Today’s Greek GDP data was a total disaster with the economy sinking -7% in the 4th quarter of 2011:
“Greece’s economy shrank at an annual 7 per cent rate in the last quarter of 2011 as the recession deepened, following a 5 per cent decline in Q3, flash estimates by the country’s statistics service (ELSTAT) showed on Tuesday.
The projection, based on seasonally unadjusted data, means the economy contracted by an average 6.8 per cent for the whole of 2011, more than earlier estimates of 5.5-6 per cent.
The size of the contraction will make it harder to meet revenue targets to cut the country’s budget gap.”
The math here is simple. With the Greek private sector in a balance sheet recession, a current account deficit AND a shrinking government sector, there’s only one way for growth to go. This is the conundrum of austerity and the power of understanding the sectoral balances. All three sectors can’t contract without the economy shrinking. At least one of them has to be expanding.
We know there’s a continuing balance sheet recession in Europe. Richard Koo highlighted this the other day. We also know the austerity is biting. And we also know the periphery countries in trouble are running current account deficits. The math just doesn’t add up here. Europe’s crisis will get worse. It’s only a matter of time before the markets begin to price in the continuing turmoil and disaster of austerity….
This is what happens when austerity is forced upon you. Unfortunately the time to manage a transition is before you need to do so but of course that apparently goes against human/political nature.
No one ever got a parade for preventing a fire – we give medals to the heroes who save people from death in fires.
Facing up to reality is unpleasant in most circumstances.
Something the USSA will never grasp.
Until it does…………………
The End.
Marshall Auerback: Greece "“ A Default is Better Than the Deal on Offer
By Marshall Auerback
http://www.nakedcapitalism.com/2012/02/marshall-auerback-greece-%e2%80%93%c2%a0a-default-is-better-than-the-deal-on-offer.html
“On the other hand, I happen to think a rescue of the sort that is now being publicly mooted is worse for both sides. The imposition of yet more fiscal austerity on Greece will exacerbate the debt deflation dynamics which are destroying the country and will provide Greece with ZERO means of servicing even the reduced levels of debt. The country will still remain uncompetitive and depression like conditions will continue, with the ongoing burden of more euro denominated debt servicing.
More dangerous is the risk that comes if there is a "successful" deal: It come with the pending question- "?if Greece doesn't have to pay, why do I'- The Irish are asking that question already, and I'm sure the Portuguese and Spanish will soon be asking the same thing. As my friend Warren Mosler has noted:
Possible immediate consequences of that discussion include a sharp spike in gold, silver, and other commodities in a flight from currency, falling equity and debt valuations, a banking crisis, and a tightening of "?financial conditions' in general from portfolio shifting, even as it's fundamentally highly deflationary. And while it probably won't last all that long, it will be long enough to seriously shake things up.
Longer term, a Greek default could well provoke the question, "What on earth do governments issue bonds for anyway?" That might well provoke a far more provocative debate on the nature of modern money and the self-imposed legal constraints with which sovereign governments bind themselves in their conduct of fiscal policy. But that's probably best left to the pages of another blog post!”
Yeah, Greece is in a depression, worse thing it’s in the classical deflation-hyperinflation spiral.
These kind of numbers for two years and Greece won’t have any real capital left in the country, social fabric in total chaos and on the verge on revolution and forced to quit the euro nightmare and print money like there is no tomorrow or default on its debt, with a terrible situation for the balance of payments and unable to import essential goods and commodities.
Kinda like Argentina but with the difference that the dependency on imports there is higher and the potential for disaster bigger. I fear the worst is yet to come to Greece unless the population (greek and european) force the situation before it’s too late.
At this point best thing they could do is default, quit the euro, cut funding from european union and they may have hope yet, but if they hold one or two years more Greece will become a third world country in bad shape fast.
The question is if this is the path for countries like Italy and Spain, because these are two big fish to fry and hate can spread fast if poverty and inequality increases.
And people still believe the EMU has any chance of surviving?
http://www.ifre.com/eu-to-punish-spain-for-deficits-inaction/20048665.article
1. Just a reminder of what’s in store for the US when China starts to implode. 2. I’m watching the US T-bond market and I see a change in character in the last say, two months.
Notify me of follow-up comments via e-mail
© 2009 pragcap.com · Register for PC
Today’s Greek GDP data was a total disaster with the economy sinking -7% in the 4th quarter of 2011:
“Greece’s economy shrank at an annual 7 per cent rate in the last quarter of 2011 as the recession deepened, following a 5 per cent decline in Q3, flash estimates by the country’s statistics service (ELSTAT) showed on Tuesday.
The projection, based on seasonally unadjusted data, means the economy contracted by an average 6.8 per cent for the whole of 2011, more than earlier estimates of 5.5-6 per cent.
The size of the contraction will make it harder to meet revenue targets to cut the country’s budget gap.”
The math here is simple. With the Greek private sector in a balance sheet recession, a current account deficit AND a shrinking government sector, there’s only one way for growth to go. This is the conundrum of austerity and the power of understanding the sectoral balances. All three sectors can’t contract without the economy shrinking. At least one of them has to be expanding.
We know there’s a continuing balance sheet recession in Europe. Richard Koo highlighted this the other day. We also know the austerity is biting. And we also know the periphery countries in trouble are running current account deficits. The math just doesn’t add up here. Europe’s crisis will get worse. It’s only a matter of time before the markets begin to price in the continuing turmoil and disaster of austerity….
This is what happens when austerity is forced upon you. Unfortunately the time to manage a transition is before you need to do so but of course that apparently goes against human/political nature.
No one ever got a parade for preventing a fire – we give medals to the heroes who save people from death in fires.
Facing up to reality is unpleasant in most circumstances.
Something the USSA will never grasp.
Until it does…………………
The End.
Marshall Auerback: Greece "“ A Default is Better Than the Deal on Offer
By Marshall Auerback
http://www.nakedcapitalism.com/2012/02/marshall-auerback-greece-%e2%80%93%c2%a0a-default-is-better-than-the-deal-on-offer.html
“On the other hand, I happen to think a rescue of the sort that is now being publicly mooted is worse for both sides. The imposition of yet more fiscal austerity on Greece will exacerbate the debt deflation dynamics which are destroying the country and will provide Greece with ZERO means of servicing even the reduced levels of debt. The country will still remain uncompetitive and depression like conditions will continue, with the ongoing burden of more euro denominated debt servicing.
More dangerous is the risk that comes if there is a "successful" deal: It come with the pending question- "?if Greece doesn't have to pay, why do I'- The Irish are asking that question already, and I'm sure the Portuguese and Spanish will soon be asking the same thing. As my friend Warren Mosler has noted:
Possible immediate consequences of that discussion include a sharp spike in gold, silver, and other commodities in a flight from currency, falling equity and debt valuations, a banking crisis, and a tightening of "?financial conditions' in general from portfolio shifting, even as it's fundamentally highly deflationary. And while it probably won't last all that long, it will be long enough to seriously shake things up.
Longer term, a Greek default could well provoke the question, "What on earth do governments issue bonds for anyway?" That might well provoke a far more provocative debate on the nature of modern money and the self-imposed legal constraints with which sovereign governments bind themselves in their conduct of fiscal policy. But that's probably best left to the pages of another blog post!”
Read Full Article »