Austerity is destroying the Spanish middle-class:
Here’s just a brief summary of the ugly statistics: (1) The government in Madrid expects the economy to shrink by 1.7% in 2012 – its third contraction in four years. (2) Unemployment continues to rise. It is now more than 23%, and youth unemployment is above a staggering 50%. (3) Housing prices are down 22% from their peak, and are likely to continue to drop, perhaps by 20% or more. This puts extreme pressure on the balance sheets of an already shaky banking sector.
Obviously, this is an economy in severe distress. And what is the government’s response? More growth-killing austerity. In late March, it announced its most severe package of tax hikes and budget cuts yet, aiming to reduce the deficit by $36 billion. What gives? Madrid is extremely worried about the state of its national finances. It missed its deficit target in 2011, and, without the latest austerity package, would have done so again in 2012.
However, the austerity drive is failing to achieve what it aims to do: improve Spain’s financial position and rebuild investor confidence. Instead, investors have been spooked by the deterioration of the Spanish economy. Demand for Spanish government bonds was weak in a Wednesday auction. Since the government announced its latest austerity budget, yields on its bonds have risen, a sign that investors see them as riskier. Yields on 10-year bonds jumped over 5.6%, the highest since January. And why is that? Well, by tanking the economy, the austerity measures are making Spain’s financial standing weaker, not stronger. Despite its new austerity budget, Madrid estimates that the government-debt-to-GDP ratio will INCREASE in 2012, to nearly 80% from 68.5% in 2011. Simply put, Spain is moving backwards.
Cheer up, though, sooner or later, Spain will have a better-than-expected quarterly GDP number and Bobo will start talking about the “Spanish miracle” and what we can learn from it.
Amanda in the South Bay
I wonder how austerity is going in the UK. I can’t imagine its making the ConDems very popular.
schrodinger's cat
Austerity does not work in a recession, all it does is, shrink the economy. Why are we forgetting the lessons of history.
DougJ, Head of Infidelity
@Amanda in the South Bay:
The ConDem party may die off completely. Worse. Move. Ever.
Yutsano
This could indeed happen. After Spain brings back the peseta and can do a proper currency devaluation, which is what it desperately needs to do. And tell the German banks to fuck off in the process. And Bobo will still derive the wrong lesson from it.
schrodinger's cat
@Amanda in the South Bay: Not going so well from what I hear.
WereBear
When they see money as finite and threatened, they will move to scoop it all up for themselves.
beltane
@schrodinger’s cat: When there is a profit to be made in forgetting history, history is easily forgotten. There is a lot of money to be made in scuttling a country’s economy and selling what’s left for scraps.
WyldPirate
But the job creators and bankstas need to be confident so they can make money and let prosperity filter down to their economic inferiors.
Never fear, as soon as the European MOTU own everything, they’ll switch of the golden showers they are giving the Spanish people!
Phil Perspective
@schrodinger’s cat: They aren’t forgetting history. The 1% is looking to crush any and all resistance. What don’t you f-cking understand?!?
PeakVT
@Amanda in the South Bay: You mean the LibDems, right?
ETA: Or that was a joke I missed the first time around.
mick
beardo is the Man.
MattF
Here’s Der Krug on Spain:
http://krugman.blogs.nytimes.com/2010/02/05/the-spanish-tragedy/
Note: Government spending, fiscal irresponsibility was not the problem in Spain, it was real estate speculation, Spanish banks on a spree financed by German banks. See a pattern here?
Arclite
My brother lives in Spain, and works at a school that caters mostly to English speaking foreign nationals. Both he and Spanish wife are teachers, and the school is doing well, so far. I hope he can remain unaffected. The one good thing is that he says living in Spain is very cheap, and they could survive a while on only one salary if they had to.
Some Guy
Who came up with austerity? Who was the asshole who thought this kind of economic policy was a good idea? It makes capitalist economies even more unsustainable.
schrodinger's cat
@Phil Perspective: I understand, only too well. This short term outlook is going to bite the 1% in the ass, sooner or later
ETA: Political and economic turmoil is good for no one, especially for those who have the most to lose.
burnspbesq
German banks are on course to accomplish what the Wehrmacht never could.
Yutsano
@Arclite: I know this is a strange index to go by, but I watch how Spain is doing by the pricing of manchego cheese. And that has dropped like a stone. I hope things stay positive for your brother.
Amanda in the South Bay
@PeakVT:
Its a joke about how the LibDems have sold their soul to the Cons in exchange for a chance at running the country. I’m pretty sure they aren’t going to do so well in the next general election.
Arclite
@Yutsano: Thanks. It’s funny, I was at Costco yesterday and was considering buying some manchego cheese, as the price was reasonable. I had no idea it was from Spain…
El Cruzado
@Arclite: Where else did you expect La Mancha to be?
PeakVT
@Amanda in the South Bay: It’s pretty much guaranteed that the LibDems will be crushed.
MikeJ
What’s depressing is that when you listen to even the liberal BBC the conventional wisdom is that of course in an economic downturn you cut spending and get rid of every program that helps people.
BTW, if you want a quick overview of opinions in the UK, subscribe to Radio 4’s “What the Papers Say.” 15 minutes of the opinion pages of all the major papers. It can be your American decoder ring for listening to the News Quiz.
Arclite
@El Cruzado: Er, I didn’t know it was from La Mancha either. >_< I'm not really a big cheese guy.
Yutsano
@Arclite: A) Manchego is delicious. Comes from sheep’s milk and melts wonderfully. It has various aging gradients as well but even the high level cheeses are getting rather reasonable. I’m awaiting the reggiano price crash.
B) Spain deserves better. They played by all of Germany’s little rules and they’re still getting fucked. I still think they’re gonna bail on the Euro here soon, probably after the next election. Lack of currency control is literally killing them.
dslak
@PeakVT: If it weren’t for that fact that I lived in the UK for a few years recently, I would have no idea what the colors on that chart meant.
On the other hand, if Labour can’t win an outright majority next time around, the Liberal Democrats might get a chance to redeem themselves, assuming they jettisoned Clegg.
dslak
Manchego is delightful with membrillo, a quince jelly.
Shari
@burnspbesq:
this
Dee Loralei
Austerity isn’t going so well in England either. They cancelled production of Dr Who after this season, because BBC cut funding. Dammit I haz a sad! Allon-sy!
Evolving Deep Southerner
I like the title of this post. It is indeed, the “plains,” the plain middle classers like most of us, who are going to get pissed on by the very heavens above.
Shari
The “talk” on how to avoid racists
http://www.theatlantic.com/national/archive/2012/04/the-talk-what-parents-tell-their-children-about-john-derbyshire/255578/
El Cid
That shitty Franco economy wasn’t going to resurrect itself, you know.
Snark Based Reality
@Dee Loralei:
[Citation Needed]
BBC cut Doctor Who Confidential. Which was the companion “behind the scenes” show that I personally found pointless.
Austerity is bad enough without panicking the Dr. Who fans.
Phil Perspective
@schrodinger’s cat: It will only hurt the 1% when they feel the pain. And I don’t mean the kind of pain where they can only afford one yacht instead of two.
David Koch
Bobo is a cheap, low-rent propagandist.
He didn’t say single word about deficits when shrub was breaking the bank with his tax cuts and freedom bombs.
Enhanced Voting Techniques
County with a history of militaristic dictatorships embracing an austerity program that starves the general population to death for the benefit of foreign bankers. They deliberately trying to recreate ’30s Germany?
Dee Loralei
@Snark Based Reality: I really am glad I’m wrong. I have no idea where the link is, I saw it the other night on twitter. So, I’m glad I misunderstood the story, because I love me some Dr.
An my heartfelt apologies if I panicked any Who fan.
Shinobi
I spent 20 minutes this morning trying to explain to my father that the source of all liberal evil, Keynesian (which he pronounces Ke ne shee an) economics have actually saved us from the fate of Spain and Greece. I cleary don’t understand how economics works. Obviously the government is just like my household, they have too much debt because they order take out too often.
“Deep down you know I’m right and you just don’t want to admit it.” UGH.
Sir Nose'D
I can’t be the only one that keeps mixing Austrian and Austerian Economics in my mind. It is hard to tell the difference with the constant ringing of Burkean Bells all the time, also, too.
schrodinger's cat
@Shinobi: Ask your father whether he can print money.
Ruckus
@beltane:
There is a lot of money to be made in scuttling a country’s economy and selling what’s left for scraps
Ah! The modern business school model.
1. Plunder/Sell, Rape/Sell, Just fucking SELL. Look how good our current numbers are!
2. Move on to the next project(victim).
3. Current profits good. Everything/Anything else bad.
Linda Featheringill
I look at Europe and wonder what the Powers That Be are doing. It could be that they’re stupid and can’t see that austerity isn’t working but I don’t believe that. It could also be that the PTB have motives that have nothing to do with strong national economies.
Still, I just don’t understand.
Citizen_X
@Enhanced Voting Techniques: Maybe they’re trying to recreate ’30s Spain.
Another Bob
Maybe it’s time for a revolution.
joel hanes
@Some Guy:
Who came up with austerity?
1% who did well in bubble, now holding vast wealth, trying to prevent taxation of that wealth.
Because wealth insulates them from consequences, they don’t care about the common good.
Also, in crises the 1% tends to a zero-sum outlook in which anything that’s good for the 99% (“the moochers and looters”) must therefore be bad for the %1 (“the producers”), and vice versa.
joel hanes
@Shinobi:
trying to explain to my father
Defense of Keynes is too advanced a starting point.
Start with minimum wage. Explain that although to Econ 101 intuition it seems reasonable and logical that raising the minimum wage would increase unemployment (and every business owner swears up and down that that’s just what will happen), economic data says that raising the minimum wage does not in fact increase unemployment detectably.
And so Econ 101 intuition is not a reliable guide to reality.
And so other Econ 101 intuitions he may have do not, in fact, correspond to reality.
mdblanche
@schrodinger’s cat: Serious question: can Spain print euros?
@Linda Featheringill: It could be there is no magic silver bullet to make everything better again and due to stupid decisions made before the crisis started the PTB are now stuck choosing from bad options and very bad options. Nah, they’re probably just doing all this for the evulz.
joel hanes
@Another Bob:
too many minds that hate
Linda Featheringill
@Another Bob: #43
I suspect that the Europeans do know how to revolt. But they would have to stop criticizing the Greek lefties and join them.
Ruckus
@Linda Featheringill:
It could also be that the PTB have motives that have nothing to do with strong national economies.
An understatement if there ever was one.
Borders mean nothing to the high economic class. Making money in any way possible is the goal. There are no scruples, there are no allegiances other than to money
El Cid
@joel hanes: It’s funny how even if there were a comparison, you shouldn’t do much real world planning for complex projects based on skills you learned in (and stopped learning at) Physics 101 or Calculus 101 or Chemistry 101.
Economics 101, however, is mostly an honorific term, frequently used by those magic wizards called ‘anyone who has ever been in or thinks they more or less were in business’, because they sure as hell don’t need no fancy schmancy ecko-nommiks ’cause they know all there is to know about it, on account of this one time that they…
Mnemosyne
@mdblanche:
You really find it implausible that the PTB would take actions that benefit themselves rather than taking actions that would benefit society as a whole while penalizing the PTB?
mdblanche
@efgoldman: That’s what I figured. In retrospect a common currency without a common budget or a common debt no longer looks like a bright idea at all.
@Mnemosyne: I find it implausible that the PTB who thought a common currency without a common budget or a common debt was a bright idea would be smart enough to pull it off.
schrodinger's cat
@mdblanche: No and neither can Greece and therein lies the problem. However we can print dollars, the rest of the world is willing to loan us money for very little interest in return.
ETA: I was assuming that Shinobi’s father is an American not Spanish.
ericblair
@El Cid:
Yeah, I too took Econ 101. I also took 102, 201, 202, 301, 302, 401, and 402, so things are a little more complex then Mr. First-Term-Econ might let on. And I also have a graduate degree in Engineering, so there is a very definite point in engineering where people know enough to be dangerous but not enough to actually solve real problems, and it seems the same way in economics.
@Snark Based Reality:
Not a problem, it’s Easter Sunday and I’m fairly well lubricated at this point, so carry on.
Villago Delenda Est
@schrodinger’s cat:
The annihilation of the Middle Class is a feature, not a bug, of this, for the parasitic filth that is the 1%, worldwide.
Neofeudalism is the new black.
Sly
@Linda Featheringill:
It is exactly that their motives have nothing to do with strong national economies, aside from the fact that certain national economies have to suffer in order to protect the equity of creditors. Since 2008, the entire impetus behind the actions of major financial institutions in Europe has been to transform a private banking crisis into a sovereign debt crisis.
Some Guy
I never understood the rich. So much money, but they want more and more to the determent of everyone else. At what point did money stop being a means to an end to just the end?
Li
@Some Guy:
When they began worshiping it, and its creation.
Yutsano
@Li:
So this is something else we can blame on the Chinese.
catclub
@Sly: I agree. The rich have a highly magnified fear of inflation, and they will do anything to avoid it. Wrecking the middle class as a case in point.
I think whenever the Germans especially, but anyone else points to the Weimar hyperinflation as something that must be avoided at all costs, the reason is that really rich people were heavily affected by _that_. They held financial assets.
In contrast, the 47% unemployment in 1933 that led to a new German leader and a bit of a kerfluffle the next 12 years did not hurt them as much. They were too busy building tank, bombs, furnaces and Zyklon-B factories. (And not just for Germany)
The wrong lesson learned. Note that after 1923 Germany recovered as well as anybody else in Europe.
Wag
Shorter future Bobo
Spain is dead
Spain is risen
Spain will come again
Sly
@catclub:
Inflation fears are a major contributing factor, to be sure, but its deeper than some abstract fear.
The biggest counter-parties to financial institutions in London, Paris, and Frankfurt are national governments. More specifically, pools of capital that governments administer, like pension funds. When the values of the assets that backed the torrent of cheap credit that these institutions had flooded into the periphery bottomed out, that money had to come from somewhere otherwise they’d go bust and you’d have Great Depression II.
One place that money can come from is through a massive expansion of the monetary base. This is basically part of what the United States has done, sans the “massive” part. But since the unshakable priority of the ECB is price stability, this is where inflationary fears become a factor. Europe can’t inflate its way out of this mess because that would cause the seas to boil and fire to rain from the skies and dogs and cats to start living together. More specifically, it would not meet the demands of creditors to be completely immunized from harm.
The other place is to make the counter-parties take the hit. Those are governments. That is what the European Union has done.
The regional dynamic we see exists purely as a consequence of the structure of the Eurozone, but we have the same problem here. Pension programs in states like Kansas are being constrained to meet the demands of creditors in New York City, just like Greece is being forced to pursue austerity in order to meet the demands of creditors in Frankfurt and Ireland was put through the wringer to prop up shaky banks in London.
Mnemosyne
@mdblanche:
Pull what off? Their bright ideas got Europe into this mess, and now they’re busy covering their asses rather than taking the actions necessary to salvage the EU project.
It’s not that the entire project was a deep, dark conspiracy and this was the planned end. It’s that the project had some deep flaws that the PTB decided to ignore, and now they’re running around trying to save themselves at everyone else’s expense. This result wasn’t planned any more than the lack of lifeboats on the Titanic was planned as a way to rid society of the inconvenient steerage passengers.
Donut
I think I am most depressed by the fact that I have absolutely no problem conjuring up what this hypothetical Brooks column would like.
The problem with these people, the Village and Attendants, is that they just do not have any soul. They are so blank inside, just hollow shells of oblivion wrapped around a vapid wanna-be-intellectual core of bland, colorless, odorless slop. They are fucking inhuman.