Category: Europe

Economics Update

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Scary Picture of the Day:
Industrial Output Cliff Diving

The U.S. trade deficit fell by 28.7% in November, not because we are exporting more, but because consumption is falling so quickly. This is why you don’t see decoupling in the world economies (see chart pr0n)

While we are on the topic of international capital flows, it appears that Standard and Poor’s is threatening to downgrade the debt of Spain and Portugal because of increasing deficits.

Of course, and I am not a deficit hawk right not, it does beg the question about what to do with the US government shortfall, as it was $485.2 billion in the first quarter of fiscal year 2009 (October 1, 2008 – December 31, 2008), which is more than the deficit for all of FY 2008.

When is S&P going to warn us, and when is S&P going to be prosecuted for its recent fraud on the public? After the meltdown of various instruments that S&P saw fit to declare AAA, one wonders why. I would not employ any of the major ratings agencies as pastry chefs.

We have some good news though, the TED spread fell to 98 basis points (0.98%), dropping below 1% for the first time since August 15.

The TED spread is the difference between 3 month treasuries and 3 month interbank loans, and the spread goes up as uncertainty about getting your money back goes up.

BTW, homes won’t be turning around any time soon, Beazer Homes is reporting a 53.2% drop in home sales Q4 2007 to Q4 2008.

So with all of this uncertainty, people are pulling money out of palces like Spain and Portugal and putting it in the US, which drove the dollar up today.

Oilrose too, largely on promises of large production cuts by the House of Saud.

Well, that was Fast

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Silvio Berlusconi dis something that George W. Bush could only dream of, he partially privatized the Italian social security system.

Well, the “beneficiaries”, of the policy, the roughly 1.2 million people who made the switch to privately managed accounts, are now screaming like defrauded Italians, (which they are) because their accounts have gone south with the markets, and the management fees have taken most of what is left, and now they want their bailout.

How many times does this have to happen until people realize that taking a safety net, and making it a revenue stream for a broker is a bad thing?

The Post-Soviet Politicians are Dancing to a Non-Existent Tune

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I used to think that John Paul II’s jihad against the church working for the poor, going so far as to expel priests who were causing right wing despots grief, which pretty much repudiated 1800 years of church history was an anomaly.

JP2 clearly hated the Soviets, he hated communism, and it left him with an antipathy to anti-poverty action by the Roman Catholic Church.

I had kind of hoped that other folks who objected to the excesses of Communism, and those excesses are legion, had found perspective if they had remained in leadership positions.

Now, in the middle of the greatest economic crisis in 3 generations, we are seeing leaders who grew up in former communist nations trying to turn to Hoovernomics, because they have a visceral revulsion to anything that remotely looks like economic management by the state.

It doesn’t matter if the most successful model in fixing this has been the Swedish model, state capitalization and take over followed by sale when the conference is over, it’s just too pink for them.

In the first case, we have Czech President Vaclav Klaus, who appears to be trying his level best to destroy any coherent EU response to the economic crisis:

Klaus, an admirer of Milton Friedman and Margaret Thatcher, says “excessive state intervention” and “irresponsible increases of state expenditures” are behind the global financial crisis, according to an October commentary he wrote for Mlada Fronta Dnes newspaper.

Hoovernomics as driven by what are now archaic anti-Soviet and anti-Communists.

And let us not forget Angela Merkel, who is content to (mis)manage the largest economy in the EU, and also continues to go the Hoovernomics route:

With battle lines sharpening, the German government appears determined to resist calls to spend an additional €40 billion to fight its way out of the recession, according to officials attending a meeting in the Chancellery in the past week.

It appears that in the case of Merkel, there has been extensive lobbying from what amounts to the German Chamber of Commerce to lower taxes, but that is were she wanted to be in the first place, until other EU members dope slapped some sense into her.

I’m wondering how true this is of a generation that lived through a revolution.

If the US founding fathers were the exception, we were very, very lucky.

Brazil to Buy French Assistance on Nuke Boat

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It’s a part of a $12 billion purchase by Brazil

Brazil on Dec. 23 signed contracts worth $12 billion to buy 50 military transport helicopters and five submarines from France.

The submarine deal involves the purchase of four conventionally powered Scorpene submarines, and the construction of a nuclear-powered submarine to be built with French cooperation.

It’s unclear to me what “French Cooperation” means, though it appears that the nuclear reactor would be a wholly Brazilian endeavor.

Economics Update

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Will the last home builder please turn off the lights?

Because existing home sales fell 8.6% from October, new home sales fell 2.9%, home prices fell by 13.2%, and foreclosures and short sales were 45% of all sales.

Consumer sentiment improved more than forecast last month though, driven largely by the expectation of lower prices.

In currency, the dollar was largely mixed, though both the Yen and Pound were down.

It should be noted that the Yen is off a historic high, and the pound is near a historic low, it’s about to reach parity with the Euro, so the dynamics are different.

As to why the Pound is falling, it might be that the U.K. economy is shrinking at a pace not seen in 17 years, 0.6%, which is worse than
the US figure of -0.5% for the quarter.

EVen more than the US, the UK bought into the idea of the finance industry as an engine for the economy, and they are reaping the whirlwind.

Oil is down again.

Also, here is a story that I think we will see more of in the next few months,* there has been a default by Global Investment House (GIH) in Kuwait on a $200 million loan, one of the larger investment houses in the Arab world.

They aren’t going under just yet, but I think that this is the first crack in the armor of the petro-Arab investment houses.

*Because I am just so good at making predictions.†
†Considering my record, this may actually be a sign to go the other way….Or not.‡
‡Disclaimer: Matthew G. Saroff disclaims any responsibility for any actions taken as a result of the information displayed on any pages of this website.

Latvia Required to Steal from Poor and Give to Rich for Emergency Loan

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They are getting emergency loans from the EU and IMF to the tune of about €7.5 billion, and they come with an austerity package.

The bullet points on the austerity package:

  • Public sector wages are to be slashed by 15%
    • BTW, this will increase corruption in the public sector, because bureaucrats gotta eat too….Decent wages is the best line of defense against a culture of corruption in the public sector.
  • The VAT (sales tax) is to be increased.
    • Which hits poor people harder.
  • The income tax is to be cut.
    • Free money for the rich.

Mostly, this is to keep their currency, the Lat, fixed relative to the Euro in preparation for joining the monetary union.

It also has the effect of benefiting rich creditors over poor debtors…See
William Jennings Bryan’s “Cross of Gold” speech.

The country is in trouble: Save the rich, burn the poor for fuel.

The Twisted Part of the Dutch JSF Saga

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Basically, the Dutch government is disputing the amount of kickbacks that are supposed to accrue to it over JSF production.

This is not illegal, or necessarily corrupt, the money is going back to the taxpayer, not an individual politician, but as part of the industrial arrangement, the Dutch government gets profit sharing, hence my earlier comment about their being paid to buy the fighter, and they are now saying that the concerns manufacturing JSF components owe them about €300 million, so they are taking them to court.

In a real way, it’s yet another indicator of how screwed defense procurement has become. It’s like dope dealers fighting over their percentages.

Note to Self: If You Pay Someone to Buy Something, They Generally Buy It

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Which is why, to no one’s surprise, the Dutch have decided that the JSF best suits their needs.

You’d have to be an idiot to not know that it was a done deal. After as Bill Sweetman notes, the Dutch were using PowerPoint slides lifted directly from Lockheed-Martin as a part of their evaluation.

The good Mr. Sweetman also notes that there were numerous errors int he comparison, and they all cut in favor of the JSF.

When one looks at the industrial offsets to Holland, it’s pretty clear that there is more money flowing in than flowing out.

As such, it would have been insane to expect any other result.

Son of HOTOL

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When I was in college, I recall, reading about a British program called HOTOL (Horizontal Take-Off and Landing, click picture to be taken to a page on it) which was supposed to use a “liquid air” engine in order to more efficiently reach orbit.

A short description of the cycle was that it was fueled with LH2 and for much of the way up, it would use the cold liquid hydrogen to extract liquid oxygen out of the air.

It got canceled, or more accurately, when the program ended it was not taken to the next phase.

I kind of figured that technical issues, my guess at the time (which appears to be wrong) was getting the heat exchangers small enough and light enough.

The real problem appeared to be that the engine was heavy, and in an aft mounting configuration, maintaining the center of lift far enough aft compromised performance.

In any case, a company called Reaction Engines are having another go at the concept with the Skylon, (paid subscription required) , which uses the Sabre (Synergic Air-Breathing Engine).*

As is clear from the picture, they dealt with the CG issues by placing the heavy engines at the center of lift on the wing tips.

It’s supposed to function as an air-breather until it reaches 30km altitude and “around Mach 5”, and then function as a normal liquid fueled rocket the rest of the way up to orbit.

They are looking at testing a 9% scale precooler (left) in January on a test stand, using a RR Viper turbojet behind the cooler (left below)

There are two problems with Liquid Air Cycle Engines (LACE), hydrogen embrittlement of the heat exchanger, and condensation of water and CO2 on the heat exchanger, which will plug it up.

It solves these problems by not cooling the air to full liquid state, but instead having a high-pressure turbo compressor behind the air to liquefy it, and by using helium as an intermediate medium for the heat exchanger, along with an unspecified proprietary frost control technique. (bottom pic)

It’s a neat concept, but I’m dubious of any project that is not fully funded, or almost fully funded by government sources, and at this point, they are getting just a trickle from the British National Space Center and the the European Space Agency (ESA).

*Let me note here that the Brits come up with cool names.

Very Angry Swedes

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The Norwegian decision to purchase the F-35 JSF should come as no surprise, but the folks at SAAB are hopping mad at the suggestion that the F-35 will be less expensive to own and operate.

This is not surprising. The Gripen, even the heaver Gripen NG, is half the weight of the JSF, and cost and operating costs vary pretty directly with size.

What appears to have happened is that the Norwegians compared the purchase price of the Gripen that included, “included initial training, initial spares and all mission planning and support systems,” to unit flyaway costs for the American fighter, and even then, the cost quoted is about $20 million a pop less than what is bandied about in the media.

Bill Sweetman, talking to his sources, suggests that the Norwegians were concerned about the cost to them if the Gripen turned out to be a market failure.

If only 100 or so were sold, and that is a real possibility, or worse, that SAAB is taken down by the financial crisis, than upgrades throughout its life cycle would be very expensive, while there will be thousands of JSF’s produced, as there are already thousands of JSF’s on order by around a dozen nations, and the program is backed by the “full faith and credit of the United States”.

Their strong language appears to be all about mollifying left wing parties in the government.

SAAB’s full rebuttal is here (PDF), here are their bullet points:

  • claims that Gripen does not meet the Norwegian air force’s demand rests on simulations containing incomplete or non-existent capacity information
  • the alleged life cycle cost does not rest on experience of the Gripen system but hasbeen calculated by applying own assumptions and models of calculations.
  • conditions underpinning the calculation are in parts radically altered and based on internal Norwegian assumptions.

Economics Update

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Well, retail sales numbers for November are grim, down 7.4% from November 2007, and that’s with an adjustment for a late Thanksgiving that is probably excessive, so it is likely worse.

Consumer sentiment rose, but is still at a pretty awful number.

We also saw wholesale prices fall, which can be either good news, moderating inflation, or bad news, deflation.

Overseas, we have the EU found agreement on an economic stimulus pack, with even Angela Merkel backing off Hoovernomics by a half step.

In Japan, a new economic stimulus package has been announced.

Russia, however, is being hammered by low oil prices, and senior officials are now saying that the nation is in recession.

As to currencies, the dollar was mixed, up versus the Pound, down a smidge versus the Euro, and at a 13 year low versus the Yen.

I’m not sure how much of this is all just a reaction to the Senate auto bailout follies, and the the same goes for the price of oil, which was down, but was likely driven by yesterday’s filibuster.

Additionally, retail gasoline is now below $2 a gallon in the lower 48, with New York State crossing that line today.

Once Again, the Germans Are a Menace to the Civilized World

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I know, Godwin’s law, but I completely with Paul Krugman calling out the Germans on economic policy.

Specifically, he calls out Peer Steinbrueck, the Germany finance minister, who suggests that spending programs are “Crass Keynesianism”, and indirectly he calls out Angela Merkel, who is strongly resisting spending to stimulate the economy, and is instead keeping, “her trump card – tax cuts – in reserve.”

So in the middle of the biggest financial crisis since the Great Depression, Merkel and Steinbrueck are advocating Hoovernomics.

I understand the hyperinflation of the 1920s and how it shaped German thought, but this is insane.