Mish's Global Economic Trend Analysis |
- Japan's Debt Disaster and China’s Non-Rebalancing Act: Economic Toxic Brew Portends Currency Crisis
- Brussels Presses Spain for Budget Details on How Spain Will Reduce Deficit to 3% of GDP; Threatens 2 Billion Euros Fine
- Sarkozy Threatens to Limit Immigration, Delivers Ultimatum to EU, Proposes "Buy European Act"; Help Wanted, French Citizens Only
Japan's Debt Disaster and China’s Non-Rebalancing Act: Economic Toxic Brew Portends Currency Crisis Posted: 12 Mar 2012 02:02 PM PDT Every country in the world understands the need for global trade rebalancing. Yet, politicians have done nothing but take stances that mathematically cannot work. Mathematical Impossibilities
In all four situations above, I have described situations that are mathematically impossible, not just unlikely. Bug in Search of Windshield With the world's worst demographics, Japan has no politically acceptable solution to its trade imbalance problem. Japan is a "bug in search of a windshield" as writer John Mauldin puts it. Global Trade Imbalances Poised to Worsen With the above principles in mind, please consider a few snips from an email from Michael Pettis at China Financial Markets regarding "Japan's Debt Disaster and China's Non-Rebalancing Act". China's current account surplus has declined sharply from its peak of roughly 10% of GDP in the 2007-2008 period to probably just under 4% of GDP last year. Over the next two years the forecast is, depending on who you talk to, either that it will rise significantly, or that it will decline to zero and perhaps even run into deficit. The Ministry of Commerce has argued the latter and the World Bank the former.This Isn't Going to Work Pettis concludes with "Needless to say this isn't going to work. The 'good news' is that if this conflict leads to much slower global growth, as it certainly will, the resulting reduction in commodity prices, including oil, will help absorb some of the changes in the trade imbalances as commodity exporting countries see their exports fall sharply. But I don't see much other relief." That bit of "good news" is certainly not good news for the commodity exporting countries like Australia, Canada, and Brazil all of which have their own problems, especially Australia and Canada with enormous property bubbles. Moreover, Europe is an absolute basket case. Greece, Portugal, and Spain are in economic "depressions". Expect European balance of trade problems to worsen until those countries exit the eurozone. Unfortunately career politicians like German Chancellor Angela Merkel have bet their reputations on preserving the impossible. Eventually, Germany is going to pay an enormous price for European imbalances and ECB president Mario Draghi's LTRO program, now hailed as an enormous success, is likely to be viewed as anything but success when countries exit the eurozone piecemeal down the road. Economic Toxic Brew Portends Currency Crisis As I said upfront, every country in the world understands the need for global trade rebalancing. Yet, politicians have done nothing but take stances that mathematically cannot work, some of which are likely to further exacerbate the problems. This economic toxic brew will simmer until the pot explodes in a massive currency crisis at some unknown point down the road. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 12 Mar 2012 10:37 AM PDT EMU officials in Brussels want to see specific details on how Spain will reduce its budget deficit to 3% of GDP in 2013. Given Spain's 2011 deficit was 8.5% of GDP, EMU officials do not believe Spain can meet a goal of 3%, nor should anyone else. The targets will not be met. Moreover, some in Brussels accuse Spain of artificially inflating the 2011 deficit so as to better meet its interim target. Those are contradictory accusations actually. If the deficit is artificially inflated, it should be easier to make the targets. Should Spain come up with the numbers to show it can hit a 3% target in 2013, then the EMU bureaucrats may give Spain some leeway on the dates and interim targets. Otherwise Brussels threatens to fine Spain .2% of GDP, roughly 2 billion euros. From El Economista via Google Translate: Brussels Presses Spain for Budget Cut Details The finance ministers of the eurozone on Monday asked the Spanish representative, Luis de Guindos, to announce all the cuts and adjustments Spain will make in budgets this year and next to reduce the deficit from 8.5% in 2011 to 3% in 2013.Spanish unemployment exceeds 23% with youth unemployment at 49%. Austerity measures to further reduce the budget deficit from 8.5% to 3% over two years simply are not realistic. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
Posted: 12 Mar 2012 12:39 AM PDT French President Nicolas Sarkozy delivered an ultimatum to the EU on immigration, complete with a "Buy European Act" and a threat to suspend the Schengen Agreement that allows passport-free travel among 25 European nations. Hollow Threat for Political Reasons or the Real Deal? Given how badly Sarkozy trails in recent polls to challenger François Hollande, it's difficult to know for sure if this is some political stunt to revitalize his sinking chances, or if he has really turned isolationist. Please consider Sarkozy Threatens to Exit Schengen Agreement. French President Nicolas Sarkozy delivered a stern ultimatum to the European Union at an election rally Sunday, saying he will withdraw France from the Schengen accords, which allow free circulation within most of the bloc's borders, unless the E.U. hardens its immigration policy.To help translate what Sarkozy is really saying, please consider the following map of the Schengen Agreement area. Schengen Agreement Countries "Buy France" That pretty much looks like Europe to me, minus the UK, Ireland, and trade-insignificant Eastern Europe. Thus, my take is Sarkozy is really saying is "Buy France". How well does that bode for the survival of the Eurozone? One of the major weaknesses of the EMU, aside from the all-important lack of a fiscal union is language barriers. To help understand the significance, compare California to Greece. In the United States, someone in California can easily move and take a job in Texas or seek better opportunities in any of 50 states. However, it's safe to say the average Greek does not speak Finnish, German, and French even if the average person is multilingual. For someone in Greece seeking better opportunities elsewhere in the Eurozone, linguistic barriers are monumental. So are cultural barriers, and so are issues related to national pride. Help Wanted, French Citizens Only Sarkozy, has now threatened to take those already huge difficulties one step further with a policy that is tantamount to "Help Wanted, French Citizens Only". These are exactly the kinds of disputes that ensure that the eurozone as constructed cannot possibly survive. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List |
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