A world in economic crisis

Good grief no wonder Spain started to become a basket case!!!

Posted in Spain, stagflation by Aussie on May 24, 2011

As some of my readers had pointed out, the Spanish people are not lazy like the Greeks and they do work hard. To date Spain has not gone the same way as Greece, Ireland and Portugal, but it is on the precipice. Spain has gone from a booming economy to one that has been a bit of a disaster in the time span that Zapatero has been Prime Minister. At the weekend Zapatero’s Party was given a good kick where it hurts the most at the polls. They did not fare very well in the regional elections.

In taking up the story about Spain, the UK Guardian has up an article on what their writer thinks went wrong. The writer seems to have the delusional idea that Keynesians are always correct in their analysis and policy prescriptions. Obviously the writer knows nothing about the causes of the stagflation in the 1970s, because the failure of the Keynsian type policies are directly linked to that stagflation.

What really struck me about this article is that it seems that Zapatero took advice from the failed and ultra left-wing Marxist economist Paul Krugman. Good grief, no wonder the Spanish economy has been doomed. The Krugman prescriptions are an absolute disaster.

 

More on who should be the next IMF chief

Personally, I like the idea of Christine Lagarde getting the post. She has a well rounded career and she would bring a fresh face to the role. She has the respect in Europe as well.

However, there are some countries that seem to have other ideas about who should lead the IMF. As regards to the opinions of the Goose (Wayne Swan) from Australia, he is such a bad Treasurer that his opinions should not matter in the slightest. He is one person who has absolutely no idea about what is required in the top job. Put it this way, I would value the opinion of Paul Keating (a man I detest anyway) over that of the Goose.

If the person is chosen on merits then Christine Lagarde should remain the number one contender. Amongst the other names being mentioned is the failed politician UK Gordon Brown. It is well known that he aspires to this type of role, but, he does not have the support of the present leadership in the UK. On top of that Gordon Brown messed up the economy in the UK in both of his roles.

Socialism and pushing socialism through the IMF is not going to help the world’s woes. At present the IMF has a big problem in Europe. It really does need someone with credibility in Europe to head the group. Gordon Brown does not have that credibility. Christine Lagarde has the credibility. The people being pushed from Singapore and other countries do not have that credibility. There is one other new contender from Brussels.

Some of the issues that I have with the IMF structure includes the heavy socialist emphasis. The challenges of the eurozone has meant that there has been a need to catapult some of the present ideas. Keynesian economics will not work in a time of stagflation. This is the lesson that should have been learned from the 1970s and the 1980s when the stagflation was prolonged. There is a need for a different set of responses to the crises that occur.

For too long Europe has turned to socialism (which is not quite the same as Communism) in order to offer a raft of welfare benefits to their communities. What most of these governments have forgotten is that there is a need to have people working in order to gather taxes, and there is a need for business and industry in order to have people working. Policies such as high taxes on business do not work because in the long term employers make the decision to leave the marketplace. When this happens the consequence is a drop in tax revenue as well as higher unemployment which in turn leads to higher welfare benefits.

Europe also has another problem that desparately needs attention: open borders attracts the wrong kind of immigrants. This can be seen in countries such as Spain, France, England and Germany, as well as in Norway and Denmark. These immigrants see this as an opportunity to place their wives on welfare, and they soak up all of the other welfare state benefits such as free medical, free education etc. etc. If this is not kept under control, inevitably it leads to a break-down in the whole system. At the root of this problem is taxation, or rather taxation receipts.

Under Dominique Strauss-Khan the IMF has steered a number of European countries towards putting in place austerity measures that are supposed to bring about a restructure of their economies. Those governments can only be compliant if the people are compliant and stop their protests that cause disruption, and in the instance of Greece, become extremely costly in terms of property lost, as well as lives lost due to the riots. The Greek attitude has not been conducive to the necessary reform required.  Greece is the typical example of a country where the expenditure on welfare outstrips by a long shot the taxation receipts, but the lazy Greeks do not seem to understand the implications of their own bad welfare system.

I am not against some form of welfare buffer for the most vulnerable in the community. There is a need to protect such individuals. I am not against short term unemployment benefits for those who are able-bodied. I do think that government needs to have other structures in place that will help the unemployed find work. What I am really against is the expenditure of government funds on projects such as wind farms that are inefficient and will never deliver according to government expectations. The windfarms do not increase employment, but decreases employment in some sectors.

The watermelon policies and the claims regarding AGW or climate change need to be challenged, and governments everywhere need to stop wasting money on bogus research. This also means that I am against the use of IMF funds going third world countries, where such funds would only be wasted upon dead in the water projects whilst those third world countries continue to purchase arms and kill their own people.

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If Spain falls…..

Posted in Spain, stagflation by Aussie on May 21, 2011

If Spain falls and ends up needing a financial bailout, then it will be the fault of Zapatero. As explained in the past, Spain had a booming economy, but when Spain joined the eurozone, the government took advantage of euro loans in order to do things like building bridges. However, for Spain it is not that simple. One question that needs to be addressed is why there is a 45% unemployment rate for Spanish youth.

More than 25,000 people defied a ban on a protest rally to voice their dissatisfaction with the Spanish government, but this dissatisfaction is with the introduced austerity measures that in reality are trying to correct the financial debt crisis in Spain. These people do not want to see an end to the welfare state, they want it to continue.

 

The protest began six days ago in Madrid’s Puerta del Sol as a spontaneous sit-in by young Spaniards frustrated at 45% youth unemployment.

The crowd has grown to some 25,000 in the capital and has spread to cities across the country. Hundreds have camped out each night in Madrid.

They are demanding jobs, better living standards, a fairer system of democracy and changes to the Socialist government’s austerity plans.

“They want to leave us without public health, without public education, half of our youth is unemployed, they have risen the age of our retirement as well,” said protester Natividad Garcia.

“This is an absolute attack on what little state welfare we had.”

Spain’s 21.3% unemployment rate is the highest in the EU – a record 4.9 million are jobless, many of them young people.

What these people do not seem to understand is that the social welfare system needs to be reformed or they will end up with nothing at all.  There are a few things in this report that is cause for alarm:

1. the very high unemployment rate. At 21% this is alarmingly high (maybe the govt needs to use some of that US and Australian ingenuity that hides the real rate of unemployment). The high rate is one of those factors that indicates an economy has hit stagflation.

2. When health and education are totally free, and there is a decrease in taxation receipts or an increase in the demand for those services due to an increase in illegal immigration where there is no subsequent increase in taxes, then something has to give, and reforms are necessary. My view is that people should pay in something towards the education of their children unless they are so poor that they simply cannot pay fees. In other words people who are employed should pay something. If the healthy system is being strained then there most definitely needs to be an overhaul – perhaps those who can afford it, should be paying for private health insurance, thus taking some of the strain off the stystem. An alternative is to send the illegal immigrants back to Morocco where they belong.

I am indeed sympathetic to the unemployed. I have been in that position of graduating to find that there were no jobs available. I can understand that form of frustration, and my sympathy is with those in that unenviable position. However, they too need to think outside the box in order to obtain employment in the future. They cannot just sit and whinge about being unemployed.

The Spanish government would have been better off not wasting money on building wind farms, because these wind turbines have not created employment opportunities, but they have put people out of work. At the same time the government must service the debt created from going ahead with a form of energy creation that is both expensive and inefficient.

If the Spanish can get their act together and think outside the box, then perhaps they can manage to not fall like Portugal, Ireland and Greece. The austerity measures are necessary, but they probably need to make that big decision and abandon the costly wind energy farms.

 

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Finnish anti-Euro party gains in election – Portugal rescue package in doubt

Posted in European Union, Greece, Ireland, Portugal, Spain, unemployment, welfare state by Aussie on April 19, 2011

Now for the latest in the Euro rescue saga. Portugal is next to last of the PIGS nations to need a financial rescue package. Spain is still on the cusp, but has not needed to be rescued so far. However, the Portugal package is on the line, the Greeks are revolting (again) and the Finns are becoming more and more anti-Euro zone.

The success of the TrueFinns means that the Portugal rescue package is not a sure thing, since the TrueFinns have vowed to vote against the supplying of any more funds for these failing economies.

Portugal has opened its doors to the IMF and the European Commission, who will need to evaluate the economy and make recommendations. It is expected that Portual requires a package worth about $70 million Euros.

However, just like Spain, Ireland, Greece, and yes, even the U.K. unless these countries are willing to evaluate their social welfare criteria these packagaes are truly a waste of time. All of these countries need to re-evaluate their socialist system, because long term welfare policies do not work.

Greece has been a prime example of what has gone wrong. The lazy Greeks simply do not want to understand that the changes are necessary if the economy is to survive. Those changes include reforming social welfare payments in order to cut the government debt. However, I doubt that the Greek government has the will to make the deep cuts, especially in the face of protests from the Greek anarchists. The Greeks have shown themselves to be lazy and selfish in that they are unwilling to make the necessary sacrifices for the good of the country.

For a different perspective on the same European economic woes, there is more here and here is a snippet to get a taste of what is in store if there is no change in a welfare system that is bankrupting countries left, right and centre:

Greece is now paying 19.7% on 2 year bonds and there is a real fear of government default. This will put even more pressure on the other PIIGS, who are either on or already over the edge. The question then becomes which economies are triaged. Greece, Iceland, and Ireland are all moribund. Portugal is in the middle of a political crisis, and Spain is teetering on the edge. We are seeing the slow motion destruction of the economic and social programs that helped these economies enter the 21st century. It is hard to believe where these countries ranked economically and demographically even 25 years ago.

Spain–A lesson on how the left destroys an economy

Posted in Spain by Aussie on April 15, 2011

This report from the BBC indicates that the Spanish Prime Minister Zapatero will not be seeking re-election. Spain is one of the PIGS nations, which has been on the brink of financial collapse. This had been caused by taking out Euro loans to pay for infrastructure spending. For the time being at least Spain has weathered the crisis. However this crisis is not over.

The BBC reports the following:

He became Prime Minister in 2004 in the wake of the Madrid train bombings.

Spain’s economy was booming then. It has since suffered a deep recession, and unemployment is at 20%.

 

As far as economic indicators are concerned, the items missing are the inflation rate and the interest rates. These indicators would give a better idea of whether or not Spain has entered a period of stagflation.

The point to be made here is that when Zapatero took over in 2004 the economy of Spain was booming. However, the impact of the socialist government of Zapatero, complete with out of control government spending, as well as other factors, including a problem with illegal immigration from Morocco, Spain’s economic outlook has deteriorated. One can quite easily argue that the lesson from Spain’s decline into recession when it had been booming is that the socialists tend to destroy the economy with their profligate spending.