Ernst's Economy for you: “Three shades of Depression!” Must the world prepare for a devastating third leg of the vast, enduring economic crisis, striking the world since 2008, before there is light at the end of the tunnel?

“This economic crisis that started in 2008 is like an Amazing Discoveries infomercial from the late eighties; it seems to last forever and there is always more on offer than you have bargained for!”

Ernst Labruyère - 2015

Although very few people dare to call this vast economic crisis for what it is, it is becoming perfectly clear that we are in the midst of a heavy depression.

A depression that is here to stay for years to come; perhaps even unless something really dramatic happens, like a war or a world-altering new invention. And when we see how the moods are deteriorating globally at this very moment, a devastating war seems a realistic possibility, unfortunately.

“But”, you could argue,”it seems that the Dutch economy is currently going through a revival with rising housing prices, increased producer and consumer confidence, seemingly ubiquitous economic growth and a general rise in imports and exports. And the European Union as a whole is doing fine at this moment, isn’t it?!”

Yes, you are more or less right. Yet, it took seven years of waiting, a vessel-load of additional money and liquidity in the financial markets and near-zero interest rates from the ECB to achieve this "success".

And on October 15th, the Dutch Central Bureau of Statistics stated that the drop in unemployment and the rise in the number of jobs, which was a trademark of early 2015, came grindingly to a standstill in July and did not resume anymore until this date:

Early this year, the number of unemployed started to fall, but in the past three months the decline has come to a standstill. Statistics Netherlands (CBS) reports that 607 thousand people or 6.8 percent in the labour force were unemployed in September, i.e. the same amount as in July and August.

[...]

The number of people in paid work is about the same as in June. Until June, the working population had grown. The number of people working at least 12 hours a week increased, but the number of people working less than 12 hours a week decreased at the same rate.

The good news from the last snippet is that a part of the Dutch people has seemingly exchanged its limited-hour job for a job with more working hours. That is good news indeed for people with a small job, who desperately want to work longer hours. The bad news is, however, that the real growth has seemingly disappeared from the economy, when it comes to the rise in employment in The Netherlands.

And when the outlook for rising employment is not exactly great at this moment, but the Dutch people again run the risk of turning into ‘debt slaves’, due to the attractive, extremely low interest rates, steadily rising housing prices and (consequentely) increasing mortgage principals, this is also bad news, disguised as good news: nice for the people with an excess mortgage and an underwater house, but bad for the rest of the country, which has to borrow more money again in order to pay for their new house.

And now the inflation seems again heading for the gutter. Not only in The Netherlands, but all over Europe.

Besides that: enly the slightest hint of higher interest rates or other dampening measures is enough to cause sheer panic at the financial markets. A few weeks ago, about one week of trading was all it took to blast the whole annual profits at the stock exchanges for 2015 to smithereens in The Netherlands and many other countries (see the charts in the bottom of this article).

That the financial markets since then regained some of their profits for 2015, does not change anything at all about this worrisome fact. There is only stability on the markets, when bad news stays away; that is not real stability, isn’t it?

And how about the mood of the Dutch citizens?! Well, read this!

Last Wednesday, the Dutch Central Bureau of Statistics presented two tell-tale charts, accompanied by the statement that “the Dutch have more confidence in the European Union than in their own Second Chamber of Parliament”.

To grasp the real impact of this message, one has to remember that the Dutch confidence in the European Union is not exactly high: less than 40%!

Percentage of Dutch people with
confidence in national institutions
Source: www.cbs.nl
Click to enlarge

Percentage of Dutch people with
confidence in Second Chamber of Parliament
Source: www.cbs.nl
Click to enlarge

Again, these are depression-like figures and they have everything to do with the fact that people lost even the smallest bit of basic trust in their politicians and often just don´t feel represented by them anymore. And even though this has something to do with the credibility of the current generation of politicians (of course ), I personally consider this rather a ‘mood-thing'.

That is for the simple reason, that I fundamentally doubt whether the current generation of politicians is really worse than the previous generations. Probably not, which means that the reason for the people's distrust lies in the people themselves. People are simply depressed by the enduring economic hardship.

On top of that, one should not forget that the mounting tensions regarding the Syrian and Eritrean refugees within Europe - currently the hottest topic in the news - and especially The Netherlands are partially the result of a mood crisis. Of course there are real refugee crises within Italy, Greece, Hungary and Germany, and its logical that this leads to tensions within the population.

However, in The Netherlands there is already an ongoing refugee crisis without(!) an increased influx of refugees:

The percentual difference between the influx of refugees
between the first 7 months of 2014 and 2015
Data courtesy of flipvandyke.nl and Eurostat
Click to enlarge

Like this chart with Eurostat data shows, there have been real refugee crises in Hungary, Germany and perhaps Austria, while other countries also experienced strongly elevated inflows of refugees (although eventually still relatively small numbers remain for 2015; henceforth, I avoid the word crisis).

However, The Netherlands (orange row in the chart) had actually a decrease(!) in the number of refugees during the first seven months of 2015. So what is the political and societal fuzz about, in reality?! It is a lot about moods, overhere!

That is why I don’t think that the Dutch economy will start to structurally grow again, until people feel better in general or have something to collectively strive for and roll up their sleeves for. That will also be true for the rest of Europe, I think. And whether people feel better, due to a growing economy or an economy will grow due to people feeling better, is of course an endless chicken-and-egg discussion, although I tend to believe the latter.

And look at things from this perspective: when the whole Middle-East and North-Africa seem at war with each other, the tensions between Europe and Russia, as well as within the former Soviet Union, are mounting by the day, the American economy is faltering and the emerging markets are rather akin to imploding markets; what are the odds of the European Union and especially export-tiger The Netherlands of getting through this period unharmed?!

Besides that, is there another way to describe the Chinese economy than that it has been hit by Thor’s hammer?

The following snippets of the following very interesting article, about the depression-like outlook for the world economy, are from The Guardian:

The heart of the economic disorder is a world financial system that has gone rogue. Global banks now make profits to a extraordinary degree from doing business with each other. As a result, banking’s power to create money out of nothing has been taken to a whole new level. That banks create credit is nothing new; the system depends on the truth that not all depositors will want their money back simultaneously. So there is a tendency for some of the cash banks lend in one month to be redeposited by borrowers the following month: a part of this cash can be re-lent, again, in a third month – on top of existing lending capacity. Each lending cycle creates more credit, which is why lending has always been carefully regulated by national central banks to ensure loans will, in general, be repaid and sufficient capital reserves are held. .

The emergence of a global banking system means central banks are much less able to monitor and control what is going on. And because few countries now limit capital flows, in part because they want access to potential credit, cash generated out of nothing can be lent in countries where the economic prospects look superficially good. This provokes floods of credit, rather like the movements of refugees.

The false boom that follows seems to justify the lending. Property prices rise. Companies and households grow overconfident about their prospects and borrow freely. Economies surge well above their trend growth rates and all seems well until something – a collapse in property or commodity prices – unravels the whole process. The money floods out as quickly as it flooded in, leaving bust banks and governments desperately picking up the pieces.

Well, that article leaves little room for discussion, it seems.

And as a piece-the-resistance, I want to show some charts and tables, which show that the real, durable growth might yet be a thing of the (quite distant) future:

AEX Amsterdam Index, for 2015 Year to Date

Data courtesy of Bloomberg

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CAC40 Paris Index, for 2015 Year to Date

Data courtesy of Bloomberg

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DAX Frankfurt Index, for 2015 Year to Date

Data courtesy of Bloomberg

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FTSE 100 London Index, for 2015 Year to Date

Data courtesy of Bloomberg

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Hang Seng Hongkong Index, for 2015 Year to Date

Data courtesy of Bloomberg

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Standard & Poor's 500 New York Index, for 2015 Year to Date

Data courtesy of Bloomberg

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Shanghai Composite Index, for 2015 Year to Date

Data courtesy of Bloomberg

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