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Collapsing European Imports Crush Current Account Recovery Cravings

Tyler Durden's picture




 

Some among the cognoscenti of European elite still crow that the crisis is behind us and point to the closing of current account deficits in Spain, Italy Portugal, and Greece as some evidence of this. However, as JPMorgan's CIO David Cembalest notes, while, in prior cases, this development usually meant a broadening recovery was on the way; the collapse in imports has driven this move and dramatically flatters any overall improvement. Typically balance of payments crises are solved by rising exports and as Cembalest warns, Europe's ability to endure the current collapse remains a major question mark.

Via JPMorgan's Michael Cembalest,

The current account deficits in Spain, Italy, Portugal and Greece have now closed. In prior crises, this development usually meant a broadening recovery was on the way.

So, are closing European current account deficits as positive an omen as in the past? Such deficits typically close almost entirely due to rising exports. That’s not the case this time, as an import collapse flatters the overall improvement.

Europe’s ability to endure this remains a question mark.

The contribution from collapsing imports (and collapsing demand and employment) to the improvement in current account deficits, past and present, import collapse as % of current account improvement:

A Matter of Import in Portugal, Spain, Italy and Greece

“I read somewhere that their current accounts
Improved by impressively large amounts

If so, they’ll soon be recovering fast
At least that’s what’s been observed in the past.

But something’s amiss in that deficit chart -
The harlot’s cheek, beautied with plastering art*

Is how I’d describe anyone’s allusion
To crises resolved; it would be a delusion

Since the main thing here is import collapse,
Not jobs or exports or growth, perhaps.

Unlike other recov’ries seen or felt
This one is mostly a tightening belt.

So before you think an economy’s healed
Consider an adage herein revealed:

Current accounts of zero can mean success
Or that everyone’s under tremendous stress.”

* Hamlet, Act 3, Scene I

 

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Mon, 06/24/2013 - 20:31 | 3689280 LetThemEatRand
LetThemEatRand's picture

The 1% can consume a lot, but not enough.  The golden goosheep is dying while they Bunga Bunga, fuck underage prostitutes and go to Bilderberg meetings and demand more eggs.

Mon, 06/24/2013 - 21:02 | 3689357 markmotive
markmotive's picture

Europe is China's biggest customer.

Bang - there goes China

Bang - there goes the commodities market

Bang - there goes Canada, Australia

From Muddy Waters:

“Our view is that China is a massive asset bubble. This puts resource-based emerging market economies and Australia, Canada and New Zealand at direct risk. A China unwind will have significant knock-on effects in other developed markets too, likely implicating liquidity and asset prices. The severity of the effects in the rest of the developed world of course partly depend on the timing of the unwind.”

http://www.planbeconomics.com/2013/05/muddy-waters-research-china-is-mas...

Mon, 06/24/2013 - 21:25 | 3689459 cifo
cifo's picture

Don't we all love it seeing ZH outsmart the CIO of JPM?

Mon, 06/24/2013 - 21:03 | 3689366 Fish Gone Bad
Fish Gone Bad's picture

Some might call that progress...

Mon, 06/24/2013 - 20:37 | 3689304 Dr. Engali
Dr. Engali's picture

Call me crazy, but I'm pretty sure people need jobs in order to pay for import items. The gubmint cheese only goes so far.

Mon, 06/24/2013 - 20:53 | 3689342 Unknown Poster
Unknown Poster's picture

Home equity loans? ...Just a thought.

Mon, 06/24/2013 - 21:04 | 3689373 Fish Gone Bad
Fish Gone Bad's picture

The students' Pell grants do not need to be paid back.  Now if I can just get a jumbo one, everything would be just fine.

Mon, 06/24/2013 - 23:12 | 3689781 hairball48
hairball48's picture

Actually, the people need jobs in the private sector making useful stuff or performing useful services.

Jobs like gov't jobs don't count. :)

Mon, 06/24/2013 - 20:40 | 3689317 lolmao500
lolmao500's picture

And those imports come from where... China and other european countries... this shitstorm ain't even started yet...

Mon, 06/24/2013 - 20:57 | 3689347 q99x2
q99x2's picture

Not to mention that crime syndicates are spreading from the banking sector into all other areas of the financial system. If those at the top are above the law the entire system will implode.

For how many millennium does it have to be proved. Without virtue there will be no future worth living.

Mon, 06/24/2013 - 21:17 | 3689419 Fish Gone Bad
Fish Gone Bad's picture

Without virtue there will be no future worth living.

Without phytoplankton making 50% of the oxygen we breathe, we will be really screwed.  Hmmmmm where is phytoplankton?  I know where it is not, off the coast of Japan.  Global warming will NEVER be a problem in anyone's lifetime because there is really a much greater problem out there.  I guess we could put everyone to work building a bunch of cranes to dig out the molten radioactive cores and then put the waste on some (people built) rockets and send the nuclear waste into the sun for disposal.

Come to think of it, that really sounds too easy to do.  Put people to work doing something actually constructive for once.

Mon, 06/24/2013 - 21:09 | 3689381 Notarocketscientist
Notarocketscientist's picture

Read this:

http://www.forbes.com/sites/insead/2013/05/08/shale-oil-and-gas-the-contrarian-view/

Mon, 06/24/2013 - 21:25 | 3689460 sleestak
sleestak's picture

That article may make a decent point but some of the details are pretty off.  Nobody is predicting 4bn bbl/day in US production and that the Bakken and Eagle Ford shales are under Montana and North Dakota.  The Bakken is, the Eagle Ford isn't.

Mon, 06/24/2013 - 21:12 | 3689396 W74
W74's picture

Ultimately, war is the only thing down this pipeline.

Mon, 06/24/2013 - 21:28 | 3689469 123dobryden
123dobryden's picture

at this time, after 5 years, these countries could have real recovery, bankers could have been washing dishes, along with milions of bureaucrats at all levels, police force could be at half the size, public services could improve drasticly ......

 

average folk could afford 3 hollidays a year and buy a house with consumer loan...

 

the only people who would feel austerity and suffer at this moment, would be those responsible for this shit

 

if only we let the market work...fucking criminals, they dont deserve to live

Mon, 06/24/2013 - 21:32 | 3689479 buzzsaw99
buzzsaw99's picture

I consider an import collapse to be a good thing. It would do the usa a world of good too.

Mon, 06/24/2013 - 22:47 | 3689714 Crawdaddy
Tue, 06/25/2013 - 03:48 | 3690238 THE DORK OF CORK
THE DORK OF CORK's picture

Ironically, noted Liu, developing countries with their own natural resources did not actually need the foreign investment that trapped them in debt to outsiders:

“Applying the State Theory of Money [which assumes that a sovereign nation has the power to issue its own money], any government can fund with its own currency all its domestic developmental needs to maintain full employment without inflation.”

When governments fall into the trap of accepting loans in foreign currencies, however, they become “debtor nations” subject to IMF and BIS regulation. They are forced to divert their production to exports, just to earn the foreign currency necessary to pay the interest on their loans. National banks deemed “capital inadequate” have to deal with strictures comparable to the “conditionalities” imposed by the IMF on debtor nations: “escalating capital requirement, loan writeoffs and liquidation, and restructuring through selloffs, layoffs, downsizing, cost-cutting and freeze on capital spending.” Liu wrote:

“Reversing the logic that a sound banking system should lead to full employment and developmental growth, BIS regulations demand high unemployment and developmental degradation in national economies as the fair price for a sound global private banking system.”

 

http://www.webofdebt.com/articles/basel.php

Tue, 06/25/2013 - 05:38 | 3690300 Wile-E-Coyote
Wile-E-Coyote's picture

A 1000 businesses a day close in Italy. Europe is so f***.

What the hell are the Greeks doing? They should have stormed their parliament months ago, those f***ers really get on my tits.

There NSA I didn't mention USA at all, we are still coool; right?

Tue, 06/25/2013 - 12:05 | 3691428 waterdude
waterdude's picture

Incorrect to lump all three together - Italy hasn't seen an improvement in exports in a meaningful manner whereas Spain has driven by improving price competitiveness absent in Italy(and France).  Spain was the only top 4 economy in '12 that saw volume of ex-EU exports surpas the peak levels of 08.

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