Archive for February 11th, 2012
Do you want to see what a 21st century economic depression looks like? Just look at Greece. Once upon a time, the Greek economy was thriving, the Greek government was borrowing money like there was no tomorrow and Greek citizens were thoroughly enjoying the bubble of false prosperity that all that debt created. Those that warned that Greece was headed for a financial collapse were laughed at and were called “doom and gloomers”. Well, nobody is laughing now. You see, the truth is that debt is a very cruel master. Greeks were able to live way beyond their means for many, many years but eventually a day of reckoning arrived. At this point, the Greek economy has been in a recession for five years in a row, and the economic crisis in that country is rapidly getting even worse. It was just recently announced that the overall rate of unemployment in Greece has soared above 20 percent and the youth unemployment rate has risen to an astounding 48 percent. One out of every five retail stores has been shut down and parents are literally abandoning children in the streets. The frightening thing is that this is just the beginning. Things are going to get a lot worse in Greece. And in case you haven’t been paying attention, these kinds of conditions are coming to the United States as well. We are heading down the exact same road as Greece went down, and the economic pain that this country is eventually going to suffer is going to be beyond anything that most Americans would dare to imagine.
All debt spirals eventually come to an end. For years, Greece borrowed huge amounts of very cheap money, but there came a point when the debt became absolutely strangling and the rest of the world refused to lend the Greek government money at such cheap rates anymore.
Greece would have defaulted long before now if the EU and the IMF had not stepped in to bail them out. But along with those bailouts came strings. The EU and the IMF insisted that the Greek government cut spending and raise taxes.
Well, those spending cuts and tax increases caused the economy to slow down. Tax revenues decreased and deficit reduction targets were missed. So the EU and the IMF insisted on even more spending cuts and tax increases.
Even after all of the spending cuts and all of the tax increases that we have seen, the debt to GDP ratio in Greece is still higher than it was before the crisis began. Today, the Greek national debt is sitting at 142 percent of GDP.
Now the EU and the IMF are demanding even more austerity measures before they will release any more bailout money.
Needless to say, the Greek people are pretty much exasperated by all of this. They created this mess by going into so much debt, but they certainly don’t like the solutions that are being imposed upon them.
Protesters in Greece are absolutely outraged that the EU and the IMF are now demanding a 22 percent reduction in the minimum wage.
Most families in Greece are just barely surviving at this point. Unfortunately, Greece is probably looking at depression conditions for many years to come.
Over the past three years, the size of the Greek economy has shrunk by 16 percent.
In 2012, it is being projected that the Greek economy will shrink by another 5 percent.
Sadly, that projection is probably way too optimistic.
Over the past couple of months, it has been like someone has pulled the rug out from under the Greek economy. Just check out the following numbers from an article in the Telegraph by Ambrose Evans-Pritchard….
Another normal day at the Hellenic Statistical Authority.
We learn that:
Greece’s manufacturing output contracted by 15.5pc in December from a year earlier.
Industrial output fell 11.3pc, compared to minus 7.8pc in November.
Unemployment jumped to 20.9pc in November, up from 18.2pc a month earlier.
I have little further to add. This is what a death spiral looks like.
Can you imagine unemployment going up by 2.7 percent in one month?
This is what a 21st century economic depression looks like.
And needless to say, civil unrest is rampant in Greece.
The following is how a USA Today article described some of the protests that we saw in Greece this week….
Scores of youths, in hoods and gas masks, used sledge hammers to smash up marble paving stones in Athens’ main Syntagma Square before hurling the rubble at riot police.
The country’s two biggest labor unions stopped railway, ferry and public transport schedules, and hospitals worked on skeleton staff while most public services were disrupted. Unions were planning protests in Athens and other cities around midday.
Greek citizens are exasperated by the endless rounds of austerity that are being imposed upon them. They wonder how far all of this is going to go.
How much higher can taxes go in Greece? Greece already has tax rates that are among the highest in Europe….
Greece has the third highest rate of VAT in Europe, second highest gas/petrol tax, third highest tax on social insurance contributions, fifth highest VAT on alcohol, highest property tax and one of the worst corporate tax rates, without the quality of living or competitiveness to match.
How much farther can government pay be cut? Greek civil servants have had their incomes slashed by about 40 percent since 2010.
How would you feel if your pay was reduced by 40 percent?
Large numbers of Greeks are rapidly reaching the end of their ropes. The following is from a recent article in the Independent….
“People are scared and haven’t really realised what’s happening yet,” George Pantsios, an electrician for the country’s public power corporation, said. He has only been receiving half of his €850 monthly wage since August. “But once we all lose our jobs and can’t feed our kids, that’s when it’ll go boom and we’ll turn into Tahrir Square.”
Instead of turning violent, others are simply giving in to despair. According to the Daily Mail, large numbers of Greek children are being abandoned because their parents simply cannot afford to take care of them anymore. The note that one mother left with her little toddler was absolutely heartbreaking….
One mother, it said, ran away after handing over her two-year-old daughter Natasha.
Four-year-old Anna was found by a teacher clutching a note that read: ‘I will not be coming to pick up Anna today because I cannot afford to look after her. Please take good care of her. Sorry.’
Sadly, there are an increasing number of Greeks that are giving up on life entirely. The number of suicides in Greece rose by 40 percent during just one recent 12 month time period.
But we haven’t even seen the worst in Greece yet. The worst is still yet to come.
And the people of Greece are going to get angrier and angrier and angrier.
According to one recent poll, about 90 percent all of Greeks are unhappy with the interim government led by Prime Minister Lucas Papademos.
This week, that government has started to fall apart. Over just the past few days, 6 members of the 48-member government cabinet have resigned. Not only is there real doubt if the new austerity measures will be approved, there is very real doubt if this government will be able to hold together much longer.
Frustration with the EU and the IMF has reached a fever pitch in Greece. Just check out what Reuters is reporting….
In a letter obtained by Reuters on Friday, the Federation of Greek Police accused the officials of “…blackmail, covertly abolishing or eroding democracy and national sovereignty” and said one target of its warrants would be the IMF’s top official for Greece, Poul Thomsen.
So what is going to happen next in Greece?
The truth is that nobody knows.
But whatever kind of “deals” are reached, the reality is that nothing is going to keep Greece from continuing to experience depression-like conditions for quite some time.
Unfortunately, Greece is not an isolated case.
Portugal, Ireland, Italy and Spain are all going down the same path and Europe does not have enough money to bail all of them out.
To get an idea of how much money it would take to bail out the financially troubled nations of Europe, just check out this infographic that was recently posted on ZeroHedge.
A day of reckoning is coming for the United States as well. As CNBC recently noted, the U.S. debt problem is far worse than the European debt problem is.
Right now, the U.S. government is still able to borrow gigantic mountains of very cheap money and is spending money as if tomorrow will never come.
Well, just like we saw in Greece, when debt gets out of control a day of great pain eventually arrives.
What we are watching unfold in Greece right now is coming to America.
You better get ready.
The banking protection racket – 5 charts highlighting the laundering and dismantling of the middle class. New methods of looking at employment. Peak debt and tweaking statistics.
Excerpt from My Budget 360
The hidden cost of bailouts and Fed policy
Household wages have not benefitted from the trillions of dollars in bailouts. Banks of course are back to their gambling ways even after bringing the economy to a near depression. The end result? Nothing has changed. But inflation is creeping into the market:
Inflation is now running at a near 3 percent clip but wages are stagnant or falling. So in the end Americans are becoming poorer to finance the bailouts for the banks. Just look at the cost of fuel, food, healthcare, and education and you’ll see where items are rising.
As all these items collide we have a pattern that looks like this:
-Continued bailouts to the financial sector (the perfect synergy between Wall Street and government)
-Bailouts come from Federal Reserve and the cost is shifted out to the public via higher inflation
-We are entering a low-wage capitalism era
-The middle class is being crushed. The top one percent control more wealth than they did to the years prior to the Great Depression
This is the not the path to prosperity here. When we finance gamblers and protect those that siphon off from the productive sectors of the economy we are destined for a repeat of the crisis.
Read the entire article at My Budget 360
Gasoline deliveries reflect recession and growth. The recent drop in retail gasoline deliveries is signalling a sharp contraction ahead.
Mish recently posted some intriguing charts depicting a significant decline in gasoline consumption (additional charts here). Then correspondent Joe R. forwarded me this stunning chart of gasoline retail deliveries, from the U.S. Energy Information Administration:(EIA)
As Joe noted, this data is interesting because it is un-manipulated, that is, it is not “seasonally adjusted” or run through some black-box modifications like so much other government data.
Retail gasoline deliveries, already well below 1980 levels, have absolutely fallen off a cliff.Is the plunge inventory-related, i.e. are storage facilities so full that retailers are simply putting off deliveries?
Though I don’t have data on hand to support this, I know from one of my correspondents who is in the gasoline distribution/delivery business that gasoline is very much a “just in time” commodity: gas stations are often close to running out of fuel when they get a delivery. Stations aren’t holding huge quantities of surplus gasoline; that’s not how the business works.
Given the absence of “extra storage” in gas stations (and the fact that the number of gas stations has fallen dramatically since 1980), it is reasonable to conclude that retail delivery is largely a function of demand, i.e. gasoline consumption.
Even if you dismiss the recent plunge as an outlier, the declines in retail gasoline deliveries are mind-boggling.If you look at the data from 1983 to 2011 on the link above, you will note that delivery declines align with recessions.
For example, deliveries jumped from 50.1 million gallons per day (MGD) in November 1983, when the nation was emerging from the deepest postwar recession then on record, to 58 MGD the following November (1984).
Deliveries steadily rose to a peak of 67.1 MGD in July 1998, declined marginally in the 2001-2 recession and then surged to 66.8 MGD in August 2003. If we just look at one month–say November–then we see that deliveries remained in a remarkably consistent channel from 1994 to 2008, between 54 MGD and 63 MGD, with the higher numbers occuring in the “peak bubble years” of 1998 and 2003.
In 2010, gasoline deliveries declined to the low 40s–literally falling off the charts.In November 1983, deliveries were 51.1 MGD; in November 2010, they were 42.8 MGD, and in November 2011 they were 30.9 MGD.
Does this reflect higher fuel efficiencies in the U.S. vehicle fleet? To examine fuel efficiency and other macro-trends, I assembled some charts of fuel efficiency (courtesy of theEarly Warning blog) and a graph of employment, a commonly used proxy for economic activity/growth.
Let’s start with some basic data about population and vehicles.There are 254 million passenger vehicles registered in the U.S.Some percentage of these are classic cars and other vehicles that aren’t driven much, but nonetheless the number of vehicles that are in regular use is large.
Vehicle sales declined from a record 17.4 million in 2000 to 11.5 million in 2010.
People are driving less:The Road… Less Traveled: An Analysis of Vehicle Miles Traveled Trends in the U.S.. (2008)
Driving, as measured by national Vehicle Miles Traveled (VMT), began to plateau as far back as 2004 and dropped in 2007 for the first time since 1980. Per capita driving followed a similar pattern, with flat-lining growth after 2000 and falling rates since 2005. These recent declines in driving predated the steady hikes in gas prices during 2007 and 2008. Moreover, the recent drops in VMT (90 billion miles) and VMT per capita (388 miles) are the largest annualized drops since World War II.
Here are two charts of U.S. employment which show two periods of strong expansion: in the late 1990s and in 2002-08.
If the number of jobs were correlated to gasoline deliveries, then we would expect deliveries to be close to those registered in 2003 and 1999, since the number of jobs has declined to the levels of those years.
Instead, we find deliveries are dramatically lower: November 1999: 59 MGD November 2003: 63.8 MGD November 2010: 42.8 MGD
Once again, this is not an outlier: deliveries for all of 2010 were between 42 and 46 MGD, compared to deliveries in the high 50s/mid 60s in 1999 and 2003.
There are all kinds of other things that influence the number of miles driven, but there is little evidence that any one factor can account for a 47% drop in retail gasoline deliveries. For example, it is well-known that the U.S. economy has shifted to a digital, service economy in the past 30 years, and since more people can “consume” (via shopping at amazon.com, etc.) and “produce” (work from home) without driving, then it makes sense that people are driving less.
But if we examine the data, it’s difficult to attribute the massive recent drops to people ordering stuff online or working from home more. After all, people were working from home and ordering stuff online in 2003, when gas deliveries reached 63 MGD, and in November 2006, when deliveries were 58.8 MGD.
Deliveries in November 2011 were 30.9 MGD, a staggering 47% decline.
What about fuel efficiency? here are two charts from theEarly Warning blog. They show a significant increase in the 1980s, but only modest improvement through the 1990s and 2000s.
If we use the same year as in the employment analysis, 1999, we see there was a 6% rise in efficiency from 1999 to 2010. This would suggest 6% of the decline in gasoline deliveries can be attributed to increased efficiency. But what about the other 40% of the decline?That cannot be attributed to higher efficiency.
I’ve marked up the first chart to show the secular trends in efficiency and employment.
There are no data-supported broad-based drivers for dramatically lower gasoline consumption other than austerity and lower economic activity. The code-word for “austerity and lower economic activity” that is verboten in the Mainstream Media is “recession.” Indeed, if you examine the EIA data, the only causal factor that has backing in the data is recession–or if you prefer, austerity and lower economic activity.
Then there is the price of fuel.People have to go to work, pick up the kids, get their meds, etc., and few urban centers in the U.S. have mass transit systems that are up to the task of replacing autos. So most Americans have what we might call non-discretionary driving. But as the price of fuel rises, people find ways to lower their discretionary driving by combining trips, shopping less often, shortening or eliminating vacations, etc. Enterprises reduce costly business travel with teleconferences and other digital technologies.
Data supports the notion that high oil prices lead to recession.For example, Chris Martenson recently made a compelling case for this inWhy Our Currency Will Fail(“Note that all of the six prior recessions were preceded by a spike in oil prices.”)
Household income doesn’t rise just because oil is climbing in cost, and so the extra money spent on fuel is diverted from other consumption or saving (capital accumulation). Higher fuel costs lower household capital formation and reduce consumption/economic activity.
Oil has been elevated for months, kissing $100 and rarely dipping below $90/barrel. Do higher oil costs explain the decline in gasoline consumption? Once again, they undoubtedly influence consumption, but that cannot explain the 40% drop in consumption. After all, when oil spiked in 2008 to $140/barrel, deliveries only dropped by a few million gallons: from 58.8 MGD in July 2007, before the spike, to 54.8 MGD at the point of maximum pain in July 2008.
The cost of oil has declined sharply from mid-2008, yet consumption has tanked from 54.8 MGD in July 2008 to 42.4 MGD in July 2011. That’s a hefty 21% decline.
What other plausible explanation is there for the decline from 42.4 MGD in July 2011 to 30.9 MGD in November 2011 other than a dramatic decline in discretionary driving?That 27% drop in a few months in unprecedented, except in times of war or sharp economic contraction, i.e. recession.
If we stipulate that vehicles and fuel consumption are essential proxies for the U.S. economy, then we can expect a steep decline in economic activity to register in other metrics within the next few months.
Such a sharp drop would of course be “unexpected” given the positive employment data of the past few months. But as the data above shows, employment isn’t tightly correlated to gasoline consumption: gasoline consumption reflects recession and growth.
In other words, look out below.
Charles Hugh Smith – Of Two Minds