Thursday, November 13, 2014
Recession>Facing Largest Global Union
No. Not the people who work for Boeing or the airline industry, although those companies use underhanded labor tactics. This is an economic superpower that has severe structural problems, excessive debt, aging population and historical ego's as obstacles.
For those who guessed the European Union, you get a gold star. For everyone else, this is why.
if added together, it is greater than the 300 plus million in the US. Language is not the problem. The setback here is the majority is past its peak spending years and looking toward retirement. This means less productivity and places an economic burden for workers to support the pension plan.
The US does not use honest numbers. The recent news of declining unemployment does not tell the whole story. The US divides unemployment into recent and long-term. The news in the media is recent. The long-term has not changed from the 2008 financial crisis and the best, clearest picture is the population ratio to workforce which is at its lowest in three decades. However, the global slowdown shows itself in the EU work numbers. They are scary and offer little hope for a lot of people.
*France at 10.2%
*Poland at 11.5%
*Italy at 12.6%
*Portugal at 13.1%
*Spain at 23.6%
*Greece at 26.4%
The official average for the union is11.5%. As a whole people cannot find good jobs. They turn to government for answers like socialism. The concept has some good points like retirement benefits, but you cannot have a society where one half works only to be taxed to support the other half. This is the central structural point that needs a new direction.
Anyway, because the economic outlook has diminished, this has effected the value of the common currency. This decline has helped exporters like Germany, but it causes economic hardship for all members. Just like the counterpart in the US, the CPI is fudged. It does not reflect energy and food costs. At the moment oil prices are falling and this will help in the near term, but long-term it indicates lower demand from the global market. This is telling us that the world outlook is declining and this only adds pressure to budgets everywhere. In addition, the EU has put deflation front and center which only hides the real effects of inflation. It has also started its own version of QE which will dilute the value of the euro even further. The euro has declined from 138 in January to 124 now, and still falling.
The EU banking system is larger than the US. However, the banks have not fully recovered from the 2008 financial crisis. The largest bank is Deutsche Bank. This bank has used the dangerous derivative market to get back on track. They are exposed to $75T. They are not alone. This is a common practice in European banks. They are walking dead, zombie banks. If one goes, a chain reaction could hurt Europe and the world.
Just like the US and everywhere, the mirage in the desert of economic growth is debt. It is fueled by central banks and government. The problem with debt is it must be repaid and it is growing faster than European economies and world economies for that matter. It is like a virus. It is unseen and deadly and grows with interest.
Add It Up
Putting it all together this voodoo mixture, concocted by fiat money has all negatives in the pot at the same time. You have high unemployment. You have high debt. You have an aging population that explodes budgets with less revenues. This brew could boil over or using political correct language, a bursting bubble.