Lot’s of interesting things have been going on with regards to the economy in several different countries. As governments try to climb out from the economic disaster they continue to change rules and create restrictions that will forever change future markets in ways that are hard to foresee.
I’m just going to outline some of the articles I found interesting in the last week or so that I think everyone should be aware of.
US Economic Recovery
As Americans continue to search for work some many will now also be without jobless benefits. Last week 1.4 million Americans will run out of benefits. This will push the unemployment number to around 10.5% according to the folks at Zerohedge. There cannot be a recovery until people have work so they can begin spending and borrowing which is the only way to feed the consumer driven US economy.
Several signs are pointing to another stimulus package from Federal Reserve Chairman Ben Bernanke. This would add even more to the staggering debt load and just like the the first round of stimulus this would also disappear into thin air. Most of the first stimulus package went to financial institutions and other service companies. Very little if any of this money ever see’s real public use.
A couple weeks ago bank stocks soared after congressional negotiators agreed on the financial reform bill. This cannot be good for the public. Wallstreet is not stupid. If this were a real reform bill bank stocks would tank and lobbyists would be all over the media talking about how this will destroy the economy. Keep in mind that Senator Chris Dodd is pushing this bill through just after he announced he was not running for Senate the following term. He’s probably looking for a cushy job on some banks board. The new “fee” proposed to cover the expense of this bill would just be passed onto the consumer as to not impact the banks bottom line.
Last weekend at the G20/G8 the US insisted central banks from around the world continue to stimulate economies instead of deploying budget cutback and austerity plans. Thankfully most countries are turning their heads at this idea and will continue down the path of cutbacks and smaller budget deficits. Not everyone has a money printing machine like the US which forces more conservative economic policy. Canada and Australia have been leading the pack when it comes to conservatives budgets and raising interest rates. Both have very low debt rates and an abundance of natural resources. See chart below.
Recently Canada has staved off the pressure of the proposed global bank tax and convinced others as well.
It appears the Now the UN is calling for a new “Global currency” to unseat the US dollar. This news is coming just weeks after the China decoupled its currency from the US dollar allowing it to float. I see both of these events causing trouble for the US as goods from China may now be more expensive for Americans to buy. Some say this will help the export economy of the US but since manufacturing has gone down year over year I do not see how his can out weigh the new cost of importing Chinese goods.
For sometime now the media has been obsessed with the Greek debt problems and the protests over the government’s proposed austerity measures. This news has affected stock markets around the world on fear the Greek’s will default on their debt causing a wave of sovereign debt issues. We need to keep in mind that Greece has the world’s 28th largest GDP with a population of almost 11 million. In the grand scheme of things this really does not mean much. So what if they default. They cooked their books in order to join the EU and boast one of the youngest retirement ages in Europe. Much of the anger over the government’s austerity measures was the change in retirement age from 61 to 63. There are articles that state you can retire even earlier than 61 under certain circumstance.
One of the major issues Eurozone countries face is once they get into debt they can no longer rely on their own central banks to bail them out (basically printing money). Long term this is good since creating money out of thin air leads to inflation. This will also ensure governments are more fiscally responsible knowing full well they may not receive a bail out from other countries. Think as an investor how you feel if you held German bonds which carry a much lower interest because of their good financial situation vs the investor the holds the Greek bonds which have a much higher return due to their risk. If Greece defaulted on their debt the investor would lose everything and the German bond holder would be safe. Now instead of being rewarded for holding safe investments the German bond holder now gets to watch as the Greek bond holders are bailed out ensuring their risky investment do not fail. Why would anyone want the low paying German bonds if they know the EU will just bail out the countries with high interest, high risk bonds.
What we should be paying attention too is the fact that California is bankrupt. With a population of 36 million and a GDP of 1.84 trillion California is the world’s 8th largest economies. This is five times larger than Greece and nobody really seems to care or even notice it’s going down the drain. The one advantage California does have over Greece is the US Federal Reserve. When California needs a bail out the Fed will provide plenty of money to the US government to hand out to the state. This will just lead to inflation and larger federal debt which the taxpayer is on the hook for anyways. Back in 2008 California began warning the federal government about its debt problems. Funny to see that this does not get much media play even though this is a larger larger issue than Greece.
Here is heat map the Royal Bank of Canada recently published regarding the risk of certain countries debt. It’s interesting to see that Greece isn’t even number one considering the major media attention they have recently been given. The number one spot goes to Ireland which has an even smaller GDP than Greece. The GDP of Greece and Ireland combined it just narrowly surpasses that of Indonesia.
I plan to write an upcoming article of the current “debt crisis” and how it may or may not play out in global economics.
I stumbled upon a great site called Visual Economics that pulls economic data and arranges them in various graphs, heat maps and charts. After all, a picture is worth a thousand words.
This particular graph shows the inflation rate by country from a few months ago. I am curious to see how this changes for countries like China, Canada and the US.
Recently the Bank of Canada Govenor Mark Carney indicated that Canada’s inflation rate is growing higher than expected. Currently interest rates are %0.25 percent and rate hikes are expected as soon as June.
The US continues to pump new money into the economy to try and “stimulate” growth. This money does not seem to be doing much good and the coming wave of inflation could be disastrous. I’m not an expert so I decided to look up the very definition of inflation at dictionary.com.
Many think China can escape the inflation problem since their standard of living is so low that mild inflation is normal. The Chinese economy did have a large stimulus plan which mainly focused on infrastrcuture and not banker bailouts. There are others that think China may be moving too quickly for their population to grasp.
Here is a video showing just how fast China can crank out infrastrcuture.
Being one of the major holders of US debt the Chinese are starting to worry about their investment. Earlier today the Chinese premier expressed his concern over the US’ reckless approach to adding debt. This comes days after the US Senate signs off on a $ 149 billion jobs bill. Another scary stat out this month shows February setting a record monthly budget deficit of 220 billion.
This past week we saw the release of numbers that show which country holds the most US treasuries. Too some surprise it was Japan not China. The question to ask Is China dumping US debt or is Japan buying? According to a Bloomberg article China sold 34 billion dollars worth of treasuries in Dec 09 and has not purchased any in the last 8 months. It appears the China has lost its lust for US debt and may seek to invest elsewhere. Does this make sense if the US is their biggest exporter?
Some would say these two countries need each other to survive while other think China could begin selling its products to its own people. Other news items shows China putting massive amounts of money into gold and silver.
Here is a video from Chinese news station pitching silver bars.
