Friday, 23 October 2009

How to filter news stories in a Recession

AS some may know my thesis is effectively on the short term and long term effects of the great depression that occurred in the 1930s. This gives me a very nice “BS filter” to filter all the economic about the global resession. For example the British economy continuing recession is the biggest non-news story. I thought I would share it with you why that is:
1) Recessions are non linear- i.e. there is no decline of output then rise of output, then out of the recession. There are some signs of recovery that might be unsustainable, there might be decisions or bank closures that through the economy in new lows. This is because the recession does not affect all the economic sectors in the same way or at the same time casing different lags in the economic system.
2) When we are talking about recessions the quarterly GDP figures are next to useless. Firstly the margin of error for quarterly accounts is more than +/- 2%, meaning that it could well fool you into thinking the recession is over. This is due to the fact that you do not count everything in a quarterly GDP – you count some things and then assume the rest is equal. However in a recession most things can change – relative prices, inventories and even intermediate consumption (i.e. production methods and their cost) are altered as people take account of the changed economic circumstances.
3) A recession is not just an decrease in total output of the economy – it is also a state of mind. Malta did not experience a recession during the period of the great depression. The effect of the depression in the whole of Europe, including Malta was the alteration of spending habits towards savings and away from consumption, condemning Malta to slower GDP growth rates for the rest of the 1930s. Likewise the economy can fell like it is a recession long after its GDP has stopped falling. In the words of a T/C economist “The recession has not affected how people live here because we have been in a permanent state of recession for the past 10 years” i.e. people feeling insecure about their future and reluctant to spend or invest.
4) Projects such as the car scrappage scheme that is in place in Greece and Germany are a wonderful way to boost output in the short term. If car sales are 10% of the economy and the scheme allows it a recovery of 5%, then the GDP output will increase by-0.5%, enough to turn the recession of the UK into a “recovery”. The project is a good idea since it understands that the recession affects consumers unequally: those who losses their jobs and bonuses might be worse off, but those on fixed salaries and safe jobs are actually better off, and they need to get over their fear and start spending.
Hope you have a nice weekend,

Sunday, 11 October 2009

Why Greece is so distrusted right now - Thank Mr. Christos Votsis for briing this to my attension.

A quick pull of news relating to Greece public debt from Reuters. The central banker lives in two parallel universes, he says optimistic things on Tursday from Friday.

13:32 08Oct09 -Greek deficit not seen over 10pct of GDP- cenbanker
ATHENS, Oct 8 (Reuters) - Greece's central banker said on Thursday he does not see the country's budget deficit topping 10 percent of gross domestic product (GDP) this year.
"I am optimistic that it (2009 budget deficit) will not exceed 10 percent," Bank of Greece Governor George Provopoulos told reporters after meeting with new Prime Minister George Papandreou.

Thursday, 08 October 2009 13:27:25RTRS [nATH004752] {C}E
16:38 09Oct09 -Greek 2009 deficit may reach 12 pct of GDP- cenbanker
ATHENS, Oct 9 (Reuters) - Greece's central banker said on Friday that Greece's budget deficit may reach 12 percent of gross domestic product (GDP) this year.
"Based on data we have for the first nine months, the budget deficit reached 10 percent and with the prevailing dynamics it will reach if not exceed 12 percent," Bank of Greece Governor George Provopoulos told reporters after meeting with new Finance Minister George Papaconstantinou.

Tuesday, 6 October 2009

Two issues of concern: Cypriot unemployment and the new greek government

Just a quick note for topics of discussion today:
1) Cypriot unemployment is slowly creeping up to the European norm. Although the level of unemployment is still lower than the advanced countries of Europe. However the rate of growth of unemployment in alarmingly fast, even faster than most European countries that we would like to emulate. What concerns me is that the government is thinking of measures of how to stop it growing (which it can do very little about), but is not focusing in preventing this unemployment becoming structural and long terms (which it can do a lot to prevent. Any ideas / suggestions of what the plan should be?
2) I was surprised and disappointed at the choices of Mr. Papandreou, whose victory pleased me. Ignoring the usual rubbish about "αρώμα γυναίκας" (why not aftershave of men?) it is very worrying that Premier Papandreou chose the foreign ministry for himself. This is a brief that is very taxing on time - there are more meeting for foreign ministers in Brussels than there are for premiers - is he supposed to drop the day to day running of the country to represent Greece in a harmonisation negation on the size of the future European foreign mission?
Even more worrying for the negotiations of Cyprus - such an exhausting process needs people to be working on just that issue when the final phase arrives. We all remember that during the second Clerides administration, Mr. Clerides, as well as Mr. Papandreou as foreign minister, surrendered all other briefs to other people to concentrate on the negotiations. Yet as Premier of Greece, such a policy will be impossible. what are you thoughts on this issue?