Monday, November 07, 2011

Monthly Economics Report

All eyes are fixed on Greece and its slow downward spiral into bankruptcy. But, I think we are paying too much attention to that, and not enough to our own. President Obama is still pushing the bus (our economic future) ever closer to the abyss(the point where we, like Greece, will not be able to pay our debts and will spiral into a financial meltdown), and the Republicans in congress are still stonewalling his efforts.

In the mean time, the payroll report is out for this month. It shows that employment is down slightly(from 9.1% to 9.0%), not because of the numbers from October, but because of revisions to the numbers in August and September. September saw the addition of about 100k jobs that had not been previously reported, so the unemployment numbers were adjusted. It still stinks just a little, because manufacturing jobs for Aug and Sept are still at a net loss.

There is still some 8% (give or take some) that is under employed (working at whatever they can find) or dropped out of the job market completely. And 42% of the unemployed have been out of a job for 27 weeks or longer, meaning they will have increasing difficulty finding work and may eventually join the numbers of those who have dropped out.

Over all, the situation is still grim, just as it was two years ago and it will remain grim for more than another year.


Now, about Greece (to be followed by Spain, Portugal, Ireland, California, etc.) and the current state of the bailout. The other nations of the EU (Germany in particular) have agreed to forgive half of Greece's debt, if Greece will agree to live within its means in the future.

Most of the markets climbed with the news that the EU had came to an agreement with Greece, and felt that life could go on and they would work their way out of this mess.

Now, Greece is not certain they want to accept the deal. Well, to be more precise, a large fraction of the population, accustomed to living off the government dole, doesn't want to accept the reduction in their comfort level the deal would require. And another large fraction of Greece cheats on their taxes with an audacity not even imagined by most people.
It is commonplace to rail against the flaws that drove the state to bankruptcy. Statistics that betray the extent of the state’s failure are part of everyday conversation. One million people, or a tenth of the population, last year gave a backhander to the civil service to grease the wheels of bureaucracy. Only 15,000 people declared earnings of more than €100,000 in 2010 but one in 20 purchasers of £2?million houses in London lived in Greece.

It shouldn't surprise anyone. They didn't get into this mess by being Puritans, willing to work long hours, live frugally, save methodically, and treat all others honestly.

Now, why is this important to us? There is a concern that the crisis could snowball into a run on the banks, and that could spread here. This is not a completely empty concern. The banking system in both Europe and the US is largely based on trust, backed up by nothing. And most are leveraged about 20 to 1. This means that if 5% of their customers decide to withdraw their money, the bank will collapse.

This is what happened in 1929, and is the reason the FDIC (and subsequently, the FSLIC and NCUA) was created. Except that if the panic is widespread, they are all a house of cards, and will crumble quickly.

Now, I am not trying to panic anyone. First, this is not likely to happen within the next month. Second, the likely hood of it happening within a year is fairly small. Your bank is still safer than your mattress. But the margin is getting thinner. Next year may be a different story, and I can't tell yet.


Some day in the future, we must be aware that our economies will try to enslave us. Read the story, in a post on "the oildrum" website, that begins with "many years ago." It wasn't really science fiction. My grandfather escaped one such camp on the west coast of the US.

While it will probably not happen with oil (since we recently discovered enough gas to last many years) it will likely happen with food and clothing.

Thus is the reason I am beginning a regular posting on food and famine.

1 comment:

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