Links. The financialization of macro economics, growth, unimportant banks, Dijsselbloem loots the Greek state
1. Kudo’s to the ECB. I’m very happy that they have recently included the household debt ratio’ in their new ‘key statistics‘ (down to 95,9% of disposable income). When you click on the item you get a press release which gives information about financial (new houses etcetera) as well as non-financial investments (stocks, bonds) of households and non-financial companies. In his General Theory Keynes called these financial investments ‘investments with a zero elasticity of production’ in the sense that no labour was needed to produce them (or only to keep the printing press running). It is good to see that the ECB includes this information in its key statistics and, like Keynes, emphasises the difference between real investments (which lead to work and to new fixed capital and potentially to a higher level of production and prosperity) and financial investments.
2. Òscar Jordà, Alan Taylor, Moritz Schularick state that the amount of financial investments has however increased quite a lot, during the last hundred years or so, to quite an extent because mortgages have become more important. Why? Until recently (2008…) home ownership was almost everywhere on the rise (exceptions: Switzerland, Germany), there are relatively more houses as the average number of people per house declines and there has of course been a leveraging of households financed by money printing which led, thanks to financial deregulation and often also outright government (tax)subsidies, to a ridiculous increase in house prices (this trend has, fortunately, also reversed though at this moment there are house price inflation problems emerging in quite a number of well known cities like London, Dublin and New York).
3. Greek economic growth in the second quarter of 2015 surprised many people (but serious deflation continues), which means that they missed this Elstat press release which indicated that employment (May 2015) rose with 2,3% year on year. In this period, Greek banks experienced a kind of ‘bank jog’ while the Troika did everything it could to bash Greece and to destroy confidence. Which indicates (A) Syriza policies did not lead to an economic implosion (to the contrary, in fact) and (b) that banks and economic pundits are not that important – what really matters to companies are customers and demand. The new bailout of course dampens demand, as it increases taxes and cuts incomes while there are also some desperate attempts to increase the efficiency of the Greek government. In vain of course, as the creditors totally disregarded the referendum while, headed by mister Dijsselbloem, they make the same mistakes as previous governments: loot the Greek state and let it borrow to placate your clientele.(in this case: other Eurozone members). Which will not really increase ‘trust’ in the Greek government. Fun fact: the bail out is supposed to be a kind of supply side tract – but it seems that when it’s convenient for them supply siders do not mind to increases taxes again and again and to destroy the supply side by cutting demand in an already uniquely depressed economy.
4. What the Troika want to do, it seems, is to push back Greece to the Bulgarian level, a dirt poor country with a barely functioning democracy and state. And extremely low wages. But these wages did not help Bulgaria: economic growth in Bulgaria was low, compared with other ‘Emerging Europe’ countries Poland and Romania. @Frances_Coppla analyses why developments in Finland are so dismal (they really are). According to her, Finland was a kind of one trick pony (Nokia), when Nokia went down while at about the same time the 2008 crisis struck Finland was in problems which continue to today. If it had not been for an about 10% change in the government surplus/deficit (+6 ->-3% of GDP) the country would be to the ropes. Recently, it can be added, investments show a very serious decline, too, while real incomes of households are deteriorating – and the Russian boycott does not help, either. A remarkable fact:the influence of the demise of Nokia on Finnish exports is thus large that, to an extent, the decline of imports caused by the crisis is offset by this demise. Ireland shows serious growth, I’ll return to that when the disappointing data for the second quarter come in.
5. By the way – inflation in the Eurozone is still quite low. And it will stay low (<1%) for quite a time to come – as pent up productivity increases will cause a continous downward pressure on inflation.