Chart of the day: Indebtedness of all AAA sovereign credits
The following numbers come from a recent article in Die Welt on the backlash in Europe against the ratings agencies. Going by the Maastricht criteria of 3% deficits and 60% debt to GDP, the only credits that make this hurdle are: Finland, Luxembourg, Norway, Singapore, Sweden, and Switzerland. During this liquidity (and solvency) crisis, these are the safest havens.
I am not sure why Australia is missing here, but it is the only AAA credit that I know to be missing from the list.
| Country | Rating | Government Debt to GDP | Surplus/Deficit (+/-) | GDP growth rate | Current Account |
| Austria | AAA | 73.60% | -3.90% | 3.00% | 3.16% |
| Canada | AAA | 76.91% | -1.89% | 2.90% | -1.42% |
| Denmark | AAA | 42.99% | -4.10% | 1.50% | 4.66% |
| Finland | AAA | 49.73% | -0.90% | 3.80% | 5.06% |
| France | AAA | 83.58% | -5.70% | 1.90% | -2.12% |
| Germany | AAA | 82.97% | -2.50% | 3.20% | 4.95% |
| Luxembourg | AAA | 18.22% | -1.10% | 3.30% | 7.10% |
| Netherlands | AAA | 64.78% | -3.70% | 1.75% | 7.57% |
| Norway | AAA | 43.40% | 9.87% | 3.00% | 14.57% |
| Singapore | AAA | 41.19% | 10.16% | 6.04% | 20.40% |
| Sweden | AAA | 36.80% | 1.04% | 4.00% | 5.90% |
| Switzerland | AAA | 36.90% | 0.30% | 2.66% | 13.19% |
| United Kingdom | AAA | 83.42% | -7.84% | 1.36% | -0.75% |
| United States | AAA | 93.46% | -9.53% | 2.59% | -3.36% |
Source: Die Welt, Bloomberg, October 2011
Been looking for a list like this. Although I believe these figures include Intragovernment debt. According to the S&P, US gov net debt is lower at 74% of GDP.
Been looking for a list like this. Although I believe these figures include Intragovernment debt. According to the S&P, US gov net debt is lower at 74% of GDP.
Leaving out the private debt distorts the picture.
Spain currently has 60% gov. debt to GDP.
Ireland’s ratio was 25% in 2007 and then it jumped to 95% in 2010 because of the bank bailouts.
Just saying focussing on govenment debt can COMPLETELY mislead you.
The ratio for Netherlands might look decent at 65% but we have the HIGHEST household / GDP in the world.
A recent quote from the Dutch (Netherlands) central bank:
“Falling house prices are magnifying the financial risks for households and banks. At 128 per cent of GDP, households have virtually the highest debt position in the world, with high loan-to-value ratios (the amount borrowed relative to the value of the collateral). They are hence vulnerable.”
When RBS bought ABN Amro its balance sheet destroyed RBS. It makes you wonder what the rest of the dutch banks were like. You are right though that excessive private debt. The UK also has very high levels of private debt much of which is backing the property market. A combination of public and private debt is what is important and bank regulators have not worried about that element.
ING is on government life support, the state has bought their distressed 20 billion US Alt.A portfolio and lend them additional billions to keep them from imploding.
The Rabobank the biggest Dutch mortgage bank has been relatively healthy up till now but they’re beginning to acknowledge they are facing risks from a deteriorating housing market.
Both residential as commercial real estate markets are still in extend and pretend mode but the dyke is leaking more and more. 20% of offices are empty and rising (A locations, Amsterdam, etc.). The transaction volume in the housing market has dropped >40% with slowly declining prices, minus 10-15% from the top. The current stock of houses for sale would take two years to be sold at the current pace. The number of houses for sale is rising at an accelerated pace compared to pace last year (the number has doubled since 2007, https://floris.nu/funda/).
The Netherlands is in austerity mode cutting back government spending except for the housing market. They’ve lowered the house sale transaction tax and extended a government guaranteed mortgage system. The government-banking-pension complex knows that if the real estate bubble pops it’s game over and we’ll be in an Ireland or Iceland type of position. Obviously this is inevitable, the ponzi is running on fumes, the crash is happening in the Netherlands.
So the Netherlands really are in the periphery, except that no one appears to have noticed. So the chances of the Netherlands being able to transfer to a new core euro look unlikely. According to the BIS in 2010 the dutch property market was over 100% overvalued.
https://www.bis.org/ifc/events/5ifcconf/xu.pdfThat is even higher than even the Australian and UK bubbles. The UK was more than 50% over valued at the peak yet have only fallen 15% from the peak. Australia is peaking at near 60% overpriced.
From what you say then Rabobank looks like it could be in trouble if the economy changes. The government must be very nervous.
My take is that panic is setting in as everybody (government, banks, pensionfunds, etc.) realizes they won’t be able to re-inflate the bubble. All their cards were on extend and pretend, and wait until the crisis blows over. The IMF, OESO, BIS have been warning the Netherlands for the ever growing bubble but all the governments just rebuffed them. Obviously it political suicide to admit you’re running a nationwide ponzi and everyone will be on the hook eventually.
For the last couple of years the official government response was literally STFU regarding reforming the Dutch housing market because one should not create uncertainty and doubt regarding the housing market. The biggest political issue is a the tax deduction of mortgage interest from your gross income (called ‘HRA’) that significantly lowers your income tax burden. Basically this is a subsidy on taking on maximum mortgage debt (=maximum tax deduction) and it enables people to borrow far more than they could without it.
In 2007 the *average* LTV of new mortgages was 114% with 130% being considered perfectly ‘normal’.
In 2006 the *average* LTI of new mortgages was 550% with 800% being possible.
In 2006 44% of new mortgages were ‘interest only’
People would only look at their monthly payments to determine if they could ‘afford’ a house. Low interest rates combined with generous tax deduction and eagerly lending bank enabled this.
The Dutch central bank seems to have woken up to its responsabilities:
https://www.dnb.nl/en/news/news-and-archive/persberichten-2011/dnb260859.jsp
As has the Rabobank in their latest August housing market analysis (after years of saying everything was hunky dory):
“It should be noted that reducing the transfer tax is not sufficient to restore the market in the long term; the structural problems in the housing market – includ-ing the unnecessarily high risks – require an integrated vision. Rabobank has now taken the first steps towards achieving this objective.”
https://www.rabobank.com/content/images/DHMQ-2011Q2_tcm43-145948.pdf
There are significant differences though with most of the PIIGS. The Netherlands does have a high value add real economy that funcions much like an economic province of Germany. So that’s good.
But if the risks of our huge property materialize there is a very real chance we’ll end up like Ireland. If this risk is detected by the markets this will become a self for filling prophecy. Dutch government and and mortgage rates will rise and bankrupt hordes of people with variable interest rates or at the end of their fixed rate period. The spread of Dutch gov. debt with German Bunds is already rising and banks are having trouble finding financing for their mortgages causing them to curb lending.
Our economy contracted last quarter while Germany’s still grew… My hunch is we’ve started swirling down the drain of a deflationary spiral.
I will accept that the Netherlands do have a high value economy as does Italy, though that has not saved them. The problem is that banks lent too much and inflated property bubbles. It probably inflated a significant commercial property bubble as well. As long as these firms can still trade the commercial property bubble may remain inflated. Though if you have entered a recession that becomes harder.
The fact that governments intervene with subsidies for home buyers really should not surprise us that bubbles inflate. It will also be a significant problem for future generations. If property is too expensive it can drive the young and skilled away to better locations. It seriously delays family formation and that has an impact on long term prospects. Italy has a low birth rate and family formation is now averages late thirties. That creates problems in decades to come as the family network will be much smaller to look after the elderly. It also delays certain markets as the family formation is crucial to the economy. This pattern is repeating all over Europe, but is most marked in Italy.
From your comments it is clear that the dutch mortgage market is dysfunctional with ever fancier ways to lever up home buyers. If LTV were so high they clearly expected the prices to boom indefinitely. We had similar LTV from Northern Rock bank who where the first big casualty in the UK. From what you have been saying then if things do not go well then yes the Irish route is a certainty for the Netherlands.
The only problem with property bubbles is that they always burst and if they go on for too long they distort normal savings and investment patterns. Property should not be viewed as an investment but as a location to live and work from. If property prices were frozen then there would not have been a pensions shortfall in the UK, as many used property instead of a pension as a form of savings. If people had disposable income they may have saved instead and banks would not have been so dependent on interbank markets for funding. An increase in asset values is inflation even if you do not want to call it that. Yet governments do nothing to stop them, in fact positively encouraging them through tax policy. The only way to stop them distorting the economy is to stop them inflating in the first place. That means an end to home buyer subsidies and taxing them sufficiently so that they do not inflate is the first place. That seems an impossibility for governments.
Yeah it’s a sad state of affairs but it seems the powers that be will use every possible policy lever to postpone the crash even though it will only increase the severity of the eventual collapse. It seems to be a natural pattern though so it might be something that is just part of the human condition. Not sure if Minsky in the end came up with a silver bullet to put and end to these cycles. Maybe we just have to live with it.
Yes only today the UK government came up with a new scheme to encourage first time buyers of new builds by effectively guaranteeing the mortgages. It will be a disaster waiting to happen. All it does is suck generation X buyers into a falling market to bail out baby boomers who were conned in the first place.
I am a Keynesian but do not see the problems with Hayek over allowing assets to fall. Stable asset prices should be a priority not allowing bubbles to form. If we had no asset bubble then the banks would have not been as willing to lend on an asset that does not appreciate. We may not have had so many foreclosures and incomes would not have been squeezed to pay for ever higher housing costs. Then the average worker would find that saving is a better idea to get a bigger home, because asset appreciation would no longer be viable. The problem is that to allow house prices to fall to sustainable levels will mean that most home buyers will be in serious trouble. So the solution is to have decades of stagnant prices to allow them to become more affordable. Though to ensure that they do not allow new bubbles they need to ban various types of mortgages, such as interest only, ones with no deposits, and over time should mandate that deposits increase over time so that they rise to 30% of home prices over the next decade. Putting a cap on mortgages would also end bubbles. What politicians fail and many economists fail to realise is that rising home prices is a generational tax on the young, and in the UK the average first time buyer who buys without family assistance is 37. That is ridiculous. My parents were able to buy in their early twenties on a single income.
In the Netherlands a government mortgage guarantee system has been in place for years called NHG. Originally it was aimed at homeownership for lower incomes and guaranteed mortgages up to 265k euro but since the crisis this limit has been raised to 350k. The system has a fund with buffer cash covering 0.5% of all the insured mortgages that amount to 126 billion euro (2010). After that the goverment picks up the bill. A ‘when’ not ‘if’ type of situation in my view.
The whole system obviously has nothing to do anymore with promoting home ownership and is fully aimed at keeping the bubble inflated. Since the majority of the population owns a home politically this is only logical. Since the bubble has grown so big and potentially destabilizing basically the whole economy is being held hostage by Mr. Bubble.
Obviously the young non home owning generation is being sacrificed. Politically and economically they are just not relevant, on the short term that is. Let alone the unborn and never-will-be-born generations. Since politics is all about the short term and keeping the baby boomer majority happy my hopes for change via the political process are zero. The only way I see things changing here is when the system collapses. I think this is inevitable in the end but I do worry about the endless extend and pretend policies which just delay the inevitable. In my view we’re wasting precious time by not biting the bullet right now.
Sometimes I think it might be time to migrate to our AAA neighbour. Germany is a very nice country and the language is quite easy to learn for Dutch people.
Yes I also share serious concerns for the younger generations. They are simply being priced out of the market. When they should be saving for deposits their disposable incomes are being shrunk by high rents. It seems that every country that has a housing bubble is sacrificing its young for the baby boomers fake prosperity. Ultimately as few of them will get on the housing ladder they will leave for better opportunities elsewhere and the demographics will erode badly.
Maybe the whole idea of a fair distribution of e.g. wealth or reproductive opportunities between e.g. generations is false. Maybe this is just a moral myth ingrained in our western culture.
I think one thing this crisis has demonstrated is that linear-mechanical-predictable models don’t correspond to the world we live in. Basically a lot of economic theory has been falsified and will be replaced by new paradigms, e.g. ‘black swan-fractal-mandelbrodian’ theory or something completely different of course.
Anyway natural cycles tend to be non-linear and behave chaotic, e.g. the weather or the frequency of locust outbreaks. Maybe the human species is subject to similar irregular social & economical patterns.
I’m not saying I like being in a generation (I’m mid 30) that seems to be less well off than e.g. the boomers but maybe these are the economical and demographic patterns we have to live with. The whole idea of ever increasing prosperity is a nice one but I’m afraid we’ll have to adapt. Obviously the powers that be will try to milk every last drop of productivity from the working population by using the ‘prosperity is just around the corner’ carrot but the occupy movement shows the masses are also awakening in the West.
Much of the problems in current economic has already been solved. It is just that neoclassical economists ignore it. Keynes, Minsky and Hayek all had the right idea, stop the bubbles in the first place.
The intergenerational aspect is a very modern phenomenon. It was not planned but is an unintentional consequence of trying to protect the baby boomers who over extended themselves as a result of deregulation. This meant that governments took on debt to keep the bubbles going yet that debt will not benefit generation X in better roads or infrastructure. Until governments and central banks stepped in to support asset bubbles the losses would be met by the current generation. So if you could buy a home for a little more than what your parents did even if your wages were lower you would still be much better off than you are now. Housing bubbles are toxic and should really be killed off. Whilst everyone likes to think that they were great property investors if they rode a property bubble there is little chance that they were geniuses, just lucky. I know people who did well and those a few years younger were hit by crashing bubbles and fell well behind people just a couple of years older. So until governments actually realise this then expect long term multigenerational declines for the West, and eventually the Asian nations as well.
What we have now is governments imposing austerity, which downgrades opportunities for the next generation and maintains the debts for them to clear. What we need is debt clearance by any method. That will kill property bubbles and allow Gen X buyers back into the market. The whole policy of inflating bubbles actually diverted attention away from stagnation.
I agree that natural cycles can be chaotic but that ignores the intervention to keep bubbles inflated. Though asset bubbles are inflation yet national statistics do not report them as such. As for productivity gains the vast majority of those have been swallowed up by the 1%.
Agree.
The contingent liabilities from a fragile banking system always have to be taken into account especially if there is high household indebtedness. On this list, I would point less to Spain, since the contingent liabilities are known, and less to Germany and France because they are suspected, and more to the Netherlands, Denmark, Finland and Sweden because they all have housing booms and the contingent liabilities from this are not considered.
See Claus Vistesen on Denmark here:
https://pro.creditwritedowns.com/2011/06/danish-covered-bonds.html
A more upbeat take from Niels Jensen is here:
https://pro.creditwritedowns.com/2011/09/covered-bonds-variable-rate-mortgages.html
Ostensibly, the ratings agencies are onto this. But, I suspect we will see downgrades soon, France being the first.
Leaving out the private debt distorts the picture.
Spain currently has 60% gov. debt to GDP.
Ireland’s ratio was 25% in 2007 and then it jumped to 95% in 2010 because of the bank bailouts.
Just saying focussing on govenment debt can COMPLETELY mislead you.
The ratio for Netherlands might look decent at 65% but we have the HIGHEST household / GDP in the world.
A recent quote from the Dutch (Netherlands) central bank:
“Falling house prices are magnifying the financial risks for households and banks. At 128 per cent of GDP, households have virtually the highest debt position in the world, with high loan-to-value ratios (the amount borrowed relative to the value of the collateral). They are hence vulnerable.”
When RBS bought ABN Amro its balance sheet destroyed RBS. It makes you wonder what the rest of the dutch banks were like. You are right though that excessive private debt. The UK also has very high levels of private debt much of which is backing the property market. A combination of public and private debt is what is important and bank regulators have not worried about that element.
ING is on government life support, the state has bought their distressed 20 billion US Alt.A portfolio and lend them additional billions to keep them from imploding.
The Rabobank the biggest Dutch mortgage bank has been relatively healthy up till now but they’re beginning to acknowledge they are facing risks from a deteriorating housing market.
Both residential as commercial real estate markets are still in extend and pretend mode but the dyke is leaking more and more. 20% of offices are empty and rising (A locations, Amsterdam, etc.). The transaction volume in the housing market has dropped >40% with slowly declining prices, minus 10-15% from the top. The current stock of houses for sale would take two years to be sold at the current pace. The number of houses for sale is rising at an accelerated pace compared to pace last year (the number has doubled since 2007, https://floris.nu/funda/).
The Netherlands is in austerity mode cutting back government spending except for the housing market. They’ve lowered the house sale transaction tax and extended a government guaranteed mortgage system. The government-banking-pension complex knows that if the real estate bubble pops it’s game over and we’ll be in an Ireland or Iceland type of position. Obviously this is inevitable, the ponzi is running on fumes, the crash is happening in the Netherlands.
So the Netherlands really are in the periphery, except that no one appears to have noticed. So the chances of the Netherlands being able to transfer to a new core euro look unlikely. According to the BIS in 2010 the dutch property market was over 100% overvalued.
https://www.bis.org/ifc/events/5ifcconf/xu.pdfThat is even higher than even the Australian and UK bubbles. The UK was more than 50% over valued at the peak yet have only fallen 15% from the peak. Australia is peaking at near 60% overpriced.
From what you say then Rabobank looks like it could be in trouble if the economy changes. The government must be very nervous.
My take is that panic is setting in as everybody (government, banks, pensionfunds, etc.) realizes they won’t be able to re-inflate the bubble. All their cards were on extend and pretend, and wait until the crisis blows over. The IMF, OESO, BIS have been warning the Netherlands for the ever growing bubble but all the governments just rebuffed them. Obviously it political suicide to admit you’re running a nationwide ponzi and everyone will be on the hook eventually.
For the last couple of years the official government response was literally STFU regarding reforming the Dutch housing market because one should not create uncertainty and doubt regarding the housing market. The biggest political issue is a the tax deduction of mortgage interest from your gross income (called ‘HRA’) that significantly lowers your income tax burden. Basically this is a subsidy on taking on maximum mortgage debt (=maximum tax deduction) and it enables people to borrow far more than they could without it.
In 2007 the *average* LTV of new mortgages was 114% with 130% being considered perfectly ‘normal’.
In 2006 the *average* LTI of new mortgages was 550% with 800% being possible.
In 2006 44% of new mortgages were ‘interest only’
People would only look at their monthly payments to determine if they could ‘afford’ a house. Low interest rates combined with generous tax deduction and eagerly lending bank enabled this.
The Dutch central bank seems to have woken up to its responsabilities:
https://www.dnb.nl/en/news/news-and-archive/persberichten-2011/dnb260859.jsp
As has the Rabobank in their latest August housing market analysis (after years of saying everything was hunky dory):
“It should be noted that reducing the transfer tax is not sufficient to restore the market in the long term; the structural problems in the housing market – includ-ing the unnecessarily high risks – require an integrated vision. Rabobank has now taken the first steps towards achieving this objective.”
https://www.rabobank.com/content/images/DHMQ-2011Q2_tcm43-145948.pdf
There are significant differences though with most of the PIIGS. The Netherlands does have a high value add real economy that funcions much like an economic province of Germany. So that’s good.
But if the risks of our huge property materialize there is a very real chance we’ll end up like Ireland. If this risk is detected by the markets this will become a self for filling prophecy. Dutch government and and mortgage rates will rise and bankrupt hordes of people with variable interest rates or at the end of their fixed rate period. The spread of Dutch gov. debt with German Bunds is already rising and banks are having trouble finding financing for their mortgages causing them to curb lending.
Our economy contracted last quarter while Germany’s still grew… My hunch is we’ve started swirling down the drain of a deflationary spiral.
I will accept that the Netherlands do have a high value economy as does Italy, though that has not saved them. The problem is that banks lent too much and inflated property bubbles. It probably inflated a significant commercial property bubble as well. As long as these firms can still trade the commercial property bubble may remain inflated. Though if you have entered a recession that becomes harder.
The fact that governments intervene with subsidies for home buyers really should not surprise us that bubbles inflate. It will also be a significant problem for future generations. If property is too expensive it can drive the young and skilled away to better locations. It seriously delays family formation and that has an impact on long term prospects. Italy has a low birth rate and family formation is now averages late thirties. That creates problems in decades to come as the family network will be much smaller to look after the elderly. It also delays certain markets as the family formation is crucial to the economy. This pattern is repeating all over Europe, but is most marked in Italy.
From your comments it is clear that the dutch mortgage market is dysfunctional with ever fancier ways to lever up home buyers. If LTV were so high they clearly expected the prices to boom indefinitely. We had similar LTV from Northern Rock bank who where the first big casualty in the UK. From what you have been saying then if things do not go well then yes the Irish route is a certainty for the Netherlands.
The only problem with property bubbles is that they always burst and if they go on for too long they distort normal savings and investment patterns. Property should not be viewed as an investment but as a location to live and work from. If property prices were frozen then there would not have been a pensions shortfall in the UK, as many used property instead of a pension as a form of savings. If people had disposable income they may have saved instead and banks would not have been so dependent on interbank markets for funding. An increase in asset values is inflation even if you do not want to call it that. Yet governments do nothing to stop them, in fact positively encouraging them through tax policy. The only way to stop them distorting the economy is to stop them inflating in the first place. That means an end to home buyer subsidies and taxing them sufficiently so that they do not inflate is the first place. That seems an impossibility for governments.
Yeah it’s a sad state of affairs but it seems the powers that be will use every possible policy lever to postpone the crash even though it will only increase the severity of the eventual collapse. It seems to be a natural pattern though so it might be something that is just part of the human condition. Not sure if Minsky in the end came up with a silver bullet to put and end to these cycles. Maybe we just have to live with it.
Yes only today the UK government came up with a new scheme to encourage first time buyers of new builds by effectively guaranteeing the mortgages. It will be a disaster waiting to happen. All it does is suck generation X buyers into a falling market to bail out baby boomers who were conned in the first place.
I am a Keynesian but do not see the problems with Hayek over allowing assets to fall. Stable asset prices should be a priority not allowing bubbles to form. If we had no asset bubble then the banks would have not been as willing to lend on an asset that does not appreciate. We may not have had so many foreclosures and incomes would not have been squeezed to pay for ever higher housing costs. Then the average worker would find that saving is a better idea to get a bigger home, because asset appreciation would no longer be viable. The problem is that to allow house prices to fall to sustainable levels will mean that most home buyers will be in serious trouble. So the solution is to have decades of stagnant prices to allow them to become more affordable. Though to ensure that they do not allow new bubbles they need to ban various types of mortgages, such as interest only, ones with no deposits, and over time should mandate that deposits increase over time so that they rise to 30% of home prices over the next decade. Putting a cap on mortgages would also end bubbles. What politicians fail and many economists fail to realise is that rising home prices is a generational tax on the young, and in the UK the average first time buyer who buys without family assistance is 37. That is ridiculous. My parents were able to buy in their early twenties on a single income.
In the Netherlands a government mortgage guarantee system has been in place for years called NHG. Originally it was aimed at homeownership for lower incomes and guaranteed mortgages up to 265k euro but since the crisis this limit has been raised to 350k. The system has a fund with buffer cash covering 0.5% of all the insured mortgages that amount to 126 billion euro (2010). After that the goverment picks up the bill. A ‘when’ not ‘if’ type of situation in my view.
The whole system obviously has nothing to do anymore with promoting home ownership and is fully aimed at keeping the bubble inflated. Since the majority of the population owns a home politically this is only logical. Since the bubble has grown so big and potentially destabilizing basically the whole economy is being held hostage by Mr. Bubble.
Obviously the young non home owning generation is being sacrificed. Politically and economically they are just not relevant, on the short term that is. Let alone the unborn and never-will-be-born generations. Since politics is all about the short term and keeping the baby boomer majority happy my hopes for change via the political process are zero. The only way I see things changing here is when the system collapses. I think this is inevitable in the end but I do worry about the endless extend and pretend policies which just delay the inevitable. In my view we’re wasting precious time by not biting the bullet right now.
Sometimes I think it might be time to migrate to our AAA neighbour. Germany is a very nice country and the language is quite easy to learn for Dutch people.
Yes I also share serious concerns for the younger generations. They are simply being priced out of the market. When they should be saving for deposits their disposable incomes are being shrunk by high rents. It seems that every country that has a housing bubble is sacrificing its young for the baby boomers fake prosperity. Ultimately as few of them will get on the housing ladder they will leave for better opportunities elsewhere and the demographics will erode badly.
Maybe the whole idea of a fair distribution of e.g. wealth or reproductive opportunities between e.g. generations is false. Maybe this is just a moral myth ingrained in our western culture.
I think one thing this crisis has demonstrated is that linear-mechanical-predictable models don’t correspond to the world we live in. Basically a lot of economic theory has been falsified and will be replaced by new paradigms, e.g. ‘black swan-fractal-mandelbrodian’ theory or something completely different of course.
Anyway natural cycles tend to be non-linear and behave chaotic, e.g. the weather or the frequency of locust outbreaks. Maybe the human species is subject to similar irregular social & economical patterns.
I’m not saying I like being in a generation (I’m mid 30) that seems to be less well off than e.g. the boomers but maybe these are the economical and demographic patterns we have to live with. The whole idea of ever increasing prosperity is a nice one but I’m afraid we’ll have to adapt. Obviously the powers that be will try to milk every last drop of productivity from the working population by using the ‘prosperity is just around the corner’ carrot but the occupy movement shows the masses are also awakening in the West.
Much of the problems in current economic has already been solved. It is just that neoclassical economists ignore it. Keynes, Minsky and Hayek all had the right idea, stop the bubbles in the first place.
The intergenerational aspect is a very modern phenomenon. It was not planned but is an unintentional consequence of trying to protect the baby boomers who over extended themselves as a result of deregulation. This meant that governments took on debt to keep the bubbles going yet that debt will not benefit generation X in better roads or infrastructure. Until governments and central banks stepped in to support asset bubbles the losses would be met by the current generation. So if you could buy a home for a little more than what your parents did even if your wages were lower you would still be much better off than you are now. Housing bubbles are toxic and should really be killed off. Whilst everyone likes to think that they were great property investors if they rode a property bubble there is little chance that they were geniuses, just lucky. I know people who did well and those a few years younger were hit by crashing bubbles and fell well behind people just a couple of years older. So until governments actually realise this then expect long term multigenerational declines for the West, and eventually the Asian nations as well.
What we have now is governments imposing austerity, which downgrades opportunities for the next generation and maintains the debts for them to clear. What we need is debt clearance by any method. That will kill property bubbles and allow Gen X buyers back into the market. The whole policy of inflating bubbles actually diverted attention away from stagnation.
I agree that natural cycles can be chaotic but that ignores the intervention to keep bubbles inflated. Though asset bubbles are inflation yet national statistics do not report them as such. As for productivity gains the vast majority of those have been swallowed up by the 1%.
Agree.
The contingent liabilities from a fragile banking system always have to be taken into account especially if there is high household indebtedness. On this list, I would point less to Spain, since the contingent liabilities are known, and less to Germany and France because they are suspected, and more to the Netherlands, Denmark, Finland and Sweden because they all have housing booms and the contingent liabilities from this are not considered.
See Claus Vistesen on Denmark here:
https://pro.creditwritedowns.com/2011/06/danish-covered-bonds.html
A more upbeat take from Niels Jensen is here:
https://pro.creditwritedowns.com/2011/09/covered-bonds-variable-rate-mortgages.html
Ostensibly, the ratings agencies are onto this. But, I suspect we will see downgrades soon, France being the first.
How would Chile stack up?
How would Chile stack up?