Europe is losing the growth race

A simple chart shows how austerity is leading to stagnation
Holy stagnation, Batman!

Holy stagnation, Batman!

For the better part of the past four years, I’ve been tracking the way the world’s leading industrialized economies have performed since the 2008-09 global crisis through a chart which shows real GDP relative to their pre-crisis level. The beauty of this chart is that it shows the post-crisis recovery as a sort of race between the various economies as they struggle to regain the lost output from the crash. For those who find reading Excel charts to be akin to reading a manuscript in Aramaic or Swahili, allow me to explain. The chart takes the peak pre-crisis level of real GDP as “100” and tracks quarter-on-quarter growth from there. So the first data point (“100”) for each country is the quarter before the crisis when real GDP peaked, this being Q1 2008 for most (Q4 2007 for the US where the crisis began, and Q2 2008 for Spain whose crisis began later). As you can see, the paths of these countries have diverged considerably since bottoming out during the 2008-09 crash. Some of the hardest-hit countries at the beginning like Germany and Japan are doing better, while some of the lesser affected ones, like Spain, now appear to be on a death spiral with no end in sight.

It doesn’t pay to be frugal

Perhaps the first obvious conclusion from this chart is just how bad the Eurozone is doing, and how the continent’s on-going crisis is dragging down even its star performer, Germany. Germany, until quite recently (Q2 2012), had been the best performing among the “trillion-dollar” economies and along with the US, the only to have managed to exceed its pre-crisis output. But it just goes to show how even a hyper-productive economy like Germany’s will feel the pinch if its trading partners get mired in recession which is what has been happening over the past year. This further makes the case that even if bailing out the continent’s basket cases may not be “morally” right from the frugal Germanic perspective, it makes perfect economic sense in order to keep your own economy from sinking in the same ship. Continue reading

Why Osama may have won after all

Just not exactly the way he intended
The world's foremost *economic* terrorist?

The world’s foremost *economic* terrorist?

Now that the euphoria over Osama Bin Laden’s demise is over, it is perhaps a more appropriate intellectual exercise to assess his legacy rather than dwell over the ultimately pointless debates on the legality of the operation which finally nailed him. It seems, after all, that even in death Bin Laden appears destined to polarize opinions: be it by the ridiculous and downright false claims by conservatives that the intelligence gathering which led to his hideout justified torture (

As a result, from a peak of 6.5% in 2000, the US federal funds rate fell to 2% by late-2001. This was not enough and by mid-2003 the rate stood at just 1%. Of course, we all know what followed: low interest rates led to a flood of cheap credit. With stock markets still reeling from the dot-com crash (one decade later, Nasdaq has yet to recover from its 2000 high), investors poured their cash into the increasingly lucrative housing market which had already began exhibiting bubble-like characteristics years before 9/11. And with the availability of new and exotic credit derivatives such as MBSs and CDOs, banks were able to recycle their highly leveraged debt throughout the entirety of the financial system. It’s hard to believe that all this happened over the course of barely 4-5 years, such was the speed in which global finance became intoxicated with the bountiful profits of history’s most massive asset bubble. And all it took was Greenspan reversing his put to make it burst. The rest is history: the subprime crisis, the credit crunch, and the ultimate collapse of Lehman Brothers which has been the closest humanity has gotten to a complete global economic meltdown. Continue reading