A post to update you on what is happening, economically around the world.
Manufacturing activity in China and across a wide swath of Asia slowed in May, heightening fears that the turmoil in Western economies is dragging down one of the few remaining engines of global growth.
Two purchasing managers indexes for China fell in May, briefly rattling investors Friday and stoking speculation Beijing may have to respond aggressively to support growth. Indonesia posted its first trade deficit in nearly two years, and South Korea’s exports, considered a bellwether for Asia, unexpectedly fell for a third straight month.
"The green shoots of recovery that we were seeing a month or so back are wilting away," said Rob Subbaraman, chief Asia economist at Nomura Securities. "The crisis in Europe is one reason; the other one is the China slowdown. But I think less appreciated is that the height of uncertainty about the outlook has caused Asian firms and multinationals in Asia to pause in their investments, and I think that’s the bigger factor right now."
China’s official PMI, based on government data, showed manufacturing continuing to grow but by the barest of margins, falling to 50.4 in May from 53.3 in April. A figure above 50 indicates expansion. An index produced by HSBC and Markit showed Chinese manufacturing was worse, falling to 48.4 in May from 49.3 a month earlier.
"We feel that in China a very powerful stimulus"—combining fiscal outlays and cuts to banks’ reserve requirement ratio—"is required to arrest the slowdown in growth," said Frederic Neumann, co-head of Asian economic research for HSBC. "These numbers today suggest this is coming sooner rather than later. If that stimulus is not delivered, then China is indeed looking at a hard landing."
Both the US’s non-recovery recovery and the Eurozone crisis are being blamed for this slowdown.
The economies of Asia, both the emerging markets and the more developed countries, are being hit by a double whammy of slowing domestic growth and the impact of the European debt crisis on Asian exports and finance.
Signs of distress are proliferating.
In India, the government reported Thursday growth in the first three months of the year at the slowest pace in the past nine years—up 5.3% from the year-earlier quarter, well below the 8% pace of recent years. "A gasping elephant," said Leif Lybecker Eskesen, HSBC’s chief India economist, in a note to investors.
In China Friday, an official gauge of manufacturing activity fell to a lower than expected level, which is likely to add to market concerns about China’s slowdown. China’s official Purchasing Managers Index fell to 50.4 in May, compared with 53.3 in April and lower than the median forecast of 51.5. A reading below 50 indicates contraction. The Ministry of Commerce, meanwhile, is blaming "worse-than-expected" economic performance in Europe for disappointing export data.
Early Friday, South Korea said its exports unexpectedly contracted for a third consecutive month in May compared with a year earlier. South Korea is the first country in Asia to release trade data for the month and is often a harbinger of regional trends.
Meanwhile in Europe, the UK’s manufacturing is reported as slumping with activity dropping to its lowest level in three years. The Eurozone jobless rate stands at 11%. Additionally the Eurozone crisis is now beginning to effect countries with close proximity and ties which are not a part of the Euro:
The euro zone’s deepening fiscal crisis continued to take its toll on some of the neighboring economies of central and eastern Europe in May, as surveys released Friday indicated manufacturing activity contracted again in May.
The countries in Europe’s center and east have close trade and financial ties with the euro zone, and some have seen demand for their exports weaken as the currency area’s economy has stalled, while western Europe banks have cut their lending to the region.
A double whammy. And, finally, within the Eurozone itself, companies are trying to prepare for the Greek withdrawal from the zone (and possibly Spain’s as well):
As European officials race to quell fears that Greece may exit the euro, many companies doing business in the troubled country are preparing for the worst.
Most executives, analysts and others agree on one thing: the impact of a Greek withdrawal from the euro zone is impossible to predict. That’s why multinational companies are rehearsing for any number of contingencies. They range from a paralysis in cross-border payments to a civil breakdown in Greece to a broader breakup of Europe’s common currency.
Retrieving their cash is among the companies’ gravest concerns. If Greece were to revert to its former currency, many companies fear that any euros left there would be converted into less-valuable drachmas. Should that happen, Greece is widely expected to impose capital controls to keep the remaining cash in the country.
Can you say “completely mess?”
Meanwhile, here, the business climate remains unsettled, hiring still isn’t showing any real turnaround and the economy continues to bang along the bottom (one assumes, it could drop again if the Euro crisis explodes) with no real trend upward.
Eventually, no matter hard one tries to wish it away, reality will smack you in the face. Hard.
As predicted was inevitable, today the Spanish newspaper La Gaceta runs with a full-page article fessing up to the truth about Spain’s “green jobs” boondoggle, which happens to be the one naively cited by President Obama no less than eight times as his model for the United States. It is now out there as a bust, a costly disaster that has come undone in Spain to the point that even the Socialists admit it, with the media now in full pursuit.
La Gaceta boldly exposes the failure of the Spanish renewable policy and how Obama has been following it. The headline screams: “Spain admits that the green economy as sold to Obama is a disaster.”
According to the Spanish government, the policy has been such a failure that electricity prices are skyrocketing and the economy is losing jobs as a result (emphasis added):
The internal report of the Spanish administration admits that the price of electricity has gone up, as well as the debt, due to the extra costs of solar and wind energy. Even the government numbers indicate that each green job created costs more than 2.2 traditional jobs, as was shown in the report of the Juan de Mariana Institute. Besides that, the official document is almost a copy point by point of the one that led to Calzada being denounced [lit. "vetoed"] by the Spanish Embassy in an act in the U.S. Congress.
The presentation recognizes explicitly that “the increase of the electric bill is principally due to the cost of renewable energies.” In fact, the increase in the extra costs of this industry explains more than 120% of the variation in the bill and has prevented the reduction in the costs of conventional electricity production to be reflected on the bills of the citizens.
Despite these facts, which quite frankly have been known for quite some time, the Obama administration is still planning to move ahead with its own policy based explicitly on the Spanish one. As Horner states:
That fight [over the "green economy" policy] begins anew next week with the likely Senate vote on S.J. Res. 26, the Murkowski resolution to disapprove of the Environmental Protection Agency’s attempt to impose much of this agenda through the regulatory back door without Congress ever having authorized such an enormous economic intervention.
Just as with the ObamaCare boondoggle that was rammed into law despite its (a) known problems that are only now being admitted to, (b) real costs that are only now becoming evident, and (c) unacceptability to the vast majority of Americans, Obama is going full steam ahead with this “green economy” nonsense. Regardless of facts or reality, this administration is dead set on re-creating America in the image it likes best (i.e. European social democracy), regardless of the costs. So long as we end up with all the bells and whistles that are the hallmarks of our European betters (e.g. universal health care, carbon taxes, depleted military, enhanced welfare state, overwhelming government controls of the economy, sufficiently apologetic “transnationalist” foreign policy), the actual results of that transformation are unimportant. We may end up an economic basket case a la Greece, but hey, at least we’ll have all the nanny-state accouterments necessary to commiserate with the cool European kids.
It’s gotten to the point where pointing out that the emperor has no clothes only results in naked orgies of Utopian spending. This cannot end well.
The bailout of Greece may not work. Spain is teetering on the edge of serious financial doom. The Euro is taking a beating. And the banks of Europe are not looking too healthy overall. Meanwhile, here in the States, unfunded government debt, already expanding at an unprecedented rate, is set to explode. What do all of these things have in common? They are the direct result of expanding the welfare state without any means of actually paying for all of it.
In truth, there is never a way to pay for expanding the welfare state because, while wealth creation isn’t a zero-sum game, the population of wealth-creators is; after all, not just anyone can create electricity, telephones, heart medications, MicroSoft, Wal-Mart, or even pencils without some know-how, sweat and inspiration. If that were possible, then wealth creation could never be retarded, regardless of the impediments. Some wise, noble, and completely selfless individual would always emerge to drive the economy forward. Alas, self-interest trumps all, without which wealth-creation is for the horses.
No matter how ingenious the plan, or divine the motives, the only way for governments to fund the welfare state is to tax the wealth-creators. As even the most Marxist of intellectuals knows, if you want less of something, then tax it. This is why cigarettes are levied against in ridiculous proportions, and why carbon taxes are considered (by some) to be the savior of our planet. Well, taxing wealth-creation works exactly the same way: tax it more, and you will get less of it. Which leads to the inexorable conclusion that, as the governments of the world sink deeper into fiscal crisis, the looters will be coming en masse.
Does that mean that we are in for another Great Depression? Not necessarily. In fact, I predict that no such thing will occur. For starters, we have many institutions in place today that didn’t exist in the 1930′s such as the FDIC, Social Security, Medicare, the IMF, and the World Bank. Some of these things are arguably beneficial in that they smooth out the rough patches that economies inevitably encounter. The U.S. economy, for example, may not have realized the devastation it did if old people, like McQ, could have survived without taxing their families’ resources so much, or the FDIC had been in place to quell bank runs. Maybe. But more importantly, in this day and age our politics and law-making bodies (and those of every democratic society) are dominated by those whose own self-interest is firmly grounded in the ability to buy votes. That ability is highly dependent upon feeding the welfare state, since the vast majority of votes are bought from those who don’t create electricity or heart medications. This is why politicians of all stripes won’t take steps that would decrease the welfare state, because to do so will cost them votes — to the politician who promises more largesse at the expense of whatever hated rival is being villainized at the time. Accordingly, the odds are rather stacked against wealth-creators continuing to employ their skills in service of the very state that punishes them.
Instead of the Great Depression, Part Deux, I would predict that the elites (those, and their friends, who hold the power to dole out goodies for votes) will shuffle the deck just enough to ensure that they stay in favor, while allowing the overall health of the economy to softly fade into oblivion. They are like Dr. Kevorkian administering to capitalism. The ability to create wealth will slowly continue to be arrogated to the governors and “experts,” while the welfare state expands in decrescendo. Eventually, we will be left with something akin to the Ottoman Empire: all power and glory in name only, inside a rotting shell, harkening back to a time so dissimilar as to be unworthy of the title. What’s left will be hopeless, farcical and cruel, and will not have the slightest ability to nurture the welfare state that started it all. Perhaps the “Long Morose” would be a better title.
Irrespective of my gloomy predictions, there simply isn’t any question that, at some point, the beneficiaries of the great welfare state will have to take a bath. Most likely, that day will come when everyone jumps in the tub together. Until that time, prepare for the politically powerful to loot the wealth-creators out of existence in order to pay off the welfare beneficiaries. Eventually the only ones left to take that bath will be the filthy and the unwashed.
During the last days of the Bush administration, there was a small flurry of hope among proponents of drilling for oil and gas which is off our coast. The president lifted the ban on offshore oil drilling and Congress, understanding the politics of the moment, let their ban expire. As the Washington Examiner explains, that leaves only one obstacle to the US finally going after what is thought to be about 3 billion barrels of oil and 11 trillion cubic feet of natural gas:
So the only thing keeping U.S. firms from drilling off our own continental shelf is President Barack Obama and his secretary of the interior, Ken Salazar, who is slow-walking the approval process that must be cleared before the work can begin.
However, President Obama has managed to break 2 billion of your dollars loose to loan to Brazil to help bankroll their offshore drilling in the Atlantic. One assumes that will give Brazil a savings which will allow them pursue drilling in the Gulf of Mexico as well, since they are one of a number of nations pursuing oil and gas there:
Brazil, China, India, Norway, Spain and Russia have all signed agreements with Cuba and the Bahamas to initiate exploration and production in the Gulf of Mexico within the next two years. So the prospect of seeing Russian oil rigs 45 miles off the Florida Keys — where American oil companies are now forbidden to drill — is a very real possibility.
That “very real possibility” would see us buying oil from the Gulf from foreign oil producers when it was just as readily available to us and our own companies.
And who would you rather produced it – US companies who have proven over the years that they have the ability to recover both oil and gas safely and in an environmentally sensitive way or foreign companies 45 miles off your coast who could give a good rip one way or the other how environmentally safe their methods were?
Then there’s the recession, jobs and the government’s hunt for revenue. This seems like a natural “shovel ready” industry that wouldn’t cost the taxpayer a nickle to crank up but would benefit the economy and the tax base:
According to the American Petroleum Institute, the development of America’s coastal oil and gas resources would generate more than $1.3 trillion in new government revenue and 160,000 high-paying jobs over the next two decades.
Instead of going full bore and trying to get this program off the ground – or in this case, in the water, we’re still piddling around trying to pass legislation:
Senators Lisa Murkowski, R-Ak., and Mary Landrieu, D-La., are bipartisan co-sponsors of a bill that provides coastal states such as Florida their fair share of revenues produced by off-shore drilling and production. The same thing should be done for states on the East and West coasts. California Gov. Arnold Schwarzenegger and the state’s lawmakers hope to tap deposits off Santa Barbara to generate billions in royalties, and Virginia’s front-running gubernatorial candidate Bob McDonnell has made drilling 50 miles off that state’s coast a key component of his energy plan.
Meanwhile foreign nations are moving to exploit resources we should have been exploiting for decades.
We have a huge looming energy gap. We’re behind the curve as it stands right now. While all the politics is focused on health care reform, this need isn’t going away and only becomes worse. Instead of “slow-walking” this, Barack Obama and Ken Salazar should be fast-tracking it and getting us out in those offshore areas to grab the most productive regions first. If we don’t, we’ll be moaning about how the percentage of oil and gas we import has gone up again.
And, as usual, that will be our own negligent fault.
A study just completed in Spain finds that the creation of so-called “green jobs” doesn’t at all seem to be the employment panacea promised by their advocates. As you recall, President Obama pointed to Spain as the reference point for the establishment of government aid to renewable energy. As the study points out, “No other country has given such broad support to the construction and production of electricity through renewable sources.” But the results are not at all what you might expect given the hype. In fact, they’ve been quite the opposite:
Optimistically treating European Commission partially funded data, we find that for every renewable energy job that the State manages to finance, Spain’s experience cited by President Obama as a model reveals with high confidence, by two different methods, that the U.S. should expect a loss of at least 2.2 jobs on average, or about 9 jobs lost for every 4 created, to which we have to add those jobs that non-subsidized investments with the same resources would have created.
Be sure you read that last part of the sentence carefully as well – those jobs would have been created by “non-subsidizsed investments” with the “same resources” – or said another way, they’d have been created in the private sector without government picking winners and losers and spending billions in taxpayer money.
Between 2000 and 2008, Spain was very aggressive in pursuing alternative energy and green jobs. But its results were less than stellar:
Despite its hyper-aggressive (expensive and extensive) “green jobs” policies it appears that Spain likely has created a surprisingly low number of jobs, two-thirds of which came in construction, fabrication and installation, one quarter in administrative positions, marketing and projects engineering, and just one out of ten jobs has been created at the more permanent level of actual operation and maintenance of the renewable sources of electricity.
So 9 out of 10 were temporary jobs, while only 1 in 10 became permanent. And the cost?
The cost to create a “green job”:
The study calculates that since 2000 Spain spent €571,138 to create each “green job”, including subsidies of more than €1 million per wind industry job.
The cost in jobs lost:
Each “green” megawatt installed destroys 5.28 jobs on average elsewhere in the economy: 8.99 by photovoltaics, 4.27 by wind energy, 5.05 by mini-hydro.
And the eventual cost to consumers:
The price of a comprehensive energy rate (paid by the end consumer) in Spain would have to be increased 31% to being to repay the historic debt generated by this rate deficit mainly produced by the subsidies to renewables, according to Spain’s energy regulator.
Spanish citizens must therefore cope with either an increase of electricity rates or increased taxes (and public deficit), as will the U.S. if it follows Spain’s model
Previous studies have concluded that such increases would impact the poorest quintile the most:
• Reducing emissions, a major rationale for “green jobs” or renewables regimes, hits the poorest hardest. According to the recent report by the Congressional Budget Office, a cap-and-trade system aimed at reducing greenhouse gas emissions by just 15% will cost the poorest quintile 3% of their annual household income, while benefiting the richest quintile (“Trade-Offs in Allocating Allowances for CO2 Emissions”, U.S. Congressional Budget Office, Economic and Budget Issue Brief, April 25, 2007).
• Raising energy costs loses jobs. According to a Penn State University study, replacing two-thirds of U.S. coal-based energy with higher-priced energy such as renewables, if possible, would cost almost 3 million jobs, and perhaps more than 4 million (Rose, A.Z., and Wei, D., “The Economic Impact of Coal Utilization and Displacement in the Continental United States, 2015,” Pennsylvania State University, July 2006)
So to recap, we have a scheme which would see a net reduction in jobs by its implementation, create jobs of which only 10% were permanent, Cost anywhere from a half a million to a million dollars per job, increase energy costs tremendously and hit the poor the hardest.
Sounds like a winner, doesn’t it?
Will anyone pay attention to the actual experiment conducted by Spain and its results? Or are the blinders firmly in place?
While this scheme would be important to contest at any time, it is critically important to do so now, given the economic situation. One thing that must be avoided is government killing jobs as fast as the private sector creates them. This is truly a time when government should do all it can to enable the private sector to create jobs (tax cuts, etc.) and step back and allow that process to work. What it shouldn’t be doing is picking winners and losers and enacting a scheme which, in Spain at least, has proven to do all the things necessary to kill or at least cripple any economic recovery.