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Greeks Ditch Euro For Alternative Currencies As Parliament Votes On Bailout
Greeks Ditch Euro For Alternative Currencies As Parliament Votes On Bailout
Greece released a bit of amusing econ data on Thursday, as the country’s statistical authority claimed GDP grew by 0.8% in Q2, well ahead of estimates of a 0.5% contraction. While we suppose it’s feasible that things weren’t as bad in Q2 as they have been since (capital controls weren’t in place during the quarter), we think you’d be hard pressed to find anyone in Greece who thought things were looking up for the economy heading into the referendum. In any event it doesn’t matter, because as WSJ notes, the fiscal retrenchment enshrined in the country’s third bailout program combined with the generally poor outlook means Greece faces a two-year recession – at least:
Greece faces two years of recession amid sharp budget cuts and overhauls mandated by its €86 billion ($95 billion) bailout agreement, European Union officials said, as Greek Prime MinisterAlexis Tsipras expressed confidence that the deal would be completed.
The country’s economy is expected to shrink 2.3% this year because of the recent months of turmoil and the cuts required by the bailout, the officials said, citing the latest estimates from the institutions that have been negotiating Greece’s new aid program. Next year, it is projected to contract 1.3%.
Miraculously, the Greek economy is expected to rebound sharply in 2017, when it will supposedly grow at 2.7%. Clearly that’s optimistic to the point of being largely meaningless, but that’s the story Athens and creditors are sticking to for now and on Thursday, Greek lawmakers will be herded into parliament where they’ll be pressured to pass some 40 new laws which will serve to plunge the country even further into depression than it already plunged during the first two months of Q3.
…click on the above link to read the rest of the article…
Sorry Troika, Spain’s Economic Recovery Is “One Big Lie”
Sorry Troika, Spain’s Economic Recovery Is “One Big Lie”
During six months of protracted and terribly fraught negotiations between Athens, Berlin, Brussels, and the IMF, the idea that Spain, Italy, and Ireland somehow represented austerity “success stories” was frequently trotted out as the rationale behind demanding that Greece embark on a deeper fiscal retrenchment despite the fact that the country is mired in recession. Here’s the official line from the German Council of Economic Experts:
The economic turnarounds in Ireland, Portugal, Spain and – until the end of last year – also in Greece show that the principle “loans against reforms” can lead to success. For the new program to work, Greece has to show more ownership for deep structural reforms. And it should make use of the technical expertise offered by its European partners.
As we’ve shown, the idea that the periphery has truly implemented anything close to “austerity” is absurd on some measures – like debt-to-GDP for instance.
Equally absurd to the 44.2% of Italian youths who are unemployed and, no doubt, to the nearly 23% of Spain’s population that are jobless, is the idea that the policies imposed by the troika in exchange for aid have done anything at all to engineer what Germany’s economic wisemen are calling “turnarounds.”
Here, courtesy of The New York Times, is what “success” and “recovery” looks like in Spain:
Spain, heralded by many as a success story for austerity policies, is on track for more than 3 percent growth this year and has created more than one million jobs since the beginning of 2014.
…click on the above link to read the rest of the article…
China’s Hard Landing Suddenly Gets a Lot Rougher
China’s Hard Landing Suddenly Gets a Lot Rougher
This has become a sign of the times: Foxconn, with 1.3 million employees the world’s largest contract electronics manufacturer, making gadgets for Apple and many others, and with mega-production facilities in China, inked a memorandum of understanding on Saturday under which it would invest $5 billion over the next five years in India!
In part to alleviate the impact of soaring wages in China.
Meanwhile in the city of Dongguan in China, workers at toy manufacturer Ever Force Toys & Electronics were protesting angrily, demanding three months of unpaid wages. The company, which supplied Mattel, had shut down and told workers on August 3 that it was insolvent. The protests ended on Thursday; local officials offered to come up with some of the money owed these 700 folks, and police put down the labor unrest by force.
These manufacturing plant shutdowns and claims of unpaid wages are percolating through the Chinese economy. The Wall Street Journal:
The number of labor protests and strikes tracked on the mainland by China Labour Bulletin, a Hong Kong-based watchdog, more than doubled in the April-June quarter from a year earlier, partly fueled by factory closures and wage arrears in the manufacturing sector. The group logged 568 strikes and worker protests in the second quarter, raising this year’s tally to 1,218 incidents as of June, compared with 1,379 incidents recorded for all of last year.
The manufacturing sector is responsible for much of China’s economic growth. It accounted for 31% of GDP, according to the World Bank. And a good part of this production is exported. But that plan has now been obviated by events.
Exports plunged 8.3% in July from a year ago, disappointing once again the soothsayers surveyed by Reuters that had predicted a 1% drop. Exports to Japan plunged 13%, to Europe 12.3%. And exports to the US, which is supposed to pull the world economy out of its mire, fell 1.3%. So far this year, in yuan terms, exports are down 0.9% from the same period last year. As important as manufacturing is to China, this debacle is not exactly conducive to economic growth.
…click on the above link to read the rest of the article…
Here’s the Next Crisis “Nobody Saw Coming”
Here’s the Next Crisis “Nobody Saw Coming”
When borrowing become prohibitive (or impossible) and raising taxes no longer generates more revenues, state and local governments will have to cut expenditures.
Strangely enough, every easily foreseeable financial crisis is presented in the mainstream media as one that “nobody saw coming.” No doubt the crisis visible in these three charts will also fall into the “nobody saw it coming” category.
Take a look at this chart of state and local government debt. As we noted yesterday, nominal GDP rose about 77% since 2000. So state and local debt rose at double the rate of GDP. That is the definition of an unsustainable trend.
As noted earlier in the week, state and local taxes have soared 75%. While this would be no big deal if wages and salaries had risen by 75% in the same time frame, but earnings have barely kept pace with inflation (38% since 2000).
So state and local taxes have risen at a rate twice that of wages/salaries. State and local governments can keep raising taxes, but where’s the money going to come from?
State and local government expenditures have risen faster than inflation or GDP.
…click on the above link to read the rest of the article…
Bad Debt Soars 35% In China As Government Set To Fabricate Dismal Loan Data
Bad Debt Soars 35% In China As Government Set To Fabricate Dismal Loan Data
Back in March, we noted that decelerating economic growth and bad debt are taking a toll on profitability at China’s largest banks, leading them to slash payouts to shareholders.
“Particularly hard hit is ABC, which saw its non-performing loans jump 25bps Q/Q,” we observed, adding that “NPLs for loans made to manufacturers more than doubled that number, rising 54bps sequentially.” That figure underscores the degree to which China’s transition from an investment-led, smokestack economy to a model driven by consumption and services is weighing heavily on industry and in turn, on banks that lend to the manufacturing sector.
Although NPLs have been rising for some time in China, determining the true extent of the problem is largely impossible due to Beijing’s “management” of bad loans. As we outlined in “How China’s Banks Hide Trillions In Credit Risk,” there’s no way to know how pervasive Beijing’s practice of forcing banks to roll-over problem loans truly is, meaning that even if we ignore the fact that quite a bit of credit risk is obscured by the practice of shifting it around, moving it off balance sheet, and reclassifying it, (i.e. if we just look at traditional loans) it’s still difficult to know what percentage of loans are actually impaired because it’s entirely possible that a non-trivial percentage of sour debt is forcibly restructured and thus never makes it into the official NPL figures.
Indeed, the fact that NPLs are remarkably similar across banks suggests the numbers are, much like China’s GDP data, “smoothed out.” That said, a look at “special mention” loans and overdue loans can help to paint a more accurate picture although the figures still look grossly understated.
Source: Fitch
…click on the above link to read the rest of the article…
You Can Add Iraq And Ukraine To The List Of Economies That Are Collapsing
You Can Add Iraq And Ukraine To The List Of Economies That Are Collapsing
The list of nations around the globe that have collapsing economies just continues to grow. In recent weeks I have written about the ongoing saga in Greece, the stock market crash in China, the debt crisis in Puerto Rico and the economic meltdown in South America. But there are more economic flashpoints that I have not even addressed yet. For example, did you know that a full-blown economic collapse is happening in Iraq right now? And did you know that the economy of Ukraine is contracting rapidly and that it cannot pay its debts? Back in 2008, the financial crisis was primarily centered on the United States, but this time around it is turning out to be a truly global phenomenon.
When the U.S. “liberated” Iraq, the future for that nation was supposed to be incredibly bright. But instead, things have just gone from bad to worse. This has especially been true since we pulled our troops out and allowed ISIS to run buck wild. At this point unemployment in Iraq is at Great Depression levels, the economy is steadily contracting and government debt is spiraling wildly out of control…
But Iraq’s oil industry, and the government’s budget, is beingsqueezed by low oil prices. As a result, the nation’s finances are being hit hard: the market price is now half that needed to break even, expanding the budget deficit, forecast to return to balance until the rise of IS, to a projected 9% of GDP.
In the past, Iraq’s leaders approved budgets without seriously taking into account a drop in the price of oil. Now the severe revenue shortfall is forcing leaders to cut back on new investments. Russia’s Lukoil, Royal Dutch Shell, and Italy’s ENI are also cutting back, eyeing neighbouring Iran’s pending economic opening as a safer investment.
Despite improving its finances after the US troop withdrawal, the drop in oil prices and the rising costs of battling IS have pushed Iraq’s economy into a state of near-crisis. According to the IMF, the nation’s GDP shrank by 2.7% in 2014 andunemployment is estimated to be over 25%.
Things are even worse in another nation that was recently “liberated”. The new U.S.-friendly government in Ukraine was supposed to make things much better for average Ukrainians, but instead the economy is absolutely imploding…
The country’s GDP contracted by 6.8 percent last year, and is forecast to shrink by another 9 percent this year — a total loss of roughly 16 percent over two years.
Just like in much of southern Europe, the banks are absolutely overloaded with bad loans and the entire banking system is on the verge of total collapse. The following comes from a CNN article that was posted earlier this year…
…click on the above link to read the rest of the article…
Birinyi’s S&P 3200 Call——Bull From A 30-Year Bull
Birinyi’s S&P 3200 Call——Bull From A 30-Year Bull
When stock market guru Laszlo Birinyi told bubblevision today that S&P 3200 would be reached by 2017, his argument was essentially to keep on keeping on:
“What we’re really trying to tell people is stay with it, don’t let the bad news shake you out…There’s no reason we can’t keep on going,” he said.
That got me to thinking about when I first ran into Birinyi at Salomon Brothers way back in 1986. He was then a relatively underpaid numbers cruncher in the equity research department who was adept at making the bull case. Nigh onto 30 years later he has become a rich man crunching the numbers and still making the bull case.
Indeed, I don’t ever recall when he wasn’t making the case to be long equities, and as the chart below shows, you didn’t actually have to crunch the numbers to get there. Just riding the bull from 200 in January 1986 to today’s approximate 2100 on the S&P 500 index computes to a 8.4%CAGR and a 10% annual gain with dividends.
Even when you take the inflation out of it, this 30-year run is something close to awesome. But, alas, that’s my point. It’s too awesome.
In inflation-adjusted terms, the S&P 500 index rose by 6.2% per annum over the last three decades. That compares to just a 2.2% annual advance for real GDP, meaning that the market has risen nearly 3X faster than national output in real terms.
You don’t have to be a math genius to realize that a few more decades of that kind of huge annual spread, and the stock market capitalization would be several hundred times larger than GDP.
Likewise, you don’t have to be a PhD in quantitative historical research to recognize that the last three decades are utterly unique. If you run the clock backwards by 30 years from the January 1986 starting point, for instance, you get a totally different picture.
…click on the above link to read the rest of the article…
Breaking Down China’s $23 Trillion Debt Pile
Breaking Down China’s $23 Trillion Debt Pile
Back in April, we highlighted Beijing’s “massive debt problem“, noting that as of last year, total debt in China amounted to some $28 trillion when you include government debt, corporate debt, and household borrowing.
As Bloomberg noted at the time – and as we’ve discussed extensively – Beijing is facing the virtually impossible task of trying to de-leverage and releverage at the same time.
“Various parts of the government don’t always seem to be working from the same playbook,” Bloombergobserved, before quoting Credit Agricole’s Dariusz Kowalczyk who pointed out the “obvious contradiction between attempts to deleverage the economy and attempts to boost growth.”
Indeed, there are times when the scale seems to tip in favor of deleveraging. For instance, Beijing has recently shown a willingness to tolerate defaults and the case of Baoding Tianwei Group Co even suggested that in some instances, state-affiliated companies may not receive immediate government support.Nevertheless, the abrupt 180 on LGVF financing and the transformation of the local government debt restructuring initiative into the Chinese version of LTROs betrays the extent to which China is still reluctant to deleverage its economy in the face of flagging growth.
Against that backdrop we bring you the following graphic from Bloomberg which breaks down China’s massive debt pile and shows the degree to which it’s grown over the past decade.
Recession Risk Mounting For Canada
Recession Risk Mounting For Canada
The latest economic data from Canada shows that it is inching towards recession, after its economy posted its fifth straight month of contraction.
Statistics Canada revealed on July 31 that the Canadian economy shrank by 0.2 percent on an annualized basis in May, perhaps pushing the country over the edge into recessionary territory for the first half of 2015. “There is no sugar-coating this one,” Douglas Porter, BMO chief economist, wrote in a client note. “It’s a sour result.”
The poor showing surprised economists, who predicted GDP to remain flat, but it the result followed a contraction in the first quarter at an annual rate of 0.6 percent. Canada’s economy may or may not have technically dipped into recession this year – defined as two consecutive quarters of negative GDP growth – but it is surely facing some serious headwinds.
Related: This Week In Energy: Low Oil Prices Inflict Serious Pain This Earnings Season
Canada’s central bank slashed interest rates in July to 0.50 percent, the second cut this year, but that may not be enough to goose the economy. With rates already so low, there comes a point when interest rate cuts have diminishing returns. Consumer confidence in Canada is at a two-year low.
There are other fault lines in the Canadian economy. Fears over a housing bubble in key metro areas such as Toronto and Vancouver are rising. “In light of its hotter price performance over the past three to five years and greater supply risk, this vulnerability appears to be comparatively high in the Toronto market,” the deputy chief economist of TD Bank wrote in a new report. A run up in housing prices, along with overbuilding units that haven’t been sold, and a high home price-to-income ratio has TD Bank predicting a “medium-to-moderate” chance of a “painful price adjustment.” In other words, the bubble could deflate.
…click on the above link to read the rest of the article…
Unifor Report Slams Harper’s Economic Performance
Unifor Report Slams Harper’s Economic Performance
2008 downturn no excuse for harmful policy, says union economist.
A new report from Canada’s largest private sector union says Stephen Harper and his Conservatives are running the most poorly performing economy the country has seen since the end of the Second World War.
Unifor economists Jim Stanford and Jordan Brennan compared economic data from nine governments of Canada (excluding short terms like Kim Campbell and John Turner) since World War II. They found Harper’s performance is the most dismal, with Brian Mulroney in a distant second.
The report examined 16 indicators of economic progress, including job creation, real GDP growth, export growth, household debt and real personal incomes.
“The Harper government ranked last or second last in 13 of the 16 indicators,” Stanford said.
He said when all the categories are added up to give a cumulative score, Harper grabbed an 8.05 out of nine. Nine is the worst possible score.
Brennan and Stanford included extensive lists of data used for their rankings, so skeptics can see the information for themselves.
Economist Mike Moffatt of Ontario’s Mowat Centre, an independent think tank, reviewed the report and said it holds up to scrutiny.
Moffatt said the figures in the report are accurate, but more context would help explain why the economy has performed poorly.
“They were kind of selective in what they chose to report,” Moffatt said, suggesting the authors could have analyzed more categories favourable towards the government, like household wealth. “That’s a mild issue with it, but overall a lot of the more obvious economic indicators have been rather poor over the last eight or nine years, which this report points out.”
Moffatt added the number crunching and raw data in the report was “fantastic.”
…click on the above link to read the rest of the article…
Eurozone Debt Just Keeps Rising—–What Austerity?
Eurozone Debt Just Keeps Rising—–What Austerity?
The eurozone is supposedly in a state of recovery. However, in spite of that recovery, public debt and debt-to GGP levels are still rising. Austerity is difficult to find in any realistic sense.
Please consider Eurozone Borrowing Rises to Record as Recovery Remains Weak.
The European Central Bank’s programme of quantitative easing has pushed down interest rates to ultra low levels, encouraging governments to borrow more in the early part of this year, despite turmoil in Greece.
Across countries that use the euro, average debt to gross domestic product reached 92.9 per cent in the first quarter of 2015, up from 92 per cent in the previous quarter and 91.9 per cent in the same period last year, according to figures from Eurostat, the EU’s statistical agency.
Greece remains the EU’s most indebted nation, with debt equal to 169 per cent of annual GDP, but Italy, Belgium, Cyprus and Portugal also carry government debt that exceeds 100 per cent of economic output.
The rise in debt comes despite a pickup in the pace of recovery in the eurozone, with the region’s economy expanding 0.4 per cent in the first quarter of this year — while the US saw a contraction.
Targets vs. Reality
The “Growth and Stability” pact on which the Eurozone was founded limits debt to 60% of GDP and deficits at no more than 3%.
Average Debt-to-GDP is 92.9% and rising.
Eurostat Data shows Ireland, Greece, Spain, France, Cyprus, Portugal, Belgium, Slovenia, and Finland all exceeded 3% budget deficit requirement in 2014.
France and Spain have been given warnings and extensions on numerous occasions.
Greece Sideshow
By any realistic measure, Greece is just a sideshow for what is to come.
Pater Tenebrarum at the Acting Man blog pinged me with this comment: “The true reason for the bust of Greece and other countries – apart from their truly atrocious socialist policies and abominable corruption – isfractional reserve banking. The euro has of course enabled an even bigger credit boom and bust than would have been the case otherwise, but it is not the fixed exchange rate that is at fault, it is the underlying economic policies and the monetary system as such.”
…click on the above link to read the rest of the article…
Aussie Dollar Tests Long-Term Trendline As China Contagion Spreads
Aussie Dollar Tests Long-Term Trendline As China Contagion Spreads
Last week, we asked “Is Australia the next Greece?” It appears, judging bu the collapse in the Aussie Dollar, that some – if not all – are starting to believe it’s possible after last night’s 15-month low in China Manufacturing PMI. As UBS previously noted, China’s real GDP growth cycles have become an increasingly important driver of Australia’s nominal GDP growth this last decade. With iron ore and coal prices plumbing new record lows, a Chinese (real) economy firing on perhaps 1 cyclinder, and equity investors reeling from China’s collapse; perhaps the situation facing Australia is more like Greece than many want to admit.
Australian consumers are more worried about the medium term outlook than at the peak of the financial crisis, and rightfully so…
As China plumbs new depths in manufacturing, just piling on Aussie’s woes…
The Dollar is rising this morning but all eyes are on AUD as it tests a very long-term trendline…
h/t @RaoulGMI
* * *
As The Telegraph previously concluded, rather ominously,
The problem is that Australia, after decades of effort to diversify, is looking ever more like a petrodollar economy of the Middle East, but without the vast horde of foreign currency reserves to fall back on when commodity prices fall.
Instead, Australians must borrow to maintain the standards of living that the country has become accustomed to, which even some Greeks will admit is unsustainable.
Charts: Bloomberg
The Chilling Thing China’s Electricity Consumption Just Said about the Economy
The Chilling Thing China’s Electricity Consumption Just Said about the Economy
China has been building what is by now the largest high-speed rail system in the world. Subway systems are growing faster than anyone can imagine anywhere else. Ridership is soaring. High-rise buildings are sprouting up like mushrooms, to be occupied by businesses and consumers that are splurging on tech products, appliances, and air conditioning. All powered by electricity.
China built over 23 million cars, trucks, and buses last year, far more than any other country, in plants that are massive consumers of electricity. It’s producing building materials, solar panels, trains, ships, plastic trinkets, smartphones, and a million other things for its own use and for the rest of the world. All these activities require a lot of electrical power.
China is booming. GDP for the second quarter, despite rumors of a slowdown, came in at a once again astonishing annual rate of 7.0%, just as planned, once again confounding hard-landing gurus. Nothing is going to slow down China. It’s fueled by monetary propellants, endless credit that never turns bad and never has to be paid off, and a stock market run by fiat. So it would seem that electricity consumption would be soaring in parallel.
But no.
Electricity consumption in the first half of 2015 inched up to 2,662.4 billion kWh across the country. Compared to the same period last year, that was up a tiny 1.3%. The flimsiest growth rate in 30 years.
In 19 provinces, power consumption grew at above the national average of 1.3% compared to prior year, the People’s Daily Online reported, based on a brief by the China Electricity Council; but in 9 provinces, power consumption during the first half actually fell.
While electricity consumption in light industry rose by 2.1%, it dropped 0.5% in secondary industry and 0.9% in heavy industry.
So was the economy of China suddenly not growing at an annual rate of 7% during the first half?
…click on the above link to read the rest of the article…
Debt Crisis Central: Let’s Not Forget About America
Debt Crisis Central: Let’s Not Forget About America
As the situation in Puerto Rico has recently revealed, Greece is not alone. The world is filled with debt laden nations, many of which may never be able to pay down their liabilities. All told, the world is $200 trillion in debt, of which $57 trillion was accumulated in the past 8 years. And for the record, all the wealth in the world, including assets, amounts to $241 trillion (as of 2013). It’s safe to say that the human race is on one massive debt bender, and there won’t be any easy way out.
As for which countries are worse off than others, a recent article from The Guardian happens to reveal which of the world’s nations are on the fast track to a debt crisis. As I read it however, there was a country that was suspiciously missing from the list. Can you spot this missing debt junky? (hint: it’s America. The answer is always America.)
New analysis by the Jubilee Debt Campaign reveals that Greece’s plight is far from unique: more than 20 other countries are also wrestling with their own debt crises. Many more, from Senegal to Laos, lie in a debt danger zone, where an economic downturn or a sudden jump in interest rates on world debt markets could lead to disaster…
…Jubilee’s analysis defines countries as at high risk of a government debt crisis if they have net debt higher than 30% of GDP, a current-account deficit of over 5% of GDP and future debt repayments worth more than 10% of government revenue. “We estimate that 14 countries are rapidly heading towards new government debt crises, based on their large external debts, large and persistent current account deficits, and high projected future government debt payments,” it says…
…click on the above link to read the rest of the article…
Greece’s Lesson For Russia
Greece’s Lesson For Russia
“Greece’s debt can now only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far.” — International Monetary Fund
Greece’s lesson for Russia, and for China and Iran, is to avoid all financial relationships with the West. The West simply cannot be trusted. Washington is committed to economic and political hegemony over every other country and uses the Western financial system for asset freezes, confiscations, and sanctions. Countries that have independent foreign policies and also have assets in the West cannot expect Washington to respect their property rights or their ownership. Washington freezes or steals countries’ assets, or in the case of France imposes multi-billion dollar fines, in order to force compliance with Washington’s policies. Iran, for example, lost the use of $100 billion, approximately one-fourth of the Iranian GDP, for years simply because Iran insisted on its rights under the Non-Proliferation Treaty.
Russian journalists are asking me if Obama’s willingness to reach a deal with Iran means there is hope a deal can be reached over Ukraine. The answer is No. Moreover, as I will later explain, the deal with Iran doesn’t mean much as far as Washington is concerned.
Three days ago (July 14) a high ranking military officer, Gen. Paul Selva, the third in about as many days, told the US Senate that Russia is “an existential threat to this nation (the US).” Only a few days prior the Senate had heard the same thing from US Marine commander Joseph Dunford and from the Secretary of the Air Force. A few days before that, the Chairman of the US Joint Chiefs of Staff warned of a Russian “hybrid threat.”
…click on the above link to read the rest of the article…
