German Growth Rate For 2013 Drops Massively

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The Bundesbank massively cut its growth forecasts for 2013 for the German economy from previous estimate of 1.6% down to 0.4%. Such a huge drop in growth forecast shows even the mighty German economy which has benefited from a weak euro is now feeling the pressure. Its the last thing Merkel needs as she faces an election next year with a weakened economy and a growing bill for bailing out the rest of Europe. Couple that with the TARGET2 imbalance and a strong possibility of Italy or Spain needing a bailout, she could be facing an angry electorate.

germanThe German economy could slam into reverse this winter as the crisis in the eurozone intensifies, the country’s central bank warned yesterday.

The Bundesbank slashed its growth forecasts in an abrupt reversal for Europe’s powerhouse economy. It now expects Germany to grow by 0.7 per cent this year and just 0.4 per cent next year.

It was previously expecting growth of 1 per cent in 2012 and 1.6 per cent in 2013.

But the Bundesbank added that there was a risk of recession – defined as two quarters of contraction in a row – this winter. ‘There are indications that economic activity may fall in the final quarter of 2012 and the first quarter of 2013,’ it said. Germany has been the key driver of an otherwise moribund eurozone.

Experts warned the country’s slump is ‘a big reality check’ and casts doubt over the future of the single currency. Any setback in the eurozone, Britain’s major trading partner, raises the risk of a new recession here. The Bundesbank blamed the crisis crippling the eurozone for the downturn amid signs that German patience with struggling economies such as Greece and Spain is wearing thin. ‘Germany cannot prosper alone,’ it said. ‘It has a particular interest in the welfare of its partners.’

The gloomy analysis came a day after the European Central Bank warned that the 17-nation eurozone will remain mired in recession until late next year. ECB president Mario Draghi said a ‘gradual recovery’ will not start until ‘later in 2013’ as the region lurches from one crisis to the next. The eurozone sank back into recession over the summer as the malaise in peripheral states spread to Germany and France.

The German government put on a brave face in response to the Bundesbank forecast. A spokesman for Chancellor Angela Merkel said: ‘The government is cautiously optimistic that we’ll keep growing.’

Source: Daily Mail



Japan Back In Recession

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Japan has sunk back into recession and the solution according to opposition leader Abe is to call for even more stimulus through unlimited monetary easing according to Bloomberg. That is not a good sign when its open-ended, as it demonstrates a lack of a clear plan as to when the economy will recover. A strong yen, weak demand from Europe and a spat with China have all combined to weaken Japan’s economy. The auto industry is factoring in a sharp contraction in sales next year  driven by a dramatic decrease in demand from China.

Japan’s economy sank into recession in the second and third quarters, fueling opposition leader Shinzo Abe’s calls for more stimulus and highlighting the risk that weak growth will derail a planned sales-tax rise.

Gross domestic product shrank an annualized 3.5 percent in the three months through September, the Cabinet Office’s second estimate showed in Tokyo today, matching a preliminary reading. The government revised the previous quarter to a 0.1 percent contraction, meeting the textbook definition of a recession.

Abe, whose Liberal Democratic Party is leading in polls to win elections on Dec. 16, has called for more fiscal stimulus and “unlimited” monetary easing, and has said that economic conditions next year will determine whether the sales tax rise goes ahead. Banks including Citigroup Inc. forecast another contraction this quarter as exports fall and domestic demand stays weak.

“It’s likely that Japan’s economy hit bottom in the last quarter,” said Shuichi Obata, senior economist at Nomura Securities in Tokyo. “The new government will aim to have solid growth by the middle of next year as they have to decide whether to raise the sales tax or not.”


Japanese manufacturers such as Sharp Corp. (6753) and Honda Motor Co. (7267) are grappling with weaker earnings after a strong yen, slow European demand and anti-Japanese demonstrations in China hurt exports.

Nissan Motor Co. (7201) and Honda cut their profit forecasts for the year ending March 2013 by about 20 percent, citing a slump in China sales.

The sales tax bill raises the levy to 8 percent in April 2014 and to 10 percent in 2015, and a clause allows for implementation to be canceled based on an assessment of economic conditions. The last sales tax increase in 1997 contributed to pushing the economy into a 20-month recession, costing then- premier Ryutaro Hashimoto his job.

From the previous quarter, the economy shrank 0.9 percent in the July-September period, unchanged from the government’s initial forecast, today’s report showed.

Source: Bloomberg



Japan GDP Goes Into Full Reverse

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As the FT writes of Japan approaching its 15 recession in 15 years MISH takes a look at how Japan’s GDP has fallen by 3.5% over the last year as ongoing problems with China has severely hit car sales when Japan least needs it.

Japan’s economy shrank an annualised 3.5 per cent between July and September, the steepest decline since the earthquake-hit first quarter of 2011, as exporters suffered big falls in shipments to key markets such as China and Europe.

Prime Minister Yoshihiko Noda described the gross domestic product figures as “severe”, while Seiji Maehara, economy minister, said Japan had possibly entered a “recessionary phase”.

In a speech on Monday, Masaaki Shirakawa, Bank of Japan governor, said there was “no question that the [central bank] should exert every effort to enhance its easing effects as much as possible”. He said domestic demand was “unlikely to increase at a pace that will outperform the weakness in exports”.

The Japanese government’s monthly survey of “economy watchers” – which includes barbers, hoteliers, car dealers and others who deal with consumers – has recorded six falls in a row since April. Last month the index stood at a level little better than that of April 2011, in the immediate aftermath of the quake.

Japanese manufacturers from Nissan to Shiseido have reported steep falls in sales of their products in China, following a wave of demonstrations against Tokyo’s nationalisation of some of the islands in mid-September.

Japan’s top seven automakers have cut their projections for Chinese sales by a fifth, for the fiscal year to March, according to calculations by the Nikkei newspaper.

Relations with China has soured over the desputed islands but this has had a devasting affect on trade.
Exports to China fell 8.2 percent to 5,921.1 billion yen in the first half and slid 14.1 percent to 953.8 billion yen in September, sharper than the 9.9 percent fall in August. It was the fourth consecutive month of deficit as various products, ranging from auto and auto parts to steel and semiconductors, declined notably.

The balance showed Japan suffered the biggest September deficit with China of 329.5 billion yen, as imports gained 3.8 percent to 1,283.3 billion yen.

Resentment in China has accelerated since the Japanese government decided last month to nationalize part of an island group in the East China Sea, also claimed by Beijing and Taiwan.

Japan’s high debt levels were sustainable once upon a time when it had the ability in better times to trade its way through, but that is looking less likely.
The trick for Japan is how to finance its national debt, now at a majorly unsustainable 235% of GDP. Japan was able to do so for years on account of its current account surplus, of which trade is typically the largest component. You can now kiss that surplus goodbye because Japan Current Account Turns Negative

As long as the current account surplus remains, economists say, Japan is in little danger of a Greek-style crisis, since its debt is largely being funded by household savings.

While that remains the case, Japan reported Thursday that the seasonally adjusted current-account was in deficit in September—for the first time in more than 30 years. The sudden surprise drop has some economists warning that Japan’s ability to generate wealth is eroding faster than expected, and its fiscal situation could be more fragile than many had thought.

The Finance Ministry says Japan won’t slip into a structural current-account deficit very easily, since deficits in the trade of goods and services will be offset by huge surpluses in what the country earns on investments in overseas assets such as U.S. Treasury bonds.

But the Japan Center for Economic Research argues a structural deficit in could be as close 2017, noting fuel-import levels are likely to stay high if most nuclear plants stay off.

The Japan Research Institute, another think tank, says a structural deficit could start in 2022 if crude oil prices keep rising. Hideki Matsumura, an economist with the institute, said it could come earlier if the current strong-yen trend, which hurts Japan’s ability to sell overseas, continues.

“Many countries are catching up with Japan in the manufacturing field,” he said. “If they can produce similar products for a cost 20% to 30% less than Japanese do, Japan will soon find no demand for its products.”

…but can Japan make it that far?
Japan has extremely serious issues already, it’s just that the market is ignoring them for now. If interest rates rise by a mere 2% or so, interest on the national debt will consume 100% of Japanese tax revenue.

Global imbalances are mounting. I suspect within the next coupl eof years (if not 2013) Japan will resort to the printing press to finance interest on its national debt and the Japanese central bank will start a major currency war with all its trading partners to force down the value of the yen.

German Economy Now Struggling

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Germany was quite happy to watch the struggles of the PIIGS and benefited from the  weaker euro but it now looks as if the weak state of the Global economy is beginning to take its toll now on Germany.

Last year, German exports rode to a new record, jobs were being created in massive numbers, real wages rose, housing and real estate boomed, the federal budget was nearly balanced, and consumers felt good and spent money. There were moments in 2012 that made people dream of a repeat performance—despite the havoc that the Eurozone debt crisis has been wreaking.

Whatever was happening, Germany would be able to make up for declining exports to the Eurozone with strong exports to Asia and the US. Internal demand would remain solid. And this illusion of durable economic strength and fiscal virtue has tainted the discussion about saving the euro, bailing out debt-sinner countries in return for austerity measures, and keeping the European Central Bank in check.

But now the crisis has moved from Germany’s front yard to its doorstep and is about to enter its living room. Beer sales, for example. That the German Federal Statistical Office tracks them shows just how crucial a staple beer is. Alas, beer sales to customers in Germany dropped 2.3% in the first half over the same period last year, and ominously, exports dropped 2.9% [for the worldwide beer phenomenon, beer consumption per capita, and where the growth really is, read…. Beer, A Reflection Of The World Economy?]

Auto sales got clobbered in July, dropping by 5% from July last year, and by 16.5% from June, knocking year-to-date sales, which had been holding up well, into the red (-0.1%). Auto sales have been a fiasco in the Eurozone for a while. In Greece, where they’d been plummeting for years, they plummeted again in the first half, by 41.3%! In Italy, by 19.7%, in France by 14.4%, in Belgium by 12.7%. But until July, Germany had been spared. No more. Of the big brands, only Audi (Volkswagen) was up (+14.3%). The others got hammered: Opel (GM) -18.6%, BMW, Mini -17.9 %, Mercedes -14.6 %, and Ford -4.4%. Even VW, market-share leader and on a phenomenal worldwide roll, was down 1.5%.

Retail sales, which had also been doing very well, stalled. And the closely watched Ifo index for July deteriorated so sharply that Hans-Werner Sinn, President of the Ifo Institute, admitted, “The euro crisis is having an increasingly negative impact on the German economy.”

Germany’s manufacturing industry is now in a rout. Output and new orders dove in July at a rate not seen since April 2009, the depth of the great recession. It was the 4th month in a row of lower production volumes, and the 13th months in a row (!) of declining new orders—a terror for future production. The overall PMI index crashed to the lowest level since June 2009. Exports were hardest hit, particularly to Western Europe, Asia, and the US, the three largest markets in the world! The decline in exports was steepest since May 2009. And there is talk of “job shedding.”

These trends are reminiscent of the financial crisis when export orders fell off a cliff, causing GDP to plunge 2.1% in the fourth quarter of 2008 and 3.8% in the first quarter of 2009. Annualized, those two quarters amounted to a horrid double-digit decline in GDP—the worst two quarters in the history of the Federal Republic. The German economy lives and dies by its exports.

Yet my contacts in Germany remain “relaxed.” There’s no malaise or panic. “In the countryside, everything goes on regardless,” wrote one of them. Restaurants are doing well. People have jobs, wages are going up. Inflation has backed off. The recent feeling of optimism, after years of pessimism, is still hanging in the air. People are bidding up rental properties and plowing their savings into brick and mortar. Well-educated Greeks and Spaniards are heading to Germany in search of work. For them, it’s nirvana. The German government, through various organizations, is trying to rope in its expats in Silicon Valley and lure them back with special incentives to fill the shortage of qualified talent at home. Clearly, the numbers I mentioned haven’t yet made their way into the perception of day-to-day reality.

The public debate about bailing out Spain or Greece, and about Draghi’s plan to go on a bond-buying binge, is taking place to the backdrop of a sweetly humming economy. But the ear-piercing screech of the German export machinery as it shifts gears will change the debate—and the political will. German exporters, a super-powerful lobby, will push for all-out “do-whatever-it-takes” flooding of the Eurozone with money. On the other hand, if prospects of layoffs or forced part-time work (Kurzarbeit) are hounding consumers, their appetite for bailing out southern countries will fade altogether—and so will Germany’s ability to do so.

Meanwhile, Eurozone heads of state, top politicians, unelected kingpins, and bureaucratic honchos threatened everyone in sight with the demise of the euro. And then Italian Prime Minister Mario Monti went on attack. An ‘attack on democracy.’ Read…. Escalation of the Extortion Racket: Now It’s ‘The Dissolution Of Europe’ Not Just the Eurozone.

Argentina, an alternative path for indebted Eurozone countries? Not so fast! Since late July, a new set of words has been showing up in articles about the economy. Shrinks. Slows. Stagflation. These chilling terms describe the consequences of what some nasty economic indicators have in store. Read….  Argentina: The Big Shrink, by Bianca Fernet.



Iceland’s Economic Recovery Is Blueprint For Eurozone


It’s funny how Iceland’s economic success has been almost completely ignored by the presstitutes. In Ireland, which started out on a similar route to Iceland, has an almost complete media blackout of the Iceland success story. In any debate of bank debt in Ireland, at no point has Iceland’s decision to renege on its banks odious debts ever mentioned. This is in direct contrast to what the Irish government did. In fact, refusing to give the Irish a referendum, unlike Iceland, shows Democracy doesn’t exist. Maybe it should be called Dumb-ocracy, because the electorate are kept as dumb as possible, like mushrooms, kept in the dark and fed shit.

As regards to the eurozone, Iceland points the way to growth and how a small nation can actually survive when odious debt is removed. It takes a brave move from its people to overrule the politicians and stand up to the bankers. How many times have we heard in the last year from eurozone politicians, who admit that the euro was ill-conceived, only to move further into the danger zone by proposing a fiscal union as the final solution to all of europe’s problems. If they got it wrong originally with the euro, why listen to politicians about any economic decision, because clearly they are making the wrong decisions in Europe.

Is it any reason then we hear nothing of Iceland’s economic recovery, because the politicians don’t want anyone to know, that life can be better outside the euro.

In 2008, Iceland was the first casualty of the financial crisis that has since primed the euro zone for another economic disaster: Greece is edging toward a cataclysmic exit from the euro, Spain is racked by a teetering banking system, and German politicians are squabbling over how to hold it all together.

But Iceland is growing. Unemployment has eased. Emigration has slowed.

Iceland has a significant advantage over stressed euro-zone countries—a currency that could be devalued. That has turned its trade deficit into a surplus and smoothed its recovery.

Iceland has control over its fishing industry and is not limited to fish quotas that other european countries have to work with. Business within the fishing industry is booming and looking for workers.

So brisk is the fish business that Mr. Palsson’s factory draws Polish workers to this island off an island, a heart-shaped dollop of volcanic rock five miles from Iceland’s south coast.

“Every house is full because we can offer so many jobs,” said Mr. Palsson, 37 years old. On his humming factory floor, cod whip through machines that lop off heads and slice out bones. Rows of workers in Smurf-blue smocks lean over illuminated tables to cut the filets.

Iceland—with its own currency, its own central bank, its own monetary policy, its own decision-making and its own rules—had policy options that euro-zone nations can only fantasize about. Its successes provide a vivid lesson in what euro countries gave up when they joined the monetary union. And, perhaps, a taste of what might be possible should they leave.

So what happened and how did Iceland recover?

Iceland fell hard in 2008. Its engorged banking system sunk and unemployment soared. The government was jeered out of office by dispirited voters in angry street protests. Young people packed their bags. As in the euro zone, the International Monetary Fund parachuted in with a bailout.

Its currency devalued by half. That boosted exports, like Mr. Palsson’s fish, and trimmed costly imports, like cars. The weakened krona was hard on homeowners who borrowed in foreign currency, but Iceland’s judges and policy makers orchestrated mortgage relief. Expensive foreign goods also ignited inflation. Consumer prices have risen 26% since 2008.

That rescue, in turn, weighed on the financial system. But unlike Ireland, for example, Iceland let its banks fail and made foreign creditors, not Icelandic taxpayers, largely responsible for covering losses.

Iceland also imposed draconian capital controls—anathema to the European Union doctrine of open financial borders—that have warded off the terrifying capital and credit flights that hit Greece, Ireland and Portugal, and now test Spain and Italy.

And instead of rushing into the sort of spending cuts that have ravaged Greece and Spain, Iceland delayed austerity. Initially, the country even increased social-welfare payments to its poorest citizens, whose continued spending helped cushion the economy.

Difference between Iceland and Greece.

Exiting the euro would be traumatic for Greece, even if it could benefit from devaluation. Iceland’s open economy is much more geared toward trade; Greece’s €52 billion in exports last year amounted to 24% of its gross domestic product. Iceland’s exports reached 59% of GDP. Icelanders heat and power their homes with geothermal energy; the Greeks import their energy and would suffer a huge price shock after a devaluation.

Bond rate.

Earlier this month, Iceland sold $1 billion in 10-year bonds at 5.875% interest. That is a lower rate than what Greece, Ireland or Portugal would pay, if they had access to financial markets at all. In March, Iceland began repaying its IMF loans ahead of schedule.

Adjust imbalances internally (austerity) or through currency devaluation?

Righting imbalances is hard inside the euro zone. There, the policy is so-called internal devaluation, a euphemism for making populations poorer. In theory, pushing down wages makes export industries more competitive with foreign competitors. In practice, it is difficult to lower wages without hurting the domestic economy.

In Ireland, the most successful of the euro zone’s bailed-out countries, the policy has spurred a revival in exports but at the cost of high unemployment and lower domestic consumption. In Iceland, by contrast, the devalued currency forces residents to buy less from abroad and shift their purchasing home.

“We are seeing in Greece and in Southern Europe how painful it is to adjust through the labor market,” said Tryggvi Thor Herbertsson, a member of parliament for the conservative opposition party. “To adjust through the currency,” he said, “is so much less painful.”


Common sense tells us that the euro€ has been an absolute DISASTER, its time to return to our own currencies and take back control.

Source: Wall Street Journal

US and Europe’s Future

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If Japan can’t get out of it at a time when the rest of the world was booming, what hope is there for the US and Europe.

US Debt/GDP  100%.

France Debt/GDP 146%

Spain Debt/GDP 134%

Germanys Debt/GDP 140%

…..and the UK is off the chart when you look at all its debts.

Lets be realistic and finish with the normalcy bias.


Japan’s Debt/GDP

GDP Rigging

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Karl Denninger of Market Ticker writes of the bush tax cuts and Obama’s payroll tax cuts expiring and how easy it was to use these to manipulate GDP figures to make it appear the economy has grown.

First comes the simple explaination of how GDP is calculated

Remember folks that GDP = C + I + G + (x – i)

That is, private Consumption + private Investment + Government (spending) + (net exports)

If taxes go up then either “C” or “I” must go down, since only people pay taxes.  That is, you must either consume less to pay the tax or invest less (it’s a balance sheet; it must balance.)

Government spending decreases of course make “G” go down.

Now remember that during this entire debate nobody has talked about what deficit spending really does and why it’s impossible to maintain it forever. 

Government deficit spending simply increases GDP by fraudulently inflating credit money.  That is, it makes “GDP” go up (mathematically) but does so by increasing the denominator of all monetary units in the system, and therefore causes prices to rise since again, for each unit of GDP produced one unit of money (or credit) must exist to purchase it.

That is, GDP = (m + c)  (money plus credit) by definition.

Or, if you prefer:

GDP / (m + c) = 1

Now, how MSM (presstitutes) ignore the manipulation of GDP figures

This means that for each unit of GDP if you emit more credit money into the system then each unit becomes worth less and buys less.

But that’s never discussed in the mainstream media.  Now, however, the converse is being discussed.  The common claim is that about 3% of GDP will “disappear”, or $450 billion a year.  That’s the sum of the expiring tax cuts + the sequester.

Heh wait a second!  If that’s what happens to GDP when that goes away then you’ve just admitted that arithmetic is still truth and that GDP has been fraudulently inflated by these very same deficit-spending games and since the means of doing so was to emit more credit money into the system (the selling of bonds by the government) the average person in the nation has had their purchasing power debased by the exact same amount.

I love it when the punditry accidentally tells the truth and gets caught in their own trap, validating the very points I’ve been pounding the table on for years.

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