April 2, 2012

Unemployment & Unrest In Europe

April 2, 2012

Unemployment & Unrest In Europe

Europe is quickly coming to center stage again. Reports from inside the countries note that people are scared. They are afraid of losing their jobs, of losing their homes and losing their livelihood.

That fear has turned to anger, and that anger is boiling over in the streets of every major peripheral city. As one expert noted:

The social contract that has been in place for decades is being replaced by a northern fiscal compact. This new structure is cold, callous and capitalistic. There are no more “jobs for life”, no nanny state to take care of you when you are down on your luck and no rewards for slackers.

Eurostat, the EU’s statistics office, estimates that unemployment across the 17-country Eurozone rose to nearly 11% in February. Here is the country breakdown, rounded:

Spain 24%, Greece 21%, Portugal and Ireland 15%, Slovakia 14%, Estonia 12%, France & Cyprus 10%, Italy & Slovenia 9%, Finland, Malta, & Belgium 7%, Germany 6%, Luxembourg & the Netherlands 5%, and Austria 4%.

There will never be enough growth to pay for the empty political promises of the past decades.

Governments are good at over promising and under delivering, but when this happens often the government prints more money. In this situation it is not practical. Besides, the inflation problems at the back end will hurt long run growth.

There is no free lunch: cutting jobs and cutting nominal wages under an austerity plan is much less socially acceptable than using inflation and currency devaluation to lower real wages.

And how can austerity lead to prosperity? But as we were seeing many months ago, budget problems in Europe helped to keep U.S rates low due to the increased demand for our debt – so be careful what you wish for.

Turning to this country, there is simultaneously not much going on and a lot going on.

Friday we learned that Consumer Spending climbed 0.8% in February, the largest gain since July, and incomes advanced 0.2%, less than projected, sending the saving rate to a more than two-year low. The Chicago Purchasing Managers fell, but University of Michigan Consumer Sentiment index rose.

Late Friday prices dropped and rates rose, apparently due to speculation (key word) on the upcoming end of the Fed’s “Operation Twist” treasury purchases. For those interested in the Fed’s upcoming purchase schedule, go here.

Looking back over March, after the March 13 Fed statement, mortgage rates swiftly moved higher, but they have since improved and are close to where they were prior to the announcement!

Fed Chief Bernanke again emphasized that the Fed is inclined to keep its very accommodative monetary policy in place to help the labor market – and maybe they’ll keep buying agency mortgage-backed securities.