Misery Economic Theater 2011

[garo]

Fabulous infographic from xkcd
http://xkcd.com/980/huge/

[Fusion_power]

http://www.bbc.co.uk/news/business-15888752

The link explains better than any words the concern. The coupon rate was 6.504% on 6 month money. That is unsustainable given the stretched finances underlying the bonds.

Of far more concern is this statement.

"Ahead lies either the slow disintegration of the euro area or a significant strengthening of the monetary union," Mr Rehn told journalists on Thursday.

He told Italian legislators on Friday that it was important to convince Germany of the need to issue eurobonds - common eurozone debts backed by all 17 member states.

"If I put it nicely, I would say there is a variety of views and there is quite some opposition as regards eurobonds," he said.

What is not being said is that Germany is being asked to foot the bill for the profligate neighbors partying ways. Of course Germany objects.

DarJones

[literka]

Originally Posted by Fusion_power

http://www.bbc.co.uk/news/business-15888752

What is not being said is that Germany is being asked to foot the bill for the profligate neighbors partying ways. Of course Germany objects.

DarJones

What is not being said here by you is that Germany decided to join EU and that is why it bears a common responsibility for common finances. Issuance of low-yield European bonds would be great now. But not for Germany, who can issue bonds with a yield 2% and buy for a received money bonds with a yield 17%. Huge extra income for 2 transactions without any investment.

[ewmayer]

Originally Posted by Fusion_power

http://www.bbc.co.uk/news/business-15888752

The link explains better than any words the concern. The coupon rate was 6.504% on 6 month money. That is unsustainable given the stretched finances underlying the bonds.

I love the desperate attempt at positive spin:

"The Bank of Italy stressed that demand for the bonds had been high, with demand for the debts outstripping supply by 50%."

At a coupon rate a full 3 percentage points higher than last month's similar issue of 6-month notes, demand had bloody well better be high, otherwise it would mean you can't borrow at any price, which is the scenario Greece ran into. (Those 200%-plus 'yields' on Greek 2-year debt one often hears cited do not reflect actual costs of borrowing, at least not in any significant volume ... they are along the lines of 'this is the yields would-be-buyers are demanding.' Rather like a standing limit buy order on Greek debt, which will never be filled, since Greece has the ECB absorbing all its new debt issuance.)

BTW, "significant strengthening of the monetary union" appears to be bureaucratic code for "surrender all semblance of national budgetary sovereignity to a bunch of unelected banker-lackeys based in Brussels." The face I see which embodies the latter creature for me is that of that pompous twit Barroso, he of the monetary Napoleon complex. (And fellow pompous twit Olli Rehn is little better - that is a whopping number of bald-faced lies in a short quote by him, cited in the article).

And fellow pompous, lying unelected banker-lackey twit Monti 'plans to balance Italy's budget by 2013' - by deploying legions of magical pasta-pooping flying unicorns, no doubt.

------------

On my side of the pond, ZeroHedge has a trenchant take on the appalling orgy of consumption-for-consumpiton's-sake which is the media-driven post-Thanksgiving shopping frenzy known as Black Friday:

Guest Post: Just A Holiday Reminder - Black Friday Is Utterly Meaningless

You know the economy and stock market are in deep trouble when the Mainstream Media elevates one essentially meaningless metric to "The One Meaningful Statistic" and then trumpets it slavishly. One such meaningless metric is Black Friday. The Media has glommed onto Black Friday for a number of flawed reasons, number one being the MSM's ceaseless drive to reduce all complex problems down to something that can be expressed in a sound-bite voiceover and a video clip of a crowded mall. The MSM loves binaries: two parties, two final contestants, and if Black Friday is "good," i.e. sales exceed last year's consumerist bacchanal, then the economy is "healthy." Any weakening of the consumer's lemming-like drive to buy, buy, buy means the economy is "weak." This is of course absolutely backward: consumers buying shiploads of poor-quality crap made overseas means the economy is still on the slippery slope to implosion, as debt is being used to fund consumption while capital formation (savings) remains pathetic. Since most of the crap (and it is crap--most Americans have either forgotten what actual quality is or they have never experienced it) is made overseas, the "boost" to the economy generated by rampant charge-card consumption flows to only one slice of the the U.S. economy: corporate profits.

Just to give our non-US readers an idea of the level of insanity in play here, the media have been showing a steady diet of pieces featuring the aforementioned lemmings camped out for days in front of the local BestMart or WalBuy or CostSluts or SuperDoublePlusGood store, missing multiple days which they might be spending on more-productive (or at least more enjoyable, or at the very least more comfortable) activities, just to 'save' hundred bucks or such on some made-in-a-polluting-Chinese-industrial-hellhole plasma TeeVee or gaming console. I guess that makes me a bad unpatriotic kind of American, since I do most of my (increasingly modest) holiday shopping online each year, and never go anywhere near a mall in the days leading up to and following Thanksgiving. My sister and I used to go nearby Stanford Shopping Center each year a couple weeks before Christmas and actually spend most of the time shopping. As the years have passed we do less and less shopping, and now just enjoy stuff like sitting at a table on one of the outdoor patios of a restaurant and having a relaxing lunch and conversation. It's a nice mall - all the walkways are open-air, lovely landscaping, mostly-pleasing NoCal weather - way too nice to spend most of one's time standing inside at counters and display racks. I realize the irony of that, since the Mall only stays in business so long as sufficient numbers of patrons do those things. I just prefer to help a good restaurant pay its rent rather than a Macy's or Nieman Marcus.

[Fusion_power]

/me: Fusion does a fastastically fast search of all known EU documents trying to find where it says Greece can have a 24 hour party but Germany has to share in the hangover. Sadly, no such document can be found.

Besides, at the rate it is going, Germany might just decide to buy Greece if the price gets low enough.

Don't get the wrong idea though, I'm just as p.o.'d at U.S. politicians. I've paid my own way since I was 19 years old. I've worked and earned a living and paid for my 4 kids without EVER having to get any form of public assistance. I've paid every debt that I incurred and at present have only 1 outstanding debt for some land that I bought 10 years ago and will have completely paid for within 2 years. I have exactly 1 credit card to my name and it has a limit of $18,000 and balance of exactly $0. That might not say much, but it means that I have been lucky to some extent, have worked hard to ensure I have always been worth keeping around on the job, and have done a pretty decent job of managing the money I earned.

Just how p.o.'d do you think I am about the U.S. debt of $14+ Trillion?

DarJones

[Christenson]

Believe it or not, I have been more or less independent financially since I went to graduate school...but, after I got out of that, I had a problem that BDodson will remember...(you can encapsulate it as being probably the brightest student in a certain program and flunked out...for all of the drama in my life at the time preventing me from working at it) and ended up using some public assistance from the county until I got out of that situation and back on my feet. I know at least one fellow graduate from my high school that used AFDC (now 30 years ago) to get through college and get a job.

There have always been some that cannot produce. There have always been some that will only produce if forced to, and abuse whatever system they are in. This is about 10-20% of the people actually employed at my current workplace. Others are simply ineffective, getting caught up in various head trips -- my classic being a degreed electrical engineer that can't calculate a practical problem with Ohm's law...or my immediate boss.

I must ask: To whom do we owe our collective souls?

[Batalov]

Originally Posted by Christenson

...I must ask: To whom do we owe our collective souls?

To Kevin Trudeau?

[literka]

European Union was created with an assumption that all members would have equal rights, that Parliament would resolve crucial problems, and all members would have proportional representation in Parliament. It was kind of a revolution, and has ended like all known revolutions. Beautiful ideas in the beginning, dictatorship at the end.
First break occurred with admission of Eastern European countries, former Soviet bloc countries. They wanted to join for any price. They've got it together with heavy duty trucks with paper, where terms and conditions of admissions were written. This was a precedence that different countries could be treated with different laws. But still in that time European Parliament had some importance and so called European Commissaires had some power.
Great Britain joined EU with a strong will to colonize Europe. But they were realistic, since there were such powers as Germany and France. They understood that cooperation is the only way to achieve goals and that they had to restrict theirs interests to traditional regions of influence.
British ridiculed European Parliament and never obeyed European law unless it collided with interests of strong members of EU. They were laughing when EU computed how much they should pay for EU budget. They performed theirs own computations and it appeared, according to theirs computations, that they would pay 10 billion euros less (per year) than it was previously thought.

This led to a current situation, where some countries are free to do anything while other must obey the law written on tens of tons of paper. And it is not an end yet.

[garo]

http://www.lrb.co.uk/v33/n23/james-meek/diary

And Greece is far from the only countries with such issues. Americans will find echoes of their own politicians in the Greek ones.

[Christenson]

Originally Posted by Batalov

To Kevin Trudeau?

That set me to giggling........but that man has the wrong name...it should be "Abe Singleman". But quite a reflection on the very human condition of average americans.

With regard to the Greeks, the thing is, we aren't that far in time and space from an era where street repairs and basics like coal were traded for votes. Look up the "Charter" party in Cincinnati, circa 1920s, to get an idea of how it used to work. Birmingham, Alabama's bankruptcy is the same system, just different players.

**********
It seems to me that the debt situation has removed much of the feedback from the economy where people do things that are regarded as productive by the rest of the economy.

Almost everyone here profited by a college education, but the current system of extreme prices and easy loans for anyone that can fill out the paperwork has to mean that a lot of people are going to college unproductively.

The company I once worked for had very obvious problems, but it has taken a decade for those chickens to really come home to roost.

A retirement age of 65 is unsupportable if everyone lives to 80 and starts wroking at 25.
**************
So the question is, how do we restore the feedback? Beyond transferring some of the risk to the lenders?

[ewmayer]

Originally Posted by literka

European Union was created with an assumption that all members would have equal rights, that Parliament would resolve crucial problems, and all members would have proportional representation in Parliament. ...
First break occurred with admission of Eastern European countries, former Soviet bloc countries. They wanted to join for any price.

You forgot to mention that EU membership also came with a set of *requirements* - One of the key ones being that countries must demonstrate fiscal discipline. We now know that Greece - and likely other PIIGS states, but Greece appears to have been an especially flagrant offender - fraudulently misrepresented its government deficits in order to meet the initial entry rules. And that is somehow not 'at any price'? Somehow 'more honest' than those ignoble FSU countries which wanted special treatment?

Originally Posted by Christenson

Almost everyone here profited by a college education

...especially those who profit by providing such. I would argue that this midguided belief that a college baccalaureate degree is necessary to contribute meaningfully to the modern economy is in its own way just a misguided and economically damaging as the "ownership society" delusion, which posits that universal home ownership is the key to prosperity. Now we have legions of college grads with economically useless degrees (many with huge piles of student-loan debt accumulated in earning that useless degree) working in completely different areas - if at all - while we have utterly neglected the large fraction of folks who are simply not cut out (either by talent or inclination) for academic studies, but who could contribute meaningfully to an economy where people actually still build things. At the same time the nearly-unlimited supply of cheap credit for college has led to a college-cost bubble of enormous extent, and ironically made a college education much less affordable for everyone).

The Germans have this right - they have always fostered a dual-track career path, and supported high-quality trade schools which give people who like making stuff a useful education, and a modern one to boot - high-tech manufacturing is definitely not a 'dumb' field.

I have a similar disagreemet to the tech-utopians who claim that high-tech will save us, and if we only taught everyone data structures and web development and sysadmin skills, all will prosper. Not everyone is cut out to be a software developer - and who is gonna grow the food and build the cars and houses and roads for all those economy-driving tech geeks? When did being good with one's hands and at building stuff become something to be looked down at?