The World Economy

[Bob Armstrong]

Today's BBC News Website:

Spain

Spain's unemployment rate soared to a new record of 27.2% of the workforce in the first quarter of 2013, according to official figures.

The total number of unemployed people in Spain has now passed the six million figure, although the rate of the increase has slowed.

The figures underline Spain's struggle to emerge from an economic crisis which began five years ago.

A big demonstration in Madrid is being planned against the austerity measures.

On Friday, Prime Minister Mariano Rajoy will unveil fiscal and policy measures aimed at halting recession in the eurozone's fourth-largest economy.

"These figures are worse than expected and highlight the serious situation of the Spanish economy as well as the shocking decoupling between the real and the financial economy," said Jose Luis Martinez, strategist at Citi.

Last week, the International Monetary Fund cut its 2013 forecast for Spain's growth to a 1.6% contraction from 1.5% and said the unemployment rate would peak at 27% this year.

Can Europe stand this kind of "state" performance? Is austerity the only way back to some reasonable economic figures? Is this simply the "new economy"?

Bob A

[Tom O'Donnell]

Re: The World Economy

The government attempted to make every Spaniard a homeowner by offering ridiculous incentives to buy. This led to massive speculation which saw prices soar. When people pay so much for housing they don't have money to buy other things. So either people stop spending, except on essentials, or they start using their home equity or other forms of credit to maintain their lifestyle - a lifestyle they inevitably cannot maintain. A bubble and its implosion is the fairly predictable result.

Here in Canada, the government has begun trying to undo the damage they themselves caused with policies like zero-down mortgages, 40-year terms and worst of all CMHC insurance up to unlimited amounts. The more the government attempted to make homeownership affordable the more they inflated the bubble.

[Peter McKillop]

Re: The World Economy

Ken Rogoff taking some heat on austerity-related research.

http://articles.washingtonpost.com/2...ope-economists

[Bob Gillanders]

Re: The World Economy

Ken Rogoff taking some heat on austerity-related research.

http://articles.washingtonpost.com/2...ope-economists

Ken Rogoff really has got egg on his face for this screw up.
http://www.youtube.com/watch?v=YRdJod4wjSE

PHD student debunks Rogoff and Reinhart major economic research study.
Always check your math, twice.

[Bob Armstrong]

Re: The World Economy - Iceland

Iceland

Iceland was well on the ropes a while ago - one of the first countries to face financial collapse I think.

I understand that they recovered NOT by austerity measures. I understood it was by controlled and targetted government spending, and increasing revenue. Is this right? Can someone give a better explanation of how Iceland recovered (though I believe in the last election they elected a more traditional austerity-oriented government - is this correct?).

If Iceland did it differently, successfully, why is this not a model being used by the central lending bank when dealing with debt-ridden European economies, like Greece?

Bob A

[Gary Ruben]

Re: The World Economy

I think economists are climate scientists who graduated to bigger and better things. :)

[Bob Gillanders]

Re: The World Economy - Iceland

Iceland

Iceland was well on the ropes a while ago - one of the first countries to face financial collapse I think.

I understand that they recovered NOT by austerity measures. I understood it was by controlled and targetted government spending, and increasing revenue. Is this right? Can someone give a better explanation of how Iceland recovered (though I believe in the last election they elected a more traditional austerity-oriented government - is this correct?).

If Iceland did it differently, successfully, why is this not a model being used by the central lending bank when dealing with debt-ridden European economies, like Greece?

Bob A

Bob, Iceland took the opposite approach, instead of bailing out the banks, thus rewarding corrupt bankers and politicians, they instead fired them, threw them in jail, and bailed out the citizens instead. Crazy, eh.

Today, Iceland is doing just fine. :D

There are many videos on the topic, here is just one

http://www.youtube.com/watch?v=DDexDNn6vSM

[Gary Ruben]

Re: The World Economy - Iceland

Bob, Iceland took the opposite approach, instead of bailing out the banks, thus rewarding corrupt bankers and politicians, they instead fired them, threw them in jail, and bailed out the citizens instead. Crazy, eh.

Today, Iceland is doing just fine. :D

They have a population around 300,000 for the entire country. You like their economy then buy their bonds. They got a 4.6 billion bailout from the IMF.

The last I heard was their krona was worth less than one Canadian cent and there was talk about them using the Canadian currency.

[Tom O'Donnell]

Re: The World Economy

http://www.nytimes.com/2013/02/03/wo...anted=all&_r=0

Bankers engaging in speculation? Check.

Bankers hated? Check.

Not bailed out? Check.

Jailed? Uh, not exactly.

[Bob Gillanders]

Re: The World Economy

http://www.nytimes.com/2013/02/03/wo...anted=all&_r=0

Bankers engaging in speculation? Check.
Bankers hated? Check.
Not bailed out? Check.
Jailed? Uh, not exactly.

As your article states, "only a handful of bankers prosecuted",
but maybe more down the road:

http://www.youtube.com/watch?v=bNBRAGd4mQM

[Steve Karpik]

Re: The World Economy - Iceland

Iceland

Iceland was well on the ropes a while ago - one of the first countries to face financial collapse I think.

I understand that they recovered NOT by austerity measures. I understood it was by controlled and targetted government spending, and increasing revenue. Is this right? Can someone give a better explanation of how Iceland recovered (though I believe in the last election they elected a more traditional austerity-oriented government - is this correct?).

If Iceland did it differently, successfully, why is this not a model being used by the central lending bank when dealing with debt-ridden European economies, like Greece?

Bob A

It is not quite so simple as a choice between austerity and stimulus. Iceland actually told some of their creditors to go to hell. At the end of the second quarter 2008, Iceland's external debt was 9.553 trillion Icelandic krónur (€50 billion), more than 80% of which was held by the banking sector. This was 11X their GDP. It was beyond anything the Iceland Central Bank could possibly handle.

Rather than bail out the banks as was done in the USA, more than half a million depositors (far more than the entire population of Iceland) found their bank accounts frozen, as a result of the foreign branches of the three Icelandic banks were thrown into receivership. Iceland transferred domestic loans and savings into new banks, but did not transfer foreign assets and debts into the new banks, leaving them behind.

In the end, the deposits of native Icelanders were protected. Foreigners were not treated so kindly. Needless to say that pissed off creditors in the UK and the Netherlands. However, defaulting did not create a catastrophe.

Defaulting rather than stimulus or austerity was Iceland's key to recovery.