- Rupert Horn in Brewster's Millions
Wouldn't it be something if we required all politicians to undergo this exercise from Brewster's Millions? It might even be less expensive for taxpayers than all the bailouts and failed government loans to favored industries.
Wouldn't it be something if we required all politicians to undergo this exercise from Brewster's Millions? It might even be less expensive for taxpayers than all the bailouts and failed government loans to favored industries.
In case you haven't seen this film, let me summarize. Brewster is a minor league baseball player with a wealthy relative who offers him his choice of inheritance. He can choose either an easy $1 million, no strings attached, or "win" $300 million if he satisfies a number of conditions. The conditions are that he has 30 days to spend $30 million. At the end of 30 days, he cannot have any assets, nor can he "waste" the money.
Wait a second, now I'm thinking that maybe our politicians are experts at this exercise. After all, they'll claim that they didn't waste the money, and in the end, we have no assets. Alas, I don't think I'll be writing skits for Saturday Night Live any time soon.
Moving on, last week surprised me. Writing articles was far more mentally challenging and draining than I gave it credit. I assume with more practice, this will get easier. Either that or these article are going to get a lot shorter. After taking the weekend to clear my mind, it's time to look toward the horizon of the upcoming week.
Moving on, last week surprised me. Writing articles was far more mentally challenging and draining than I gave it credit. I assume with more practice, this will get easier. Either that or these article are going to get a lot shorter. After taking the weekend to clear my mind, it's time to look toward the horizon of the upcoming week.
Greek Parliament Passes New Austerity Measures
First I'm going back to the topic some hours ago - Greece. Its parliament passed austerity measures necessary for EU approval of its 2nd bailout. Sadly, protests have turned violent and rioting has broken out. Let's turn to The Telegraph to find the reason: Germany's Carthaginian terms for Greece
The EU deal will in theory cap Greece’s public debt at 120pc of GDP in 2020 - at the outer limit if viability - after eight years of belt-tightening and depression, if all goes perfectly.
Since nothing has gone to plan since Europe’s austerity police began to administer shock therapy eighteen months ago, even this grim promise seems too hopeful.
The Greek economy was expected to contract by 3pc in 2011 under the original EU-IMF Troika plan. In fact it shrank by 6pc, and is now entering what the IMF fears could become “a downward spiral of fiscal austerity, falling disposable incomes, and depressed sentiment.”
Manufacturing output fell 15.5pc in December. The M3 money supply crashed at a 15.9pc rate. Unemployment jumped to 20.9pc in November, up from 18.2pc the month before, and is already above the worse-case peak pencilled in by the Troika.
Some 60,000 small firms and family businesses have gone bankrupt since the summer, the chief reason why VAT revenues dropped 18.7pc in January. The violence of the slump is overwhelming the effects of fiscal retrenchment. So much Sisyphean effort for so little gain.
You can argue that Greece has dragged its feet on EU-IMF demands - though the IMF is careful not make such a crude claim, offering mixed praise in its last report.
But as Professor Vanis Varoufakis from Athens University says: “If we had better implemented the measures, the worse it would be: the economy would be comatose, and the debt-to-GDP ratio would be even more explosive.”
So yes, like Germany accepting the terms of the Carthaginian Peace with a gun to its head in 1919, Greece signed “an insincere acceptance of impossible conditions” - to borrow from Keynes - hoping that sense would prevail with time.
Greece must cut 150,000 public sector jobs by 2015 under the latest accord, and fiscal policy will tighten by an extra 1.5pc of GDP beyond the squeeze already under way.
“There are another 50,000 shops and small businesses hanging on for dear life that are expected to collapse over the next six months,” said Prof Varoufakis.
It would not surprise me to find financial markets heading higher due to today's deal. They may even continue rallying through February in anticipation of more ECB LTRO loans at the end of the month.
Looking at the graph below, I wonder how many Greeks and Germans think that the original €110 billion bailout was worth it. In 2008, debt-to-GDP was 113%. By 2011, estimates forecast debt-to-GDP to be 163% (though I've also seen higher estimates). Austerity programs and bailout loans have bled Greece to death. Manufacturing drops 15%+, unemployment rises ~21%, 60,000 small firms gone with another 50,000 expected to collapse.
For as much as I am for limited government spending and against rioting, the Greeks have a point to protest this "deal". After all it's going to take them eight years of hardship just to get Greece back down to 120% debt-to-GDP.
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| Source: Spiegel.de |
However, I'd like to reiterate a point several articles have made. First, Prime Minister Lucas Papademos was not elected to the position, but "appointed" by the EU and IMF to push for unpopular measures. Second as a condition for this "appointment", there is a Greek election coming up in April. All it takes to upset the fragile balance in financial markets is for an election to overturn the deal.
And with that, I'd like to leave you with a quote that struck me:
It is peculiarly appropriate that the country that gave the world the words “democracy” and “tragedy” should now be the beacon which alerts the world to the fact that the EU is extinguishing democracy... - Christopher Booker, The Telegraph.
Turning to Asia
First let's look at Japan, as Marketwatch reports: Japan's economy shrinks more than expected in Q4
Japan's economy shrank by more than expected in the October-December quarter, as a strong yen and collateral economic damage from flooding in Thailand took their toll. Real gross domestic product contracted by 0.6% during the quarter, the Cabinet Office reported Monday. The result was deeper than expected falls of 0.3% and 0.4% in separate economist surveys by Reuters and Dow Jones Newswires, respectively. On an annualized basis, the economy contracted 2.3% in the final quarter of 2011. In the July-September quarter, Japan's GDP had grown by 1.4% quarter-on-quarter.
China also merits some discussion as it is/was considered a hit area to invest before and after the financial crisis hit. Many analysts and investors thought that China could break away from the problems hitting the world. However as Reuters reports:
China has told its banks to start a huge roll-over of loans to local governments, the Financial Times reported, aiming to give itself more time to deal with a $1.7 trillion debt hangover from the global financial crisis.
The move underscores China's determination to contain its 10.7 trillion yuan debt mess and forestall a potential loan crisis in the world's No. 2 economy, analysts say.
As early as June 2011, the Chinese government had vowed to clean up its local debt either by shifting 2-3 trillion yuan of debt off local governments, forcing state banks to take some bad debt losses and selling select projects to private investors, sources told Reuters earlier.
Investors worry that China's banks would suffer billions of bad loan losses and hobble the world's growth engine at a time of anaemic global economic growth.
China's mountain of local debt piled up after the 2008-09 financial crisis when Beijing ordered local governments to spend massively on infrastructure projects to buoy economic growth, which they did by borrowing heavily.
Analysts say Chinese banks are already rolling over or restructuring troubled loans to cash-strapped local governments unable to repay their debt. But the amount of loans being rolled over is not known as banks -- and Beijing -- are tight-lipped.
Worse, analysts say Chinese banks are hiding troubled loans by adamantly refusing to mark them as non-performing loans in financial statements before restructuring them, as per global best practice.So How Does This Affect Me in the US
Learning from the Ground Up
In my previous life, I designed and developed training materials to educate adults on how to beneficially use sophisticated engineering software. It really was cutting edge technology as it enabled users to model in 3D, create drawings, design machine tool paths, create animations, analyze stress... the software had extensive capabilities.
Proper training significantly increases one's productivity. After all, no one wants to spend thousands of dollars on software and not get the return on their investment. Thus like the software, the training had to be extensive. Yet it also had to be well designed so that it never confuses a new user. This is going to sound simple, but not only do you need to look at the new user's needs - you also have to address the building blocks/prerequisites that form the foundation.
Tonight we look at one item that must be part of everyone's personal financial foundation, an emergency fund. An emergency fund is money that you have saved for the sole purpose of making ends meet should times get tough. This means that you should never use it for frivolous expenses such as going on a weekend trip or buying new shoes. It is meant as a resource to use when a dire financial event occurs, such as losing your job. Therefore, you need to establish an emergency fund as soon as possible.
Now some readers may think that they can get by without an emergency fund as they have credit cards. Over 10 years ago, I had this same thought. Yet, I strongly discourage this thinking primarily because there is nothing to prevent credit card companies from reducing your credit limit. Many individuals and families learned this lesson the hard way during the last financial crisis when card companies reduced their limit to just above their balance.
Hence I recommend opening a savings account and working towards 3-6 months worth of living expenses - obviously the more, the better. This money should be saved in a risk-free account. You should not have it invested in stocks or any place where it could realize losses. Remember that this savings is meant to engender some financial stability.
I realize that this is a lot easier said than done, but you don't have to get it done overnight. Start slow and small, $30 a month if necessary. That's ~$1 a day. It might not seem like much, but after two years you'll have over $700, which is quite a change from an account balance of $0. If finding that $1 a day seems impossible, then please keep following this blog as I continue to teach the foundations of financial health before moving up to other financial topics.
Disclaimer: Please remember that I’m just a guy sharing information on a blog, and this is NOT official investment advice. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Please consult your investment adviser before making any investment decisions. During your conversation with said investment adviser, ask why they believe in their recommendation. If you are not convinced by their explanation, any action that you take or forego is also your responsibility. Just in case you missed that, you are responsible for your investments.
With that said, don’t let your investments keep you up at night. If they do keep you awake, you may be taking more risks than you are comfortable with. Talk to a professional about reallocating to less risky investments so that you can sleep. During your conversation with said professional, ask why they believe that their recommendation is less risky. If you are not convinced by their explanation, don’t invest. Remember:
- It’s your nest egg.
- Opportunities are easier to make up than losses.
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