Spain’s Unemployment Situation Becomes Hopeless

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Spain’s National Statistics Institute reported that the fourth-quarter unemployment rate reached 22.9%. That is up from 21.5% in the previous quarter. Spain does not have the economic engine to improve this number, and the austerity programs it must put in place to keep global investors from abandoning its debt makes the problem even greater. The situation, in other words, has become impossible to improve.
Employment in Spain depends heavily on two industries — tourism and auto manufacturing. The car industry in Europe has been crippled by the region’s recession. Auto sales in the European Union continue to fall. Spain does not make cars that have export potential for the two largest markets — the U.S. and China. That makes a sharp recovery of the sector unlikely.
Tourism may continue to do relatively well, but the number of travelers from its neighbors will be constrained by the economic problems of their citizens. In other words, Spain’s tourism industry will not grow rapidly soon.
Spain is caught in the same vice that Greece and Portugal are. The government does not have the wherewithal to spend the billions of euros it would take to stimulate business and create new jobs. The public sector will have to pare employment as part of austerity plans. Traditionally strong sectors are no longer strong.
This year at Davos, many economists and financial leaders from around the world called on the eurozone to put an investment of growth ahead of austerity, because otherwise much of Europe will slide into an economic dark age. Spain is an example of why even a modest investment in growth across the region will be ineffective. The pillars of its GDP have been too badly eroded. It will require the rise of a new services economy and an industrial revival to offset rising unemployment. The investment to do that would be massive, and it would have to be made over a number of years. It will take that long to rebuild Spain’s economy nearly from scratch.

Read more: Spain’s Unemployment Situation Becomes Hopeless - 24/7 Wall St. http://247wallst.com/2012/01/27/spains-unemployment-situation-becomes-hopeless/#ixzz1kgCY9siX

 

[Bonestorm]

The obvious solution is more austerity. It's working so well in Spain and everywhere else it is being implemented.

 

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The obvious solution is more austerity. It's working so well in Spain and everywhere else it is being implemented.

It's because they are in the Euro straitjacket, but Germany is shit scared of the implications if Spain, Portugal or Greece leaves the Euro.

 

[Bonestorm]

It's because they are in the Euro straitjacket, but Germany is shit scared of the implications if Spain, Portugal or Greece leaves the Euro.

Maybe the Germans will finally wake up to the fact that forcing prolonged recessions on their trading partners isn't a wise course of action and can get the ECB to do something that will actually help the situation.


Edit: At least Spanish policy makers have the Euro straightjacket excuse. What's Cameron's?

 

[Cancel 2016.2]

Spain’s National Statistics Institute reported that the fourth-quarter unemployment rate reached 22.9%. That is up from 21.5% in the previous quarter. Spain does not have the economic engine to improve this number, and the austerity programs it must put in place to keep global investors from abandoning its debt makes the problem even greater. The situation, in other words, has become impossible to improve.
Employment in Spain depends heavily on two industries — tourism and auto manufacturing. The car industry in Europe has been crippled by the region’s recession. Auto sales in the European Union continue to fall. Spain does not make cars that have export potential for the two largest markets — the U.S. and China. That makes a sharp recovery of the sector unlikely.
Tourism may continue to do relatively well, but the number of travelers from its neighbors will be constrained by the economic problems of their citizens. In other words, Spain’s tourism industry will not grow rapidly soon.
Spain is caught in the same vice that Greece and Portugal are. The government does not have the wherewithal to spend the billions of euros it would take to stimulate business and create new jobs. The public sector will have to pare employment as part of austerity plans. Traditionally strong sectors are no longer strong.
This year at Davos, many economists and financial leaders from around the world called on the eurozone to put an investment of growth ahead of austerity, because otherwise much of Europe will slide into an economic dark age. Spain is an example of why even a modest investment in growth across the region will be ineffective. The pillars of its GDP have been too badly eroded. It will require the rise of a new services economy and an industrial revival to offset rising unemployment. The investment to do that would be massive, and it would have to be made over a number of years. It will take that long to rebuild Spain’s economy nearly from scratch.

Read more: Spain’s Unemployment Situation Becomes Hopeless - 24/7 Wall St. http://247wallst.com/2012/01/27/spains-unemployment-situation-becomes-hopeless/#ixzz1kgCY9siX

They just need to spend more. That solves everything.

 

[Bonestorm]

They just need to spend more. That solves everything.

What they need to do is to get to a point where they can actually borrow money at reasonable rates. The only way to actually foster confidence in Spain's ability to pay its debts is to grow the economy. The belief that austerity would lead to confidence among lenders in Spain's ability to pay it's debts has been blown to shit. The cycle in Spain (and Greece, and Italy and Ireland) has been austerity --> economic contraction --> higher debt --> more austerity --> more economic contraction --> higher debt --> ??? At some point even the dimmest among us has to recognize that you cannot shrink your way to growth. It doesn't work.

 

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What they need to do is to get to a point where they can actually borrow money at reasonable rates.

And as we all know, the best way to get to the point to borrow at reasonable rates is to keep outspending revenue. Everyone looks at that as the best way to encourage lenders to give you more money at better rates. I mean hey, if you are going to keep borrowing a bajillion dollars every year and repaying debt with more debt you have to be an awesome investment opportunity. Let me get in line so I too can loan you money and at a lower rate than those other guys, because you have proven that you are willing to keep right on borrowing.

The only way to actually foster confidence in Spain's ability to pay its debts is to grow the economy.

and again... ADDING MORE DEBT doesn't do that. Pretending you just need to keep on borrowing/spending... yeah... that REDUCES confidence in your ability to pay debt.

The belief that austerity would lead to confidence among lenders in Spain's ability to pay it's debts has been blown to shit. The cycle in Spain (and Greece, and Italy and Ireland) has been austerity --> economic contraction --> higher debt --> more austerity --> more economic contraction --> higher debt --> ??? At some point even the dimmest among us has to recognize that you cannot shrink your way to growth. It doesn't work.

The ACTUAL cycle in Spain has been borrow ---> spend--->borrow more----> spend more--->borrow more----> spend more---> my rates went up? WTF?

At some point, the moronic borrow/spend crowd will realize that you can't outspend revenue consistently year in year out and expect it not to eventually blow up in your face (unless of course you are the reserve currency and can therefor get away with it)

 

[Bonestorm]

And as we all know, the best way to get to the point to borrow at reasonable rates is to keep outspending revenue. Everyone looks at that as the best way to encourage lenders to give you more money at better rates. I mean hey, if you are going to keep borrowing a bajillion dollars every year and repaying debt with more debt you have to be an awesome investment opportunity. Let me get in line so I too can loan you money and at a lower rate than those other guys, because you have proven that you are willing to keep right on borrowing.

You'd have a point if your preferred solution, austerity, were leading to the results that were expected. It isn't austerity doesn't work.

and again... ADDING MORE DEBT doesn't do that. Pretending you just need to keep on borrowing/spending... yeah... that REDUCES confidence in your ability to pay debt.

It does if you have the right lender who has an interest in boosting your economy and not necessarily on making money on its loans to you, like the ECB.

The ACTUAL cycle in Spain has been borrow ---> spend--->borrow more----> spend more--->borrow more----> spend more---> my rates went up? WTF?

The actual cycle is yours followed by mine. I jumped off from the point of debt crisis, while you stopped there.

At some point, the moronic borrow/spend crowd will realize that you can't outspend revenue consistently year in year out and expect it not to eventually blow up in your face (unless of course you are the reserve currency and can therefor get away with it)

I don't know who they are but, yes. I don't personally advocate that view.

 

[apple0154]

And as we all know, the best way to get to the point to borrow at reasonable rates is to keep outspending revenue. Everyone looks at that as the best way to encourage lenders to give you more money at better rates. I mean hey, if you are going to keep borrowing a bajillion dollars every year and repaying debt with more debt you have to be an awesome investment opportunity. Let me get in line so I too can loan you money and at a lower rate than those other guys, because you have proven that you are willing to keep right on borrowing.



and again... ADDING MORE DEBT doesn't do that. Pretending you just need to keep on borrowing/spending... yeah... that REDUCES confidence in your ability to pay debt.



The ACTUAL cycle in Spain has been borrow ---> spend--->borrow more----> spend more--->borrow more----> spend more---> my rates went up? WTF?

At some point, the moronic borrow/spend crowd will realize that you can't outspend revenue consistently year in year out and expect it not to eventually blow up in your face (unless of course you are the reserve currency and can therefor get away with it)

They'll have to wait for one of those credit card specials. Cash advance checks @ 1.99% for 10 months. After the promotional period and the interest rate rises hope another credit card special arrives in the mail.

 

[Cancel 2016.2]

You'd have a point if your preferred solution, austerity, were leading to the results that were expected. It isn't austerity doesn't work.

You seem to be of the mindset that no pain will be felt for years/decades of fiscal irresponsibility. It is that stupid mindset that propagates the myth that you must just keep on spending. Eventually the pain is going to have to be taken.

It does if you have the right lender who has an interest in boosting your economy and not necessarily on making money on its loans to you, like the ECB.

Yeah... because that money comes from the magic money tree. The one that doesn't want to make money on the money loaned. Tell us, where does the ECB get THEIR money from?

The actual cycle is yours followed by mine. I jumped off from the point of debt crisis, while you stopped there.

So again, you admit it is a debt crisis... yet your solution is more debt? Stop and THINK about that for a moment.

I don't know who they are but, yes. I don't personally advocate that view.

Yet you also don't hold the view that the country's in question should have to feel the pain when they get slapped in the face and told no more money.

 

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They'll have to wait for one of those credit card specials. Cash advance checks @ 1.99% for 10 months. After the promotional period and the interest rate rises hope another credit card special arrives in the mail.

The above may in part be in jest, but that is exactly what they have been doing.

 

[apple0154]

The above may in part be in jest, but that is exactly what they have been doing.

I wonder where it will all end.

What puzzles me is why can't they just make the interest payments. What does it matter if they don't pay anything off the principal right now? The same with mortgages. Why does it matter if Mr. Smith pays off part of the principal when the bank will just turn around and loan that money to Mr. Jones? The money is constantly out on loan so who cares who it's loaned to as long as the interest is paid?

 

[Bonestorm]

You seem to be of the mindset that no pain will be felt for years/decades of fiscal irresponsibility. It is that stupid mindset that propagates the myth that you must just keep on spending. Eventually the pain is going to have to be taken.

I'm only of the mindset that the only way to get out of the cycle Spain is currently in is to grow the economy, and that cannot happen by shrinking the economy. Whether there is pain involved is irrelevant. You seem to be supporting pain just because you think Spain should be punished for spending too much, not because it will lead to any desirable outcome. I don't understand that.

Yeah... because that money comes from the magic money tree. The one that doesn't want to make money on the money loaned. Tell us, where does the ECB get THEIR money from?

Yes, it does come from the magic money tree, also known as printing presses and mints. The ECB gets the money by printing and minting it.

So again, you admit it is a debt crisis... yet your solution is more debt? Stop and THINK about that for a moment.

Well, there are only a few plausible ends to a debt crisis. A country that could print its own money could inflate its way out of debt, but that's not available to Spain. A country could simply default on its debt, but that neither benefits Spain nor its lenders. A country could try to tax its way out of debt or cuts spending, but for a country in the midst of a recession, it doesn't work and it isn't working. That leaves few other options.

Yet you also don't hold the view that the country's in question should have to feel the pain when they get slapped in the face and told no more money.

I don't think pain for the sake of pain helps anyone. And forgive me if I'm not too charitable towards your view that Spain should "feel the pain" when you've taken the position in the past that banks who make stupid loans should be made whole. You're incredibly inconsistent here. If pain could possibly lead to a desirable outcome, I'd be all for it, but the facts demonstrate that pain just leads to more pain and to more pain and then, in the end, some other undesirable outcome, i.e. default.

 

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I'm only of the mindset that the only way to get out of the cycle Spain is currently in is to grow the economy, and that cannot happen by shrinking the economy. Whether there is pain involved is irrelevant. You seem to be supporting pain just because you think Spain should be punished for spending too much, not because it will lead to any desirable outcome. I don't understand that.

Where does the government get its money?

you seem to think that the government spending more is somehow a boost. The money the government spends comes from two places... the current taxpayers or the future taxpayers. Those are the only places (unless you have cash surpluses on hand, then it could come from past taxpayers).

So if you raise revenue (increase taxes) on the current population it is a wash. you take their money and you spend it instead of letting them spend it (and they can spend it more efficiently than the government on most things). Or you borrow (taking money from future tax payers) and spend. This is a very popular tool that politicians love to use. They know they are not going to be personally held accountable by the future generations. So they just borrow and spend.

That is the mentality of many governments for the past several decades. But there comes a time when the spigot runs dry. That is when decades of abuse come back to haunt the current generation.

Normally a country would simply inflate their way out of it (taking the pain that way). But the creation of the Euro won't allow this to occur. A problem that was brought up when it was first created. But most of Europe wanted a counter currency to the US Dollar. The intent was to build its credibility to the point that it could replace the dollar as the reserve.

So now they are FUBAR. They should have kicked Greece out years ago. They probably still will. My guess is the Euro will dissolve and those countries (Spain, Italy etc...) will inflate their debt away via devaluation as the Russians did so effectively in 98. It means short term pain, but will give them a chance long term.

Yes, it does come from the magic money tree, also known as printing presses and mints. The ECB gets the money by printing and minting it.

LOL... tell me, what happens to the Euro when they just print more and more money? do you think that will be opposed by the relatively more fiscally responsible countries?

Well, there are only a few plausible ends to a debt crisis. A country that could print its own money could inflate its way out of debt, but that's not available to Spain. A country could simply default on its debt, but that neither benefits Spain nor its lenders. A country could try to tax its way out of debt or cuts spending, but for a country in the midst of a recession, it doesn't work and it isn't working. That leaves few other options.

On that we agree. Which is why they have to take the pain.

I don't think pain for the sake of pain helps anyone. And forgive me if I'm not too charitable towards your view that Spain should "feel the pain" when you've taken the position in the past that banks who make stupid loans should be made whole. You're incredibly inconsistent here. If pain could possibly lead to a desirable outcome, I'd be all for it, but the facts demonstrate that pain just leads to more pain and to more pain and then, in the end, some other undesirable outcome, i.e. default.

Take a look at the early 1980's. When Reagan took office, he allowed Volcker to re-implement his plan to kill inflation. The plan worked, but created short term pain in the form of a recession. That recession got the Reps kicked in the mid terms. But when inflation dipped down, the economy took off. We took the pain and long term we were better off for it. Then Reagan and Tip implemented some changes to the tax code, reductions in marginal rates, but also the elimination of loopholes and deductions to help offset the impact of lower marginal rates.

Also, please show me where I stated that Banks who make stupid loans should be made whole.

 

[Bonestorm]

Where does the government get its money?

you seem to think that the government spending more is somehow a boost. The money the government spends comes from two places... the current taxpayers or the future taxpayers. Those are the only places (unless you have cash surpluses on hand, then it could come from past taxpayers).

So if you raise revenue (increase taxes) on the current population it is a wash. you take their money and you spend it instead of letting them spend it (and they can spend it more efficiently than the government on most things). Or you borrow (taking money from future tax payers) and spend. This is a very popular tool that politicians love to use. They know they are not going to be personally held accountable by the future generations. So they just borrow and spend.

That is the mentality of many governments for the past several decades. But there comes a time when the spigot runs dry. That is when decades of abuse come back to haunt the current generation.

Normally a country would simply inflate their way out of it (taking the pain that way). But the creation of the Euro won't allow this to occur. A problem that was brought up when it was first created. But most of Europe wanted a counter currency to the US Dollar. The intent was to build its credibility to the point that it could replace the dollar as the reserve.

So now they are FUBAR. They should have kicked Greece out years ago. They probably still will. My guess is the Euro will dissolve and those countries (Spain, Italy etc...) will inflate their debt away via devaluation as the Russians did so effectively in 98. It means short term pain, but will give them a chance long term.

Alternatively, the ECB could lend them money, the banks could take a significant hair cut, their economies can grow and they can emerge on a more fiscally sustainable path.

LOL... tell me, what happens to the Euro when they just print more and more money? do you think that will be opposed by the relatively more fiscally responsible countries?

LOL . . . tell me what happens when the Euro goes to shit, Spain and the rest default or inflate their way out of debt leaving the banks in the healthy Euro countries with massive losses and no trading partners?

On that we agree. Which is why they have to take the pain.

But "the pain" isn't working. The pain is only leading to more pain. They'd be better off having just defaulted two years ago.

Take a look at the early 1980's. When Reagan took office, he allowed Volcker to re-implement his plan to kill inflation. The plan worked, but created short term pain in the form of a recession. That recession got the Reps kicked in the mid terms. But when inflation dipped down, the economy took off. We took the pain and long term we were better off for it. Then Reagan and Tip implemented some changes to the tax code, reductions in marginal rates, but also the elimination of loopholes and deductions to help offset the impact of lower marginal rates.

Look, SF, if you want me to take you seriously, don't start off your point with something that we disagree on. And pretending that "pain" worked at one point in time doesn't justify imposing "pain" at all times thereafter. Particularly when its clear that "pain" isn't doing anything but causing lots of unnecessary human suffering for no positive outcome whatsoever.

Also, please show me where I stated that Banks who make stupid loans should be made whole.

Don't challenge me, son. If you really want me to do that, I can, but I have better ways to spend my time than digging through old threads to show you what I know to be true. We had a discussion about whether the banks that lent to Greece should take a haircut and you protested loudly that forcing them to do so would be terribly unfair and that Greece had an obligation to make good on its debts.

 

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Maybe the Germans will finally wake up to the fact that forcing prolonged recessions on their trading partners isn't a wise course of action and can get the ECB to do something that will actually help the situation.


Edit: At least Spanish policy makers have the Euro straightjacket excuse. What's Cameron's?

We are not in the Euro thankfully, in spite of Blair's attempts to get us in, and we still have triple A status.

 

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They just need to spend more. That solves everything.

We were in a similar situation in 1992 with our membership of the ERM, the precursor to the Euro. There needs to be a managed exit for the PIIGS before the market forces it anyway.

http://en.wikipedia.org/wiki/Black_Wednesday

 

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You seem to be of the mindset that no pain will be felt for years/decades of fiscal irresponsibility. It is that stupid mindset that propagates the myth that you must just keep on spending. Eventually the pain is going to have to be taken.




Yeah... because that money comes from the magic money tree. The one that doesn't want to make money on the money loaned. Tell us, where does the ECB get THEIR money from?




So again, you admit it is a debt crisis... yet your solution is more debt? Stop and THINK about that for a moment.



Yet you also don't hold the view that the country's in question should have to feel the pain when they get slapped in the face and told no more money.

The biggest problem for Greece is its tourist industry which has become overpriced compared to places like Turkey. If they returned to the drachma, the tourists would return as well. The same is true for Portugal and Spain, although Spain is also suffering for years of uncontrolled expansion of the housing market which has fallen off a cliff in recent times.

 

[Cancel 2016.2]

We were in a similar situation in 1992 with our membership of the ERM, the precursor to the Euro. There needs to be a managed exit for the PIIGS before the market forces it anyway.

http://en.wikipedia.org/wiki/Black_Wednesday

They should start with Greece and my guess is that they will do it the first half of this year. Ireland wouldn't be too hard to do either. But Spain and Italy are going to be tough. I don't know if they can get them out of the Euro without disbanding the thing entirely.

 

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The biggest problem for Greece is its tourist industry which has become overpriced compared to places like Turkey. If they returned to the drachma, the tourists would return as well.

Agreed, especially if they inflate their way out of their debt problems. It would devalue their currency relative to most others and would make it very economical for people to visit. That said, they do need to end the mentality of 'I want lots of benefits but dont want to pay any taxes' that has become quite pervasive there.