News & Analysis
Spain Tips Into Depression
Spain is sliding into a full-blown economic depression with unemployment approaching levels not seen since the Second Republic of the 1930s and little chance of recovery until well into the next decade, according to a clutch of reports over recent days. The Madrid research group RR de Acuña & Asociados said the collapse of Spain's building industry will cause the economy to contract for the next three years, with a peak to trough loss of over 11% of GDP. The grim forecast is starkly at odds with claims by premier Jose Luis Zapatero (pictured left), who still says Spain's recession will be milder than elsewhere in Europe. RR de Acuña said the overhang of unsold properties on the market, or still being built, has reached 1,623,000 . This dwarfs annual demand of 218,000, and will take six or seven years to clear. The group said Spain's unemployment will peak at around 25%, comparable to the worst chapter of the Great Depression. – Telegraph
Dominant Social Theme: More carnage?
Free-Market Analysis: We think that the problems with Spain do presage problems going on elsewhere in the world. We think, eventually, they will visit the United States as well. When we write "eventually" what we mean is that things will get considerably worse. We believe this because the Western world is doing exactly the opposite of what it should do to resolve what is basically a paper money and leveraged-capital crisis.
The Western world has resolved to issue more money and prop up failing organizations and companies rather than let the economy purge mal-investment. This means that capital is diverted to failing enterprises and that jobless rates will stay stubbornly high or even climb. In Spain, obviously, the property and housing crisis has still not been resolved, nor will it be until the Spanish economy is allowed to purge and recover. Here's some more from the article:
The Spanish government can do little to cushion the downturn. "The room for manouvre in fiscal policy has been exhausted," said Mr. Ruiz. The rocketing cost of jobless benefits has added 3% of GDP to the budget deficit. Mr. Zapatero has ordered all ministries to cut 8% of discretionary spending to help plug the gap left by collapsing tax revenues. The axe is likely to fall on research and big projects such as high-speed railways.
The root cause of Spain's trouble is that it joined the monetary union before its economy was ready. EMU halved Spanish interest rates almost overnight. Real rates were minus 2pc for much of this decade. Combined private and corporate debt reached 230% of GDP, funded by French and German savings.
The credit boom masked a steady decline in productivity over the last decade. Spain's unit labour costs have risen by about 30% compared to Germany.
The Bank of Spain made heroic efforts to counter the effects of the bubble by forcing banks to put aside extra reserves, known as dynamic provisioning, but the sheer scale of the problem has washed over the defences. Spain no longer has the escape valve of devaluation to claw back market share. It cannot resort to emergency monetary stimulus – as Switzerland, Britain, the US, and Japan are doing to prevent the onset of debt deflation. Prices are already falling at a rate of 1.2%.
Jamie Dannhauser from Lombard Street Research said Spain is bearing the full brunt of the European Central Bank's restrictive monetary policy, which has caused private sector credit in the eurozone to shrink over the last six months.
The latest ECB data shows that 60% of Spanish firms have seen access to credit fall so far this year. Most say they have been denied their full request for loans or credit lines.
What the article explains to us here is that while central banks cannot make anything much better, they can do a lot to make things worse. In this case, having helped to create a fiat money contraction, Spanish central bankers are finding it difficult, given EU restraints, to provide additional credit and money to businesses that need it.
This is the double whammy of central banking. By propping up economies in time of trouble, central banks significantly retard recovery time. But if banks do not issue additional fiat currency into the economy, then economies shut down anyway. Central bank monetary policy is good for pumping up economies, and creating bubble economies, but not so good at dealing with the aftermath, especially when the fiat bubble and crash is significant. And they do get larger, serially, over time.
Conclusion: The Spanish are feeling either a deep recession or a depression because their central bank is limited as to how much money it can pump into the economy. This is one way an economic mess is prolonged. While it is true that economies after going through a bubble need to deflate, the amount of money that is needed within an economy and the nature of its direction must be determined by the market. In this case, the absence of money is as artificial as its overabundance once was. Governments need to get out of the market and out of the money business. A gold and silver market-based standard is a corollary to this necessity.
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Posted by Terrymac on 09/29/09 12:54 PM
We can't make government education right by tinkering with it, any more than the Soviets could make collective farming work by tinkering with it. We need to abandon collectivized education and try the free market!
Reply from The Daily Bell
Time will tell (though much has gone by already).
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Posted by Terry on 09/29/09 10:19 AM
Your comments: Wake up America. Since when does the persident or any other single person dictate to the people the policy that the people are to live by. He is not a dictator, King or ruler but is supposed to be the leader of our country. Again I say leader not King, Dictator or Ruler. For the people, By the people and of the people does not say By command of the President.
If the president and the officials in office cannot do the will of the people as they stated the would when they took office then they need to either step down of be removed from office by the people.
Reply from The Daily Bell
A non-violent process is always best.
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Posted by Eileen on 09/28/09 07:01 PM
Our kids do not get enough sunshine as it is and increasing the school day will cause far more broken bones due to lack of vitamin D.
Day care providers who do before and after school care will be thrown out of work and the bad teachers will want to be paid as if they deserve the pay of the best teachers.
Our education system is geared to teach students to think, not to regurgitate on tests what the teachers shove down their throats as they are required to do in France. Did the education systems Obama compares ours to produce the Atom bomb, Click to view link, Microsoft, or Apple Computers?
The answer is that our system does have problems, but sitting in a classroom for an additional 3 hours daily will not fix that, but will only compound that problem and force more sleeplessness on over- homework assigned students.
The man is not a product of our system and has absolutely no clue what students learn and he refuses to engage in learning due to sending his children at our expense to a tony private school for $30,000USD each year for each child.
Reply from The Daily Bell
Thanks for the feedback.
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Posted by Dave Kress on 09/28/09 04:00 PM
There is something eerily similiar in the way you discuss Spain and what COULD have happened if The U.S. Federal Reserve had acted in the same noninflationary manner as Spain's central bank.
If Spain is NOW suffering depression and deflation what is going to prop up your inflation
outlook for the U.S.A if we are expected to have further problems and cant continue to print money
as few will buy it?
This coming bad news scenario doe the U.S. hardly supports a substantially higher gold and
silver price unless we get a new world, IMF, or China currency demanding backing in metals which continues to elude all central banks and the IMF.
What then? Metals collapse?
Reply from The Daily Bell
Money metals thrive in a precious metals bull market.If price inflation kicks up, then people will buy gold and silver. If the economy deflates into a further depression, people will buy gold and silver as a hedge. In a bull market such as this one, people do buy precious metals. It is a trend -- until it ends.
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Posted by Michael on 09/28/09 03:08 PM
Spain, Europe, North America.....with the Worlds Click to view link does not matter how long a kids summer vacation is!
They will spend all the time poor mouthing their elders for piling up soooooo much debt and leaving it all to them!
Reply from The Daily Bell
"Certain" elders it would seem.
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Posted by Jim on 09/28/09 02:27 PM
Kids Love school - right - ?
COULD A BETTER EDUCATIONAL SYSTEM WORK ?
Reply from The Daily Bell
Maybe.
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Posted by Gary J. Mallast on 09/28/09 01:40 PM
One thing I have found interesting is the nearly complete change in attitude towards education between people of my grandparents' generation (who were born in the 1880s) and my parents generation.
To the older folks education was something you actively sought for yourself regardless of schooling. For my parents generation (Born just before World War I) and people younger, education is a passive matter--something done to you by government-certified teachers.
I like to give the example of Nellie Collin (1881-1978) who was my landlady my last semester on campus in grad school(1974). She never got beyond sixth grade but in many ways was better educated than many of my fellow grad students.
Of course the most fundamental problem with public schools is that they are public. They exist to serve the agenda of politicians seeking power rather than the needs of the students. But people in every country are so used to the idea of government-run schools that it is hard to get them to think of education in any other way.
And yet, many small and chain private colleges are springing up all over the place to take up the gaps left by the huge and hugly expensive state universities. Of course, the Catholic Church has maintained its own system in this country for over a century--although sadly much of it was closed down as a result of "the Spirit of Vatican II."
One hopes people may get disgusted enough to start their own schools. At least the home-schooling movement is growing.
At any rate, being public, the schools get sucked into many political agendas having nothing to do with he needs of the students. For example, the professor who taught an "Introduction to Education" class I took, started the class the first day by asserting his belief that the public schools could be used to create heaven on earth--apparently by endocrination and psychological manupulation.
While the precedents for public education in this country are The Massachusetts General Education Act of 1647 and Thomas Jefferson's Virginia Bill for the More General Diffusion of Knowledge, the real development of public education began in the 1850s and was based, significantly, on a Prussian model. Yet it was the Prussian education model that was the grandafather of the horrible 1932 German election which was little more than a contest between Communist totalitarian socialists and National totalitarian socialists.
Here in Michigan the school year is roughly three weeks longer than when I was a kid, but the kids learns significantly less. So Obama's proposal is absurd on the face of it.
After being public, the secondary problem with education is philosophy. Nowdays, we have teachers who are taught to disdain substantive knowledge. It would take a fairly long article to describe the waves of changes in ideology, Herbartianism, Dewian Progressivism, Behaviorism, and more, that have over-swept the education system in this century.
The final problem is that prospective teachers are required to take so many education classes, that they have little time to learn the substance of their subjects in college. Michigan's requirement for education classes for prospective teachers exceeds the number of credit hours for an academic major. Thus they go out ill-equipped to deal with the substance of what they are teaching.
Finally, of course, funding isn't the problem. There are in some rural areas a few one-room public "country schools" left who have some of the lowest per-pupil expenditures in the state and consistently some of the best results on standard achievement tests.
Reply from The Daily Bell
Thanks for the great info.
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Posted by D Cox on 09/28/09 01:39 PM
On the surface, the suggestions by Obama are not bad and given the right infrastructure could make a difference. The problem is not more time but more quality. We've got to get away from fluff courses and make the students perform. Seattle Wash has just proposed letting children pass with a "D" grade.
So the school system has admitted that their teaching paradigm is only qualified to raise the student to a level just above failing; and worse they seem to think that is ok. The kids today get course work which is based on their "feelings" not facts or productive courses. Spending more time in a non-functional system is not beneficial. What is the old saying, "Work smarter, not harder."
Reply from The Daily Bell
Good saying, thanks for bringing it up.
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Posted by Terry on 09/28/09 12:46 PM
Wake up America. Since when does the persident or any other single person dictate to the people the policy that the people are to live by. He is not a dictator, King or ruler but is suppost to be the leader of our country. Again I say leader not King, Dictator or Ruler. For the people, By the people and of the people does not say By command of the President.
If the president and the officials in office cannot do the will of the people as they stated the would when they took office then they need to either step down of be removed from office by the people.
Reply from The Daily Bell
Non violently.
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Posted by Sage on 09/28/09 12:28 PM
The little buggars under the control of the state for longer periods of time is a win win for the government. More time to brainwash them, not to say the parents will sign on to this because it will wind up being a babysitting service and keep the kids out of their hair. The kids will be the losers here.
Reply from The Daily Bell
Probably.
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Posted by Ernest Kroll on 09/28/09 12:11 PM
Shorter summer vacations for our schoolchildren doesn't sound like a bad idea although it will be hard to change ingrained habits.
What bothers me is that our public school system is already a failure and a disgrace, and now Obama wants to add to it. Not only that, but his suggestion of schools being open during the weekend is stupid.
It means more government spending; not only that, but who is going to supervise these children during the weekends in our schools? I don't think the teachers will go for it. If that's the case, then the schools would have to hire professional supervisors to handle the children on the weekends.
Furthermore, he implies that the childrens' homes and neighborhoods are not safe. I don't think he has any common sense. And what should he care, his children (and those of his court jester Biden) go to private schools which I have to presume are of a higher standard than our miserable public schools.
Reply from The Daily Bell
We have noticed the gap between public and private is closing and maybe not the right way.
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Posted by Ernest Kroll on 09/28/09 12:04 PM
Just as in America and Britain (and elsewhere?), the moneyed elite will not feel the pain. But will they begin the fear the backlash of population unrest and dissatisfaction?
Widespread demostrations... grow and expand... start to become unmanageable... blood in the streets?
How long would Americans put up with a drastic and unacceptable drop in their standard of living, I suppose? Is America facing another Great Depression? All the indicators point in that direction...
Reply from The Daily Bell
Seems more likely now.
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Posted by Cynthia Brant on 09/28/09 12:03 PM
I think government should get out of education and leave it up to the states!
Reply from The Daily Bell
Or even municipalities.
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Posted by James Downey on 09/28/09 11:47 AM
Your assessment is exactly correct. However, to further add to your conclusion that Obama will not even consider such an option is that the curriculum is already being rewritten to focus strictly on what Obama and his radical left friends want.
History is now whatever the far left think it should be. Children are not held accountable or rewarded for failure or success.
Just witness the New Jersey singing fest where young children were required to sing songs of praise to Obama. Chavez and Castro would be proud.
Parents need to take back the school system and that deepens the problem. In a recent parent's night at an Oceanside, CA High School, only four parents of the 40 students in the class even showed up.
The public schools in the United States, under strict Union Control, will never recover unless the parents recover and take back the system.
Given the influx of certain population groups due to uncontrolled immigration and illegal immigration, this influx will only exacerbates the problem and private school, for the wealthy, will be the only venue for those who want to learn and succeed.
A pity for our children. Thanks for bringing this up.
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Posted by Mary Kachman on 09/28/09 11:33 AM
Maybe longer school time would help, but our education system is broken. Has been for many years.
Reply from The Daily Bell
Will lengthening a broken system help fix it?
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Posted by George on 09/28/09 11:30 AM
Wha?!? Depression? What about all those *green* jobs that they have? You mean those jobs aren't helping?
Reply from The Daily Bell
We, too, have questions about the efficacy of a green economy.
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Posted by Wyz on 09/28/09 11:30 AM
More formal school will not help. It does not require 12 to 20 years to learn how to greet people, scan bar codes, make change and stock shelves. Or maybe it is flipping burgers and waiting tables.
For most who do acquire a more knowledge specific position, the vast majority have to un-learn much of the out-dated or even simply wrong information they were "taught" and re-learn once in the position.
And sadly, for most the education system comes down to a day-care, allowing the parents to spend time on activities other than child nurturing. Activities like jobs. The biggest beneficiary of the program is year round day-care. (Leaving one to wonder who the real parent is, the state education institutions or the biological parent?)
Personally I have multiple degrees from the US educational system. And degrees do not impress me because I know what it does and does not take to acquire them. Learning is optional, as long as one can answer enough questions with the response the test creator/grader decided is "correct".
Reply from The Daily Bell
It is mostly a form of winnowing.
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Posted by F.L. Ross on 09/28/09 11:08 AM
I am sure that the teachers' unions are not going to be happy about this one! Obama is on thin ice if he is going to alienate his most loyal socialist supporters, namely public school teachers. I suggest that he instead "stimulates" teacher performance by enacting by executive order (why not?) by giving each public school teacher an additional $10k in pay across the board.
Reply from The Daily Bell
Maybe he will?
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Posted by GMiller on 09/28/09 11:02 AM
I find it very interesting that Spain would be suffering the most in this down turn. Spain is purported to be the "greenest" country is Europe. Is there an unreported linkage?
Reply from The Daily Bell
Good point.
