Spain: Bleak forecast puts unemployment at 22% in 2010

Citigroup has just released a forecast which is very troubling in regards to employment and growth in the Spanish economy.  With unemployment already having hit 17.9%, Citigroup expects layoffs to increase this to 22% in 2010.  Below is my translation of the Spanish-language article in Finanzas.

Iceland Proves That in a Financial Crisis, Breaking Glass and Trashing Currency is a Good Remedy – Naked Capitalism

The headline exaggerates, but not by much. Back in April, a Vanity Fair story about Iceland’s remarkable financial blow up was grist for a Vanity Fair story by Michael Lewis, „Wall Street on the Tundra„. The quick version is that Icelandic men were not merely reckless, that is such a common male pathology as to barely warrant mention, but were possessed of a particular fondness for physical aggression and bullheadedness that helped make Iceland ground zero for the most spectacular banking industry boom and bust in the history of man. Iceland managed to go on a debt party that saw its obligations soar to 850% of GDP, leaving America at a mere 350% firmly in the dust.

So how is Iceland faring now? One would assume still broke and chastened. One would be dead wrong.

A Global Bottom has not yet been Found

World Economic Reports for the week of July 17-24

Rebecca Wilder | Jul 24, 2009

This week, a compilation of indicators shows that the recovery is tentative at best – more likely, a global bottom has not yet been found. The leading indicators are stronger in some countries; exports are still declining at an annual pace of 20+ percent but stabilizing; and volatile retail sales growth rates are, well, quirky. Must wait for a trend – the US stock market(s) certainly see one coming!

Why had Nobody Noticed that the Credit Crunch Was on its Way?

Mark Thoma | Jul 29, 2009

A letter to the Queen attempting to explain why economists missed the financial crisis:Her Majesty The Queen Buckingham Palace London SW1A 1AA

MADAM,

When Your Majesty visited the London School of Economics last November, you quite rightly asked: why had nobody noticed that the credit crunch was on its way? The British Academy convened a forum on 17 June 2009 to debate your question… This letter summarises the views of the participants … and we hope that it offers an answer to your question.

Paying for Performance at Goldman

From the Wall Street Journal:

Last week, after reporting stellar second-quarter profit of $3.4 billion, Goldman announced the setting aside of $11.4 billion for compensation – which, broken down per employee, is similar to what Goldman set aside in the first half of the boom year of 2007.

Goldman’s CFO argued that its pay decisions reflect the firm’s „pay for performance culture.“ However, if Goldman proceeds to pay record cash bonuses this year, as many now expect, these payments would reflect a return to flawed pay structures, as well as a failure to implement effectively the compensation principles Goldman recently put forward.

EU Newcomers: Euro Adoption Increasingly Attractive, Yet Increasingly Out of Reach

• Due to the global downturn, euro adoption has become both more attractive and more complicated. Many countries view euro zone entry as a way of shielding themselves from the turmoil. At the same time, the global financial crisis has made meeting the euro adoption criteria more difficult and has delayed the expected euro adoption dates.

• „To join the euro, countries must keep inflation and interest rates low, stabilize exchange rates for two years and respect the stability and growth pact, which limits the debts and deficits euro zone governments may incur.“ (Financial Times)

Interbank and Credit Markets Improving: The Commercial Paper Test

• Government guarantees and commitment of not letting any counterparty fail is showing desired impact in interbank and money markets but it distorts somewhat the character of the purely unsecured lending quote among banks. One important activity indicator is the issuance of unsecured short-term commercial paper with which financial and non-financial companies finance their day-to-day operations. As of July 29, total outstanding (seasonally adjusted) was at $1.06 trillion from $2.2 trillion in August 2007. The amounts outstanding are still declining, although asset-backed commercial paper (one of the ‘shadow banking‘ funding sources) stabilized at $437.8 billion.  The Fed’s commercial paper lending facility declined to US$124 billion as of June 24.

• „Investors have developed a voracious demand for short-term debt issued by U.S. and European banks, while Libor has declined significantly.“ Caveat: „Banks are using the fresh cash to repay existing debt, or are simply hoarding it.“ (Wall Street Journal)

Schreckgespenst Deflation – Japan rutscht immer weiter ab

Die Verbraucherpreise in Japan sind im Juni auf Jahressicht weiter in Rekordtempo gefallen. In Tokio rechnet die Notenbank nicht mit einer schnellen Wende.

Was für Verbraucher zunächst erfreulich wirken mag, trifft sie am Ende härter als die Unternehmen.
(Foto: REUTERS)

Can a Company Die Prematurely?

aus Gary Hamel’s Blog im Wall Street Journal:

To the question, “can an organization die an untimely death,” an economist would answer “no.” Institutions die when they deserve to die, that is, when they have shown themselves perpetually incapable of fulfilling stakeholder demands.

Yet this crude tautology conceals a more subtle point. Institutions are seldom murdered; usually, they commit suicide (with politicians sometimes cast in the role of Dr. Kevorkian). But just as a suicide can be untimely, so too can corporate death—at least from the perspective of society at large.

Given Bleak Economic Outlook, Lithuania May Soon Turn to the IMF for Support

• Lithuania’s economy is under stress, as it shrank by 22.4% in Q2 2009, its sharpest contraction since independence in 1990. Lithuania may need to seek financial assistance from the IMF. According to Moody’s, a devaluation can no longer be ruled out in the current environment, although this is not the base case scenario.

• „The Lithuanian economy continues to suffer from the nasty cocktail of a European recession, a credit crunch and the local property market bust.“ (Danske Bank)