Posts Tagged ‘Germany’

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A Tale of Two Countries: Germany and Spain

Monday, January 23rd, 2012

Germany’s unemployment declined more than predicted in December as car and machinery exports boomed and one of the mildest winters on record helped construction jobs. The number of jobless people declined a seasonally adjusted 22,000 to 2.89 million, according to the Nuremberg-based Federal Labor Agency.  Economists had forecast a decline of 10,000.  The adjusted jobless rate fell to just 6.8 percent.  German firms are working virtually nonstop to fulfill orders for exports and investment goods.  As a result, the nation has defied a debt crisis that the European Commission fears will unleash a recession throughout the Eurozone.  The Munich-based IFO Institute’s measure of business confidence also rose unexpectedly in December.  Polls show that the majority of Germans see their jobs as secure even as Europe’s biggest economy slows.  Forward-looking indicators including IFO’s underscore that the German jobs motor is fundamentally intact, said Johannes Mayr, a senior economist at Bayerische Landesbank in Munich.

Except for an unexpected 6,000 increase in October, German unemployment has declined in every month since June 2009. The average jobless total in unadjusted terms for 2011 was well below the three million mark, Labor Agency head Frank-Juergen Weise said.  “German unemployment mastered the dual impact of the debt crisis and weakening economic growth in 2011 but these risks remain, accompanying us as we enter the new year, Weise said.

Both the jobless total and the jobless rate were at their lowest level since unification in 1991, noted German Economy Minister Philipp Roesler. “2011 can be described as the most successful since German unification for working people,” Roesler said.  “Demand for labor remains very high, despite the current economic risks.  Overall, the upturn in employment should continue, albeit at a slower rate.  The labor market remains one of the main pillars of our economy,” the minister said.

The national statistics office Destatis reported that the number of employed people in Germany hit a new record of 41.04 million in 2011, with more than 500,000 jobs created.  It was the first time the number of people working in Germany has risen above 41 million, Destatis said.  The nation’s population is approximately 82 million.

“Overall, labor market conditions will remain markedly healthier in Germany than in most other countries in Europe in the months ahead,” said IHS Global Insight’s Timo Klein. At present, Germany is confronting a shortage of skilled labor.  Leading economists anticipate that Germany’s economic growth will slow in 2012, in line with other major Eurozone economies, which may put a squeeze on wages and jobs.  But, unemployment at a record low for the last 20 years, is a position that most countries envy and a sign of the way Germany has rebuilt itself since the Wall was torn down.

“Germany’s manufacturing and export-driven economy finished the year strongly — piling on another 22,000 jobs in December,” said Anthony Cheung of market analysts RANsquawk.  “Behind the strong performance lie some adept moves by Germany’s exporters.  As their Eurozone markets weakened, they have been very good at moving their focus elsewhere.  German carmakers have more than compensated by dramatically growing sales to developing markets.”

This is one reason why companies are not shedding significant staff, even if the economy hits a downturn, said Berenberg Bank’s Holger Schmieding.

Germany’s labor market strength means that domestic demand will “remain a pillar of support” to the eurozone “under very challenging circumstances otherwise,” Schmieding said.  The Eurozone badly needs this help.  For example, Spain again published dire labor market data with the jobless rate rising by nearly 2,000 in December when compared with November.  Eurostat’s most recent data showed October unemployment in Spain at 22.8 percent, by far the Eurozone’s highest.

Spain represents an entirely different scenario.  During 2011, unemployment in Spain soared 7.9 percent, totaling an astonishing 322,286 individuals.  Nearly one-third of all the Eurozone’s unemployed are Spanish; approximately 50 percent of young Spaniards are out of work.  The tough austerity measures outlined by the new prime minister, Mariano Rajoy, are likely to push Spain’s jobless rate even higher.  These include €8.9 billion in spending cuts and tax increases to cut Spain’s borrowing which should total €16.5 billion in 2012.  Spain closed out 2011 with a deficit of 8 percent of its GDP, significantly higher than the six percent reported at the end of 2010.  “This is the beginning of the beginning,” said Deputy Prime Minister Saenz de Santamaria, noting that Spain is facing “an extraordinary, unexpected situation, which will force us to take extraordinary and unexpected measures.”  She stressed that the wealthiest will be increasingly taxed for at least two years, resulting in expected budgetary gains of €6 billion.

These numbers represent a new 15-year high in Spain’s unemployment rate “The figures for the number of registered unemployed for the month of December confirm the deterioration of the economic situation during the second half of the year,” according to Spain’s labor ministry.  Once the Eurozone’s job creation engine, Spain has struggled to find jobs for the millions thrown out of work since the 2008 property bubble collapse.

The bad news fueled fears that Spain, the Eurozone’s fourth-largest economy, was slipping back into recession after the economy posted zero growth in the 3rd quarter of 2011.  Prime Minister Rajoy’s new government has promised to fight unemployment and fix the country’s finances as its top priorities.  Rajoy plans to present a major labor market reform which will alter hiring laws and Spain’s collective bargaining system to encourage companies to hire workers.

Spain’s secretary of state for employment, Engracia Hidalgo, said the successive labor reforms carried out by the previous government “never made the labor market more dynamic and flexible.”  Spain  lets the jobless receive unemployment benefits for a maximum of two years.  Prime Minister Rajoy’s government extended a monthly payment of 400 euros ($520) for people whose benefits have run out.  Otherwise, the payments would have expired in February.

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Fallout From European Credit Downgrades Still Underway

Monday, January 23rd, 2012

European leaders will this week try to deliver new fiscal rules and cut Greece’s onerous debt burden.  All this in the wake of Standard & Poor’s (S&P) Eurozone downgrades.

France was not the only Eurozone nation to feel the pain. Austria was cut to AA+ from AAA; Cyprus to BB+ from BBB; Italy to BBB+ from A; Malta to A- from A; Portugal to BB from BBB-; the Slovak Republic to A from A+; Slovenia to A+ from AA-; and Spain to A from AA-. S&P left the AAA ratings of Germany, Finland, Luxembourg and the Netherlands the same.

The European Central Bank (ECB) emerged unscathed.  The ratings agency said Eurozone monetary authorities “have been instrumental in averting a collapse of market confidence,” mostly thanks to the ECB launching new loan programs aimed at keeping the European banking system liquid while it works to resolve funding pressure brought on by the sovereign debt crisis.

The talks on Greece and budgets may serve as tougher tests of the tentative recovery in investor sentiment than S&P’s decision to cut the ratings of nine Eurozone nations, including France. If history repeats itself, fallout from the downgrades may be limited.  JPMorgan Chase research shows that 10-year yields for the nine sovereign nations that lost their AAA credit rating between 1998 and last year rose an average of two basis points the next week.

Policymakers worked doggedly to take back the initiative. German Chancellor Angela Merkel said S&P’s decision and criticism of “insufficient”  policy steps reinforced her view that leaders must try harder to resolve the two-year crisis. Germany is now alone in the Eurozone with a stable AAA credit rating. Reacting to Spain’s downgrade to A from AA-, Prime Minister Mariano Rajoy pledged spending cuts and to clean up the banking system, as well as a “clear, firm and forceful” commitment to the Euro’s future. French Finance Minister Francois Baroin said the reduction of France’s rating was “disappointing,” yet expected

The European Financial Stability Facility (EFSF), which is intended to fund rescue packages for the troubled nations of Greece, Ireland and Portugal, owes its AAA rating to guarantees from its sponsoring nations. “I was never of the opinion that the EFSF necessarily has to be AAA,” Merkel said.  Luxembourg Prime Minister Jean-Claude Junker said the EFSF’s shareholders will look at how to maintain the top rating of the fund, which plans to sell up to 1.5 billion Euros in six-month bills starting this week. In the meantime, Merkel and other European leaders want to move speedily toward setting up its permanent successor, the European Stability Mechanism, this year — one year ahead of the original plan.

Greece’s Prime Minister Lucas Papademos said that a deal will be hammered out. “Some further reflection is necessary on how to put all the elements together,” he said. “So as you know, there is a little pause in these discussions. But I’m confident that they will continue and we will reach an agreement that is mutually acceptable in time.”

Standard & Poor’s downgraded nine of the 17 Eurozone countries and said it would decide before too long whether to cut the Eurozone’s bailout fund, the EFSF, from AAA.  “A one-notch downgrade for France was completely priced in, so no negative surprise here, and quite logical after the United States got downgraded,” said David Thebault, head of quantitative sales trading at Global Equities.

Thanks to the downgrades, fears of a Greek default also increased after talks between private creditors and the government over proposed voluntary write downs on Greek government bonds appeared near collapse.  Greece appears to be close to default on its sovereign debt, eclipsing the news that France and other Eurozone members lost their triple-A credit ratings.  “At the start of this year, (we) took the view that things in the Eurozone had to get worse before they got better. With the S&P downgrade of nine Eurozone countries and worries about the progress of Greek debt restructuring talks, things just did get worse,” wrote economists at HSBC.

Additionally there are implications for Eurozone banks from the sovereign downgrades.

“The direct impact of further sovereign and bank downgrades on institutions in peripheral.  nations is perhaps neither here nor there given that they are already effectively shut out of wholesale funding markets due to pre-existing investor concerns over the ability of governments in these countries to stand behind their banks,’ said Michael Symonds, credit analyst at Daiwa Capital Markets.

Writing in the Sydney Morning Herald, Ha-Joon Chang says that “Even the most rational Europeans must now feel that Friday the 13th is an unlucky day after all.  On that day last week, the Greek debt restructuring negotiation broke down, with many bondholders refusing to join the voluntary 50 per cent ‘haircut’  – that is, debt write off – scheme, agreed to last summer. While the negotiations may resume, this has dramatically increased the chance of disorderly Greek default.  The Eurozone countries criticize S&P and other ratings agencies for unjustly downgrading their economies. France is particularly upset that it was downgraded while Britain has kept its AAA status, hinting at an Anglo-American conspiracy against France. But this does not wash, as one of the big three, Fitch Ratings, is 80 per cent owned by a French company.”

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Italy Asks IMF to Oversee its Debt Reduction Efforts

Tuesday, November 29th, 2011

Italy’s Prime Minister Silvio Berlusconi has asked for international oversight of his efforts to slash the eurozone’s second-largest debt, even as his unraveling coalition threatens efforts to build a wall against Europe’s debt crisis.  Berlusconi’s government asked the International Monetary Fund (IMF) to assess its debt-reduction progress, and turned down an offer of financial assistance.

“It hasn’t been imposed, it was requested,” Berlusconi said.  The IMF will carry out quarterly “certifications” of the euro region’s third-largest economy, he said, noting that the current sell-off of Italian debt is “a temporary trend” even as the nation’s borrowing costs soared to record highs.  Berlusconi is under mounting pressure as Italy tries to avoid yielding to the sovereign-debt crisis.

Italy’s 10-year borrowing costs are getting dangerously close to the seven percent level that forced Greece, Ireland and Portugal to ask for bailouts.  The yield on the nation’s benchmark 10-year bond surged to a euro-era record of 6.404 percent, the highest since the creation of the single currency.  “If the current Greek tragedy is not to turn into an Italian tragedy, with far more serious and far-reaching consequences for the eurozone, Berlusconi must resign immediately,” Marc Ostwald, a fixed-income strategist at Monument Securities Ltd., said.  Berlusconi may be “remembered as the architect of Italy’s descent into an economic inferno.”

IMF managing director Christine Lagarde hopes that quarterly monitoring will start by the end of November to verify that the reforms Berlusconi promised are implemented.  “It’s verification and certification if you will, of implementation of a program that Italy has committed to,” she said. “It’s one of the best ways to have an independent view…to verify that promised measures are actually implemented.”  She agreed that Italy doesn’t need IMF funding.  “The problem that is at stake — and that was clearly identified both by the Italian authorities and its partners — is a lack of credibility of the measures that are announced,” according to Lagarde.  “The typical instrument that we would use is a precautionary credit line.  Italy does not need the funding that is associated with such instruments so the next best instrument is fiscal monitoring, which is what we have identified.”

Lagarde isn’t certain that the proposed reforms are credible. “The problem that is at stake and that was clearly identified both by the Italian authorities and by its partners is a lack of credibility of the measures that were announced,” Lagarde said.  Additionally, the IMF will provide funds to stimulate Italy’s economy, although under strict conditions.

Will Berlusconi’s regime survive this crisis?  “Historically, technocrat governments in Italy have been able to pass pro-growth structural reforms, including politically difficult labor market reforms,” said Barclays Capital analyst Fabio Fois.  Governments such as those led by Carlo Azeglio Ciampi and Lamberto Dini – who had served as central bankers — in the early 1990s saved Italy from financial crises even worse than the present one.  “I think the political parties would have a big incentive to go through the painful policy adjustment now, before the next election due in 2013, so that whoever wins won’t have to do it later,” Fois said.

Berlusconi seemed almost nostalgic for the days when the lira was Italy’s currency. “You don’t get much in your supermarket trolley for €80 today, whereas you used to get a lot for 80,000 lire,” he said.

He insisted that Italy’s economy is generally prospering.  “The restaurants and vacation spots are always full, nobody thinks there is a crisis,” he said, noting that, considering its low household debt levels, Italy has Europe’s second-strongest economy, after Germany and was stronger than France or the U.K.  The country’s €1.9 trillion in public debt, the equivalent of nearly 120 percent of GDP, was a legacy problem, had not grown in the past 20 years, and had been consistently serviced, Berlusconi said.

Berlusconi admitted that his government “might have made a mistake” in assuming the public debt was sustainable without more aggressive fiscal and reform action.  When asked what he thought about frequent warnings from European Union partners that Italy demonstrate credibility with the promised reforms, Berlusconi said the criticism reflected prejudice about past Italian behavior.  “If we don’t enact the reforms Italy will be in trouble,” he said.  “But we will enact them.”

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European Central Bank Raises Interest Rates to Fight Inflation

Monday, May 2nd, 2011

The Federal Reserve is unlikely to follow the European Central Bank’s (ECB) recent decision to raise interest rates and will hold off until there is looming inflation.  The ECB’s move may be the first of several this year as high oil costs drive consumer prices above its target.  That’s not to say that some members of the Fed’s policy-setting committee are not proposing an increase in the overnight lending rate by three quarters of a percentage point by the end of 2011.

Fed Chairman Ben Bernanke and New York Fed president William Dudley both believe that the economy is still to weak to remove support.  “The old analogy that the Federal Reserve removes the punch bowl just when the party gets going doesn’t apply here because, well, there is no party,” said Bernard Baumohl, chief global economist at the Economic Outlook Group in Princeton, NJ.  “There’s not even a balloon in sight.”

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, also sees the ECB’s move as having minimal impact on the Fed. “I don’t see that a move by the ECB has any particular influence on our policy posture here in the United States,” Lockhart said.  “Obviously by increasing the differential between short-term rates in the U.S. and short-term rates in the eurozone, you can see some influence” because “exchange markets are affected by short-term rates.  I think some of the dollar selloff reflects some extent of that.”

The ECB “will hike twice in quick succession in April and June to satisfy the core economies’ demand for tighter policy,” said Stuart Thomson, a Glasgow-based money manager at Ignis Asset Management, which oversees about $120 billion.  “But the sensitivity of the peripheral economies to higher rates, both in terms of overall debt and proportion of consumer loans tied to variable interest rates, means the central bank will pause over the summer.”

The Frankfurt-based ECB raised its refinance rate to 1.25 percent from just one percent, the first increase since July 2008.  The ECB also boosted other rates by a quarter point, raising its marginal lending facility rate to two percent and its overnight deposit facility rate to 0.5 percent.  According to ECB President Jean-Claude Trichet, “We did not decide it was the first of a series of rate increases,” emphasizing that the central bank will “always do what is necessary” to assure that inflation expectations across the 17-nation eurozone are given due consideration.

The ECB has forked over billions of dollars in the last year, purchasing bonds from troubled European nations such as Greece, Ireland and Portugal – all of which have been bailed out by the European Union – to assure that they stay afloat.  The bank, whose intention is to focus on inflation is raising interest rates to combat rising prices, a major concern in Germany, which is the ECB’s most influential member.

“The ECB has decided that it will tighten policy for the core countries like Germany that are doing well and leave the non-standard measures support in place for the periphery countries,” said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc.  “The rate increase is appropriate and there will be another one as early as June.”

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United States in Third Place in Developing Clean Energy Sources

Wednesday, April 20th, 2011

The United States has fallen to third place – behind China and Germany – in the development of clean energy sources, according to a new report from the Pew Charitable Trusts. Investment in global clean energy expanded significantly in 2010 to $243 billion, a 30 percent increase over 2009.  China, Germany, Italy and India were among the nations that were most successful at attracting private investments.  China solidified its position as the world’s clean energy leader.  Its 2010 investment record of $54.4 billion in 2010 represents a 39 percent increase over 2009.  Germany ranked second in the

G-20, up from third last year, after experiencing a 100 percent increase in investment to $41.2 billion.  The United States’ 2010 investment totaled just $34 billion, a 51 percent increase over the previous year.

“The United States’ position as a leading destination for clean energy investment is declining because its policy framework is weak and uncertain,” said Phyllis Cuttino, director of Pew’s Clean Energy Program.  She said that the U.S. could lag behind even more as competitors adopt renewable energy standards and incentives for investing in solar, wind and other forms of clean energy.  “We are at risk of losing even more financing to countries like China, Germany and India, which have adopted strong policies such as renewable energy standards, carbon reduction targets and/or incentives for investment and production,” Cuttino said.

“The United States remains the global leader in clean energy innovation, receiving 75 percent of all venture capital investment in the sector, a total of $6 billion in 2010, but the U.S. has not been creating demand for deployment of clean energy.  As a result it is losing out on opportunities to attract investment, create manufacturing capabilities and spur job growth.  For example, worldwide, China is now the leading manufacturer of wind turbines and solar panels,” says Michael Liebreich, CEO of Bloomberg New Energy Finance.

China’s goal is to install 20,000 megawatts of solar energy by 2020; the European Union intends to generate 20 percent of its power from renewable sources over the same timeframe.  In the United States, 30 states have policies requiring utilities to buy more electricity from renewable sources.  Although the federal government has incentives in place to cut project costs, there’s no nationwide mandate for clean energy.

The website 247wallstreet.com believes it doesn’t really matter who leads the world in alternative energy creation – as long as global effort continue.  According to Douglas McIntyre, “Most of the data does not matter much.  The fact that China invests such a large amount in clean energy does not mean it will not sell products based on that technology to U.S. firms.  China will export manufactured wind and solar infrastructure just as it does everything else.  Green technology is hardly a strategic asset.  The Chinese are as anxious to make money from their investment as U.S. companies.  If any proof is needed, many Chinese and US alternative energy firms are listed on stock exchanges.  Green is a business as much as it is a movement.”

Unfortunately, McIntyre says, solar and wind energy are not as powerful a source as many believe.  Solar energy doesn’t work at night unless the user has a storage device such as a battery; cloudy weather can make the technology unreliable.  Solar technologies are also quite costly and need significant land to collect the sun’s energy at useful rates.  Wind energy is intermittent in most areas.  Additionally, wind turbines typically are not connected to the American power grid, making the energy it produces difficult to deliver effectively to places where it could replace coal-powered electricity.

McIntyre notes that “America has a nearly inexhaustible supply of coal.  Nuclear energy projects may be delayed by the effects of the Japan earthquake, but its growth in the U.S. is inevitable because the country needs to produce more energy within its borders.  Investment in solar and wind energy may be up, particularly in China.  That does not matter much if the two sources do not work as well as others that are currently available.”

Click here to read a discussion about nuclear power by Amy Goodman of Democracy Now.

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Amy Dean On Do Unions Matter?

Wednesday, March 9th, 2011

dean_icon_tag America is obsessed with the issue of trade unions again.  Labor unions have gained new prominence as Democratic legislators from Wisconsin and Indiana have left their states for the greener pastures of Illinois to avoid participating in votes to cut back or eliminate collective bargaining rights for public employees.  Thousands of protestors have taken up residence in the Wisconsin State Capitol to voice their anger at Republican Governor Scott Walker’s attempts to break the state’s unions.

Are labor unions relevant in the 21st century?  Amy Dean, an author, activist and social entrepreneur whose roots are in the American labor movement and who served 10 years as the President and CEO of the South Bay AFL-CIO Labor Council in the Silicon Valley, says the answer is a resounding “yes”.  Dean is also co-author of the new book, “A New New Deal: How Regional Activism Will Reshape the American Labor Movement.”  During her tenure with the AFL-CIO, Dean represented 90 separate unions with more than 110,000 members.

Dean points out that before President Ronald Reagan famously busted the air traffic controllers’ union in 1981, there was strong bipartisan support for organized labor.  Even Republican President Dwight D. Eisenhower acknowledged the impact of unions and said the interests of employers and employees were about mutual prosperity.  According to Dean, things have changed because the post World War II economy consisted of industries that were dedicated to building the nation’s base to assure this prosperity.  Unfortunately, that consensus started to break down by the mid-1970s until today, we have no agreement about how our economy should grow, what our obligations are to one another, and how we can compete optimally in a global economy.

In a recent interview for the Alter NOW Podcasts, Dean says that the building trades and entertainment industry are good models to look at for the next generation of employee organization.  In this system, as people move from job to job, they have a base wage through union membership.  Built into that base wage are healthcare insurance and a pension, again enabled by membership in a labor union.

Also, Dean asserts that unions are not the reason for outsourcing and that corporations are motivated by other issues.  In today’s economy, capital wants to locate where land-use policy is predictable, thanks to proactive regional efforts.  Companies want to be in areas that have good K-12 schools, open spaces, a high quality of life, decent affordable housing, a functional mass transit system, proximity to a world-class airport and the kind of knowledge workers that companies need to succeed.  Unfortunately, Dean says, unless Americans are prepared to deal with the issue of tax reform, there will be little conversation in America about any social agenda.

In today’s economy, capital wants to locate where land-use policy is predictable, thanks to proactive regional efforts.  Companies want to be in areas that have good K-12 schools, open spaces, a high quality of life, decent affordable housing, a functional mass transit system, proximity to a world-class airport and the kind of knowledge workers that companies need to succeed.  Unfortunately, Dean says, unless Americans are prepared to deal with the issue of tax reform, there will be little conversation in America about any social agenda,  Yet, these are the things that capital needs to be successful.

Read James Surowiecki’s take on the current state of labor unions in The NewYorker.

To listen to Amy Dean’s full interview on why unions matter, click here.

 
icon for podpress  Amy Dean On Do Unions Matter?: Play Now | Play in Popup | Download

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Increased Consumer Spending Lifts U.S. 2010 GDP

Monday, February 7th, 2011

road-sign-blogThe United States’ 2010 GDP soared at an annualized rate of 3.2 percent, as consumer spending rose by the greatest levels in four years.   “The consumer really drove the economy in the 4th quarter,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia.  “The economy has moved beyond recovery to a stable state of growth.”  For all of 2010, the economy expanded 2.9 percent — the biggest one-year jump in five years — after contracting 2.6 percent in 2009.  The volume of all goods and services produced climbed to $13.38 trillion, for the first time surpassing the pre-recession peak reached in the 4th quarter of 2007.  Tiffany & Co. saw a significant increase in the sale of fine jewelry.  Apple reported record 4th quarter sales as consumers bought 7.73 million iPads as holiday gifts.  Ford Motor Company’s sales have been so good that the automaker plans to add an additional 7,000 manufacturing jobs over the next two years.  The automaker, which did not undergo bankruptcy, did lay off some salaried employees in 2008 as part of a restructuring in the face of slumping sales.

Exports also helped boost the American economy which should boost job creation over the next several years.  “The U.S. is expected to be one of the fastest growing developed countries in 2011, largely reflecting the contrast of the ongoing stimulus with other countries, such as the U.K. and other heavily indebted European nations, where austerity measures designed to reduce deficits are stifling domestic demand,” said Chris Williamson, chief economist at Markit, a London-based research firm.  “The acceleration of the U.S. GDP in the 4th quarter, and the changing composition of growth, raises hope that the economic recovery will move into a more self-sustaining phase in 2011 and generate sufficient jobs to reduce unemployment.”

Even the Federal Reserve, which renewed its commitment earlier this week to buying $600 billion in government bonds, agrees that the report shows the economy ended 2010 with moderate strength and breadth, but not enough to bring down the 9.4 percent unemployment rate anytime soon.  Personal consumption spending contributed slightly more than three percent to 4th quarter growth.  That is in line with retailers’ reports showing a respectable holiday shopping season.   Whether that level of spending holds up remains to be seen.  Many retailers remain cautious in their forecasts and report that consumers are still bargain-hunting.  As gasoline prices rise, disposable income may be limited.

Alter Now does see it as important to note the correlation with an overall increase in consumer credit debt in December, the first spike since 2008.  According to the Fed, overall consumer credit debt rose by 6.1 billion, or 3.0%, to $2.41 trillion while revolving credit debt (primarily from credit cards) rose by $2.3 billion (3.5%) to $800.5 billion. No revolving credit rose by $3.8 billion, or 2.8%, to $1.61 trillion.  While the spike in GDP is good news, let us remember that it is still being driven by deficit spending.

Compare the U.S. GDP with that of other nations last year and it’s clear who is winning.  China, for example, is expected to report an 8.5 percent jump in its GDP, not unexpected in the world’s fastest growing economy.  Japan’s real GDP was 3.9 percent higher in annualized terms for the 3rd quarter, beating estimates for a 2.5 percent rise for the year.

In the U.K., the economy shrank by 0.5 percent in the 4th quarter, compared with a 0.7 percent increase in the 3rd quarter.   By contrast, the nation with Europe’s largest economy – Germany - recorded a 3.6 percent growth rate in its GDP in 2010. 

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Ireland Accepts EU/IMF Bailout

Tuesday, December 14th, 2010

Ireland Accepts EU/IMF BailoutAgainst its will, Ireland is now in a state of receivership mandated by the European Union (EU) and the International Monetary Fund (IMF) in an effort to resolve the Emerald Isle’s debt crisis.   European central bankers have paid £111 billion into Ireland’s banks to prevent damage to the euro in what is being jokingly referred to as the “Oliver Cromwell package.”  EU president Herman Van Rompuy described the action as a “survival crisis.”

Irish Prime Minister Brian Cowen will delay any decision on whether to proceed with national elections until the 2011 budget is passed and details of the international bailout package are negotiated.  “I’m saying that it is imperative for this country that the budget is passed,” Cowen said.  “I’m also saying that it is highly important in the interests of political stability that that happens.  It’s very important for people to understand that any further delay in this matter in fact weakens this country’s position.”

Cowen asked for significant “financial assistance” from the EU and the IMF and promised. spending cuts and tax increases.  This request came shortly after the prime minister said Ireland had “made no application for external support” for its debt-laden banks.  Dublin has spent billions trying to prop up its embattled banking sector.

Ireland is the second EU country, after Greece, to seek outside help to stabilize its finances.   That nation has been under strong pressure from its European neighbors – primarily Germany and France — to apply for a bailout, which they hope will calm investors and prevent a crisis of confidence in the euro.

“It is important that this state continues to fund itself in a stable way,” said Brian Lenihan, Ireland’s Finance Minister, “that economic continuity is preserved, that there is no danger to the borrowing which the state requires.”  Ireland’s low corporate tax rate – just 12.5 percent- — will not enter into the discussion because the country wants to attract large companies.

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Despite Great Recession, the Rich Grew Richer

Thursday, July 29th, 2010

Even with the recession, the world’s millionaires grew to 10 million and their wealth 19 percent to $39 trillion. It’s ironic that — even in the depths of the Great Recession — the number of millionaires around the world grew by 17 percent to 10 million.  Their collective wealth surged 19 percent to $39 trillion, according to the latest world wealth report from Merrill Lynch-Capgemini. “We are already seeing distinct signs of recovery and, in some areas, a complete return to 2007 levels of wealth and growth,” said Bank of America Corporation wealth management chief Sallie Krawcheck.

India, China and Brazil are home to the majority of the world’s newest millionaires, despite the fact that they were some of the hardest hit markets in 2008.  Asia now has three million millionaires – meaning it has caught up with Europe – thanks to a 4.5 percent economic expansion rate.  Their combined wealth soared 31 percent to $9.7 trillion, outstripping Europe’s $9.5 trillion.

North America’s wealth grew by 18 percent, while the number of individuals considered rich climbed 17 percent; their wealth totals $10.7 trillion.  Last year, the United States boasted the most millionaires – 2.87 million.  Japan was next with 1.65 million; Germany had 861,000; and China 477,000.  Switzerland boasts the highest concentration of millionaires, with approximately 35 for every 1,000 adults.

According to Lyle LaMothe, Merrill Lynch’s U.S. wealth management chief, “The wealthy allocated, as opposed to concentrated, their investments.”  In other words, they put their money into fixed-income investments that provided predictable cash flow.  The trick now is to convince the wealthy to return to higher risk investments that have a higher income potential.  “There is still a hesitancy,” LaMothe notes.  “Liquidity is incredibly important and people need cash flow to preserve their lifestyle – but they want to replace that cash flow in a way that does not increase their risk profile.  Investors are open to areas they hadn’t thought about before as they try to preserve their ability to be philanthropic, to preserve their lifestyle.  To me, the report underscored that clients are involved and they’re not inclined to stay in one percent savings accounts.”

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Posted in Economics | 1 Comment »

European Nations Look Into Selling Public Assets to Resolve Debt

Thursday, July 22nd, 2010

European nations look into selling public buildings to pay down debt. Debt-laden European governments seeking ways to raise money are considering the possibility of selling public properties such as office buildings.  Countries considering selling assets include Germany, the U.K., France and Greece, all of which were hit hard by the global banking crisis.

“It is clear that several European governments are looking to secure disposals on a large scale,” noted Richard Holberton, a CB Richard Ellis director.  Although Holberton says it’s not clear what effect these sales would have on government funds, “their impact on real estate markets could be a lot more significant.”  Government-owned assets comprised between two and 2 ½ percent of all European public sales since 2006.  That could double this year, according to CBRE, and could account for four percent of the €100 billion — $125 billion – that will be sold this year.

Although some properties are expected to attract significant purchaser interest, some government buildings won’t sell so easily.  Surplus office buildings could be in undesirable locations, for example.  Prime assets that are still occupied by government offices will have far more appeal to investors.  “Where assets are well located, of good quality, and continue to produce income from occupation by a public-sector tenant, this generates an income stream that is attractive to investors,” Holberton said.

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Posted in Development, Economics, Office | No Comments »

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