| Denial is Everywhere (About Increasingly Important Things!) Posted: 21 Mar 2013 04:09 PM PDT Denial is Everywhere Not only is denial everywhere, the denials are about increasingly important things. I offer three recent examples: - A former Japanese central bank official says "The Positive Impact of the Declining Yen Has Yet to be Seen"
- Regarding Cyprus, all the eurozone nannycrats say "Not Me!" as Capital Controls Placed with Banks Closed Until Tuesday. Click on the link to see the Best that can happen now.
- The French newspaper Le Monde has a "Idea Headline" that states "No, France is Not Bankrupt".
In regards to France not being bankrupt, I beg to differ. In actuality, the entire global financial system is bankrupt. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Hope vs. Reality; Eurozone Downturn Intensifies, Led by Sharpest Drop in French Private Sector Output in Four Years Posted: 21 Mar 2013 12:18 PM PDT There are few sure bets economically speaking (especially if one has to put a timeframe on them), but some things come close. One easy call was for a continued implosion in France. Sure enough the Markit Flash France PMI shows Sharpest fall in French private sector output for four years. Key points:
- Flash France Composite Output Index posts 42.1 (43.1 in February), 4-year low
- Flash France Services Activity Index drops to 41.9 (43.7 in February), 49-month low
- Flash France Manufacturing PMI unchanged at 43.9
- Flash France Manufacturing Output Index rises to 42.8 (41.8 in February), 3-month high
Summary:
Private sector firms in France reported a further steep decline in output during March. Moreover, the rate of contraction accelerated to the sharpest in four years. This was signalled by the Markit Flash France Composite Output Index, based on around 85% of normal monthly survey replies, falling from 43.1 in February, to 42.1.
Dragging the composite figure down was a faster decline in service sector business activity during March. The latest fall was the steepest since February 2009. Manufacturing output was also down markedly, but the pace of decline eased slightly to the slowest in three months. Incoming new business also decreased at a sharper rate in March. Mirroring the trend seen for activity, the latest reduction in new work was the fastest in four years.
Employment in the French private sector fell further during March. The pace of job shedding remained solid, despite moderating to the slowest in three months. Job losses were broad-based across services and manufacturing, and at similar rates. France Economic Activity vs. GDP  Care to guess where French GDP is headed? France Drags Eurozone Lower The Markit Flash Eurozone PMI shows Eurozone downturn intensifies for second month running in March. Key Points:
- Flash Eurozone PMI Composite Output Index at 46.5 (47.9 in February). Four-month low.
- Flash Eurozone Services PMI Activity Index at 46.5 (47.9 in February). Five-month low.
- Flash Eurozone Manufacturing PMI at 46.6 47.9 in February). Three-month low.
- Flash Eurozone Manufacturing PMI Output Index at 46.5 (47.8 in February). Three-month low.
Summary:
The Markit Eurozone PMI ® Composite Output Index fell from 47.9 in February to 46.5 in March, according to the flash estimate. The decline signalled an acceleration in the rate of contraction of business activity for the second consecutive month to the steepest experienced for four months. With the exception of a marginal increase in January of last year, business activity has fallen continually since September 2011.
Manufacturing output fell in March at the fastest rate since December, while business activity in the service sector suffered the steepest decline since October. Companies also reported that new business levels fell at the strongest rate for three months, dropping at the fastest rates since December and September in manufacturing and services respectively.
Employment fell for the fifteenth successive month, reflecting the need to reduce capacity in line with the ongoing deterioration in inflows of new orders and a further marked decline in backlogs of uncompleted orders.
Comments:
Commenting on the flash PMI data, Chris Williamson, Chief Economist at Markit said:
"Instead of the eurozone economy stabilising in the second quarter, as many – including the ECB – have been hoping to see, the downturn could therefore intensify in coming months. ... France saw the steepest downturn in business activity since March 2009, rounding off the worst quarter for four years, while Germany looks set to have enjoyed reasonable if unspectacular growth. However, even Germany showed worrying signs of growth fading in March, driven by a return to contraction of its manufacturing sector." Hope vs. Reality Markit economist Chris Williamson wrote " Instead of the eurozone economy stabilising in the second quarter, as many – including the ECB – have been hoping to see ..." We now know the rest of the story, but the story was easy to predict in advance. Illusions of Stabilization It was not only the ECB who was "hoping", but also Markit economist Chris Williamson. Flashback, February 7, 2013: Illusions of Stabilization In Germany Rebounds but ... I noted a recovery "of sorts" in Germany, a contraction in France at the steepest rate in four years, and a record decrease in services employment in Italy.
Thus, it should be no surprise to see the Markit Eurozone Composite PMI® shows national divergence hits record high.
Yet, in aggregate, the eurozone contraction decelerated with the eurozone composite PMI rising from 47.2 to 48.6.
So, what's it all mean?
Chris Williamson, Chief Economist at Markit offered this interpretation: "The eurozone is showing clear signs of healing, with the downturn easing sharply in January and the region moving closer to stabilisation in the first quarter. ...."
No Signs of Healing
I disagree with Williamson. Those divergences show the eurozone is getting sicker, not healing.
If there was any healing, and certainly if there was any rebalancing, manufacturing and export growth would be picking up in Spain, in Italy, and in France at the expense of Germany.
A quick check of the Markit Eurozone Manufacturing PMI will show that is not what's happening.
Illusion of Eurozone Stabilization
There is no real stabilization and there is no healing. Rather, the policies of Hollande are so disastrous that some output has shifted to Germany and elsewhere, (coupled perhaps with some inventory replenishment and a temporary stimulus-fueled increase in demand in Asia).
Properly rebalancing will require a shift in production from Germany to the rest of Europe as well as a shift towards more consumption in Germany from the rest of Europe. That cannot and will not happen with the destructive polices of Hollande, and the lack of reforms in Spain and Italy.
Moreover, and as I have noted on many occasions, the entire Euro construct is flawed. Until those flaws are fixed, there is only the illusion of stabilization, and that based on more unbalanced growth.
The only thing that has stabilized (for now) is interest rates, and even that won't last. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Le Monde Headline "No, France is Not Bankrupt" Posted: 21 Mar 2013 09:47 AM PDT This amusing headline story by Bruno Moschetto, a professor of economics at the University of Paris in the French newspaper Le Monde has me laughing out loud this morning: " No, France is Not Bankrupt" No, France is not bankrupt ... The claim is untrue economically and financially. France is not and will not bankrupt because it would then be in a state of insolvency.
A state cannot be bankrupt, in its own currency to foreigners and residents since the latter would be invited to meet its debt by an immediate increase in taxation.
In abstract, the state is its citizens, and the citizens are the guarantors of obligations of the State.
In the final analysis, "the state is us." To be in a state of suspension of payments, a state would have to be indebted in a foreign currency, unable to deal with foreign currency liabilities in that currency. Economic Illiteracy Economic illiteracy is nearly everywhere you look and that article is a prime example. Bruno Moschetto suggests France is not bankrupt because the state is not indebted in a foreign currency. Actually, France does have its debts in a foreign currency, euros. Note that France cannot print euros at will to pay its debts (the very essence of a foreign currency). Moschetto says citizens would be "invited" to help France meet its obligations. Invited? The same way citizens of Cyprus were "invited" to bail out Cypriot banks? The ability to tax citizens to death to bail out the state is hardly a reasonable measure of non-bankruptcy. I suggest having to confiscate the wealth and savings of citizens to bail out the state is proof of bankruptcy. Greece is a nice example. Hollande has tried 75% taxation. He has tried government takeover or threats of takeover of various auto manufacturers. Hollande also seeks financial transaction taxes. Many French citizens have had enough of Hollande and his socialist policies and have fled to Belgium, the UK, and Switzerland. The French economy is imploding as I type. Thought of the Day France is Bankrupt, and it is the policies of socialist fools that put France in that state. The thought of the day comes from reader "PTCruiser" who chimed in with " Aujourd'hui, la France. Demain, le monde entier."... Today France, tomorrow, the world! Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Note: Some ATT users (not a fault of ATT) received timeouts on my " Wine Country Conference" link (see below). If you were one of them, please try again. The problem has been fixed. Wine Country Conference I am hosting an economic conference on April 5 in Sonoma, California. Proceeds go to the Les Turner ALS Foundation (Lou Gehrig's Disease). Please see My Wife Joanne Has Passed Away; Stop and Smell the Lilacs for my association with the disease. To learn about the economic conference with world-class speakers including John Hussman, Michael Pettis, Jim Chanos, John Mauldin, Mike "Mish" Shedlock, Chris Martenson with guest moderator Lauren Lyster and other Special Guests, please visit Wine Country Conference April 5, 2013 |
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