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Sancho Panza

The Economy Of Greece Is Exhibiting Deflation,disinflation,debt And Depression

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Mindful Money 1/11/13

'One of the sad features of the economic crisis which has been inflicted on Greece is that it keeps going on and on. This is in sharp contrast to the rhetoric provided by politician’s and those who promised that it would get better quickly. Let us not forget that according to the official plans the Greek economy was supposed to grow by 1.1% last year and 2% this year and then grow even faster in subsequent years. Those propounding such fantasies also shamefully rubbished alternatives such as default and devaluation claiming that these would wreck the economy! We now know that some at bodies like the International Monetary Fund dissented from such view but kept them out of the public view which is for them to debate with their conscience. What we do know is that they have engaged in an act of economic destruction unparalleled in modern times. In the perverted official language of those and indeed these times the IMF put it like this.

Overall, the program is off to an impressive start.

As I pointed out on the 3rd of September the “rescue” itself poses a fundamental challenge for the Euro concept.

So growth of 3% in Germany and a contraction of 7% in Greece left a gap of 10% in 2011. If we now add in 2012 we see that the gap rose by 6.4%. So far in 2013 the gap has risen again by over 3%. So in round numbers a 20% gap…

Exactly how does that work in a currency union?

Retail Sales

Yesterday we received yet another tale of woe from the Greek retail sector.

The retail trade volume index, including automotive fuel, decreased by 7.8% in August 2013 compared with August 2012. The Index in August 2012 recorded a decrease of 9.3% compared with August 2011

Those of a nervous disposition might like to look away now before I give you the underlying index. It is at 70.5% of the 2005 average which if you will forgive the capitals is a DEPRESSION.

Falling Prices

If we see that falling output is a sign of an economy in a depression another is falling prices and after a long wait for this in Greece, 2013 has been the year which has delivered this.

The Consumer Price Index (CPI) in September 2013 compared with September 2012, decreased by 1.1%…….In the twelve-month period from October 2012 to September 2013 compared with the period from October 2011 to September 2012 the annual average rate of change of the CPI was -0.1%

A leading indicator for this is provided by producer prices so let us examine them.

The Producer Price Index in Industry (PPI) in September 2013 compared with September 2012 recorded a decrease of 1.7%. The index in September 2012 had recorded an increase of 5.0% compared with September 2011.

As you can see it has turned down even more aggressively than the consumer inflation numbers.

We can also see that the widest measure of inflation the GDP deflator is falling too. If we look at the second quarter we see that real GDP growth was -3.8%. But here is the nuance as nominal GDP growth was -6.1% or putting it another way the missing 2.3% was represented by price falls. This is unusual in modern times (although likely to get much less unusual) and we can also note that nominal GDP falls got a little better but the registered improvement in the second quarter was mostly based on price falls.

This disinflation issue is one which has been building in Greece for some time and after yesterday’s consumer inflation number for the Euro area as a whole of an annual rate of 0.7% it will have others wondering if it is in store for them. The European Central Bank will be mulling this next week.

Wages

As I pointed out back on July the 9th these have been falling for some time now.

Since the austerity program came into effect in the first quarter of 2010, salaries have dropped 22.3 percent,

Salaries in Greece have declined by a remarkable 10.1 percent within just one year, from the first quarter of 2012 to the same period this year, returning to levels last recorded in 2006.

Debt

When you have falling prices and indeed wages then what you do not want to add to that is a rising debt level. Here is the release from Eurostat.

The highest ratios of government debt to GDP at the end of the second quarter of 2013 were recorded in Greece (169.1%), Italy (133.3%), Portugal (131.3%) and Ireland (125.7%).

Now let me take you back in Dr.Who’s TARDIS to some of the original documentation from the IMF.

Higher nominal GDP growth implies a slightly lower public debt-to-GDP ratio, which now peaks at 144 percent of GDP in 2013 (compared to 149 percent in the May 2010 program projections).

Completely wrong! Especially when we recall that a debt haircut was undertaken in 2012 to reduce the numbers. It’s effect did not last long did it?

As the Greek ratio rose by a further 8.6% in the second quarter of this year the situation looks out of control frankly. She is battling to reduce her fiscal deficit but this is handicapped by the way that the austerity programme keeps giving her economy another downwards push. As you can see there has been progress in 2013 but still a deficit for the year so far.

the State Budget deficit for the 9 months of 2013 amounted to 2,657 million Euros

A lot of help has been provided here by the reduction in debt interest costs which have helped in 2013 by by 5.4 billion Euros. The Troika has helped in this area in an example of how something welcome can be too little too late.

To fix the problems above Greece needs a fiscal surplus and to run one for quite a while and we wait to see if she can make a start in 2014.

Comment

The record here is shameful and all those involved should be thoroughly embarassed. Not only have they been proven to be incompetent and wrong they have done their best to rubbish what I consider to be a much better alternative. So let me get in early this year and suggest that Greece should default and devalue (leave the Euro) this Christmas. It will be the sort of present it’s people so badly need after the economic depression which has ravaged through their ranks.

If Greece’s creditors object then perhaps the reply should be that they are using the business model that they themselves imposed on Cyprus…'

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I'm not convinced by his maths of adding percentages together.

However Greece is certainly fooked, the legitimate economy has taken a massive hit. It would be certainly interesting to see "growth" figures for the black economy in Greece.

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I'm not convinced by his maths of adding percentages together.

However Greece is certainly fooked, the legitimate economy has taken a massive hit. It would be certainly interesting to see "growth" figures for the black economy in Greece.

It's not scientific is it? It makes the point though.

We await Jane's view.

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US have finally lost patience with Germany's surplus model.

It's all boiling up nicely..............

Someone's going to get a f*cking slap

Edited by R K

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Not convinced wither - sounds like more anti euro propaganda, so the lands can keep printing themselves more cash.

Ok, Greece leaves the Euro and has two options:

1) Use another currency, bitcoin for example - well they are just as screwed.

2) Start their own gold backed currency - just as screwed again.

Why are they screwed? There is no good option apart from to cut down on government spending and for the population to produce more good and services. They can do this under any medium of exchange (currency).

For example factory workers can work for €2 per hour rather than some new Greek currency.

It's just more anti Euro propaganda! Everyone here falls for it again and again.

If they start their own currency (like Wiemar did) creditors will demand their money in the new currency and they will keep priting and get hyperinflation (like Wiemar)

I'm afraid they just have to take the hangover or start a war with their creditors!

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It's just more anti Euro propaganda! Everyone here falls for it again and again.

If they start their own currency (like Wiemar did) creditors will demand their money in the new currency and they will keep priting and get hyperinflation (like Wiemar)

I'm afraid they just have to take the hangover or start a war with their creditors!

The irreducible truth. If you don't want a decades-long hangover then don't have a decade-long party. Oh, and pay your debts you filthy piece of garbage.

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Not convinced wither - sounds like more anti euro propaganda, so the lands can keep printing themselves more cash.

Ok, Greece leaves the Euro and has two options:

1) Use another currency, bitcoin for example - well they are just as screwed.

2) Start their own gold backed currency - just as screwed again.

Why are they screwed? There is no good option apart from to cut down on government spending and for the population to produce more good and services. They can do this under any medium of exchange (currency).

For example factory workers can work for €2 per hour rather than some new Greek currency.

It's just more anti Euro propaganda! Everyone here falls for it again and again.

If they start their own currency (like Wiemar did) creditors will demand their money in the new currency and they will keep priting and get hyperinflation (like Wiemar)

I'm afraid they just have to take the hangover or start a war with their creditors!

Except its the euro driven austerity that is destroying the greek economy right now rather than any liquidation of miss-allocated capital. They are back to the size of the economy they had in 1980. Another year or two of shrinkage and its back to a 1970's level economy. How on earth do you pay back debts with an ever shrinking economy?

And greece leaving the euro certainly does not mean its screwed. It can default and plenty of countries have done that in the past without complete economic destruction such as you predict. Indeed defaulting generally results in much faster economic growth after the short term economic hit that it causes is taken.

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Except its the euro driven austerity that is destroying the greek economy right now rather than any liquidation of miss-allocated capital. They are back to the size of the economy they had in 1980. Another year or two of shrinkage and its back to a 1970's level economy. How on earth do you pay back debts with an ever shrinking economy?

And greece leaving the euro certainly does not mean its screwed. It can default and plenty of countries have done that in the past without complete economic destruction such as you predict. Indeed defaulting generally results in much faster economic growth after the short term economic hit that it causes is taken.

I'm still not convinced. They could stop all benefits payments and all non essential government services then reduce minimum wages down to compete with places like China and India. That's what would have to happen if they issued their own currency anyway.

Regarding the shrinking of the economy, an awful lot of it has gone off balance sheet.

P.S, How is Iceland doing right now?

Edited by Gone to Ireland.

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How on earth do you pay back debts with an ever shrinking economy?

And greece leaving the euro certainly does not mean its screwed. It can default and plenty of countries have done that in the past without complete economic destruction such as you predict. Indeed defaulting generally results in much faster economic growth after the short term economic hit that it causes is taken.

Fisher's paradox.

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I'm not convinced by his maths of adding percentages together.

However Greece is certainly fooked, the legitimate economy has taken a massive hit. It would be certainly interesting to see "growth" figures for the black economy in Greece.

The black economy could actually save Greece. It is productive by nature and does not support the legions of lazy bureaucrats and hangers-on that have plagued the legitimate Greek economy.

I am sure it would function in Euro, Bitcoin, Dollars or gold as well.

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The black economy could actually save Greece. It is productive by nature and does not support the legions of lazy bureaucrats and hangers-on that have plagued the legitimate Greek economy.

I am sure it would function in Euro, Bitcoin, Dollars or gold as well.

Also cuts out the influence adn scraping of income and ponzification, inflation and general misallocation that is placed on an economy by the debt/banking system. If you barter and deal direct you cut out the middlemen and reduce costs. Exactly what a population mired in debt funded inflation needs.

Before it broke in Greece on a trip over there talked to an exceptionally pissed off barmaid. Paid little in a high cost environment which gave her virtually no financial breathing space or future. If the bankers and politicians think they have dodged the bullet here they may have done so personally, but the rest of the popualtion is in for an awful shock,.

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And greece leaving the euro certainly does not mean its screwed. It can default and plenty of countries have done that in the past without complete economic destruction such as you predict. Indeed defaulting generally results in much faster economic growth after the short term economic hit that it causes is taken.

indeed. borrow and spend other people money (such as pension funds) and then default. and do it every 10 years to finance your unsustainable deficits (if you find a new fool)

what a great left wing idea

so are there any negatives with defaults? perhaps like still a requirement for the austerity and fall of living standards?

www.bloomberg.com/news/2011-06-15/greece-ireland-can-t-default-like-iceland.html

Iceland is warning Greece and Ireland not to copy its recovery model even though the Atlantic island managed a return to international debt markets less than three years after letting its banks default on $85 billion.

Iceland survived by taking over the domestic units of its banks and leaving the foreign creditors to bear losses. An 80 percent slump in the krona against the euro offshore in 2008 sent the trade deficit into surplus within months, while government spending cuts helped rein in the budget. Iceland will post a shortfall of 1.4 percent of gross domestic product next year after 2011’s 2.7 percent deficit, the Organization for Economic Cooperation and Development said on May 25.

Icelanders suffered an 18 percent slump in their disposable incomes in 2009, adjusting for inflation, as the krona’s decline sent consumer price growth close to 20 percent and unemployment approached 10 percent, compared with 1 percent before the crisis.

Still, after the adjustment, Sigfusson says he senses a “dramatic change in how the international community and investors perceive Iceland.”

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indeed. borrow and spend other people money (such as pension funds) and then default. and do it every 10 years to finance your unsustainable deficits (if you find a new fool)

what a great left wing idea

so are there any negatives with defaults? perhaps like still a requirement for the austerity and fall of living standards?

www.bloomberg.com/news/2011-06-15/greece-ireland-can-t-default-like-iceland.html

Iceland is warning Greece and Ireland not to copy its recovery model even though the Atlantic island managed a return to international debt markets less than three years after letting its banks default on $85 billion.

Iceland survived by taking over the domestic units of its banks and leaving the foreign creditors to bear losses. An 80 percent slump in the krona against the euro offshore in 2008 sent the trade deficit into surplus within months, while government spending cuts helped rein in the budget. Iceland will post a shortfall of 1.4 percent of gross domestic product next year after 2011’s 2.7 percent deficit, the Organization for Economic Cooperation and Development said on May 25.

Icelanders suffered an 18 percent slump in their disposable incomes in 2009, adjusting for inflation, as the krona’s decline sent consumer price growth close to 20 percent and unemployment approached 10 percent, compared with 1 percent before the crisis.

Still, after the adjustment, Sigfusson says he senses a “dramatic change in how the international community and investors perceive Iceland.”

Errr no. You are the one advocating left wing ideas here not me. I thought you hated socialism so why are you advocating it now??

Because you seem to 100% support socialization of risk and debt (but i note not the rewards) in making greek individuals not responsible for this mess now pay for it. While completely exempting lenders who made bad decisions. I'd love to see your reasoning for why greek children and unborn greeks must pay.

Is it because you think there is bad and good types of socialism, and that if it helps the poor it's bad socialism, but if it transfers wealth and money to the wealthy then it's good socialism?? Is that it?

Oh and don't bother to deny that you support socialistic transfers you've plainly stated above that you do. I'd just like to know why in this case you think socialism is good.

Edited by alexw

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Greece had a Euro and low interest rate fueled boom. It's misleading to compare current levels of output to the boom conditions. Greece isn't "contracting", it's "reverting"

Edited by BigPig

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Greece had a Euro and low interest rate fueled boom. It's misleading to compare current levels of output to the boom conditions. Greece isn't "contracting", it's "reverting"

I'm comparing current levels of output to those in 1980, oh and 1970. It's at 1980's output currently and in two years will be at 1970's output.

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According to the figures i glanced at, it's back to 2000 or 2001 (volume). Do you have a link?

edit: I must admit, Iwas surprised. I hadn't realisedit was going so far so fast.

Edited by BigPig

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According to the figures i glanced at, it's back to 2000 or 2001 (volume). Do you have a link?

edit: I must admit, Iwas surprised. I hadn't realisedit was going so far so fast.

GRCPROINDMISMEI_Max_630_378.png

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The black economy could actually save Greece.

I believe you mis-spelt 'free market'.

It's the only thing that will save anywhere, but the last thing any bloated, bureaucratic government wants to see take off.

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Has Greece, as part of this austerity, had the interest on its debts frozen?

Surely the only way out is debt forgiveness / default coupled with a reset of the economy to be balanced with a plan towards surplus?

Easy to say, hard to do of course.

But the route they are on now doesn't have a good ending that I can see

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Has Greece, as part of this austerity, had the interest on its debts frozen?

Surely the only way out is debt forgiveness / default coupled with a reset of the economy to be balanced with a plan towards surplus?

Easy to say, hard to do of course.

But the route they are on now doesn't have a good ending that I can see

there is also...war.

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