What we see is scary enough, but the hidden part is something virtually every nation will have to navigate around during the next couple of decades.
Someday the euro debt crisis that started in Greece and spread to engulf Europe will be over.
Politicians in the nations that use the euro will figure out the right mix of carrot and stick to get Greece, Portugal, Spain and other member states to adhere to European Monetary Union limits on debt. They'll figure out how to balance national pride with the clear need for more-integrated fiscal systems among the members. They'll gradually earn back the trust of financial markets, and someday we'll all be back talking about the euro as a rival to the U.S. dollar as a global reserve currency.
Paid vacation around the world
Hard to believe but true.
Here's something, however, that may be even harder to believe: The euro debt crisis, for all its power to shake financial markets and the global economy, is just Chapter 1 in a story that will run for the next two decades. This crisis is only our introduction to the kinds of wrenching changes that virtually every nation's economy will face over the next 20 years.Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 304, 314, {"configCsid": "MSNmoney", "configName": "player-money-4x3-articles-inline", "player.vcq": "videoByUuids.aspx?uuids= 690cee98-ce87-4952-af83-72f8c5262fca,667a4884-1c9b-48b4-b024-347f9433a1c8,336a6d89-032f-4771-96dd-eda2c1b7b629,84478615-27f9-4fec-80b1-65c7f100bea9,c731d2b5-a475-4e76-8938-3abd5d642582,f4f6b4f0-1f2c-44c0-aca3-51e3c5c281c4,4ea6b678-c4ba-437e-848a-016a5a1f9f35,30bc260c-b3aa-4626-ba78-86a65a5e8f41,b79d2109-45cb-4cd0-a934-519e1cb1f06c", "player.fr": "iv2_en-us_money_article_Investing-JubaksJournal-inline"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=690cee98-ce87-4952-af83-72f8c5262fca,667a4884-1c9b-48b4-b024-347f9433a1c8,336a6d89-032f-4771-96dd-eda2c1b7b629,84478615-27f9-4fec-80b1-65c7f100bea9,c731d2b5-a475-4e76-8938-3abd5d642582,f4f6b4f0-1f2c-44c0-aca3-51e3c5c281c4,4ea6b678-c4ba-437e-848a-016a5a1f9f35,30bc260c-b3aa-4626-ba78-86a65a5e8f41,b79d2109-45cb-4cd0-a934-519e1cb1f06c;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4');The euro debt crisis is a crisis coming to a nation near you. And let's hope the next chapter suggests that there's an ending to this story that doesn't involve street riots and a long-term decline in living standards for entire populations.
Let's hope. But the lesson from the euro debt crisis is that it's not going to be easy. It may not even be possible.
You probably don't think of the euro debt crisis as part of some larger global story that is going to pull in you and your family as starring characters. But it is. This isn't just a story about some feckless Greeks who went on wild shopping sprees with money lent to them by hardworking Germans who didn't check the books carefully. (But it is that story, too.)Soon-to-be-ancient Greece Some basic economics make the Greek crisis universal.
From the first quarter of 2001 to the third quarter of 2009, unit labor costs in Greece -- that's how much a worker earned for producing one unit of something -- rose 33%. That's a 33% increase in the cost of producing one gimcrack in Greece after you've deducted all the benefits of any increase in the productivity of Greek workers. In other words, if a Greek worker went from making one gizmo an hour to making two an hour and got paid twice as much for that hour, the unit-labor-cost increase would be 0%.
Greek productivity did climb, at an average annual rate of about 2% from 2000 to 2010. Greece showed the same productivity growth as Germany, but wages climbed faster. According to Greece's national collective labor agreement, wages rose 6.2% in 2006, 5.4% in 2007, 6.2% in 2008 and 5.7% in 2009.
The result was that Greece priced itself out of global export markets. If your unit labor costs climb 33% while those of Italy go up just 30% and those of Spain 28% -- and while Germany's costs increase just 6% and U.S. costs plummet 27% (as they did from 2001 to 2009) -- you can be sure that selling your exports will get harder.
And as Greece was becoming less competitive, it was growing older. In 1971, 11.1% of Greeks were 65 or older, according to the Organisation for Economic Co-operation and Development. By 2001, that was up to 17%. By the end of 2009, 18.7%. The OECD takes its estimates out all the way to 2050. By 2031, 25% of Greeks will be 65 or older. By 2050, the figure is likely to close in on a third, at 32.5%.
The combination of falling competitiveness and an aging population would be lethal enough -- fewer workers making less-competitive products to support an increasing number of retired workers -- but the Greek government has made it worse. To win voters' support, governments of all parties not only promised those hefty wage increases, but they also promised generous pensions at earlier ages.
Continued: Promises that can't be madeMore from MSN Money and MoneyShow.com
Europe's pain could be your gainExpect more 'black swans' to roil investorsEurotrashed: It's not just GreeceJubak on video: Euro crisis is primarily politicalEurope's dilemma: Print money or cut debt?Jubak on video: What you get for $1 trillion1 | 2 | next >
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ReplyReport AbusePurevalue #4Tuesday, May 25, 2010 3:30:29 AMVery good and honest article.
Most people in the developed world are in this situation.
The major creditors of the world are Japan, China, Germany, Switzerland and Russia! I am sure most of the debtor nations will continue to bash on them and inflate themselves!
Individual investors can still take action against what's comming as we have been warned!
ReplyReport Abusewmdough #5Tuesday, May 25, 2010 4:46:21 AMGreetings Jim,
You state that governments (Politicians) over promise benefits such as "hefty wage increases and generous pensions."
Does this imply that labor productivity and wages (output per unit of input) are excessive and out of balance ? Productivity the Problem?
I remember back around 1970 there was a George Washington University professor, John Kendrick who wrote a lot about "total factor productivity." If I remember him correctly he stated that the current measure of productivity was much too narrow and should be expanded.
If we are going to have a long-term decline in living standards should we be looking at other broader measures, including where the necessary innovations (and the economic progress) are going to come from rather then dwell on civil servants pensions?
Automation and technology do not seem to increase our standard of living. All it seems to do is eliminate jobs. It has been said that average american wage earners have not had a pay raise in thirty years.
Is the real problem the global economy has not helped american workers and the playing field is still unbalanced and competitively unfair. Is the global economy nothing more then a world of glorious promises?
Government, in my opinion, is not the problem. Seems to me it is american business that is the problem. Where is the innovation? Where is the leadership? ... and where are my dividends?
A few readings on productivity:
Economic Accounts and Their Uses (1972)
Understanding Productivity (1977)
By John Kendrick (died in 2009 at 92)
ReplyReport AbuseIgnatius75 #6Tuesday, May 25, 2010 5:58:11 AMCato Institute think tank is an oxymoron.ReplyReport Abusefrankit2 #7Tuesday, May 25, 2010 6:12:05 AM
Tip of the iceberg.
I agree, however the main part of the iceberg is all the anaylist mouthing thyeir one sided opinions, just to publish and sell to the dumb public.
When are the public going to wise up and file a multi trillon dollar lawsuit against the anaylist and their multi billion dollar company's that hire them, and stop some of this junk?
ReplyReport AbuseWolfPaw48 #8Tuesday, May 25, 2010 6:22:50 AMI couldn't agree more with Jim's projections. This is the down side to politicians being in office for only a finite amount of time. None of them cares if their plans are sustainable as long as they get the pay, praise and perks of the day. People need to start asking the question before they vote for these people. Are their plans and promises sustainable? Actually we should have been doing that 30 years ago. I for one decided 20 years ago not to count on the government for anything. So far I haven't been let down. Ultimately someone is going to control your life. It's time for people to start deciding that they are the best alternative for that job.ReplyReport AbuseforwhomthebelltollsI #9Tuesday, May 25, 2010 6:27:20 AMFolks, I've never shilled for a politician in my life and I won't start now. But I will say this....The Paul Ryan plan. You owe it to yourself to read it. You don't have to agree with it. But at least read it and educate yourself as to the practical steps that the US can take today, to WORK it's way out of this mess.ReplyReport Abusejestjack #10Tuesday, May 25, 2010 6:43:54 AMIt would seem that one's "word" or promise is worth nothing. In my lifetime I have watched as promises made to steel and auto workers for pensions and health care go unmet. For all intents and purposes GM went BK on a Friday and reopened on a Monday minus debt and future promises. Yet there was no liquidation forced to pay for those obligations...I find this puzzling. And the US's most powerful "pyramid scheme" ...Social Security ...would seems to be the next "house of cards" to collapse. Sadly we seem to have lost our way as a man, company nor government's word is worth the paper it is written on...ReplyReport Abuse1 - 10 of 44PreviousNext_ucf13('0'); _iuc2Om1('MSNPortalInlineComments','Initial_Load_Comment_View','http://articles.moneycentral.msn.com/Investing/JubaksJournal/euro-crisis-is-tip-of-the-iceberg.aspx?page=2&','en-us');Are you sure you want to delete this comment?Report AbusePlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease notify us using the Report abuse form below. We will investigate your report and take appropriate action against offenders. We report all illegal activity to authorities.CategoriesSpam or advertisingChild pornography or exploitationProfanity, vulgarity or obscenityCopyright infringementHarassment or threatOtherAdditional comments(optional)100 character limit To add a comment, pleasesign in/*MSN PrivacyLegalAdvertiseRSSHelpFeedbackSite mapAbout our ads© 2010 Microsoft/*Let's hope. But the lesson from the euro debt crisis is that it's not going to be easy. It may not even be possible.
You probably don't think of the euro debt crisis as part of some larger global story that is going to pull in you and your family as starring characters. But it is. This isn't just a story about some feckless Greeks who went on wild shopping sprees with money lent to them by hardworking Germans who didn't check the books carefully. (But it is that story, too.)Soon-to-be-ancient Greece Some basic economics make the Greek crisis universal.
From the first quarter of 2001 to the third quarter of 2009, unit labor costs in Greece -- that's how much a worker earned for producing one unit of something -- rose 33%. That's a 33% increase in the cost of producing one gimcrack in Greece after you've deducted all the benefits of any increase in the productivity of Greek workers. In other words, if a Greek worker went from making one gizmo an hour to making two an hour and got paid twice as much for that hour, the unit-labor-cost increase would be 0%.
Greek productivity did climb, at an average annual rate of about 2% from 2000 to 2010. Greece showed the same productivity growth as Germany, but wages climbed faster. According to Greece's national collective labor agreement, wages rose 6.2% in 2006, 5.4% in 2007, 6.2% in 2008 and 5.7% in 2009.
The result was that Greece priced itself out of global export markets. If your unit labor costs climb 33% while those of Italy go up just 30% and those of Spain 28% -- and while Germany's costs increase just 6% and U.S. costs plummet 27% (as they did from 2001 to 2009) -- you can be sure that selling your exports will get harder.
And as Greece was becoming less competitive, it was growing older. In 1971, 11.1% of Greeks were 65 or older, according to the Organisation for Economic Co-operation and Development. By 2001, that was up to 17%. By the end of 2009, 18.7%. The OECD takes its estimates out all the way to 2050. By 2031, 25% of Greeks will be 65 or older. By 2050, the figure is likely to close in on a third, at 32.5%.
The combination of falling competitiveness and an aging population would be lethal enough -- fewer workers making less-competitive products to support an increasing number of retired workers -- but the Greek government has made it worse. To win voters' support, governments of all parties not only promised those hefty wage increases, but they also promised generous pensions at earlier ages.
Continued: Promises that can't be madeMore from MSN Money and MoneyShow.com
1 | 2 | next >
Check out Jim's top stocks for the next 12 months.
Read how to invest with Jubak's showcase portfolio.
Follow the long-term portfolio from Jim's book "The Jubak Picks."
See Jim's new portfolio to help navigate the treacherous interest-rate environment.
The only way to handle this is the printing press. Expect the fed to keep the presses rolling on full after burner. Real money (gold and silver) should do very well.
Very good and honest article.
Most people in the developed world are in this situation.
The major creditors of the world are Japan, China, Germany, Switzerland and Russia! I am sure most of the debtor nations will continue to bash on them and inflate themselves!
Individual investors can still take action against what's comming as we have been warned!
Greetings Jim,
You state that governments (Politicians) over promise benefits such as "hefty wage increases and generous pensions."
Does this imply that labor productivity and wages (output per unit of input) are excessive and out of balance ? Productivity the Problem?
I remember back around 1970 there was a George Washington University professor, John Kendrick who wrote a lot about "total factor productivity." If I remember him correctly he stated that the current measure of productivity was much too narrow and should be expanded.
If we are going to have a long-term decline in living standards should we be looking at other broader measures, including where the necessary innovations (and the economic progress) are going to come from rather then dwell on civil servants pensions?
Automation and technology do not seem to increase our standard of living. All it seems to do is eliminate jobs. It has been said that average american wage earners have not had a pay raise in thirty years.
Is the real problem the global economy has not helped american workers and the playing field is still unbalanced and competitively unfair. Is the global economy nothing more then a world of glorious promises?
Government, in my opinion, is not the problem. Seems to me it is american business that is the problem. Where is the innovation? Where is the leadership? ... and where are my dividends?
A few readings on productivity:
Economic Accounts and Their Uses (1972)
Understanding Productivity (1977)
By John Kendrick (died in 2009 at 92)
Tip of the iceberg.
I agree, however the main part of the iceberg is all the anaylist mouthing thyeir one sided opinions, just to publish and sell to the dumb public.
Read Full Article »
