Greece continues to dominate the news. Stock markets around the world are either up or down based on news flow out of the troubled country.
It’s now beyond absurdity. Officials continue to apply a band-aid to a gaping flesh wound expecting the flow of blood to stop. It won’t. Greece is bleeding heavily. The ‘troika’s’ austerity measures are not working. Recent data revealed that in the final quarter of 2011 the Greek economy contracted at 7 per cent annual rate. That makes the debt situation much worse.
Greece’s debt dynamics are intractable. Some countries are now realising this and are pushing for a full-scale default. Germany, the Netherlands and Finland (all in a position of relative financial strength) don’t want to pump more dollars into a bottomless pit. They think jettisoning Greece will not lead to dreaded contagion. I’m not so sure.
But others, such as the European Central Bank and France, want Greece to remain a part of the Eurozone at all costs. They’re terrified of contagion.
Europe, as it’s always done, is descending slowly into the politics of self-interest. It’s every ‘man’ for himself. Meanwhile global stock markets engage in a daily pavlovian ritual in response to the bailout rumours.
It doesn’t matter what anyone says or does. Greece has too much debt. It needs a full-scale default to have any chance of growing sustainably. Whether that happens now or later is up to the fools running Europe. In the meantime, the Greek people have been thrown to the banking wolves.
Although you’re probably getting news fatigue from Greece and Europe, it matters for Australia because it affects the cost of credit. It’s getting more expensive for Australian banks to raise funds on the international markets.
As we have seen, the Big Four banks increased interest rates despite the Reserve Bank of Australia (RBA) keeping the official rate on hold. More importantly, a higher cost of credit is bad for the rest of the Australian economy. The RBA’s is enthusiastic about how the economy is travelling in this post-bubble-bust world. The RBA is wrong.
It’s using the same economic forecasting model that saw the bank increase interest rates just before the credit bust hit Australian shores in 2008. It was wrong then and I’m convinced it is wrong now.
The Australian economy is much weaker than the RBA thinks. The chart below is from Steve Keen’s debt deflation blog. It compares the official unemployment rate, as measured by the Australian Bureau of Statistics (ABS), with data complied by Roy Morgan. The difference is huge.
Here’s the problem: the ABS’s definition of ‘unemployed’ is ridiculous.
Apparently if you work at least two hours a week, you are not unemployed. Roy Morgan on the other hand, reckons anyone who is not employed full or part-time and is looking for work is unemployed.
Using this definition puts unemployment in Australia up around 10 per cent.
That’s recessionary. It squares with poor consumer spending, a very weak stock market and near-zero credit growth.
It’s time the RBA come down from its ivory tower and realised that too. Although I’m not suggesting lower interest rates will fix anything. It hasn’t anywhere else in the world. The central bank and other ‘official’ institutions should just tell it like it is.
Greg Canavan
Editor, Sound Money. Sound Investments.
P.S. Europeans aren’t the only ones making mistakes. Aussie investors are, as well. I’ve recently written a free report on it. Click here to read my free report now to discover what these three bloopers are. And how you can avoid them.
From the Archives…
Iran Oil and the Disintegration of the Petrodollar Standard
2012-02-17 – Dan Denning
Global Oil Chokepoints and the New Silk Road for Energy
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2012-02-15 – David Stevenson
Uranium Stocks – The Restricted Aussie Export That Could Make You Money
2012-02-14 – Kris Sayce
Health, Wealth and Stealth Inflation in the Great Food Swindle
2012-02-13 – Greg Canavan
{ 7 comments }
Sit on a couch for 2 weeks and do sweet FA – your unemployed. Play with your dick for 10 minutes then your counted as employed because you’re doing something.
I must be employed twice over today… Am I missing some overtime?
Hi Greg,
Who in their right mind would believe in the accuracy of the data put out by the Bureau of Statistics. The saying “lies, dammed lies and statistics” most surely comes to mind.
Zombies, paid big money to gather data, analyse it, then juggle and misinterpret it to meet their own agendas. Not that I would put a great deal more faith in the Roy Morgan figures.
We need Messrs Bligh and Fraser (premier and treasure of Queensland) creating jobs to get the unemployment under control. After all they have created 95,000 of the 100,000 that they promised. Shame that Queensland unemployed rate is still so high though!
It is my experience that Government does not ‘create’ jobs at all, it simply steals resources from the private sector and allocates them where they have the most political effect. no thank you.
Ed, I concur.
I did a mini-shop yesterday, and the milk and veges and miscellaneous items had been increased in “price”. Also, I can’t get my favourite type of toothbrush in a common brand. Could be only Sydney CBD Woolies/Coles?? Checked @ Kings Cross/Potts Point Woolies/Coles. Still couldn’t find the toothbrush I wanted. This the “hidden” inflation – reduction in the CHOICE of goods on offer, and increasing the “price” of what *is* offered (and, decreasing the unit-quantity).
woof
“Fear sells”, but an enlightened perspective of the overall economy is even better.
You guys are more than capable of getting your act together
stop deleating posts and call a spade a spade
In my view ….Greg, the way of Major politician played is not wise or suitable for this period of time.
I believe carbon Tax would exaggerate this course of problem faster, because We are not the only country have raw material, and China, India,Japan, Korea would have close their Factories and America and Europe will be even harder to grow their economy………, followed by protections……Just like before 2nd World War started……
Wait and see……… am I will be right ?
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