Guest post by Azizonomics.
George Osborne claims that deficit reduction will produce a recovery.
From the Guardian:
The main test of a budget at this time is what it does for the recovery and growth of the British economy. George Osborne has repeatedly made clear that he wants to be judged by this test. He believes that deficit reduction is a growth policy which will be vindicated by its results. Growth has been postponed but, he insists, it is about to happen. So is he right?
It doesn’t look like it: Charts below.
Saudi Arabia’s powerful oil minister, Ali Naimi, made a rare intervention into overheating oil markets on Tuesday, declaring that high oil prices were “unjustified” and vowing that the kingdom would boost its output by as much as 25 per cent if necessary. As the west’s nuclear stand-off with Iran escalates, oil prices have rallied this month to a post-2008 peak of $128 a barrel with markets bracing for European Union sanctions on Iranian crude that could knock out a chunk of global supply. http://www.ft.com/intl/cms/s/0/f9f8eb00-729e-11e1-9be9-00144feab49a.html#axzz1pj9puJ70
European banks are preparing a new type of securitised vehicle bundling together loans to commodity trading houses to try to resolve the credit crunch in the commodities industry. The banks, including BNP Paribas and Société Générale, are testing the appetite from European pension funds and insurance companies for the instruments and hope to launch the products before the end of the year, executives said. The move comes after French banks, the main financiers of trading houses, reined in their lending due to a shortage of US dollar liquidity. BNP Paribas and a handful of other European banks provide most of the credit lines that underpin the business of the Swiss-based traders that dominate global raw materials markets. Commodities bankers and industry executives said the securitisation would allow the industry to access fresh credit. http://www.ft.com/intl/cms/s/0/f8f4c83c-72b2-11e1-ae73-00144feab49a.html#axzz1pj9puJ70
All news below.
When we look at broad measures of jobs and population, then the beginning of 2012 was one of the worst months in US history, with a total of 2.3 million people losing jobs or leaving the workforce in a single month. Yet, the official unemployment rate showed a decline from 8.5% to 8.3% in January – and was such cheering news that it set off a stock rally.
How can there be such a stark contrast between the cheerful surface and an underlying reality that is getting worse?
The true unemployment picture is hidden by essentially splitting jobless Americans up and putting them inside one of three different “boxes”: the official unemployment box, the full unemployment box, and the most obscure box, theworkforce participation rate box.
As we will explore herein, a detailed look at the government’s own data base shows that about 9 million people without jobs have been removed from the labor force simply by the government defining them as not being in the labor force anymore. Indeed – effectively all of the decreases in unemployment rate percentages since 2009 have come not from new jobs, but through reducing the workforce participation rate so that millions of jobless people are removed from the labor force by definition.
Much has been said and written about Bernanke. The central bank chief, hated by both the left, and the right, has led the Fed down a new and innovative path. So far, he has managed averting the big implosion, but many critiques see him taking us down the abyss. Whatever one thinks, below is a good piece on the man running the economy, that has never had a real job. By Roger Lowenstein via the Atlantic.
THE U.S. FEDERAL RESERVE was founded 99 years ago, as a bulwark to the banking system and an antidote to its frequent runs and panics. Strictly speaking, it was America’s third attempt at a central bank. The first, organized by Congress in 1791, was allowed to expire after 20 years, leaving the young republic with only a patchwork system of weaker state banks. During the War of 1812, Congress realized its error (in the absence of a central bank, inflation had run rampant), and in 1816, it chartered a second bank, again for 20 years. The Second Bank of the United States was, in the main, a success. Its notes were circulated as currency, and it astutely managed their supply so as to keep the economy humming. Alas, President Andrew Jackson, a fierce opponent of both paper money and national banks, campaigned in 1832 against renewal of the charter, and indirectly against the bank’s brilliant but impetuous head, Nicholas Biddle. Resentment against financiers was running high, and the election became a referendum on the genteel Philadelphia banker versus the rough-hewn war hero—and a referendum on the bank itself. Jackson won, and the Second Bank was, per his promise, destroyed. The U.S. economy promptly plunged into a severe depression. Biddle died not long after, in semi-disgrace, but the battle between bankers and populists never went away.
As The Trader wrote about on Thursday, the latest out of Spain is the accelerating fall in property prices. With every politician, banker and speculator in Spain waiting for the market to turn higher, and all problems will be solved, this is another blow to their expectations/business model. Some more color on the subject, that will get more attention shortly, as Spain is hard to bail out given the size of the economy. From Acting Man.
It is well known that Spain’s economy is in a depression, and we do not use this term lightly. With the official unemployment rate at about 23% and youth unemployment close to 50% it is not an exaggeration to speak of a depression. The probability of social upheaval erupting with greater frequency is extremely high. We already noted that the general strike recently called for by Spain’s unions is only the fifth since the end of the Franco regime in 1975. It is a rare event in Spain and underscores the decline in the social mood and the growing desperation. Those who still have work want to protect their privileges and use the unemployed as their political weapon.
Some weekend reminders of what is going on in Spain. IBEX has been underperforming for quite some time, but let’s us remind you, Spain is not Greece, Spain is the world’s 12th “richest” country. This is the Elephant in the European room, irrespective of what they tell you.
Spain’s public debt surged to a historic record high during the last quarter of 2011, renewing concerns over whether the government will be able to keep its commitment to Brussels to bring down the deficit to 5.3 percent of GDP by the end of the year.
Overall debt last year amounted to 68.5 percent of GDP — 2.5 percentage points higher than the third quarter, according to figures released Friday by the Bank of Spain. That is the highest figure since 1995. The increase was driven by runaway spending in the 17 regions that overshot their budget targets. The central government’s spending also increased 14.6 percent while expenditures in the municipalities remained almost unchanged at 35.420 billion.
The central government’s accumulation of expenses at the end of 2011 is also being blamed for the high debt figure. Spain has some 734 billion euros in obligations.
Meanwhile, Deputy Prime Minister Soraya Sáenz de Santamaría said Friday that municipalities have turned over to the government some 1.9 million invoices for a total amount of 9.58 billion euros they owe to suppliers. (Full El Pais article here.)
More disturbing facts below….
Biderman on those jobs.
The global media continues to unblinkingly report US government statistics that jobs and wages are in recovery. However, maybe reality is beginning to sink in. The Wall Street Journal reporter Jon Hilsenrath, the unofficial Federal Reserve mouthpiece, this past Monday wondered in print: “Something about the US economy is not adding up….How can an economy that is growing so slowly produce such big declines in unemployment.” (full article here.)