Alasdair Macleod: Europe Is In Worse Shape Than Everyone Thinks

Tyler Durden's picture

Submitted by Adam Taggart of Peak Prosperity blog,

From his perch in the United Kingdom, Alasdair Macleod provides an update on the ongoing economic crisis in Europe, which -- while largely absent from headlines in the US of late -- continues to worsen.

Due to bloated state-run programs and extreme malinvestment, EU governments find themselves in a box. Economic growth has stalled, and no amount of intervention seems able to get it going again. So in order to keep their economies moving forward, they are becoming increasingly rapacious in extorting tax revenues from wherever they can find them.

This, of course, is strangling the private sector  -- on which the government is counting on to grow the EU out of its recession (or depression, depending on which country in which you live). And so a vicious cycle ensues. Growing taxation reduces economic activity, unemployment worsens, the wealthy expatriate -- all leading to a declining income base to tax, and growing civil unrest.

These are desperate times. And the EU governments are taking increasingly desperate, and reckless, measures:

The Keynesians don’t understand why the growth isn’t there. They are very, very disappointed. And of course, their response is, the economy is not flourishing. You have to stimulate the economy more. The fact of the matter is that the average government size in the economy in the Eurozone is 50%. So 50% of every transaction is government.

 

Now that only leaves the private sector of 50%. The private sector, when it comes to recovering (recovery?), is carrying a huge weighted burden on its back. That burden is trying to tax the private sector horse who's carrying it. The tax burden is so great, the way in which they are doing it in most of these countries is that they are trying to preserve the public sector ,and they are trying to get the private sector to pay for it. The result is that there is no way there is going to be any growth at all.

 

If you look at countries like Spain, for example -- which has come out of this massive property bubble that's really been the reason for its downfall -- the property bubble has not unwound at all. You've got huge great levels of malinvestment, misdirection of funds in the wrong direction, the market has changed, people don’t want it anymore, and the market has got to adapt. And taxes are not going to be forthcoming until it has happened.

 

Unfortunately, governments have gotten themselves stuck into this position where they are not prepared to cut their spending enough. They think they can get taxes by taxing the rich, ratcheting up the taxes on anyone who you think has got any money -- but then people avoid it. Like in France, they just go abroad. It is that bad.

 

We are not seeing any recovery. The burden on private sector is far too great for that recovery to occur. Not only that, but the economies in the Eurozone are angled towards the wrong production. It is a huge great burden of malinvestment that needs to be addressed. You are not going to get any meaningful economic recovery without that slump happening.

 

Given that the slump is going to happens, you’ve got a choice: Either you get it over and done with and get it done quickly, or you have financial repression in the hope that over a long period of time something will turn up. Really, they are going for the latter rather than the former. But I don’t think they have got that much time. One of the things which Europe really does have a problem with is pension costs and the cost of health care for the elderly and all the rest of it. You think it is expensive in America; it is twice as expensive in Europe, on average. 

Click the play button below to listen to Chris' interview with Alasdair Macleod (49m:35s):

 

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lolmao500's picture

But but but, liberals keep telling me that austerity is what is making Europe crash!! Europe's problem is that they are not spending enough!!

Pinto Currency's picture

It is not just big government but the whole concept of printing money / artificially lowering interest rates that cripple the economy.

http://seekingalpha.com/article/805311-the-consequences-of-financial-rep...

Search: Austrian economics, time preference, capital based macroeconomics

Acet's picture

Moral Hazard Bitchez!!!

The underlying problem with all of Europe (including UK), the US and Japan is that when people and companies in the private sector took too many risks and kept sinking more and more money into unproductive asset bubbles, the State and Central Banks intervened and saved them from the consequences of that behaviour.

Naturally, the end result of that intervention was even riskier behaviour and even stronger misallocation of capital and resources, at which point the State and Central Banks intervened again. So now we're at a stage where most of Europe, the US and Japan is a wasteland of misallocated capital, ever bigger asset bubbles, record levels of indebtness with most of the people engaging in behaviours which are either too risky (derivative and real-estate gambling) or parasitic in nature (chronic welfare dependence).

Unsurprisingly, the only growth we see is in centralisation and corruption.

The only solution for all this is to increase interest rates, let banks fail, let the housing market go bust and just do a debt jubilee in the style that Steven Keen suggested. Of course, this would go against the best interestes of the people that Alasdair Macleod is working for, those being the parasitic rich that amassed ever-increasing fortunes out of state-supported gambling, state subsidies and outright cronyism and corruption.

TBT or not TBT's picture

Central planners set up the incentives and conditions for boom bust cycles.   The private sector goes along with the incentives and of course some elements of the private sector do instrumentalize government and politicians to help these along.   Still, central planning action sets up the conditions and amplifies thesize of  next bubble/misalliocation boom during each bust, which is when they take more control, because it is a "crisis".   It ends in "fascism."

MisterMousePotato's picture

I did not watch the video (only read the squib), but what is the reason why Alasdair Macleod excluded the U.S. and its political subdivisions from his observations?

Crisismode's picture

Because he is talking about
Europe,

 

Not the US.

 

Read the copy before you post.

 

Crazed Smoker's picture

Because he was talking to an American.  It's a British thing.

Silver Bug's picture

Europe along with the whole western society is in worse shape than the general public thinks.

 

http://jimrickards.blogspot.ca/

Surrealist's picture

Hey V how you doing? ;-)

Imagine when austerity hits the United States? Will be interesting to see how the US populace swallows that bitter medicine.

 

lolmao500's picture

I think it'll involve lots of FSA rallies.

TBT or not TBT's picture

Some overlap with our low information voters and graduates of public k-12 schools.

mjcOH1's picture

"Imagine when austerity hits the United States? Will be interesting to see how the US populace swallows that bitter medicine."

"Who is John Galt? And why's he stealing all my EBT money?"

orez65's picture

Liberals, and I have them in my family, are in total and absolute denial.

They have been told by Obama that the economy is recovering and they 100% believe him.

It is absolutely mind bugling that educated people act like idiot savants.

So sad, but they are going to pay a big price for their idiocy!!

Crisismode's picture

It is time for you to find another family, sir.

These people you call relatives do you no credit.

Lose them and pursue your interests that will further you and your kin.

 

 

kliguy38's picture

Its pretty obvious that Europe is sinking rapidly as the streets are filling in many PIIGS with the "aware" but disillusioned....contrary to CNBS this is only the begining so send out your shills like Cabbrera but most of us are fully aware.

lolmao500's picture

Most people in the streets in PIIGS countries are part of the FSA (free shit army).

Acet's picture

As a Portuguese I can tell you that you have no clue what you're talking about!

Most of the money was wasted by corrupt politicians in huge. white elefant construction works (same in Spain) which were just conduits to pass money to well connected construction companies and to get kickbacks through the backdoor.

Now that austerity has come, still the priviledged elite remains untouched, with things like huge public pensions for politicians (which they could get with just 8 years of work in Parliement) or State funding for "foundations" controlled by said politicians untouched (all the while taxes increased for everybody else) and corrupt, cronyist and incompetent banks saved using taxpayers' money.

All this under fake Democracy, where votes, similarly to the US, are twisted into a farcical Parliement through the undemocratic, corrupt system know as Electoral Circles, where parties with 30% of the vote get Parliementary absolute majorities, so people feel powerless to change things, trapped between two equally corrupt choices and a corrupt, fixed votting system (which, by the way, was based on the UK and US ones)

Trust me, the one and only sin commited by those people on the streets is not having brought the guillotines out yet.

TBT or not TBT's picture

Rope is cheap and widely available.    Don't hamper your recovery with a made up need for elaborate 18th century french gizmos and related street theater.   Just Get R' Done.

onelight's picture

Well, Larry the Cable Guy says, "Git 'r done" but yeah it's pretty much the same idea ;)

TBT or not TBT's picture

They don't have much central air and heat over there, so not a lot of duct tape for sale.   They do have it, but it isn't ubiquitous, say, the way overindebted college grads are here, or shadow inventories of housing.

dtwn's picture

Do you think anything big will happen on or before the 25th of April?  I'm wondering if increased nationalism will lead to another bloodless coup?

JustObserving's picture

One of the things which Europe really does have a problem with is pension costs and the cost of health care for the elderly and all the rest of it. You think it is expensive in America; it is twice as expensive in Europe, on average

That is complete and utter BS.  US spends more on drugs than the rest of the world combined.

US health care spending per person is at least two times that of Europe.

Medicare runs out of money in just a few years.  Then we add $1 trillion a year to the deficit.

Medicare unfunded liabilties are currently $107 trillion.  And they increase $6 trillion a year.

Lay off that fine whiskey, Alasdair, before you do your podcasts.  Cheers.

css1971's picture

He was talking about proportionately, when you take demographics into account. i.e. the shit hasn't hit the fan in europe yet. There are more old people, there is higher unemployment. When the bill comes due it's going to be nasty.

MisterMousePotato's picture

Whether Europe or Zimbabwe or wherever is better or worse, the fact remains that we are on track in the United States to pay more money to 20 million public sector retirees – at an average pension of $65,000, we will pay these retirees $1.3 trillion per year - than we will be paying in social security to 80 million private sector retirees – at an average social security benefit of $15,000 per year that will cost less, about $1.2 trillion per year. Providing a level of retirement security to government workers that only the wealthiest 1% can enjoy in the private sector is not “protecting the middle class,” it is economic enslavement by government unions over the taxpayer.

And that is wrong irrespective of anything else going on anywhere else in the world. Especially when every such pension was procured through bribery and fraud.

Law97's picture

I'd like to see where you get your figures from.  Federal pensions (and we are talking federal-federal comparisons particularly since you brought up social security) are only $70 billion per year. I'm not saying there isn't waste and some pensioners receive far more than they deserve, but federal pensions are a drop in the bucket compared to other wasteful spending.  At least most of these pensioners did *something* over their lives to earn those benefits, like go fight on a couple of wars, for starters.

I'm not a government union shill, btw.  I'm just someone who feels compelled to stand against the divide-and-conquer strategy the government and elites are using against us.  That you have bought into the hype, shows that, unfortunately, it is working. The fact that you got any up arrows shows there are others on here that want to believe this kind of misinformation...confirmation bias anyone?  You were only off by an order of 17x or so on your pension estimate, so maybe I should cut you some slack.

 

An August 2012 report by USA Today:

"USA TODAY analyzed the Civil Service Retirement System database, obtained under a Freedom of Information Act request. The Office of Personnel Management withheld some information, including names, ages and length of service.

The records cover 1.9 million federal civilian pensions. Congress members were not included, nor were military retirees.

The average federal pension pays $32,824 annually. The average state and local government pension pays $24,373, Census data show. The average military pension is $22,492."

MisterMousePotato's picture

Here's the thing that analyses like yours overlook ...

Included in those numbers are a lot of 90-year-olds who retired back in, oh, i dunno? 1960?

Note that even using your numbers, which include pensions decades old (if not half a century old), show .gov.union benefits grossly exceeding those in the private sector and Social Security.

Law97's picture

Yes, I will grant you that government pensions are now larger than either the average private sector pension or social security check.  You are also saying, or implying, that those really old government pensions are bringing down the average.  But don't forget that federal pensions are COLA adjusted, so that $5,000 yearly pension in 1960, is probably $60,000/yr. today making the age of the pension irrelevant. 

MisterMousePotato's picture

When the City of Vallejo went bankrupt (a decade ago!), among other factoids that emerged was that the average(!) salary of a City of Vallejo cop was $120,000.

Cops retire earlier than everyone else because their jobs are so much more dangerous (a lie) and they die sooner due to blah (also a lie) at 80%.

In 20-30 years, you and others of your ilk will be back here saying, "Oh, but USA Today says that the average pension of a cop is just $90,000 per year."

Ugh.

Law97's picture

No argument with your point about California pensions.  They, along with New York and Illinois, primarily, got totally out of control with pensions back in the good years.  But that is California's problem (and hopefully not the rest of the country's problem when they come looking for a bailout). 

If we are talking about federal pensions, though, the problem is not nearly as bad.  Also interesting, is that military pensions are much smaller than regular civil service pensions.  Until I researched it, I would have assumed military pensions would have been higher than the actual $22,000/yr. which is well below the $32,000/yr. average of federal civil service pensions.

I will agree with you that some pensions, particularly those California police officer pensions, are grossly bloated.  My point was just that federal pensions are really not all that bad, and in the scheme of things hardly a drop in the bucket.  If we are going to go after wasteful federal government spending, we should start with the F-35 and other obscenely expensive and unnecessary weapons programs, quit our overseas military adverturism and footing the bill for the protection of Japan and western Europe, then move on to the various domestic welfare programs. 

Pensions, while somewhat wasteful, are far down the list in both size and wastefulness.  Plus, the vast majority of pension money gets put right back into the economy as spending.  Good debate!

MisterMousePotato's picture

It's not just cops. It's all of them. Lifeguards in Newport Beach ($200k). City managers in Bell.

There are lists of CalPers retirees making $100k a year. 40 per page. 1200 pages long (saw it some years back at the San Francisco Chronicle).

It's only gotten worse since then.

Remember, too, that CalPers is only one of three big .gov.union plans in California (and the second largest in terms of coverage).

Ordinary Chicago high school teachers making $632,000 a year. (Timothy Bouman - look it up. Probably an example of pension spiking, but ... .) Texas teachers taking a job for a single day as a whatever at another school district, so they suck an additional $15,000 a year out of (can't recall if it was Social Security or some other Texas fund).

They are all theiving, cheating, bribing, destroying, and lying, and collectively as bad as the banksters and the MIC.

Remember Frank Serpico? What was his crime?

Do you really think that there was even one LEO in Precinct ?? who didn't know what was going to happen to, was happening to, and/or what happened to Abner Louma?

Average salary of .fed.gov.union employee is now $132k? $156k? You think they retire at 20% pensions? Give me a break.

MisterMousePotato's picture

A couple things ...

First of all, I rewarded your courtesy poorly, and I apologize. You were civil and respectful, and I was not. I was wrong, and you deserved better. I'm sorry.

Second, I agree with you about the F-35, etc. I do not believe that the grotesque pensions, salaries, and perks paid to .gov.union are the only, or maybe even the worse, problem that the U.S. faces, but it is a serious, serious problem, something that is just a slap in the face to every businessman and working person in this country, and needs to be addressed dispositively.

MisterMousePotato's picture

Actually, I take it back. (Can I do that?)

You might be right about the F-35, etc., but anyone who defends the grotesque remuneration stolen by .gov.union through bribery and fraud is a dick.

The only good thing the U.S. government has ever done is to force wood stove manufacturers to comply with EPA Phase II requirements. (And even that was a mistake - they meant to do away with wood burning stoves altogether.)

Law97's picture

"anyone who defends the grotesque remuneration stolen by .gov.union through bribery and fraud is a dick."

I would agree.  However, not all federal pensions are "stolen through bribery and fraud." Many, if not not most, are earned through several decades of work (and admittedly water cooler talk, surfing the web, 2-hour lunches, etc., in many cases), and as the CBO will tell you, average $33K/yr. (or $22K for military retirees).  Hardley obscenely large and in most cases earned honestly.  The examples you cite are all state and local government pensions, although I'm sure if you researched you'd probably be able to find some large federal pensions as well.

So permit me to rephrase your argument and that you object to obscenely large pensions or pensions that are obtained through bribery and/or fraud.  In that case we agree!

MisterMousePotato's picture

Banks give 'campaign contributions' to politicians. Poof. Glass-Steigal goes away.

Conclusion? On Planet L97, after long and careful consideration and deliberation, the greatest legislative body in the history of the universe decided that G-S had outlived it purpose; in fact, it was probably holding back economic prosperity and growth for all.

Yeah. Right.

Public unions give 'campaign contributions' to politicians. Poof. Next thing you know, public union members (and their leadership) are all enjoying taxpayer-funded largess that private sector workers and small businessmen can only dream of.

Conclusion? Well, we need to pay a competitive sslary to attract the most qualified, blah, blah, blah. Besides, do you know what a City Manager in, oh, say, Bell, California makes?

(Seen any videos lately of the best and the brightest running around shooting dogs and pickup trucks at random in L.A.?)

For the past several decades, every public union contract has been the result of bribery and fraud, with no taxpayer representation at the table.

You're saying that fed pensions aren't grotesque; they're just twice as much as the private sector and SS. Huh!?! The fact that federal workers obtained (using your figures) pensions twice as large as those in the public sector is just simply, on the face of it, grotesque. That they were obtained in exchange for giving politicians money makes it even worse. And finally, do you really believe that anyone (anyone at all) is retiring from 40 years of service with the feral government in his or her sixties (today), and receiving just $30k as their pension?

Give me a break.

Quick's picture

CONgress and military were not included in your figures. Just CONgress could skew the figures the 17x or so you complain about.

You must be a federal pensioner. Maybe a union pensioner.

medium compensation in the us is 26,965.43  -  1/2 make more and 1/2 make less.

SS pays 15k a year - So quit defending additional federal spending on pensions like some deserve more than others.

Wasn't gonna post but it grates on me when a .Gov leach milking the system tries to defend the BS

Quit being part of the problem and prepare to lose ALL pensions when TSHTF

 

TBT or not TBT's picture

The reason the US housing boom hurt Europe so badly is that they invested in it in the first place, and they invested in it in the first place for lack of sufficient investments in Europe.   

Finance viewed from space is about older people who have lived and worked and saved but whose ability to work and create is on the decline, earning a return by lending what they've saved to younger people with health, ideas, ambition, and a good stretch of future in which to carry them out.    Europe doesn't have enough of the latter to invest in.    They already don't, already didn't back ten years ago when their savings got ploughed into MBS.

hardcleareye's picture

Was just getting ready to post a comment to this effect and thought I would scroll down to see if anyone else had issue with this statement.  lol

 

Wile-E-Coyote's picture

The EU is trying to bypass the latest election in Italy to install another Technocrat. Oh this is going to get really nasty.

 

http://www.telegraph.co.uk/finance/financialcrisis/9906213/Anger-builds-in-Italy-as-old-guard-plots-fresh-technocrat-take-over.html

lolmao500's picture

Wow. Just wow. These fucks never stop do they??

ebworthen's picture

Good article.

Learned a new word there, "resiling".

Nationalism returning, and with the youth unemployment and an awake populace the EU and the Euro are done, just a matter of time.

Big changes coming to the old world.

MisterMousePotato's picture

Yeah, me too. For those who don't want to look it up, it means to spring back. Like a Slinky when stretched.

MisterMousePotato's picture

In just four words, you prove that there are some very smart people here at ZH.

GMadScientist's picture

I wouldn't necessarily equate vocabulary with intelligence, but thanks.

MisterMousePotato's picture

I've never met anyone with a good vocabulary who wasn't intelligent (and I'm not talking about familiarity with a particular word, phrase, or lexicon, but someone who can quickly answer the puzzler: Other words based on the obsolete French resilier - ever think about Jeopardy?).

GMadScientist's picture

Never trusted Alex...too Canadian. ;)

TBT or not TBT's picture

There is a crisis and government must act.   The people are irresponsible.

dtwn's picture

Grabbing my cheesy poofs and some beer.  Watching this slow motion trainwreck is going to fun!