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The Pain in Spain is too Big to be Contained
The Pain in Spain is too Big to be Contained
Courtesy of Phil of Phil's Stock World
Depression.
Not the Economy (yet) but how I feel so far in my weekend reading. Even John Mauldin, who went against his wishes to ignore Spain this week, now echos my thoughts on the subject in an excellent overview of the situation. Russ Winter has a similar view in "Bernanke and Germany Wake up to a Merda Storm," and Mish discusses Spain's emergency ban on cash transactions exceeding 2,500 Euros in an effort to clamp down on tax evaders and stop the rapid flow of money out of the country as well as the massive jump in Bank of Spain borrowing from the ECB.
Spain (#12 Economy in the World) has gotten so bad, so fast that it has made us forget Italy (#8) and we're all ignoring France (#5), which is about to have its third revolution in just over 200 years as Socialist Francois Hollande is leading in the polls by 2.5% ahead of next weekend's election.
That's right, in France they hold elections on weekends because they actually WANT their people to participate in the Democratic process - how quaint!
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This is just the first round that eliminates the also-rans - the major election is Sunday, May 6.
By the way, the #3 contender, with 14% of the vote, is Marine Le Pen of the far-right National Front Party, who advocates Nationalization of Banks as well as clamping down on the "Muslim Problem." It should be noted that the far right of France would still be considered the Left by Fox news and the GOP.
I'm not the only guy who is depressed by all this. Last week we were focused on one man in Greece who publicly committed suicide, which rallied the masses in Athens. Meanwhile, it's really an epidemic in Europe, with suicide rates up 24% in Greece, 16% in Ireland and over 15% in the overall EU, and climbing rapidly according to the Lancet Study, which finds a direct correlation between unemployment and suicides.
“Financial crisis puts the lives of ordinary people at risk, but much more dangerous is when there are radical cuts to social protection,” said David Stuckler, a sociologist at the University of Cambridge, "Austerity can turn a crisis into an epidemic.”
"Radical cuts to social protection" is, of course, the GOP platform in 2012 - so we have that to look forward to if America takes another step to the right this fall. National legislation in Italy aimed at curbing public spending has caused state and local administrations to rack up billions of dollars in outstanding bills with creditors, putting a squeeze on many small businesses.
“That is the madness of this crisis, that people kill themselves because they haven’t been paid by public institutions,” said Massimo Nardin, a spokesman for the Padua Chamber of Commerce.
On average, government agencies pay their bills within 180 days, but in the public health sector that can stretch to two or three years, one of the worst records in Europe, says Marco Beltrandi, a lawmaker from the Radical Party. He estimated the outstanding credit as between $118.3 billion and $131.5 billion. “Late payments were always the norm,” Mr. Beltrandi said, “but now it’s gotten out of hand. That’s why the problem has exploded.”
“This is a social malaise, we’re inside a tunnel and there’s no light at any end,” said Mr. Federico, whose union is starting a new foundation to assist victims of the economic crisis. “People don’t kill themselves just because they have debts,” Mr. Federico said, “it’s a combination of factors that lead to desperation. But what links all these situations ultimately is indifference, and lack of respect for the years of work that they’d done,” he said. “On some level, they must have felt that.”
“Work became the religion here, and over time it has weakened the family — because if all you do is work, work, work, you have little else to fall on when that fails,” said the Rev. Davide Schiavon.
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Nomura's Chief Economist, Richard Koo, knows something about long-term depressions as Japan prepares to enter its 3rd decade in the hole. He did a presentation on the Global Balance-Sheet Recession and what, if anything, the US can learn from Japan's experience.
Last Summer, the Nation had a great article titled "How America Could Collapse" in which Matt Stoller, of the Roosevelt Institute, points out that our interconnected Global Economy makes us especially vulnerable to supply chain shocks - something we've seen played out through various natural disasters in the past few years but what happens when last year's Arab Spring becomes this year's EU riots?
Andy Grove, co-founder of Intel, has made the case that America needs to be building things here, investing here and manufacturing here. We need the know-how and the ecosystem of innovation. The more corporate America seeks to push production risk off the balance sheet onto an increasingly fragile global supply chain, the more it seeks to wound the state so there is no body that can constrain its worst impulses, the more likely we will see a truly devastating Lehman-style industrial supply shock.
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There’s a good amount of grumbling about the state of American infrastructure—collapsing bridges, high-speed rail, etc. But American infrastructure is not just about public goods, it’s about how the corporations that enforce, inform and organize economic activity are themselves organized. Are they doing productive research? Are they spreading knowledge and know-how to people who will use it responsibly? Are they creating prosperity or extracting wealth using raw power? And most importantly, are they contributing to the robustness of our society, such that we can survive and thrive in the normal course of emergencies?
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The answer to all of these questions right now is “no.” And while this may not be hitting the elite segments of the economy right now, there will be no escape from a flu pandemic or significant food shortage.
Richard Russell, author of the Dow Theory Letters pulls no punches in predicting that the "Fiat Money System Will Collapse" with a real doom and gloom outlook. What I find amusing about that is how often Dow Theory has been quoted recently to justify the rally while Russell's dire warnings about how HE reads the situation are completely ignored.
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crises should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” Ludwig Von Mises in Human Action
In "Fiat Money and Collective Corruption" presented to the Mises Circle in Manhattan, Polleit said that the masses allow this process by succumbing to false promises:
By virtue of their connection with definite parties and pressure groups, eager to acquire special privileges, [court intellectuals] become one sided. They shut their eyes to the [long term] consequences of the policies they are advocating.
With them nothing counts but the short run concern of the group they are serving. The ultimate aim of their efforts is to make their clients suffer at the expense of other people. The belief that a sound monetary system can once again be attained without making substantial changes in economic policy is a serious error. What is needed first and foremost is to renounce all inflationist fallacies. This renunciation cannot last, however, if it is not firmly grounded on a full and complete divorce of ideology from all imperialist, militarist, protectionist, statist, and socialist ideas.
Despite Cramer's foaming at the mouth to buy all things China, even TheStreet.com had a post this week under their "guest contributor program" outlining "China's Demographic Challenge" which points out that Japan - a country that now buys more Depends than diapers, is only slightly ahead of the curve China is following.
That is going to be exacerbated by China's long-standing "One Child" policy which means that, for the next 20 years, the average working couple must take care of themselves, their baby and four retired parents as China has no long-term retirement programs or health care and most adults over 50 have no college education and few marketable skills in the new economy.
The question remains, "What will be the impact of the one-child policy on China?" How will reduced consumer spending affect economic growth? What will happen when filial obligations overwhelm family budgets; will couples claim "bankruptcy" and walk away? And what are the social implications of having three married couples living under one roof; or six people raising one child?
Clearly, we have our own problems here in the US and we're under a much closer gun as we are only 8 months away from what the NY Times warns is the coming "Taxmageddon," as both the Bush tax cuts and the Obama stimulus expire on December 31st and the Federal tax bill for a typical Middle-Class family, making about $50,000 a year jumps by $1,750.
Even without accounting for rising local and state taxes that are on the books for over 80% of the country in July, this will snap after-tax income all the way back to 1998 levels! Don't worry though, the top 0.1% will still be paying less than 1/2 of what they paid pre-Reagan:
It's hard to solve problems when you pretend they don't exist. As we've discussed many times - it's not really about the top 0.1% PEOPLE in our nation - although something as unfair as the chart above, by itself, should be enough to have the bottom 99.9% taking to the streets.... It's our Corporate Citizens who are the real criminals here. Their share of taxes paid has dropped from 50% of the US tax base to 10% over the same time frame.
It's all good for the investing class because we can share the wealth with our Corporate Masters but God help you if you are unfortunate enough to work for a living - especially in the kind of job that can be either automated or outsourced to the lowest bidder - better stock up on Depends now - while you can still afford them!
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...the Yellow Brick Road to a Free market is to rid ourselves of the monopoly on money by binning the monopoly institution called Govt...
premise check time Zero! One of the slickest ways that the Kriminal Kartel uses to keep all opposition ineffective is to encourage conflation of the terms "state" and "government." In this way dissent is always steered away from questioning the monopolization of power by the 'professional' caste...the lawyer, financier, physician network that binds the plebians into an interlocking framework of (il)legal debt and depressive collusion with their own destruction.
"Government" of some form or fashion is an inevitable corollary of any social network - even within the basic unit of family there is a neccesity of government...the distribution of power, roles and duties...which throughout history the usual suspects have succeeded in confusing with 'the state' - an institutionalization of dynamic systems designed to benefit the few at the expense of the many.
Anti-statists need to revisit this distinction in order to have any hope of winning hearts n minds to the vision of reordering society...since you are a fan of Martin, check his latest out for a good insight into the way power was employed by the interlocking statist parasite class re currency and his practical suggestion about barring anyone who has ever held public office from the judiciary.
That true definition looks more like a post theft definition.
Ah, US citizens, now that they have robbed everything, they want to maintain the status quo at all costs.
Tax rates fall and gubmint borrowing soars to fill the gap, nice rememdy, til it stops working. Look out below.
And the fact that they want to quit on the 500 euro bill because that note is mainly used in money laundring in Spain and by banning it all that money would need to surface...
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I had not heard that Sudden, them wanting to ban the 500 euro bill. That is one thing Europe got right!
I join you in throwing your hands up and down and screaming....
Ilene/Phil or whoever you are. Do you seriously mean to assert that it is "fair" or desirable that the government takes 44, 60 or 70% of the marginal income of anyone? It seems to me that the numbers as they currently stand are about maxed out from a "what they should be" perspective. Actually, in my opinion they should be even lower. I WOULD agree though that income is income is income and that income from whatever source should be taxed at the same rates. Meaning that capital gains "SHOULD" (note the normative) be taxed at the same rate as income from other sources. I see no principled reason that income derived from capital should be taxed at a different rate than income earned from labor. Capital losses would then need to be able to be taken immediately (some issues there but probably soultions). And rates low. On corporate taxes, either you do not tax them at all but you tax dividends to the individuals who earn them, or you tax the corporation and not the dividends (much less clean). I never have understood anyone who thinks that taking 40, 50, 60, 70 percent or more is acceptable in any way.
Those tax rates are supposed discourage over compensation. However, these days the bulk of tax avoidance is through stock options and other schemes. So, in essence in today's world, the direct salary tax rates would be ineffective in reigning in over compensation which doesn't reflect true value of some honcho but what a board of directors feel like paying themselves. Kind of like politicians voting their pay increases irregardless of the damage they do to the country.
"Goldman Sachs Group Inc. awarded Chairman and Chief Executive Officer Lloyd C. Blankfein $12.4 million in compensation for 2011, down 35 percent from a year earlier, as the firm’s profit and stock fell.
Blankfein’s pay included a $3 million cash bonus, $7 million in restricted stock, $2 million in salary and $449,600 in other benefits, according to a proxy statement today from the New York-based firm. Last year it granted him $19.1 million, including $5.4 million in cash, $12.6 million in restricted stock, a $600,000 salary and $464,100 in benefits for 2010."
Blankfein's 2 million dollar salary is just walking around money for the year, his real compensation is thru the other schemes taxed at roughly the 15% capital gains rate. I have been taxed at 38% before but never made the money these guys are pulling in but, unfortunately for me, I didn't have the tax avoidance schemes thru stock options like they do, I had to actually work to earn the compensation and get taxed at the prevailing rate. I wasn't distraught about the tax rate I paid, I was distraught about the guys above made so much more than I did, all thru massive stock option awards, that my pay was nothing in comparison.... and I watched them damage the company at every turn while laughing all the way to the bank. They paid a 15% tax rate for the majority of their real compensation... like I said..their direct compensation was just walking around money to bide their time till they cashed out their options.
You don't get it. The easiest thing in the world is to demand other people's money simply because they have it and you want it. They've even turned it into a moral crusade no matter how incongruous the idea of taking someone's wealth and giving it to someone else because it makes you feel nice and fuzzy.
Those who never stop and consider where it all comes from - medicines, clothes, IPADs, paint, new ideas, etc - think (the president) that the purpose of business is to "help" people and pay taxes to those who despise the business world.
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Unemployment in Europe is a state-made problem. Too much urbanisation, too many rules, not enough training and education in practical or industrial skills, too much tax, not enough cheap space and low rents.
What Europe needs is to set its young people free.
Look at what happened in Tunisia. Bouazizi didn't self-immolate because he was poor and his family needed feeding; he self-immolated because what he was trying to do to solve the problem for himself -- sell fruit and veg -- got wiped out because he needed a license.
This kind of problem is enormous in Europe. Almost everything is entirely sewn up in one way or another, or the start up costs adn regulations are so prohibitive or complex that it is a losing battle as soon as you have begun.
How many jobs lost since the demise of the tunisian tyrant? Any data on that?
Finally, someone talking sense in a sea of nonsense!
I would recommend that all the talking heads like Wolf "Rabid" Richter whose serial schtick is to denigrate the victims(!?!?!) of the Euro-fascist experiment rather than point to the real problem be sentenced to mandatory time trying to make a living as fruit peddlers or some other position in the real economy - and thus find out what it is like to be prey rather than parasite!
For an interesing insight into how this bureaucratic big brother bullshit plays out in real time see: http://www.setimes.com/cocoon/setimes/xhtml/en_GB/features/setimes/featu... ...stuff that in yur drainpipe n smoke it Wolfie!
Right! It's not all about money - it's about ideas. But I seriously doubt that the youth in Europe consider the marketplace as the source of creation. Almost all are stuck in socialist / State "solutions" to the problem. I mean, Jesus, you got several states on the verge of bankruptcy and the electorate is voting for candidates who vow to spend more. If they don't see reality now when will they ever notice?
The article decries a possible "cut of the social net" by the GOP but it is precisely the avalanche of social spending via political promises that has us in the current situation. Again, it's ideas and (to quote RP) it's more about the proper role of government viz a viz individuals than it is about specific policies.
You must realize that this is coming from Phil...he has not changed his slant on things a bit.
"That's right, in France they hold elections on weekends because they actually WANT their people to participate in the Democratic process - how quaint! "
Had me in stiches. Otherwise nice recap. Looking forward to this coming week. Better than any Hollywood thriller.
Incomprehensible that any central banking system would ever even be allowed to exist
What is not sustainable must come to an end
Interest is unpayable because they only print the principle
Printing money is the same as robbing a bank
Therefore all governments are a ponzi scam, their only motive is to steal from the people
Buy Precious Metals, never borrow paper money and avoid using paper money at all costs
Don't encourage the bastards
They only exist because we enable them
EVOLVE PEOPLE! USE YOUR BRAINS! YOU CAN DO IT!
Typically one of three things are required for change to come about in a society.
1) The current order collapses causing a power vacuum.
2) An issue alienates a powerful segment of the political class causing formation of a true opposition.
3) The masses face starvation and revolt at large as we have seen in the Arab Spring and the French Revolution.
None of these have occurred within the developed world, thus, the status quo continues on. Someday when the system continues to crumble, one requirement will met and change will truly begin. When?
Nice rehash of current economic trends and the dismal situation in Spain. About voting on weekends - with absentee, early, computer, mail and (alas) standing-in-line voting there should be ZERO excuse for not exercising your civic duty. Besides, I don't see how it benefitted Europe. They still elected a bunch of losers who promised them the world and delivered a rotten apple.
Glad to see the note on demographics - the most powerful factor in economics. The one child policy explains why India is set to bypass China in a couple of decades. The one child policy has reduced three generations from an average of 34 to 3 and demographers note that in the next few decades China will lose almost 500 million people.
The pain in Spain’s a bane that won’t soon wane.
Armada anyone?
Fascinating report on what may be the radical EU solution, given the impossibility of bailing out Spain and Italy, from Bruce Krasting here on ZeroHedge.
From Bruce's talk with a French-government related source in Paris, what may happen is the wealthier EU countries, guarantee to cover interest payments and trade deficits for countries like Spain, Italy, Portugal and Ireland ... but NOT bond rollovers.
Instead of repayment of principal, bondholders get 3-year new bonds at EU-determined yield rates, rolled over indefinitely ... yes, technically a 'default' ... and 'breaking' the EU bond market ... but as it seems to be essentially already broken anyway ...
http://www.zerohedge.com/contributed/2012-15-12/three-conversations
so bankrupt EU contries going 'interest only' is a "radical solution" ???
did interest only work with housing debt?
Fuk me if the lunatics haven't already taken over the asylum
Refrain: Spain's insane!
Depends stockpiled - ready for shitstorm...
Illinois / Chicago has as much unpaid billions. But those that don't get paid on time just buy more blow from west Chicago and continue to cycle the black market money flow back to the whore representatives that won't pay on time.
Suicide? There the Chicago river for that.
Mayor Rahm Emanuel
Technocrat installed on May 16th 2011. Takes a couple of years before they siphon all the valuables out. Give it a little longer.
http://truth-out.org/news/item/8516-in-barcelona-austerity-with-an-iron-...