A Short Press Review 2/3…

Between travelling, household things to do and taking care of the kids while my wife had some professional fairs to attend, I have been struggling a bit over the past weeks to find time to write, but as I still collected some topics from various news sources, I thought it would be best to simply give you a little compilation of my thoughts on them… here goes (split in three posts):


IMF sees Euro-Zone Countries Missing deficit Targets (WSJ Oct. 9th):

Gee, are those guys at the IMF smart or what? France, Spain and basically everybody will be off target (though Italy of all countries might be ok)…. the article mentions the 75% tax in France, as one of the measures to hit the target – proving that even the WSJ writers do not bother to spend just a few minutes checking the relevance of such a measure (see Short Press Review 1/3)….

The most worrying country though is clearly the UK, which is miles off target. The deficit is forecasted to be at 8.2% of GDP this year and 7.3% next year. So what is the IMF message for the UK? A “warning that the UK should slow the pace of its austerity measures if economic growth falls considerably below forecast in coming months” (sic!). Okaaaay, but then what? The only consequence would be that things would get worse, and then what….?

Was just thinking that though my many British friends got “a bit upset” that the first major country to go bust in my book is the UK, I might have gotten that one right! (Note that they all forgive me as “we do win the World Cup in 2022”)


IMF: Euro Zone Could Spell Global Disaster:

No kidding? It seems that the IMF was getting even “starker in their remarks” regarding the “very fragile” confidence in the global financial system. They estimate that banks in Europe would have to get rid of USD 2.8 trillion of assets (read “bad loans” and that is not a typo, it is trillions) over the next two years. We are only seeing the beginning of the days of reckoning… 


The ECB 500 billion EURO “Bazooka”:

So here’s another one that was commented as marvelous, had Markets go up in euphoria for a day or so, while once again no one gives perspective. The ECB would have up to EUR 500 billion to buy bonds of distressed EURO-Zone States.

All commentators do point out that there are conditions, though yet undefined and especially no detail whatsoever as to how they would be enforced – very foggy indeed. But, hey they did come up with a fancy name, the “ECB’s Bazooka” (swell, no?)….

What does this mean anyway? Well, the idea of strong ECB action is progressing, but we’re still nowhere regarding the politics for such a move to be anywhere close to feasible (see previous postings on this blog). Furthermore, EUR 500 billion represents just over 6% of the EURO-Zone Governments’ debt or more or less one year of annual deficits (average 2009-2011). So we’re not exactly out of the woods. 

One detail mentionned is of far greater concern: “To ensure that the bond-buying program does not fuel inflation, the ECB’s purchases will be “sterilized.” That means that for every dollar in bonds that the central bank buys, it will withdraw an equal amount elsewhere in the financial system, thus keeping the money supply constant.”

What does this mean? Well, good money will be taken out of the money supply, replaced by bad money…. remember the “bad money drives out good” quote from Copernicus in my book? And you know what? Copernicus formulated that theory back in 1526……


Have a great weekend!

Simon Q.

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A Short Press Review 1/3….

Between travelling, household things to do and taking care of the kids while my wife had some professional fairs to attend, I have been struggling a bit over the past weeks to find time to write, but as I still collected some topics from various news sources, I thought it would be best to simply give you a little compilation of my thoughts on them… here goes (split in three posts):

Over three million unemployed in France:

This hit the news end of September and basically every media would relay the present governments’s view that the real problem is…. yes, of course, you guessed it right: it is the previous government’s actions and incompetence that caused it all. Not one comment about the reality of economic trends and the likelihood that the future figures will get worse…

Interestingly, the political system of having one side in power and the other in the “opposition” triggers this systemic reaction. Facts do not count, whatever the ones in power do or say, the opposition criticizes, contradicts and blames…. A bit like Obama explaining that would he say “the sky is blue, they (the Republicans) say it isn’t”, etc….

I have always thought that the Swiss set-up of sharing the executive positions of power between the various parties was the best, or less bad (the repartition of seats is nick-named “The Magic Formula”). Of course, it is a bit slow, however forces the politicians and law-makers to sit down, agree on facts, solutions and come up with what is best for… the citizens they represent. Which is exactly why they were elected in the first place and what democracy is supposed to be.

François Hollande’s tax of 75% for incomes above EURO 1 million a year:

Was wondering what real impact this would have. Clearly, a very demagogic decision that will please many and piss-off only a few. Well, I googled it up and it appears that even the government does not know how many households this would apply to, but they did have an estimate of how much this will bring in as additional fiscal income and that is between 200 and 250 million EUROs. As the French average annual deficit over 2010-2011 is EURO 127 billion, this will help and plug the deficit for 0.73 days, or 17 hours.

Did I say demagogic? Plain silly might describe it better…..

Have a great weekend!

Simon Q.

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Where does the 3% of GDP limit come from?

Somehow, I thought that the budgetary-deficit limit in the Maastricht Treaty governing the Euro-Zone membership criteria had some kind of economic logic behind it. Well, guess what, it doesn’t!

Members of the Euro-Zone are to limit their annual budgetary deficit to a MAXIMUM of 3% of GDP and the nation’s debt must not exceed 60% of GDP. Seriously, those are the limits to be strictly respected for possible consideration to become part of the Euro-Zone!!! If those criteria were to be enforced, there would not be much of a Euro-Zone left today, as it would be composed of Finland, Luxemburg and Estonia!

I read the other day in the French press (ok, it was Le Parisien, but still) that the 3% was in fact first made up in less than an hour back in 1981 when François Mitterand was looking for some kind of a limit to impose to his Ministers regarding the maximum budgetary deficit that would be acceptable. And the  figure of 3% was fixed because…. it’s easy to remember (sic!).

And years later the Brussels bureaucrats picked it up as a “golden rule” to define the so-called Maastricht criteria. Is this crazy or what? Funny enough, scientific or “easy to remember”, it has gone from the maximum admissible to the “goal to reach”, as basically all Euro-Zone members are above and have been there for some years (except Germany of course, joined by Malta, Finland, Luxemburg and Estonia for 2011 – for 2010 only Germany, Luxemburg and Estonia).

It is somewhat mind-boggling to see how economic decisions are made and (un)-enforced. Back to my views on the level of understanding and resulting irresponsibility of the political class referred to in “2084”. I am really freightened to see how right the judgements made in the book really are… Or is it just me?

Anyway, courage everybody, we’re all on the same boat and heading for nowhere!

Simon Q.

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And now, let’s search the garbage bins for… food!

I read an interesting article in the IHT today , about Spain and the increase in the amount of people there who go through garbage bins to find food. (see link below)

We are not talking about bums here, but people who simply cannot afford to buy food anymore. With the austerity programs cutting salaries, pensions and social benefits coupled to the soaring unemployment, one must expect to see more of this.

Caritas (a Catholic charity) is already feeding over a million Spaniards (2010 figures though, double that of 2007).

Scenes of people waiting outside wholesale markets and supermarkets at closing-time to pick-up food to fill their pantries are becoming more and more common.

Some put locks on their bins on health grounds, with the town then posting agents nearby to distribute vouchers for food aid.

This is likely only the beginning, after the “Robin Hood” style store raids a few weeks ago (see one of my previous blogs) and it will get worse.

In spite of the technocratic mambo-jambo one can read about the deficits, the ECB interventions, etc one rarely reads about the socio-political implications of austerity plans. I know I am repeating myself, but millions of hungry people with no hope, no trust in their authorities and wanting simply to survive can be a real time bomb…

Beware of the upcoming BOOM!

Simon Q.


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How come no one mentions Japan?

While putting together macroeconomic data for the business case, something did strike me. The debt of Japan is above 200% of GDP and nobody talks about that as an issue….

Though some are starting to, not least the Japanese themselves. In the past it was the Japanese citizens who had the good civic sense of saving money to then lend it to their Government to spend, so it remained “in the family”, but now that the domestic ownership of the Japanese Government’s debt is down to around 60%, there is a good reason to start worrying… Japan about their foreign creditors’ intentions and those creditors about Japan’s real reimbursement potential (or intention) over time.

Anyway, my point for today is elsewhere. The Japanese “crisis” started with the burst of the crazy stock-market bubble and related instruments used to trump it up at the end of 1989 (e.g. the japanese-warrants craze, for those who remember things beyond a few years back); note that in December 1989 the world was busy marvelling about the collapse of communism, point on which I recommend looking back at that chapter in my book (“The Tale of the Communists’ Trick to Kill Capitalism”).

Since 1989, what happened in the Land of the Rising-Sun? To make it short, you haven’t heard of Japan as a sexy place to invest in any way, their interest rates have been rock bottom ever since (sometimes even negative, though that made the debt sustainable), and the main stock-market index (NIKKEI 225) is today under 9’000 and was on the 31st of December 1989 at…. C’mon, take a guess! It was at….. Yeah, yeah almost 23 years ago, it was at…. Ok, I’ll tell you: just above 39’000. Yep, a performance of -77% over 23 years! Now to really enjoy, try to find some reports from “analysts” in the years 1988-1989 and assess their understanding of what they are talking about when comparing their views with what really happened. No offense to my analysts friends, but think about your future and update your CV…

So just try to imagine what could happen to the majority of stock-valuations throughout the world in the coming years? You want to invest? Try land and grow food on it…. You will never be wrong with that “bet”…

Simon Q

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“Work for no pay or lose benefits”

Was in London this week, and one title all over the press was “work for no pay or lose benefits”… An eye-catching one-liner on what the government wants young unemployed people from 18 to 24 to do.

In fact, the point is to get the people in that age bracket that have spent less than six months in employment since leaving school to work thirty hours a week for thirteen weeks, plus spend ten hours a week looking for a job to then be eligible to the unemployment benefits of GBP 56.- per week that they are receiving.

I could only note that few commentators would ask why did we not think of that a long time ago, before starting to give out the GBP 56.- per week? It is now seen as a “given thing” and having to give something in exchange (hours of “free” work) is unacceptable….. Anyway, I encourage to google it up and read the opinions expressed, as overall they do level out as seeing it as a reasonable idea, though just a few pre-crisis years ago such an idea would have triggered furious debates on how unsocial it is…

Another comment in the press is how the Londoners got used to having the military in the streets during the Olympic Games and wondered out loud that it would not be that bad if it lasted or if the crisis made it a necessity..

It all made me smile, as it is soooo much in-tune with what happens in my book. So hold on tight everybody, we are getting there…. Which is not really good news!

Which makes me think that I should make extracts of the book available in this blog to better make my point… Hmmm, will right now go and try to figure out how to do that.

Simon Q.


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Let’s loot a store or two…

Instead of ranting about nobody seeing the raw facts and having the guts to talk about them, today I thought of writing about a few things going on and which are just a beginning….

The other day in Spain, two supermarkets were looted by unhappy people who were in financial distress to take (ok, steal) necessities from the stores and distribute them to people in need. Well what was kind of amazing is that the whole thing was organized by a…. labor union! Interesting, no? It shows that this is not some kind of act of some restless youth with nothing better to do one afternoon, but that people are REALLY hurting and struggling to get by.

Now let’s think about this. Governments will not be able to afford the social benefits distributed so far to temper the unemployement level, especially for the youth. In countries like Spain or Greece, many would take the benefits and pick up a seasonal “black-market” job to get by (that being considered fair game by all) and all would be fine. Now? Forget the benefits as the Governments cannot afford them anymore! So then what? Think about it: unemployment levels for the under 25 are at 55% and 48% for Greece and Spain respectively, so that is a lot of young and energetic people with no hope… to summarize, the London riots or the indignados in Spain are just a warming up…..

What would you do? Well, what about looting a store or two….

Simon Q.

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Are we getting anywhere near a solution?

Recent news about Greece’s and Spain’s refinancing problems and the idea going around of interest rate capping on the EURO-Zone Countries’ sovereign debt made me react, as it hopefully points out that what the solution could be is starting to emerge…. Though please note that it does not mean it is implementable!

Greece reimbursing some debt to the ECB thanks to three months borrowing was presented as great news. Ok, but that was for what is relative “petty cash” of EUR 3.2 billion. And at a three months yield of 4.43%… hmmm, ok so any real problem solved? No! They are waiting for international creditors to come up with… EUR 31.5 billion in the next months!

Spain has borrowed on a ten year horizon at a yield of just above 6% in June (again petty cash, was for EUR 2 billion). Ok, that would put their total yearly cost of their whole debt at 10% of GDP. How sustainable would that be? Especially as in today’s world, that money would not “go back into the economy” as some still naively think….

So here is my point: the only way to make debt sustainable is a rock-bottom interest rate, of say <0.5% p.a., however it would imply finding creditors… The ECB itself? Likely, but a strict fiscal discipline and sanctions would have to be possible, and the time-line to see that implemented AND work in the EURO-Zone (and EU) is, well, not very short…. However, who knows with the raising urgency of it all? So yes, interest rate capping as such is an idea, but how is the headache!

So, let’s say the debt is bearable, but then budget balance is a must, not to say a budget surplus! In two words: good luck!

Voila, nothing solved, but talking is going in the right direction…..

Simon Q

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The news ain’t getting any better!

Was reading the news yet again, and it always looks at the latest statement from or the ECB or Brussels or whoever, which then triggers a few hours’ reaction on stock movements and half the world writes about it as if a trend had miraculously shifted…..

Fundamentally, nothing has changed and no one writes about the extent of the problem. Interestingly, that is why I wrote a Businesss-Case about the reality of the Macroeconomics that I shall be delivering at the MBA program of IMD in Lausanne in November. Looking forward to the reactions when it will open the students’ eyes on the world they will be facing…. 😉

The Business-Case in a nutshell:

No doubt that would the EU economy not survive, the rest of the world will not look good, like it or not. The debt time-bomb is one thing, which will have to trigger rock-bottom interest rates in the EU as well as a centralized fiscal enforcement (note that things might get worse and implode before we get there), but that does not tackle the budgetary deficit problem and its enormous socio-political consequences, that is really where the big BOOM is hiding….. The case’s compulsory reading is “2084, don’t be scared, be prepared”?

Simon Q.


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