There are a lot of stupid comparisons in the press, which contain elements of truth taken out of context, so the reader has a false idea of reality. For example, it has been said that in the second quarter, Europe has beaten the US in terms of GDP growth. If we put things in context, this makes no sense, unless we are celebrating a race which only lasts for one quarter.
There is no doubt Spain has some serious specific long-term problems, which cannot be sorted out in a couple of afternoons by a government which doesnt’ have a big enough majority or the support of the people. What I mean is that it’s not good enough that two parties outline a programme with 150 points which, after it was outvoted, they later reject as if it was a pile of empty words.
No-one really knows why Mario Draghi said last week that for the time being there are no reasons to increase the ECB’s anti-deflation weaponry beyond March 2017. He said the matter had not even been discussed during the central bank’s Council Meeting on Thursday. The euro has risen and the yield on the German bund as well.
The imminent agreement between the EU and the US, called the TTIP, is dying on the side of both the US and Europe. The two candidates for the White House have expressed their scepticism, one with more than the other. And in Europe, only Merkel has stood firm, but this is weakening her politically and taking away her social democrat allies.
The stagnation in European productivity is serious, a tragedy. Labour productivity is the result of dividing the product obtained (some of components of GDP) by the number of hours worked. It can also be calculated dividing by the number of employees, although the different kinds of contracts (part-time, construction contracts etc.) create distortions. The more GDP expands, the more productivity increases. And the more employment rises, the less productivity increases.
In contrary to what the chartists say, equities are not always a better investment bet than bonds. Read John Authers’ article where he provides a summary of what has happened in the last 10 years.
Money in circulation (M2 in the US, M3 in the Eurozone) is not created by the central bank, but by the private banks when they lend. These loans are the fundamental countepart of M2 and M3. Loans are converted into deposits which provide the liquidity for us to function.
Now the most important companies can finance themselves at the same price as the government – at practically 0% – and they have benefited from this…But it doesn’t mean that these optimal conditions are fuelling a greater amount of real investment: companies have taken advantage of this to pay more dividends and reward shareholders with buybacks.
Why does the Fed continue to be a glutton for punishment, repeatedly announcing for over a year that it is going to raise interest rates, then having to put the decision on hold? Yet again it has announced it will have to hike rates before end-year, possibly twice, and perhaps, once more, it will have to back down.
I can tell you that the most eminent economists in Spain have continued to be wrong-footed since before the crisis. They are still clamouring for debt reduction, for a return to austerity, when what is slowly killing Europe is precisely that, the austerity spreading from Germany.