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Where Are the European Spending Cuts?
Daniel J. Mitchell
Paul Krugman recently tried to declare victory for Keynesian economics over so-called austerity, but all he really accomplished was to show that tax-financed government spending is bad for prosperity.
More specifically, he presented a decent case against the European-IMF version of “austerity,” which has produced big tax increases.
But what happens if nations adopt the libertarian approach, which means “austerity” is imposed on the government, rather than on taxpayers?
In the past, Krugman has also tried to argue that European nations have erred by cutting spending, but this has led to some embarrassing mistakes.
- He asserted that “British growth has stalled” because of “spending cuts,” but he overlooked the elementary fact that government spending in the U.K. was growing twice as fast as inflation.
- And in the case of Estonia, where there actually were genuine spending cuts, he wanted people to somehow think that those cuts in 2009 were responsible for an economic downturn that occurred in 2008.
Now we have some additional evidence about the absence of spending austerity in Europe. A leading public finance economist from Ireland, Constantin Gurdgiev, reviewed the IMF data and had a hard time finding any spending cuts:
…in celebration of that great [May 1] socialist holiday, “In Spain, Portugal, Greece, Italy and France tens of thousands of people took to the streets to demand jobs and an end to years of belt-tightening”. Except, no one really asked them what did the mean by ‘belt-tightening’. …let’s check out expenditure side of Europe’s ‘savage austerity’ story… The picture hardly shows much of any ‘savage cuts’ anywhere in sight.
As seen in his chart, Constantin compared government spending burdens in 2012 to the average for the pre-recession period, thus allowing an accurate assessment of what’s happened to the size of the public sector over a multi-year period.
Here are some of his conclusions from reviewing the data:
Of the three countries that experienced reductions in Government spending as % of GDP compared to the pre-crisis period, Germany posted a decline of 1.26 percentage points (from 46.261% of GDP average for 2003-2007 period to 45.005% for 2012), Malta posted a reduction of just 0.349 ppt and Sweden posted a reduction of 1.37 ppt.
No peripheral country – where protests are the loudest – or France et al have posted a reduction. In France, Government spending rose 3.44 ppt on pre-crisis level as % of GDP, in Greece by 4.76 ppt, in Ireland by 7.74 ppt, in Italy by 2.773 ppt, in Portugal by 0.562 ppt, and in Spain by 8.0 ppt.
Average Government spending in the sample in the pre-crisis period run at 44.36% of GDP and in 2012 this number was 48.05% of GDP. In other words: it went up, not down.
…All in, there is no ‘savage austerity’ in spending levels or as % of GDP.
I’ll add a few additional observations.
Sweden and Germany are among the three nations that have reduced the burden of government spending as a share of GDP, and both of those nations are doing better than their European neighbors.
Switzerland isn’t an EU nation, so it’s not included in Constantin’s chart, but government spending as a share of economic output also has been reduced in that nation over the same period, and the Swiss economy also is doing comparatively well.
The moral of the story is that reducing the burden of government spending is the right recipe for sustainable and strong growth. Growth also is far more likely if lawmakers refrain from class-warfare tax policy and instead seek to collect revenue in ways that minimize the damage to prosperity.
Unfortunately, that’s not happening in Europe…and it’s not happening in the United States.
A few countries are moving in the right direction, such as Canada, but with still a long way to travel.
The best role models are still Hong Kong and Singapore, and it’s no coincidence that those two jurisdictions regularly dominate the top two spots in the Economic Freedom of the World rankings.
View full post on Cato @ Liberty
New European Data: When Tax Competition Is Weakened, Politicians Respond by Increasing Tax Rates
Daniel J. Mitchell
I often argue that we need to preserve tax competition and tax havens in order to limit the greed of the political class.
Without some sort of external constraint, they will over-tax and over-spend, creating the kind of downward economic spiral already happening in some European nations.
Speaking of which, new evidence from Europe bolsters my case.
Back in 2009, facing pressure from the big G-20 nations, all of the world’s major low-tax jurisdictions – even Switzerland – acquiesced to the notion that human rights laws protecting financial privacy no longer would apply to foreign investors.
In other words, high-tax governments now have much greater ability to track – and tax – flight capital.
So how have they responded since that time? Well, look at this chart from the European Union’s new report on taxation trends. Tax rates have begun to increase, reversing a very positive trend (which began with the Reagan and Thatcher tax cuts, though this chart only shows data since 1995).
We can’t say, of course, that the increase in tax rates since 2009 is because tax competition was eroded. Just like we can’t say the reduction of tax rates in the preceding years was because of tax competition.
But we do know that simple economic theory tells us that monopolists are more likely to raise prices than firms in competitive markets. Likewise, governments are more likely to raise tax rates if they think taxpayers don’t have escape options.
And we also know that the proponents of higher tax rates, such as the statist bureaucrats at the Paris-based OECD, are also the biggest opponents of tax competition. The OECD even complained in one of its reports that tax competition “may hamper the application of progressive tax rates.”
Well, those international bureaucrats (who, by the way, get tax-free salaries) are getting their wish. Tax rates are increasing.
- So the political class can breathe a sigh of relief.
- But what about the people of Europe? Well, economic growth is almost non-existent and unemployment is at record levels.
However, you can’t make an omelet without breaking a few eggs. As a past representative of Europe’s political elite once remarked, “let them eat cake.”
Marie Antoinette eventually may have regretted her choice of words, but Europe’s current politicians are probably more clever and have contingency plans. When the you-know-what hits the fan and Europe descends into social disarray and economic chaos, ordinary people will be the ones at risk.
Unfortunately, the United States is on the same path, as shown by these sobering charts from the Bank for International Settlements (and also as illustrated by these very funny Michael Ramirez and Bob Gorrell cartoons).
For more information on the important liberalizing impact of tax competition, here’s the video I narrated for the Center for Freedom and Prosperity.
But remember that restraining fiscal burdens is not the only reason to preserve tax competition and tax havens. There also are very important moral reasons to support low-tax jurisdictions.
View full post on Cato @ Liberty
The European Commission’s Silent Power Grab
Dalibor Rohac
Last week, the European Commission issued an inconspicuously looking seven-page note on economic policy coordination, addressed to the European Parliament and the European Council. Although its publication has attracted scarcely any attention, the document has far-reaching implications. The introduction states, in an unapologetic tone, that:
the Commission considers it important that national plans for any major economic policy reforms are assessed and discussed at EU-level before final decisions are taken at the national level. (p. 2, emphasis added)
While European institutions have traditionally been involved in economic policymaking, their mandate is limited to policing compliance with the rules of the common market and those of the monetary union—with mixed results, one would hasten to add.
The wording of last week’s paper goes way beyond that narrow mandate. While it stipulates that “the process should fully respect national decision-making powers,” (p. 5) it would effectively empower European institutions to harass prospective European reformers in countries that decide to join the scheme. Not that many countries would have a choice—for Eurozone members, there would be a binding requirement to participate in this process of “ex ante coordination.”
Even under the most charitable reading, this would create an additional layer of slow-moving bureaucracy with the potential of delaying reforms. And if “windows of opportunity” for specific economic reforms are limited, it would necessarily imply that certain efficiency-enhancing reforms would be derailed. Arguably, if Slovak or Estonian finance ministers had to justify their tax reforms to their counterparts from France or Germany, the flat tax revolution in Eastern Europe would have never happened.
And why should economic reforms be coordinated across Europe at all? Here’s one argument given by the paper:
Product, services and labour market reforms as well as certain tax reforms may affect employment and growth in the implementing Member State, and hence the demand for products and services from other Member States. This is because a reform may also have a positive or negative impact on the reforming Member State’s price and non-price competitiveness. (p. 3)
Clearly, cross-border spillovers exist. But the same spillovers exist on a competitive market—whenever a firm changes its strategy or innovates, it can exercise “a positive or negative impact” on sales made by other companies. Yet very few would advocate coordination of innovation or business decisions—partly because the benefits of competition on product or service markets are patently obvious to most people. If anything, the benefits of competition are even more important in the choice of institutions and policies. And that’s why the sneaky power grab by European institutions has to be stopped.
View full post on Cato @ Liberty
Words Of Warning: Get Your Money Out Of European Banks
If you still have money in European banks, you need to get it out. This is particularly true if you have money in southern European banks. As I write this, the final details of the Cyprus bailout are being worked out, but one thing has become abundantly clear: at least some depositors are going to lose a substantial amount of money. Personally, I never dreamed that they would go after private bank accounts in Europe, but now that this precedent has been set it should be apparent to everyone that no bank account will ever be considered 100% safe ever again. Without trust, a banking system simply cannot function, and right now there are prominent voices on both sides of the Atlantic that are loudly warning that trust in the European banking system has been shattered and that people need to get their money out of those banks as rapidly as they can. Even if you don’t end up losing a significant chunk of your money, you could still end up dealing with very serious capital controls that greatly restrict what you are able to do with your money. Just look at what is already happening in Cyprus. Cash withdrawals through ATMs have now been limited to 100 euros per day, and when the banks finally do reopen there will be strict limits on financial transactions in order to prevent a full-blown bank run. And of course anyone with half a brain will be trying to get as much of their money as they can out of those banks once they do reopen. So the truth is that the problems for Cyprus banks are just beginning. The size of the “bailout” that will be needed to keep those banks afloat will just keep getting larger and larger the more money that is withdrawn. Cyprus is heading for a complete and total banking meltdown, and because the economy of the island is so dependent on banking that means that the economy of the entire nation is going to collapse. Sadly, similar scenarios will soon start playing out all over Europe.
So if you hear that a “deal” has been reached to “bail out” Cyprus, please keep in mind that the economy of Cyprus is going to collapse no matter what happens. It is just a matter of apportioning the pain at this point.
According to the New York Times, it looks like much of the pain is going to be placed on the backs of those with deposits of over 100,000 euros…
The revised terms under discussion would assess a one-time tax of 20 percent on deposits above 100,000 euros at the Bank of Cyprus, which has the largest number of savings accounts on the island. Because the Bank of Cyprus suffered huge losses on bets that it took on Greek bonds, the government appears to be taking depositors’ money to help plug the hole.
A separate tax of 4 percent would be assessed on uninsured deposits at all other banks, including the 26 foreign banks that operate in Cyprus.
Does that sound bad to you?
Well, if a deal is not reached, there is a possibility that those with uninsured deposits could lose everything. According to Ekathimerini, EU officials are telling Cyprus to choose between a “bad scenario” and a “very bad scenario”…
The main question surrounds the future of the island’s largest lender, Bank of Cyprus. If unsecured deposits (above 100,000 euros) at all Cypriot banks are taxed then large savings at Bank of Cyprus are likely to be taxed between 20 and 25 percent. If the levy is not imposed on deposits at other lenders, the haircut for Bank of Cyprus customers will be much larger.
The option of a full bail in of Bank of Cyprus depositors is still on the table. As with the Popular Bank of Cyprus (Laiki), which is to go through a resolution process, the full bail in option could lead to deposits above 100,000 euros being lost. The only compensation for unsecured depositors will be shares in the “good” bank that will be created by a possible merger between the “healthy” Laiki and Bank of Cyprus entities.
When asked by Kathimerini how the Cypriot economy will survive if all company and personal deposits above 100,000 euros disappear from the country’s two biggest lenders, the EU official said: “Unfortunately, Cyprus’s choices are between a bad scenario and a very bad scenario.”
So what percentage of the deposits in Cyprus are uninsured deposits?
Well, nobody knows for sure, but according to JPMorgan close to half of the total amount of money on deposit in EU banks as a whole is uninsured.
Do you think that some of those people will start moving their money to safer locations after watching how things are going down in Cyprus?
They would be crazy if they didn’t.
And if you think that “deposit insurance” will keep you safe, you are just being delusional.
According to CNBC, very strict capital controls are coming to Cyprus. These rules will apply even to accounts that contain less than 100,000 euros…
Financial controls are coming. Depositors with less than 100,000 euros may not lose their money outright, but they won’t like the restrictions–no matter how much they have in the bank. Limits on withdrawals, limits on check cashing, and perhaps even outright conversion of checking accounts into fixed term deposits are coming (translation: you don’t have a checking account, you have a bond from the bank).
A lot of people are going to lose a lot of money in Cyprus banks, and a significant percentage of them are going to be Russian.
And as I wrote about the other day, you don’t want to have the Russians mad at you.
According to the Guardian, Moscow is already considering various ways that it might “punish” the EU…
However, with Russian investors having an estimated €30bn (£26bn) deposited in banks on the island, the growing optimism about a deal was accompanied by fears of retaliation from Moscow. Alexander Nekrassov, a former Kremlin adviser, said: “If it is the case that there will be a 25% levy on deposits greater than €100,000 then some Russians will suffer very badly.
“Then, of course, Moscow will be looking for ways to punish the EU. There are a number of large German companies operating in Russia. You could possibly look at freezing assets or taxing assets. The Kremlin is adopting a wait and see policy.”
Could this be the start of a bit of “economic warfare” between east and west?
One thing is for sure – the Russians simply do not allow people to walk all over them.
Meanwhile, things in Cyprus are getting more desperate with each passing day. Because they cannot get money out of the banks, many retail stores find themselves running low on cash. In a few more days many of them may not be able to function at all…
Retailers, facing cash-on-delivery demands from suppliers, warned stocks were running low. “At the moment, supplies will last another two or three days,” said Adamos Hadijadamou, head of Cyprus’s Association of Supermarkets. “We’ll have a problem if this is not resolved by next week.”
But do you know who was able to get their money out in time?
The insiders.
According to the Daily Mail, the President of Cyprus actually warned “close friends” about what was going to happen and told them to get their money out Cyprus…
Cypriot president Nikos Anastasiades ‘warned’ close friends of the financial crisis about to engulf his country so they could move their money abroad, it was claimed on Friday.
Overall, approximately 4.5 billion euros was moved out of Cyprus during the week just before the crisis struck.
Wouldn’t you like to get advance warning like that?
Well, at this point it does not take a genius to figure out what to do about any money that you may have in European banks. The following is from a recent Forbes article by economist Laurence Kotlikoff…
Whatever happens, no one is going to trust or use Cypriot banks. This will shut down the country’s financial highway and flip Cyprus’ economy to a truly awful equilibrium in a replay of our own country’s Great Depression, which was kicked off by the failure of one-in-three U.S. banks.
Cyprus is a small country. Still, the failure of its banks could trigger massive bank runs in Greece. After all, if the European Central Bank is abandoning Cypriot depositors, they may abandon Greek depositors next. A run on Greek banks could then spread to Portugal, Ireland, Spain, and Italy and from there to Belgium and France and, you get the picture, to other countries around the globe, including, drum roll, the U.S. Every bank in each of these countries has made promises they can’t keep were push come to shove, i.e., if all depositors demand their money back immediately.
We’ve seen this movie before. And not just in real life. Every Christmas our tellys show It’s a Wonderful Life in which banker Jimmy Stewart barely saves his small town from economic ruin arising from a banking panic.
Others are being even more blunt with their warnings. For example, Nigel Farage, a member of the European Parliament, is warning everyone to get their money out of southern European banks while they still can…
The appalling events in Cyprus over the course of the past week have surpassed even my direst of predictions.
Even I didn’t think that they would stoop to stealing money from people’s bank accounts. I find that astonishing.
There are 750,000 British people who own properties, or who live, many of them in retirement down in Spain.
Our message to expats now that the EU has crossed this line, must be: Get your money out of there while you’ve still got a chance.
And Martin Sibileau is proclaiming that if you still have an unsecured deposit in a eurozone bank that you should have your head examined…
What are depositors of Euros faced with today? Anything but a clean bet! They don’t know what the expected loss on their capital will be, because it will be decided over a weekend by politicians who don’t even represent them. They don’t really know where their deposits went to and they also ignore what jurisdiction they really belong to. Finally, depositors are paid mere basis points for their trust in the system vs. the 20% p.a. Argentina offered in 2001 (thanks to the zero-interest rate policies of the 21st century). In light of all this, I can only conclude that anyone still having an unsecured deposit in a Euro zone bank should get his/her head examined!
So where should you put your money?
I don’t know that there is anywhere that is 100% safe at this point. But many are pointing to hard assets such as gold and silver. The following is what trends forecaster Gerald Celente had to say during one recent interview…
“People always say to me, ‘Mr. Celente you are always talking about gold. What are you going to do with gold when everything collapses and there is no money?’ Well, let’s say you are a Cypriot and all of the ATM machines are out of money and the banks are closed? Do you think those pieces of silver are going to buy you what you need? Do you think that ounce of gold is going to get you what you want?
That’s the real money. There is no other money. When it all comes down, gold and silver are the only things you have to buy what you need, get what you want, or even get out if you need to.”
I used to tell people that putting their money in U.S. banks was safer than putting it other places because U.S. bank deposits are covered by deposit insurance up to a certain amount.
But now we see that deposit insurance means absolutely nothing. If they decide to “tax” (i.e. steal) your money from your bank accounts they will just go ahead and do it.
So what should we all do?
Personally, I think that not having all of your eggs in one basket is a wise approach. If you have your wealth a bunch of different places and in several different forms, I think that will help.
But as the global financial system falls apart, there will be no such thing as 100% safety. So if you are looking for that you can stop trying.
Our world is becoming a very unstable place, and things are going to get a lot worse. We are all going to have to adjust to this new paradigm and do the best that we can.
View full post on The Economic Collapse
Federal Reserve Injected $237 Billion into European Banks Last Month
And we may have passed the event horizon.
QE Infinity just keeps on trucking, I guess that’s the point.
Last moth the Fed injected almost $240 billion into European banks to keep them more or less steady. That money came from where? Nowhere. Ben Bernanke conjured it and the Fed deposited it.
This is our economy today. A figment of imagination in a slowly collapsing fiat black hole.
(From Zerohedge.com)
Another way of showing what has happened: in the past 4 weeks, the Fed has injected a record $237 billion of cash into foreign banks with access to the Fed’s excess reserves: a number greater than both the cash influx surge seen after the Lehman collapse, and faster and more acute than the massive build up of cash during the spring and summer of 2011 when all the Fed’s brand new QE2 cash was once again, solely used to overfund European bank cash.
The post Federal Reserve Injected $237 Billion into European Banks Last Month appeared first on AgainstCronyCapitalism.org.
View full post on AgainstCronyCapitalism.org
America’s European Diplomacy: A Bull in a China Shop
Marian L. Tupy
The U.S. government appears to be pathologically unable not to interfere in matters foreign as well as domestic. According to the Sun, the Obama Administration has warned the British government not to hold a referendum on remaining a part of the European Union. The U.S. assistant secretary for Europe Philip Gordon said that, “We have a growing relationship with the EU, which has an increasing voice in the world, and we want to see a strong British voice in it. That is in America’s interests.” He added that, “Referendums have often turned countries inward.”
Predictably, the British are annoyed. Bernard Jenkin, a Conservative Party member of Parliament said:
“The Americans don’t understand Europe. They have a default position that sometimes the United States of Europe is going to be the same as the United States of America. They haven’t got a clue.”
Another parliamentarian, Peter Bone, said that Gordon should “butt out” and that the British membership of the EU had “nothing to do with the Americans.” “It’s quite ridiculous,” he added, “and it’s not what you’d expect from a member of the senior executive in the USA.”
Quite so! After all, how would Americans feel if the British government opined about U.S. membership in NAFTA? Would they not be a bit “miffed?” Not too long ago, the then-secretary of state Condoleezza Rice urged the Europeans to accept Turkey as an EU member state. Again, how would Americans feel if the Europeans urged the U.S. government to make Mexico America’s 51st state?
Moreover, is it really a good idea for the U.S. government to be dissuading foreign governments from consulting their people on matters of national interest? Not quite democratic, is it?
Finally, consider the astonishing brazenness of America’s government officials. Note that Gordon did not say that British membership of the EU was in the British interest. Instead, he simply stated that the British membership of the EU was in America’s interest. That, presumably, settles the matter for everyone. Gordon’s behavior is worthy of a Roman proconsul throwing his weight around some impoverished province on the edge of the world. It is not what people expect from a White House administration that supposedly wishes to correct the foreign policy mistakes of the previous one.
View full post on Cato @ Liberty
European Politicians Share Obama’s View of a ‘Balanced Approach’
By Daniel J. Mitchell
President Obama supports higher taxes, but he usually claims he only wants higher tax rates on rich people. Heck, he promised back in 2008 that “no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.”
I guess we’re supposed to forget the higher tax burdens that were imposed on the middle class by Obamacare in 2010 and the SCHIP legislation in 2009.
Obama’s other rhetorical trick is to claim he wants a “balanced approach.” Translated from Washington-speak to English, that means he wants more of our money. But it’s a soothing way to demand more money. After all, who’s against “balance”?
I actually agree with the president—but only if one uses honest math. Needless to say, he wants to use Washington math, where spending increases get redefined as spending cuts if the burden of government spending doesn’t rise as fast as was projected in some artificial baseline.
This is why the budget deals put together by politicians almost always are awful. In order to protect the goodies they hand out to various special interests, the politicians use fake numbers to pretend they’re restraining spending, but when the dust settles, it turns out that the only real result is that taxpayers are forking over more of their hard-earned cash to Washington.
Actually, that statement is incomplete. We need to remember that taxpayers in other nations also get cheated by their politicians. Below the jump is a stunning chart that was shown at yesterday’s Cato Institute conference on “Europe’s Crisis and the Welfare State.” Put together by Veronique de Rugy of the Mercatus Center, it shows that politicians across the Atlantic have imposed €9 of higher taxes for every €1 of spending cuts.
And keep in mind, as Veronique noted in her comments, that many of these so-called spending cuts were merely reductions in planned increases!
This matters because I’m getting increasingly worried that gullible Republicans will get seduced into some sort of budget summit designed to trick them into supporting the Simpson-Bowles tax-hike package.
As I’ve previously explained, this would be a terrible idea. It means a big tax hike, including an increase in the double taxation of income that is saved and invested. It also relies on gimmicks rather than real entitlement reform.
I don’t like higher taxes, but I wouldn’t be completely upset if a tradeoff resulted in some permanent reforms to control the growth of government. But that’s definitely not the case with Simpson-Bowles. And, as Veronique showed, it’s not the case in Europe either.
P.S. It’s rather ironic that the New York Times inadvertently revealed that the only budget deal that worked was the one in 1997 that cut taxes rather than raised taxes.
European Politicians Share Obama’s View of a ‘Balanced Approach’ is a post from Cato @ Liberty – Cato Institute Blog
View full post on Cato @ Liberty
Agriculture • European pig herd falling like a stone.
New data shows European pig production falling sooner and at a much faster rate than was expected.
Countries that have so far reported their pig census results for summer 2011 to summer 2012 show significant falls in their breeding herds.
And all but one show a fall in output as well, demonstrating that the increased pig productivity seen in recent years has hit a ceiling.
Germany, Denmark, Austria and France all report falls in their breeding herds and all but Germany record a fall in the total number of pigs on farms.
Hungary, Ireland and Poland see huge falls in their breeding herds — Hungary down 5 percent, Ireland down 6.6 percent and Poland down 9.6 percent.
The sharp cuts presage tight supplies of pork next year and sharply rising prices. In Britain some forecasters see the deadweight price hitting 200p a kilo, or more.
The new data has prompted NPA to urge consumers, retailers and processors to step up their support for British pork and bacon now, to help secure national supplies in 2013-2014.
Every extra penny a kilo for Britain’s loss-making pig farmers now, could help save 2p in 12 months time, says the association.
In particular it is encouraging retailers to look to their supply chains to ensure they are not left at the mercy of rocketing continental and world prices over the months ahead.
The European Union remains self-sufficient in pigmeat (108.5 percent in 2008).
However breeding herd numbers declined last year as a result of chronic poor returns and an increasingly costly red-tape burden, and it is now clear numbers are falling this year and will continue to fall next year.
The falls come as no surprise to NPA which predicted them with some accuracy in January 2011.
But they were not forseen by the European Commission or most member countries.
The biggest pressure on pig producers is the high cost of wheat, maize, soya and other feed ingredients, which has plunged producers around the world into loss, with producers in both China and the United States reported to be culling sows at an alarming rate.
Faced with high feed costs through to next harvest and possibly beyond, many European producers are quitting production, or reducing numbers, or sending pigs to slaughter at lighter weights.
BPEX puts the current cost of production in Britain at around 170p and calculates it will remain at this level through to next July.
At current contract prices, that means most producers are losing around 17p a kilo, or over £12 a pig.
National Pig Association knows of at least 8,000 sows that have been taken out of production this summer, and says reports of more producers quitting or down-sizing are coming in almost daily.
On the continent the situation will be further aggravated in January by the introduction of the European Union’s partial stalls ban.
Faced with the double whammy of loss-making high feed costs and the need to invest heavily to convert to loose housing, a significant number of producers are expected to quit in the New Year.
Producing a slaughter pig takes nine months, which means changing market dynamics by reducing supply is a ponderous process.
For some producers, and their banks, the time-lag between higher costs and an increase in market prices is too long to contemplate.
In Britain, NPA is working to speed up the process with its Save Our Bacon campaign which has the support of Government and is urging consumers to make a point of buying only pork, bacon and sausages with the British Red Tractor logo.
NPA argues that an increase in demand for British product will encourage retailers to pay producers more now, which will encourage them to remain in production, and prevent much larger increases in consumer prices in the second half of next year.
"Retailers know what they need to do… but they don’t know how to do it," says Stewart Houston, a director of NPA and chairman of BPEX.
"Given the current economic gloom hanging over the high street, none of them wants to be the first to move up pork prices.
"That’s why it takes so long for increased feed costs to be reflected in the pig price and that’s why this time producers have taken really early decisions — they know that it is going to take us several months to get the price to where we need it to be.
And we know that people stopped serving sows way back in June, because they could see this coming."
http://www.meattradenewsdaily.co.uk/new … herd_.aspx
Statistics: Posted by yoda — Sun Sep 30, 2012 2:21 am
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International News • European Contagion Turns Into Domino
European Contagion Turns Into Domino
FRIDAY, JULY 20, 2012
One day after the EU finally sanctioned the €100 million bailout for Spain’s banking system, for which the sovereign will remain on the hook, according to German finance minister Schäuble, who said there was no way the banks would be bailed out directly, developments were fast and furious.
A second remark by Schäuble may yet come back to haunt him.
Germany: Spain doesn’t need sovereign bailout
"There is absolutely no reason to speculate, beyond this (bank aid) application, about a comprehensive aid program for Spain," German Finance Minister Wolfgang Schaeuble was quoted as telling the daily Rheinische Post. "Spain really does not need that," he added.
First off, Madrid announced a bailout of its own: a €12-18 billion fund (€6 billion will come from a loan taken out by the national lottery) to help its regions. Which, finance minister Luis de Guindos swore, would not make sovereign debt any higher. Does that mean Spain still has cash lying around somewhere? And if so, why the bank bailout? Or is de Guindos simply telling another hopeful lie and are additional bond issues on the horizon?
The region of Valencia didn’t waste any time in claiming it will seek money from the regional fund. It won’t be the last. In fact, it’s hard to see how the fund could be large enough. The regions need to rollover some €15 billion in existing debt in Q2 2012 alone. And they have zero access to international markets left.
Next, Madrid revised a bunch of numbers downward. Angeline Benoit and Charles Penty for Bloomberg:
Spain Postpones Recovery As Valencia Seeks Bailout
Gross domestic product will fall 0.5% in 2013 instead of rising 0.2% as the government predicted April 27, Budget Minister Cristobal Montoro said after the Cabinet met today in Madrid. The government will spend €9.1 billion ($11 billion) more paying interest than in 2012, he said. [..]
“I don’t want to send too soothing a message, everyone has to comply,” Montoro said even as he denied Valencia has called for an intervention. Montoro said the central government is reviewing regions’ budget plans after announcing last week that several aren’t on track to meet this year’s deficit target.
The economy returned to recession last year and unemployment is surging after the collapse of the real-estate boom. The economic outlook is worsening as the government implements 110 billion euros of measures over three years to cut budgets, raise taxes, shrink public wages and charge more for education and health care. [..]
Unemployment will be 24.6% in 2012 instead of 24.3%, the government’s forecasts showed today, and 24.3% in 2013 instead of 24.2%. It revised the forecast for this year’s contraction to 1.5% from 1.7%. Exports will continue to drive the economy, rising 6% next year, as domestic demand continues to contract.
The spending limit for 2013 will be €126.8 billion, 9.2% higher than a year earlier, Montoro said. Stripping out the interest costs and contributions to the welfare system, the spending ceiling will fall 6.6% from 2012, he said.
Expect lots of protests. From AFP:
Spain protest turns ugly
Spanish police fired rubber bullets and charged protestors in central Madrid early Friday at the end of a huge demonstration against economic crisis measures.
The protest was one of over 80 demonstrations called by unions across the county against civil servant pay cuts and tax hikes which drew tens of thousands of people, including police and firefighters wearing their helmets. "Hands up, this is a robbery!" protesters bellowed as they marched through the streets of the Spanish capital.
At the end of the peaceful protest dozens of protestors lingered at the Puerta del Sol, a large square in the heart of Madrid where the demonstration wound up late on Thursday. Some threw bottles at police and set up barriers made up of plastic bins and cardboard boxes in the middle of side streets leading to the square and set them on fire, sending plumes of thick smoke into the air.
Riot police then charged some of the protestors, striking them with batons when they tried to reach the heavily-guarded parliament building. The approach of the riot police sent protestors running through the streets of the Spanish capital as tourists sitting on outdoor patios looked on.
The protests held Thursday were the latest and biggest in an almost daily series of demonstrations that erupted last week when Prime Minister Mariano Rajoy announced measures to save 65-billion euros ($80-billion) and slash the public deficit. Among the steps is a cut to the Christmas bonus paid to civil servants, equivalent to a seven-percent reduction in annual pay. This came on top of a pay cut in 2010, which was followed by a salary freeze.
"There’s nothing we can do but take to the street. We have lost between 10 and 15 percent of our pay in the past four years," said Sara Alvera, 51, a worker in the justice sector, demonstrating in Madrid. "These measures won’t help end the crisis."
The Madrid stock exchange fell 5.82% today. Its 10-year yields are at 7.20%. Nice numbers to go into the weekend. Spain will need a bailout real soon, or default. So will Italy, with a 4.38% stock exchange drop and a 6.13% 10-year yield closing out this Friday. And yes, we’ve seen similar things before, and things still look sort of normal, familiar.
But it gets real hard now to see what else Europe can do amidst all its self-enforced constraints on both financial and legal issues. The markets are not letting go, if anything they’re tightening their squeeze. Spain managed to sell bonds this week, but it did so at rates it can’t afford. Nor can Italy afford to pay over 6%. Both countries will increasingly try to sell shorter term debt, but there’s no hosanna in that either.
The hands-down quote of the day comes from Italian PM Mario Monti:
"It’s difficult to say to what extent the contagion comes or came from Greece, or from Portugal, or from Ireland, or from the situation of the Spanish banks, or of the one apparently emerging from the streets and the squares of Madrid," Monti told reporters. "Obviously, without the problems in those countries, Italy’s interest rates would be lower."
That is priceless. It’s the others. L’enfer, c’est les autres. Brilliant, when you think about it; it’s right up there with Schäuble claiming Spain doesn’t need a sovereign bailout. Denial right up until you hit the wall. Or it hits you. Whichever comes first.
Does Europe still have weapons left? Well, it can lower its interest rates to minus 1-2%. It can lower ECB reserve rates into negative territory, so banks won’t park their money there anymore. But they won’t put it back into the economy instead, as would be the hope, they’re not certified nuts yet; they’ll move it to the US or Switzerland or something.
The battleship Europa is very close to being shattered on the cliffs. And we need to seriously wonder how much longer the Euro has to live, let alone the eurozone.
And the consequences for the rest of the world? This graph from Lance Roberts, which compares S&P 2011 with S&P 2012, provides a solid clue. And it could be just the beginning.
Expect Spain to restructure its debt. And contagion to turn into domino.
http://theautomaticearth.org/Finance/eu … omino.html
Statistics: Posted by yoda — Fri Jul 20, 2012 2:20 pm
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International News • The European Titanic Has Already Hit The Iceberg
http://nogger-noggersblog.blogspot.ca/2 … y-hit.html
Statistics: Posted by yoda — Mon Jul 02, 2012 8:17 am
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