“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%!
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| Percentage of Dutch people with confidence in national institutions Source: www.cbs.nl Click to enlarge |
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| 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:
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| 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
Click to enlarge
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CAC40 Paris Index, for 2015 Year to Date
Data courtesy of Bloomberg
Click to enlarge
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DAX Frankfurt Index, for 2015 Year to Date
Data courtesy of Bloomberg
Click to enlarge
|
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FTSE 100 London Index, for 2015 Year to Date
Data courtesy of Bloomberg
Click to enlarge
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Hang Seng Hongkong Index, for 2015 Year to Date
Data courtesy of Bloomberg
Click to enlarge
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Standard & Poor's 500 New York Index, for 2015 Year to Date
Data courtesy of Bloomberg
Click to enlarge
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Shanghai Composite Index, for 2015 Year to Date
Data courtesy of Bloomberg
Click to enlarge
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Price development agricultural
commodities in 2015
Data courtesy of Bloomberg (?)
Click to enlarge
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Price development precious metals in 2015
Data courtesy of Bloomberg (?)
Click to enlarge
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Price development fuels in 2015
Data courtesy of Bloomberg (?)
Click to enlarge
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Price development steel in 2015
Data courtesy of Bloomberg (?)
Click to enlarge
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Price development crude oil in 2015
Data courtesy of Bloomberg (?)
Click to enlarge
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What these charts showed, is that the ongoing third leg of the
depression is an “all-inclusive” leg with virtually no exceptions... in any
market and for any commodity. This third leg of the depression might point out to be a very serious new crisis.
Nevertheless, and to end on an optimistical note, there should be no reason for structural
pessimism, according to one of the smartest people that I know, Kevin Depew of
(formerly) Minyanville in a personal tweet:
This
is the 3rd stage [of the crisis]. The Emerging Markets breakdown. [This is] Prelude
to 1st stage of global growth. Best I can do. Long term.
Kevin Depew was the first to call the current crisis a
depression... in 2008. He has been so right about that, in hindsight.
So let us patiently wait, with Kevin's reluctant optimism
as a guideline and not give up on the economy... and the world itself.
