Everything In Germany Is Going Up….

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Everything in Germany is going up, except it seems the real economy – and except of course prices, which were stationary in May (that is a change of 0% year on year – the lowest inflation rate for over 20 years). Anyway, today it was the turn of investor confidence to put in another good reading. In fact German investor confidence rose to what is effectively a three-year high in June. Aparently investors feel the recession in Europe’s largest economy is bottoming out.

The ZEW Center for European Economic Research said its index of investor and analyst expectations increased to 44.8 from 31.1 in May – the highest reading since May 2006.

Unfortunately, there is little real evidence to support this highly optimistic view of the future. Continue reading →

E-Facing The Future

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Quietly clicking my way through Bloomberg last Sunday afternoon, I came across this:

Facebook Members Register Names at 550 a Second

Facebook Inc., the world’s largest social-networking site, said members registered new user names at a rate of more than 550 a second after the company offered people the chance to claim a personalized Web address.

Facebook started accepted registrations at midnight New York time on a first-come, first-served basis. Within the first seven minutes, 345,000 people had claimed user names, said Larry Yu, a spokesman for Palo Alto, California-based Facebook. Within 15 minutes, 500,000 users had grabbed a name.

Mein Gott, I thought to myself, if 550 people a second are doing something, they can’t all be wrong. So I immediately signed up. Actually, this isn’t my first experience with social networking since I did try Orkut out some years back, but somehow I didn’t quite get the point. Either I was missing something, or Orkut was. Now I think I’ve finally got it. Perhaps the technology has improved, or perhaps I have. As I said in one of my first postings:

Ok. This is just what I’ve always wanted really. A quick’n dirty personal blog. Here we go. Boy am I going to enjoy this.

Daniel Dresner once broke bloggers down into two groups, the “thinkers” and the “linkers”. I probably would be immodest enough to suggest that most of my material falls into the first category (my postings are lo-o-o-ng, horribly long), but since I don’t fit any mould, and Iam hard to typecast, I also have that hidden “linker” part, struggling within and desperate to come out. Which is why Facebook is just great.

In addition, on blogs like this I can probably only manage to post something worthwhile perhaps once or twice a month, and there is news everyday.

So, if you want some of that up to the minute “breaking” stuff, and are willing to submit yourself to a good dose of link spam, why not come on in and subscribe to my new state-of-the-art blog? You can either send me a friend request via FB, or mail me direct (you can find the mail on my Roubini Global page). Let’s all go and take a long hard look at the future, you never know, it might just work.

Banking Problems In Europe Send The Whole World Running For Cover

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Well that so called investor “risk appetite” took a surprise hit yesterday (and from an unexpected quarter). It wasn’t the worries about US fiscal deficits that caused the panic, but problems in the European banking system. Gwen Robinson reports:

Risk appetite suffered a sharp deterioration on Monday as fresh uncertainty about the global economy prompted investors to shift from equities, commodities and emerging market assets into the perceived safety of government bonds and the dollar. Markets were further unnerved by warnings on the economic outlook from the head of the IMF and an ECB report saying eurozone banks face another $283bn in writedowns on bad loans and securities this year and next.

Continue reading →

Green Shoots, 2

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For a banned demonstration called off by the opposition candidate, this looks pretty big. New York Times says “hundreds of thousands,” i.e., more than came to see Obama in Berlin.

Government apparently continuing to try to crack down on media. Much information still coming out, but verification in the old media sense is difficult, and the situation evolving very quickly, as darkness has just fallen in Tehran.

NYT blog is forwarding reports of shooting in Azadi Square. If true, and if there is more, that would certainly change the game. Does the opposition have enough people power? How much force will the government use? Those are tonight’s questions.

Policy Dilemmas For Next Week’s Fed Meeting

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Krishna Guha in his assessment in the Financial Times this morning of the key policy issues facing Ben Bernanke and his team at next weeks Federal Reserve meeting had this to say:

“Meanwhile, the Fed is likely to reiterate that it expects to keep rates near zero for an “extended period”, challenging market expectations of early tightening.”

Which struck me as interesting, since in an article which I wrote for yesterday’s (Sunday) edition (offline and in Spanish) of La Vanguardia newspaper (English text below) I said the following:

Investors are, on Krugmans view, simply erroneously positioning themselves in the face of what they now feel is inevitable. This view is erroneous he argues, since the road to full blown recovery is likely to be longer and harder than market participants are currently envisioning, and the only way to really get interest rates back under control would be for Bernanke to commit himself to holding down short term interest rates for a lengthy and indefinite period of time.

This is what is called keeping yourself just nicely ahead of the curve I think. The article which follows is basically a journalistic rewrite of this post (which appeared on Afoe last week). It does have the advantage of being considerably more digestible for the non specialist than the Afoe original Continue reading →

The Clock Is Ticking Away Under Latvia

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As the European Commision and the IMF toil tirelessly away, testing out their latest post-Keynesian “social and economic experiment” in Latvia – in an attempt to see whether it is possible to revive an economy which is contracting under the weight of massive debt deflation at an annual rate of 18 percent (Q1 2009) by relying almost exclusively on a process of drastic fiscal cuts (a process which today is glorified with the name of “internal devaluation” but which in the 1930s was simply called what it is: wage and price deflation) – a new problem now starts to looms its head before us. What, we might like to ask ourselves will be the long run consequence for Latvia’s already fragile demographic dynamic if we don’t get a most-optimistic-scenario-best-case outcome here? That is, if instead of a devaluation-driven “V” shaped recovery, we get not a “U” shaped one (the optimistic scenario), but rather “L” shaped stagnation (a distinct possibility on my view, if wages and prices simply take too long correcting to competitive rates) what will be the implications for the longer term future of the country?

The question I want ask here is simply whether or not short term decision taking on the part of the Latvian government (the crisis “exit strategy”) may not produce knock-on effects on the short term decision process of potential Latvian parents leading them to postpone decisions on parenthood, such that the impact of the crisis is a further deterioration in long run population dynamics, and hence, ironically, in potential economic performance? What I am asking is whether or not there may be a kind of “vicious circularity”, whereby one negative feedback process influences another in a way which produces a very unfortunate outcome. Not for nothing do we say that social systems are complex ones!

But before we go into the nitty gritty of all this, I would like to just take a quick look at two charts.

Structurally, they look quite similar don’t they? They are both output charts, showing year-on-year changes in production. The second is a chart for industrial products, and the first is a chart for children. Strange they should look so similar, isn’t it? Or is it? Below I will go into some recent work by economists and demographers which providing a theoretical background within which we may be better able to understand the sort of complex processes we can see operating in Latvia. At the end of the post we will then breifly take a brief look at some of the conclusions it might be possible to draw from what is happening. Continue reading →

Green Shoots?

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Tehran tense, says CNN. Unrest challenges Iran’s republic, says the BBC headline writer, choosing understatement. The reporter, Jon Leyne, is less restrained: “As demonstrations against the Iranian election result continue, the situation in Tehran is becoming unpredictable and potentially explosive.”

The story got close to a third of Germany’s main news broadcast last night, too, with heavy emphasis on the government’s efforts to keep international reporters away from any stories. ARD filmed from the correspondent’s office, and told how revolutionary militias had forced their way in earlier, threatened everyone and abducted one of their technicians. According to the report, international journalists are also being regularly detained by government forces, but usually released after a few hours.

Despite these efforts, there’s lots of news getting out of the country. In addition to all of the media, here is a list of English-language Twitter feeds coming from Iran. (Thanks, Tobias.)

We’ve seen some of this story before, but the ending is far from certain. Is it like Kiev, where electoral fraud brought people out for long enough to force change? Is it like Belarus, where the opposition stayed intimidated? Is it like China, where the powers that prevented change with a massacre? This morning, all of these seem possible.

But with the Khameini calling Ahmadinejad’s alleged victory “a divine miracle”, the power structure looks to be lining up behind the status quo. The government is not shrinking from using violence, and with non-uniformed “militias” and “activists” committing much of the violence — what would be criminal in other countries — this looks like a severe test for Moussavi supporters. Do they have countervailing powers? Any police or militias or military going over to the opposition? Absent something along those lines, change is unlikely. At least not now.

(Just want add that Google’s News page is fantastic. Quick links to full coverage of articles, blogs, local sources, images, quotes and videos. In decades past, presidents were probably not so well informed.)

La Francophonie again

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I’m in Senegal for a couple of weeks, on business.

Pretty much everything I wrote about French in Burundi in this post last year applies to French in Senegal. All educated Senegalese speak French; most speak it really well; they’ve also picked up a lot of distinctly Gallic tics of gesture and conversational patterning. The French fascination with their former colonies is a lot easier to understand once you’ve visited; if you’re French, it must be so pleasant to be someplace where French is the language of learning and prestige, where everyone who matters speaks French, and where there’s never a need to break out the English.

There are some differences. Gallicization seems to run deeper here than in Burundi. No, that’s not exactly right. More like: the European influences seems more assimilated. In Burundi, rich and elite Burundians can seem like wannabe Belgians, cut-and-pasting the culture of the former colonists. Elite Senegalese seem to be more comfortable integrating the different influences. It may just be that Senegal is a much less desperately-screwed-up place than Burundi, and so has less of a cultural cringe… I’m not sure. Continue reading →

VAT Hikes And Ageing Costs

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I think anyone, even those with a sceptical view on the importance of demographics, can agree that there have to be ageing costs for any society, and specifically so in a macroeconomic context. . Moreover, as a natural consequence of ageing population economies need to grow and progress if they are to be able to financially support the ongoing demographic transition. We really don’t need to be growth fundamentalists here, but it is abundantly clear that if an economy such as Germany is going to finance its current and rising old age liabilities it needs growth in output (and income); otherwise the system falters.

Of course, in the absence of growth another way to pay for ageing oncosts is through tax hikes, and in this particular context Germany has provided us with a truly wonderful experiment, since a couple of years ago (1st January 2007, to be exact) the VAT consumption tax was hiked 3 % – in part to try to secure the good functioning of German welfare institutions in the future. As I argued at the time, I found the general interpretation of this initiative strange, and so I tried to provided a rather wonkish theoretical argument to justify my opinion. Time has now passed, and as we can see in countries like Latvia and Hungary this German initiative is now being repeated (or at least the possibility of repeating it is being discussed). So what can we say about what has happened in Germany in the meantime? Continue reading →

Lost In The Latvian Translation?

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According to reports in the Baltic Course newspaper, Latvian Finance Minister Einars Repse (of the New Era party) is not against the strikes and rallies that are being organised in response to the proposed state budget cuts, he is, however, opposed to any violent protests and subsequent civil unrest.

Rallies and strikes are a good thing, but disturbances will not solve anything,” Repse pointed out after a meeting with Latvian Free Trade Unions Association representatives today. As the finance minister explains, he realizes that “people are really concerned and desperate”, however, damaging government buildings will not contribute to improving the situation in any way as repairing the buildings would have to be paid for with state budget money anyway.

I’m sure he can’t have quite put it like this – if he did then a Finance Minister actually supporting strikes against his own measures would be a first, I think (what is happening in Latvia is surreal, but not this surreal, surely) – and that the question is a translation one, but still. It does illustrate the difficult position local politicians are being put in when it comes to defending the EU Commission and IMF inspired measures in the face of their own voters – as I already forecast it would be in my post The Long And Difficult Road To Wage Cuts As An Alternative To Devaluation back in January. More to the point is this, which is real enough:

Working pensioners’ pensions will be slashed 70%, all other pensioners will see their pensions shrink by 10%. Also maternity and child care benefits will be cut by 10%.

Now, I know the aim is to bring prices down, but how can a country which is effectively dying for lack of children (post coming on this later) be actually cutting child allowances. Frankly I find this even harder to believe than the idea of a Finance Minister supporting strikes against his own policies. It is nevertheless true. Everything, I see, is possibile in Latvia, except, of course, devaluation.