Mish's Global Economic Trend Analysis |
- Retail Sales Plunge in Italy, Dip Elsewhere in Euro-Zone
- Europe at the Abyss; US Housing in the Abyss; Who is to Blame?
- Morocco: Antigovernment protesters clash with police; Kuwait: 2,000 rally to demand resignation of embattled prime minister
Retail Sales Plunge in Italy, Dip Elsewhere in Euro-Zone Posted: 30 May 2011 08:23 PM PDT Things are about to get very interesting in Italy where consumers have gone a sudden spending hiatus. Bloomberg reports European Retail Sales Contract to 7-Month Low European retail sales contracted in May to the lowest level since October 2010, driven by a "sharp drop" in Italy, Markit Economics said.Eurozone retail sales fell in May Please consider Eurozone retail sales fell in May Retail sales in the Eurozone fell for the first time in three months in May, according to Markit's latest PMI (Purchasing Managers' Index) survey. Moreover, sales were only marginally higher than one year earlier, and retailers cut both staff levels and purchasing during the month. Of the three largest euro economies covered, Italy remained the main source of weakness, while France and Germany both registered slower growth.Retail Sales by Country That is one hell of a drop for Italy. Note how poorly Italy fared in the 2008-2009 recession compared to France and Germany. Unless this is an outlier, Italy is headed for recession. Is the ECB prepared for that? Are the bond markets? Italy 10-Year Government Bonds If Italian government bonds break North of that range, not led by a general rise across the Euro-Zone, especially Germany, then kiss contagion-containment goodbye. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Europe at the Abyss; US Housing in the Abyss; Who is to Blame? Posted: 30 May 2011 10:23 AM PDT Robert Samuelson on Real Clear Politics says Europe at the Abyss It has come to this. A year after rescuing Greece from default, Europe is staring into the abyss. The bailout has proved insufficient. Greece needs more money, and it can't borrow from private markets where it faces interest rates as high as 25 percent. There is no easy escape."Markets Failed" Says Desmond Lachman Few economic statement make my hair stand straight up more than that bit of complete nonsense from Lachman. The markets did not fail. Bureaucrats who dreamed up the Euro failed. Those bureaucrats devised a currency union with nothing more than suggestions on fiscal controls. Making matters far worse, countries in the Euro-Zone have widely differing political philosophies and policies. That currency union was not brought about by the market. The free market would never have done such a silly thing. Every major currency union in history without a political and fiscal union has failed. There is a nice Table of Monetary Unions on the site Euro Know that shows just that. Bureaucrats, not the free market knew better. Bureaucrats, not the free market failed. Not Different This Time Potential problem were recognized well in advance by many. In February 1995 The Independent wrote a misguided editorial Why we say Yes to a single currency. The rationale of The Independent was "It's different this time". The economic arguments that, on balance, Britain will be better off inside the currency union than outside are persuasive. The discipline of a permanently fixed exchange rate would significantly reduce the risk of a return to high inflation and create greater certainty for companies and investors. There would also be lower transaction costs. There is no doubt that a successful single currency would strengthen Europe's position on the global economic stage.Points of Failure Predicted In Advance Things were not different were they? Ironically, in that 1995 article, The Independent pointed out the exact points of failure: Spain, Portugal and Greece. Tony Dolphin, Chief Economist of AMP Asset Management, wrote a response to that article less than a week later. Please consider, European monetary union: the benefits, the problems and the traveller's tale The potential benefits of European monetary union are questionable, the potential costs could be very serious. A successful monetary union requires that the economies joining it are broadly the same, especially in regard to their response to external and internal inflation shocks. This is not the case in Europe. Take two examples: oil and housing.Failure of the "One Size Fits Germany Policy" I have no idea what Tony Dolphin is doing today but put him in the class of those who can say "I told you so." Here is the key paragraph: "It is easy to envisage a situation where the interest rate policy of a European monetary union was entirely inappropriate for the housing sector of the UK economy." The UK did not adopt the Euro but Spain did. Interest rates in Germany were not appropriate for Spain. The result was a Spanish housing bubble of epic proportion that has now collapsed. One interest rate policy simply does not work. For further discussion, please see ECB's "One Size Fits Germany" Policy; Rate Hikes to Stress PIIGS Compounding Spain's misery, Trichet has embarked on a rate-hiking campaign at the worst possible time, with Spanish unemployment in excess of 20%, and youth unemployment near 40%. Housing Market Nonsense Note that Lachman also blames US banks for the housing bubble. "It was like the U.S. housing market." Both American and European banks went overboard in relaxing credit standards. That too is nonsense in that it does not place the blame where it belongs, on the Fed. The Fed held interest rates too low, too long. Money was too loose, banks lent. Blaming banks for lending when real interest rates are hugely negative is tantamount to placing a bottle of vodka in front of an alcoholic, telling the alcoholic it is the best vodka in the whole world, then blaming the alcoholic for what happens next. Fed is the Problem Not only did the Fed hold interest rates too low, too long, the Greenspan Fed endorsed derivatives, subprime loans, and adjustable rate mortgages. Meanwhile Bush was praising the "Ownership Society" and Barney Frank was in the back pocket of Fannie Mae and Freddie Mac. Ben Bernanke was totally clueless, in complete denial about the bubble, going so far as to say home prices were "based on fundamentals". None what has transpired has had remotely anything to do with the failure of the free markets. We have a failure of regulation, not a failure to regulate. Lachman, like Bernanke, really needs to get a clue. You cannot fix a problem until you understand what the problem is. Unfortunately, politicians and economists in both the US and Europe are still in denial. Statements by those blaming markets instead of politicians and the Fed, do not help. Addendum: The biggest failure of regulation was the very creation of the the Fed. That should be be obvious but the sad state of affairs in regards to economic understanding says I need to spell it out. Those screaming about the free market need to answer this question: Could the free market possibly have done any worse the serial bubble-blowing moral-hazard policies of the Fed? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 30 May 2011 08:24 AM PDT Here is a pair of stories from the Los Angeles Times regarding still more protests. This time in Morocco and Kuwait. Morocco Antigovernment protesters clash with police Thousands of demonstrators Sunday took to the streets of Casablanca, the country's largest city, in an antigovernment protest police struggled to disperse, driving into the crowd on motorcycles, armed with clubs.Protesters in Casablanca Moroccan Police Battle Crowds The LA Times credits the videos to well-known blogger named "Mamfakinch" (which roughly translates as "We won't give up"). Kuwait 2,000 rally to demand resignation of embattled prime minister Pressure is building on Kuwait's embattled Prime Minister Sheikh Nasser Mohammad Ahmad Sabah, who has come under fire for refusing to be questioned in parliament for allegedly misusing public funds, among other accusations.Much of the world is simmering from high unemployment, corruption, rising food prices, and austerity programs. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
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