will work. The agreement also fails to resolve the question for the rest of the world: Could the challenges in Europe result in a global recession later this year. Only the ECB can rescue the single currency. In the short run, one key result of the deal is simply to keep hope alive that the debt problems can be addressed in an orderly way. The deal also provides for an expanded bailout fund for member nations that have faced investor doubts of their solvency. It suggests that the ECB will provide a backstop to prevent a panic over whether high-debt nations like Italy, Portugal and Greece might have to default, which would be a catastrophe for the private-sector banks that hold their debts. Panic must be avoided, especially from the periphery states. There are signs that euro economies are heading for recession, These intensifying financial pressures raise the chances of a disorderly default. The recipe for recession is present: a credit crunch, tighter fiscal policy and a lack of confidence.
The global expansion will continue, but at a below average pace. This hinges on no deepening of troubles in the Eurozone, pledged to work toward a new EU treaty to demand greater fiscal discipline. Optimism is not high. If you remove the market pressure, nothing will happen in some of these countries.
Europe needs an all-encompassing deal to save itself. The crisis now is about the survival of the Euro. No one will be spared if the euro collapses. The introduction of a euro, Eurobond is needed.
Time is running short. The ECB must be free enough to intervene without limit. It needs to signal to investors that the euro’s problems are being fixed for good.
December 2011 Economic Overview
US
The odds for a pleasant end to the situation continue to grow long. Policymakers elsewhere are making ready for the autumn. Federal Reserve is preparing to conduct a new round of stress tests on American banks with a euro-area collapse in mind. Treasury officials are looking at big American banks and urging them to cut back their exposure to Europe. The recent failure of MF Global, thanks to euro bets gone bad, seems to have created a sense of urgency among regulators. These preparations are good news for American investors, who watched in 2007 and 2008 as the American government lagged two and three steps behind the rapid progression of the financial crisis. American banks are bad news for Europe. As other economies prepare for euro disaster, their selling will accelerate Europe’s decline.
If Congress fails to extend key stimulative measures, it may saddle a vulnerable economy with a fiscal drag of more than two percentage points of growth.
Europe’s crisis looms larger still. A deep euro-zone recession, which seems increasingly likely, will hurt American firms; roughly a fifth of the country’s exports go to Europe. The impact on the financial system could be the more damaging.
Sadly, it may be a while before the data is again positive.
Consumer spending slowed in October but after Thanksgiving sales, aside from the mayhem, are encouraging. US workers filed more new applications for unemployment benefits, while the pace of layoffs slowed, offering some hope for the weak jobs market. Orders for durable goods continued to fall over the period. Overall, the US jobs recovery has been the slowest since the Great Depression. U.S. manufacturing sector barely expanded in October, following other disappointing factory figures around the world.
Eurozone
ONE can almost hear the gates clanging: one after the other the sources of funding for Europe’s banks are being shut. It is a result of the highly visible run on Europe’s government bond markets, which has reached the heart of the euro zone: an auction of new German bonds failed to generate enough demand for the full amount, causing a drop in bond prices (and prompting the Bundesbank to buy 39% of the bonds offered, according to Reuters). The euro zone is in a death spiral. Markets are abandoning the periphery, including Italy, which is the world’s eighth largest economy and third largest bond market. This is triggering margin calls and leading banks to pull credit from the European market. This in turn damages the European economy, which is already squeezed by the austerity programs adopted in every large euro-zone economy.
Now another run—more hidden, but potentially more dangerous—is taking place: on the continents’ banks. People are not yet queuing up in front of bank branches (except in Latvia’s capital Riga where savers were trying to withdraw money from Krajbanka, a mid-sized bank). But billions of euros are flooding out of Europe’s banking system through bond and money markets.
At best, the result may be a credit crunch that leaves businesses unable to get loans and invest. At worst, some banks may fail—and trigger real bank runs in countries whose shaky public finances have left them ill equipped to prop up their financial institutions.
The chances of the euro zone being smashed apart have risen alarmingly, thanks to financial panic, a rapidly weakening economic outlook and pigheaded brinkmanship. The odds of a safe landing are dwindling fast. Consumers in the 17 countries using the Euro were downbeat about their prospects in November as the currency crisis deepened weakening the outlook for both economies and jobs markets.
3Q, total central bank gold purchases more than doubled the previous quarter and seven times the rate of this time, last year.
Spain raised 2.98bn euros in an auction of three and six month bills, but at higher yields, nearly double to 5.11% from 2.29% in October. What Europe needs is bags and bags of money to strengthen the existing rescue fund, the EFSF. There is however, no more cash to be had, save from some financial engineering.
November 2011 Economic Overview
In the US, orders for big ticket items fell in September and durable goods orders fell 0.8% the third decline in four months. While this year has been a difficult one for many sectors of the American economy, the housing sector—little by little, and bit by bit—has been firming up over the course of 2011. It is not dead as a stout, but certainly as sick as a parrot. The one exception is multifamily housing where a steady uptrend is underway.
Finally, the latest CPI figures show that rents in America are up 2.1% over the past year and 0.9% in the last three months alone—nearly twice the increase in core inflation. US wholesale prices rose broadly point to inflation pressures that may limit the Feds ability to provide more stimulus. All in all, the US economic picture is less than encouraging.
Eurozone
The big news was European leaders agreed on a package of initiatives including a 50 percent hair cut to bank portfolios of Greek debt, requirements for banks to increase capital reserves and an agreement to increase the EU bailout fund. All three issues- the fate of Greece, the ‘firewall’ and the recapitalization of Europe’s banks – revolve around, in some way Italy: if Greece’s debt is restructured, will the markets then turn on Italy, the next most indebted state in the Eurozone? Is the firewall high enough? Does the plan place an undue burden on Italy? While the plans give reason for cautious optimism, all eyes are now on Italy and the Italian PM has been unwilling to introduce reforms. Sadly, business confidence in Germany, previously the only bright spot in the Eurozone, deteriorated for the fourth consecutive month.
October 2011 Economic Overview
TWO messages emerged from the weekend’s IMF meetings: striking and deeply disconcerting. The high level of fear and anxiety among the participants and Euro-zone governments are still struggling to put in place an agreement reached in July. Europe is sliding toward recession. America is uncomfortably close behind. A renewed downturn across major economies would be very painful, given the lack of recovery in many labor markets and the stress contraction places on budgets. Were a double-dip to strike, far fewer economies would have the political will to intervene to support the economy, even among those with the fiscal room to help.
It’s just shocking to think about the dangers that loom and consider the extent to which they’re driven by governmental failures. Despite having been in a state of constant crisis for more than a year, the euro zone is far away from a real solution; America’s fiscal policymaking has steadily deteriorated, and the Congress needlessly sent confidence tumbling over the summer with a battle over the government’s debt ceiling. At the same time, Ben Bernanke seems to have forgotten everything he once knew about the crises in the 1930s and in Japan in the 1990s. America is sinking back toward recession while the global economy nears a cliff, and the Fed—by its own acknowledgment—has plenty of heavy ammunition sitting untouched on the shelf.
It is a damning performance. If the world economy does indeed face a new crisis and a new contraction in the weeks ahead, rich-world citizens will have every reason to question the institutions of global capitalism. If the liberal order begins to falter, even darker times still may lie ahead.
US
If incomes are to grow, aggregate credit and debt has to keep growing. Whether the growth is private or governmental is immaterial. It is the total that counts. The truncated responses of government and of markets to the recent crises, are shaking underlying confidence and heightening risks of contagion in all markets.
Eurozone
A vicious feedback loop between growth, sovereign-debt concerns and banking woes is now in train. S&P cited weakening growth prospects as a crucial reason why it lowered its credit rating for Italy: a more sluggish economy will make it harder for the government to achieve its fiscal targets. The rising risk of recession will damage a fragile European banking sector, which already faces potential losses of around €200 billion from higher risk on sovereign debt, according to new IMF estimates. And if the German economy falters, that is likely to make it even trickier for Angela Merkel to convince German taxpayers that they must dip deeper into their pockets to rescue the euro. Dealing with the debt crisis just seems to get harder and harder.

WHAT does Germany want? The question comes up in every discussion about the euro. What it does not want is clear enough: no “transfer union”, no pooling of national debts and no break-up of the single currency. But it is hard to know how it hopes to reconcile these aims, harder still to discern the ultimate goal of Germany’s European policy.
September 2011 Economic Overview
After the absurd fiscal brinkmanship of the Congress in the debt ceiling debate, the economy will continue to be sluggish and fragile. The thoughtlessness of the debt debate resolved nothing. The 2008 recession was worse than estimated; the present recovery is weaker than hoped. The psyche of business and consumers is timorous. The fear is that this is enough to drag the economy into a recession. Only the Fed can help with another round of fiscal easing. The fact that the US dollar is a reserve currency is the only reason it will not decline significantly, but decline it will.
I think one underappreciated factor is the difficulty buyers are having in taking advantage of those rates. Anecdotally, at least, it remains extremely difficult to get a loan, even for well-qualified borrowers. Banks are no doubt gun-shy given their weaknesses and recent experience, but an increased regulatory burden also seems to be an issue.
It seems a bit daft to call for a loosening in mortgage lending rules just 5 years after the end of one America’s great housing bubbles. And yet it is possible that regulations have been overdone or poorly crafted, leading to unnecessarily difficult lending conditions. Given the present economic situation, that’s a problem.
Companies are motivated to minimize costs, to save and stockpile cash, but this leads to less money in the hands of employees, which means they have less money to spend and flow back to companies.
Now, in the current financial crisis, consumers, in addition to having less money to spend, want to minimize costs, to save and stockpile cash, magnifying the effect of less money flowing back to companies.
Eurozone
Bond markets never take a holiday. Though the pressure has eased on the recent headlines economies of Greece, Portugal and Ireland, strains appear in the far bigger economies of Italy and of Spain. The EFSF could expand to at least one trillion Euros or issue joint and several underwritten Eurobonds from several sovereign borrowers would be a good alternative. But Europe seems in no rush to do anything.
Alas, all is not well in Europe. The big question continues to be: can European economies manage their aggressive austerity plans against a backdrop of lagging growth? And the growth outlook is darkening. What’s worse, the euro-zone economy as a whole is rapidly losing momentum. Industrial production across the euro area fell by 0.7% from May to June. Production dropped in every large euro-zone economy, including a 1.7% decline in France and a 0.8% dip in Germany, which is widely considered the currency area’s bulwark against a return to recession.
One thing is for sure: a return to euro-zone recession would set the stage for a prolonged crisis environment.
August 2011 Economic Overview
US companies are reluctant to hire because of weak consumer demand.
America’s economic recovery in the first half of this year was much weaker than assumed. Official data showed GDP rising by just 1.3% at an annual rate in the second quarter and by a revised 0.4% in the first three months.
Even with Congress lifting the debt ceiling, the stain will linger. The US has always paid its bills. Moody’s threat to put under review the triple ‘A’ rating of US sent shudders into the bond market. Fed Chairman Bernanke outlined more stimulus options such as a return t monetary easing, or further buying of assets in another round of monetary quantitative easing . An economic spillover could still happen. More than one in three of the unemployed workers in several of the largest U.S. states have been out of a job for more than a full year. Across the country, long periods of unemployment have been more prevalent recently than during previous recoveries going back longer than economist would like to look.
The poison and crud from the recession finally worked its way through the economy, they said. Almost! Corporations were flush with cash and ready to hire. Financial institutions were swimming in profits and ready to lend. Almost! Housing prices took a beating, but homes were affordable again, and families who had spent two years shedding debt were itching to buy something big. Almost!
So how did 2011 turn out so poorly? Eight months on, unemployment is still above 9%. Small business sentiment, which fell for the third consecutive month in May, is lower than a year ago. Real wage gains still look like a pancake, and the American Consumer — the world’s greatest engine of growth — is tight pocketed.
Economists at the IMF like to talk about a global “two-speed recovery.” That means China is battling inflation with 9% yearly growth, while Europe and the U.S. are fighting double-dips with sub-2% growth. But there’s a two-speed recovery at home, as well. Financial companies and multinationals are enjoying record profits, and the stock market has recovered better than most analysts expected. Almost!
But the wealth isn’t trickling down. Small businesses which account for 99 percent of all companies and two-thirds of all hires are selling into a weak consumer market. Banks know it, so they’re withholding loans. It’s a cappuccino economy: The top is as frothy as the bottom is static. At the top of the economy, financials and multinationals are growing, but they’re making do with fewer workers. At the bottom of the economy, small businesses aren’t growing, and they’re not hiring workers. Two speeds, one reality: It’s hard out there for a worker.
We are ready for revival. No Almost about it!
