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Is Europe's Recession Really Over?
jones_supa writes "Bloomberg, the WSJ and the NYT cheered to report that the Euro Zone's economy has showed signs of recovery after two years of decline. They're all based on the news that Eurostat, the keeper of economic statistics for the European Union, says GDP grew 0.3 percent within the EU's borders from the end of March through June. As Olli Rehn, Eurostat's vice president, writes on his blog: 'I hope there will be no premature, self-congratulatory statements suggesting "the crisis is over."' He calls the GDP report only another sign of 'a potential turning point in the EU economy.' The quick conclusion by some economists and some in the news media that a slight rise in one quarter's GDP means a recession is over ignores how experts figure out when an economy is either in a significant downturn (a recession) or enjoying steady growth (an expansion)."
No.
A recession is defined as two consecutive quarters of negative growth. Thus, the recession is technically over.
Which doesn't mean it can't come back later.
See, this is why the dolphins think we're morons.
I'm inclined to agree.
An enigma, wrapped in a riddle, shrouded in bacon and cheese
Notice how economic indicators never come with measures of uncertainty. It's always "we added 100,000 jobs this month". You'll never hear "we added 100,000 +/- 50,000 jobs". Yet another reason why economics is not a real science.
Give me Classic Slashdot or give me death!
The EU is getting more integrated, but is still nowhere near one economy that moves in unison. So the answer to the headline question is: yes in some places, no in others. Germany's GDP is growing; Spain's is shrinking.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
Specifically, German manufacturing...
That sector benefited over the years between the start of European Monetary Union and the start of the Mediterranean death-spiral from being locked into a favourable exchange rate with a relatively cash-rich (albeit debt-fuelled) set of customer states. Most of those states are economically dead or dying at the moment.
If the German manufacturing sector has managed to diversify its markets enough over the last couple of years that it can weather the delayed shock of this when it finally hits, then Europe will probably muddle through. Once the worst of the crisis has past, the states that should never have been in EMU to begin with can be eased out of it without too much risk of contagion and most of Europe will be ok (though I suspect living standards in Greece etc will take decades to make up lost ground, if indeed they ever do).
If German manufacturing does start to suffer in a big way over the next year or two, then we've only seen the start of the problem, as if the economic engine of much of the continent splutters, then the death spiral will just widen. In that case, expect to see the UK and some of Eastern European states split away in self preservation and some really unpleasant social disorder sweep most of the rest of the continent.
All of which is absolutely nothing compared to what will happen when China's generation of largely-single angry-young-men-used-to-ever-rising-living-standards (the inevitable result of a one-child-policy that turns a blind eye to a bit of back-door gender selection) experiences its first serious recession.
You are right about passing debt to our children
Wrong. Whatever is produced at a given point in time is available for consumption at that time. We will never send real resources backwards in time in order to "repay" public debts.
The real theft your generation has perpetrated on mine is all of this lost output which can never be regained. Public debt needs to increase so the output gap can be closed.
Lost Output Clock
.: Semper Absurda
People can weather bad times for a while, many have nest eggs, live off ramen noodles and stay with their parents longer, don't start a family, take more education instead and whatnot to live a subsistence life but those options tend to run out and eventually what they desperately need is a job and an income so they can get on with their lives. That the economy isn't tanking even more is great, but unless there's real growth and people getting back into the labor force it's still going to be a train wreck in progress. The same is happening in the US, before the financial crisis the employment-population ratio was about 63% now it's hovering between 58% and 59%, despite what the unemployment rate says. The US would need another 10 million jobs to return to 2008 levels.
So far I must say that despite everything it has been very calm so far, when you're looking at 27.6% unemployment and 64.9% youth unemployment like Greece does right now many countries would be at "fuck it, communism can't get any worse" conditions. And fat fucking luck if you're going to get a job after years of unemployment, most places will see you as damaged goods and rather hire someone straight out of school. The economy is one thing, it will survive somehow but the people are getting royally screwed. It's a generation almost certain to have it much worse than their parents, despite all the technological advances. And somehow I have the feeling it's just one bad domino away from becoming something much worse, so many look ready to fall.
Live today, because you never know what tomorrow brings
Sure, the recession is technically over. Thus begins the extended economic depression during which unemployment remains extraordinarily high - over 60% for young people in periphery countries - and the economy significantly underperforms its potential.
This is all the result of a political economy which requires permanent public deficits for private sector growth in the absence of private credit expansion, combined with a private debt overhang prohibiting such an expansion.
.: Semper Absurda
Nothing new in this submission. It's well known that real-time economic data is noisy. This holds particularly true for real GDP as well some other statistics from the national income accounts (but less so for labor-market statistics). Revisions between the first and final data release of GDP average somewhere around 1 percentage point (that's in the US data, but it's probably relatively similar in the EU).
We will never send real resources backwards in time in order to "repay" public debts.
Who said anything about sending resources back in time? We'll send our resources to our creditors and as the debt and interest increase future generations will have to send more of it to our creditors than we do now. You seem to think that increased spending leads to increased output but that's debatable and even if you do get an increase in output you can't guarantee that it will be domestic output.
Let me point out 2 examples of where you are wrong.
First, you are assuming that the products are being generated inside the economy. If you are borrowing money from China to buy Chinese goods this is no longer true.
Second, you need to learn a little about pension accounting. If I am working today but I am going to retire in a few years you have a huge liability to pay form my pension and medical costs. While no formal bond has been issued governments, it carries a similar or higher obligation. In this case you really are sending money back in time. (In the past, when countries have been faced with paying foreign creditors or defaulting on pension obligations they tend to shaft the foreigners.) Now, I don’t know how Europe includes this in the “official national debt” but the numbers are out there. (The US does not, which makes me sad.)
A recession is defined as two consecutive quarters of negative growth. Thus, the recession is technically over.
Which doesn't mean it can't come back later.
It seems to me that if you need two consecutive quarters of negative growth to call it recession, you should also need two consecutive quarters of positive growth to call it an expansion or recovery
One quarter of weak growth doesn't really tell you anything.
is the GDP report even valid? Given the multi-decade manipulation of the way the deflator (inflation) is calculated it is quite possilbe that not only Europe, but the US as well, has been in recession since the early 2000's. Shadowstats is an outfit that provides US figures using the most recent prior methodology - I think it is circa 1992. And remember, the government(s) have a very vested interest in keeping the "official" inflation figure low - it lowers any payment tied that rate (social security, procurment contracts) while also making the GDP figure look better.
We'll send our resources to our creditors and as the debt and interest increase future generations will have to send more of it to our creditors than we do now.
We don't "repay" public debts with real resources. We "repay" them when a securities account (yes, that's what they call them) at the Fed is debited and a reserve account is credited. We also don't "borrow" (sell securities) in order to fund expenditures. Indeed, it is impossible for someone to exchange US dollars for US securities without having first obtained the dollars. This is in direct contradiction to the normal state of affairs during "borrowing." The only way for future generations to lose real resources is by voluntarily exchanging them for US dollars.
The proper way to understand public debt, in the form of US Treasury Securities, is to see reserves as "checking account" and securities as "savings accounts." Just as your bank does not sacrifice any real resources when you transfer money from savings to checking (indeed, they may be better off due to reductions in interest payments), the USA does not lose real resources when the Fed conducts a "reserve add" AKA debt repayment.
.: Semper Absurda
You still aren't getting it. We do not conduct public borrowing in order to obtain money to spend. We first spend money, which we exchange for real resources, then "borrow" that same money back when our trading partners transfer their financial assets into "securities accounts" which pay a somewhat higher interest than do reserves themselves (current rates are ~3% for "long-term" securities, which are actually highly liquid, and 0.25% for reserves). Indeed, it cannot be otherwise as a matter of logic, because the only source of US dollars is the US federal government itself.
Of course our public debt is increasing; it must increase given that the real terms of trade are in our favor. In other words, we are exchanging pieces of paper with only a notional value for real resources. Once consumed, our trading partners have forever lost whatever those resources could provide, while their US financial assets only have value within a context of voluntary exchange.
.: Semper Absurda
First, you are assuming that the products are being generated inside the economy. If you are borrowing money from China to buy Chinese goods this is no longer true.
You have this backwards. The only de novo source of US dollars is the US federal government itself. We must first purchase goods from the Chinese in order for them to gain US dollars. Once they have gained dollars via this voluntary exchange of their real resources for our paper, they may spend those dollars themselves. However, generally they wish to hold those dollars. Since those dollars collect 0.25% interest, they choose to use those dollars to purchase US securities, currently bearing ~3% interest. They might invest them otherwise to gain higher rates than that, but they would have to accept some risk were they to do so. In other words, federal expenditures fund bond purchases and tax payments and not vice-versa, both in fact and as a matter of logic as explained above.
In this case you really are sending money back in time.
First of all, I said we can't send real resources back in time. Second, we don't send money back in time, either (quite the opposite).
Today, those of us who are working produce a certain amount of real resources. We agree to transfer a portion of those resources to persons who are not currently working. At any point in time, those currently living get to consume all that they produce. The transfer of resources between workers and retirees is mediated via either transfer programs such as Social Security (which is running a surplus now, and a huge surplus at full employment) or via investments. In the case of investments, the worker agreed to reduce his past consumption (by purchasing interest-bearing financial assets rather than real resources) in favor of future consumption.
Mismanagement of pension funds not withstanding, it is up to us as a society to determine how the real resources with exist today are divided among the people currently living. And while we might reduce present consumption in favor of future consumption, in the absence of a time machine it is not possible for us to adjust past consumption in any way.
.: Semper Absurda
Recently I was involved in research that showed big polarization in EU from North to South. There is big need to change mentality but this is not a fast process ... More details in this link http://www.nature.com/srep/2012/120920/srep00678/full/srep00678.html
Hello khallow,
"That isn't the point of debt. Debt is borrowing money or resources now and paying for them with future income or resources. So you can borrow more to produce more, but as a consequence, you will be producing less in the future for a period of time.
Let's put this into perspective. Suppose the interest rate on that public debt was very considerable 100% per year for ten years and adjusted for inflation. That is, every dollar you borrowed, you had to pay back each year for ten years. According to your view, you get massive creation of "output" in that first year followed by ten years of lost "output" of the same amount each year. I'm sure it'd be great to be the lender, at least till year two or so when the borrower and economy collapses without paying back enough of the loan to make it worthwhile."
That can be how debt works if done badly, but it isn't supposed to be (if you're a sensible borrower).
Let's say I am a writer (I chose a profession that doesn't use any physical resources of note). I have a crappy biro and some cheap paper. I can write 1000 words per day, and have trouble with QC (since I can't use software spell checks, etc.), so I can sell my work for $100 per day.
I borrow $1000 to buy a computer and a printer.
I can now output 10,000 words per day, which are off higher quality. I can earn (roughly) 10 times as much per day. I can sell my work for $1100 per day.
I can pay of the debt and easily have plenty left over.
The general amount of productivity in society has increase by 10 times, and I have only 10 days work required to pay of the debt.
I have obviously exagerated the numbers here, but most debbt is like this - borrowed to invest in improvements. Recessions tend to happen when large amounts of a nation's capital are put into investments that are not productive, and so the debt (in the aggregate) cannot be paid back by the returns.