Guest post by Azizonomics.
I have written before that there is no single rate of inflation, and that different individuals experience their own rate dependent on their own individual spending preferences. This — among other reasons — is why I find the notion of single uniform rate of inflation — as central banks attempt to influence via their price stability mandates — problematic.
While many claim that inflation is at historic lows, those who spend a large share of their income on necessities might disagree. Inflation for those who spend a large proportion of their income on things like medical services, food, transport, clothing and energy never really went away. And that was also true during the mid 2000s — while headline inflation levels remained low, these numbers masked significant increases in necessities; certainly never to the extent of the 1970s, but not as slight as the CPI rate — pushed downward by deflation in things like consumer electronics imports from Asia — suggested.
This biflationary (or polyflationary?) reality is totally ignored by a single CPI figure. To get a true comprehension of the shape of prices, we must look at a much broader set of data:
If you still haven’t heard about the problems in Spain, here is a great little article of the madness that took place during the boom years. SPain’s Ibex is currently trading down 2%, and about to break the lows. Italy is joining the hung over period after the boom party. It is all about the Med countries. Wonder what happens if Apple starts selling off for real? From Bloomberg.
“Ireland faced up to its problems faster than others and we expect growth there rather soon,” said Cinzia Alcidi, an analyst at the Centre for European Policy Studies in Brussels. “In Spain, there was kind of a denial of the scale of the problem and it may be faced with many years of significant challenges before full recovery takes place.”
Spain, Europe’s fifth-largest economy, is the current focus of attempts to contain the region’s sovereign debt crisis, as Prime Minister Mariano Rajoy struggles to quell speculation it will need a bailout. Developers are showing similar optimism. They continue to build even with 2 million homes vacant around the country, new airports that never saw a single flight being mothballed, and property appraisers and banks reporting values have fallen only about 22 percent, said Encinar, who estimates the real decline is probably at least twice that.
Ireland, where home prices have fallen a record 49 percent since peaking in 2007, is making more progress as it deals with the legacy of a bust that crippled its economy, once the most dynamic in Western Europe. The state purged lenders of 74 billion euros ($98 billion) of mostly toxic commercial mortgages by creating a bad bank, and poured enough cash into the financial system to make it among the best capitalized inEurope. Building virtually halted overnight in 2008 after debt markets seized up globally.
Spain has so far rejected the bad bank model, even afterStandard & Poor’s last week cut the country’s credit rating to BBB+ from A, on concern the government will need to provide further support to banks.
Regular readers of The Trader know our negative view on the Spanish Economy. The desperate situation of many Spanish towns and municipalities, has not been in focus, as investors have been focusing on the chaotic Greek financial situation. Maybe it is time to start focusing on the possibly much bigger problems Spain faces. Jerez, a beautiful town in southern Spain, famous for it’s Jerez wine and proximity to the Atlantic Ocean is practically bust. Expect the Zapatero blame game to intensify, while the “cheap” property market goes into free falling mood soon. From El Pais;
The mailbox is a cold economic indicator. You know things are not going well when the notices and returned bills start piling up. You also know things are bad when your daughter starts having problems at school because she thinks her parents are breaking up. Francisco Marcos has not been sleeping at home lately, but it’s not because he’s mad at his wife, as his daughter believes. He is one of 14 employees at the municipal cemetery in Jerez de la Frontera who have spent several nights camping out at the doors of the graveyard. They are demanding that the local government pay them the two months’ wages they are owed.
We hear a lot about Greece, Portugal, Ireland and other rather small Economies. What happened to California, much bigger than many of the troubled nations we read about everyday? Michael Lewis on California, from Vanity Fair.
The smart money says the U.S. economy will splinter, with some states thriving, some states not, and all eyes are on California as the nightmare scenario. After a hair-raising visit with former governor Arnold Schwarzenegger, who explains why the Golden State has cratered, Michael Lewis goes where the buck literally stops—the local level, where the likes of San Jose mayor Chuck Reed and Vallejo ﬁre chief Paige Meyer are trying to avert even worse catastrophes and rethink what it means to be a society.
Full article here.