Economic Worries in Europe

Plus a Black Friday Update

There are a couple of worrisome reports from the Telegraph today, one about Germany and the other about the UK.

Germany

Chancellor Angela Merkel has proposed another bank bailout in Germany as part of another large economic package.  This is not a popular idea with the public and I sense a hint of desperation involved.  Another credit contraction has been predicted with 90 billion Euros of bad loans being written off in 2010.

A survey by Munich's IFO institute revealed yesterday that lending conditions in Germany had tightened sharply in November. Some 53pc of large manufacturing companies found credit hard to obtain, suggesting that the problem has spread beyond small firms without access to the bond markets. "The financing situation of firms remains critical and poses a risk to economic recovery," said the group's president, Hans-Werner Sinn.

If the problem is spreading to the larger industries in Germany, that spells trouble for all of Europe because they are the manufacturing engine of the EU.  What worries me even more is the solution Mr. Sinn proposes:

He said it was an error for the government to buy toxic debt, urging Berlin to direct equity stakes in the banks through partial nationalisations.

Oh great, fascism in Germany, what could go wrong with that?  It makes bailing the banks out look good by comparison.

Interesting stuff, but the quote of the article involves something I think is happening in the US as well:

Volker Treier, chief economist for the German chamber of industry and commerce (DIHK), said worries were mounting among Mittelstand family firms. "The real test has yet to come: the drastic decline in sales has not yet shown up in balance sheets," he said.

I have to wonder what our balance sheets really look like. Creative accounting may be hiding a lot of bad news.

United Kingdom

Over in Britain, Morgan Stanley has warned that the UK may have a massive debt crisis next year. The US company’s prediction is that the economy there will collapse completely, taking the pound sterling down another 10%. Oddly enough, they think the dollar will go up, so I am taking their analysis with a shaker of salt.

Quote of the article:

While the report – “Tougher Times in 2010” – is not linked to the Dubai debacle, it is a reminder that countries merely bought time during the crisis by resorting to fiscal stimulus and shunting private losses onto public books. The rescues – though necessary – have not resolved the underlying debt problem. They have storied up a second set of difficulties by degrading sovereign debt across much of the world.

Boy that really gets to the point.  All these stimulus packages and bailouts have been stall tactics with long term negative consequences. When all is said and done, historians will look back and point to them as madness.  Well, except for utopians who think government solves everything, I don’t think that will ever go away.

Black Friday in the USA

Here in the States, Black Friday weekend sales were disappointing as while there were more shoppers, they each spent less. Unemployment and under-employment still loom large with no relief in sight. Personal debt is at suffocating levels too. Is it any wonder people are spending less?  Hoping the consumer will bail us out is ridiculous as long as there is high unemployment.

Wish I could find some good economic news for the future.

M-4 to Get Pistons

This is great news and an amusing headline.

My own title looks like nonsense to anyone who isn’t into guns, I suspect.  For those who don’t know what it means, there have been complaints about the reliability of the M-4, the current derivative of the venerable M-16 assault rifle.  Most of the complaints have to do with the way the action works, being a direct gas system. 

For the layman, direct gas systems take the expanding propellant gases from each round fired to push the bolt back and load another round. Direct is what it sounds like; the gases go straight back into the receiver.  That means a lot of gunpowder fouling of the receiver which is the most important part of the weapon.  The more fouling the easier it is to jam in the middle of a firefight.

A piston system siphons off the expanding gases into a separate chamber where they push a piston that in turn moves a rod that transfers the energy to the bolt.  That keeps the bulk of gunpowder residue up in the piston area where there are fewer moving parts.  With a cleaner receiver there are far fewer jams, as the article shows.

There are complaints that short piston equipped M-16/AR-15 rifles are front heavy and the M-4 was designed to be light and compact.  But a weapon that is more reliable while keeping all the other good traits is worth the trade off, I think. If I had the money, I’d get a piston AR-15 rather than the classic design.  But I like front heavy rifles and heavy rifles period.

This modification is something I’d hoped the Army would do years ago.

LHC Ramps Up the Power

More good news from CERN, the Large Hadron Collider hit 1.18 trillion electron volts in the wee hours of the morning. It looks like it is finally overcoming the technical problems that stalled the program.  Still waiting for the first proton smashing but they are hopeful of doing that before Christmas.

Climate Change Scandal Taints Science

I’ve avoided writing on the University of East Anglia’s Climate Research Unit having their files “hacked” because it is hard to get worked up over the turning battle over man made global warming. The majority of people have now realized that this is bogus movement with the tipping point happening some time this year. Still, a significant percentage still believe in this junk science so the revelations of data tampering exposed by the documents has done quite a bit of damage.  Christopher Booker’s commentary at the Telegraph lays out why this is such an important scandal and I highly advise reading it.

This needed to be brought to the light like any politically driven pseudo science, but I fear there will be fallout across the board tainting the public perception of scientific research.  The old problem of a few rotten eggs ruining things is something I’ve worried about. An example of how science is now getting a negative reputation can be found in the hysteria that starting the CERN supercollider would create a black hole. The earth will be sucked into and we’ll all die!

Yes, people have little understanding of scientific method and I blame our pathetic public education system for that. The bad eggs in politicized junk science have aggravated the problem as they use sensationalism to obtain large grants.  Maybe it is time to seriously audit all research grants to see how the money is actually spent and see if there is graft going on. Of course, that would be negative publicity for scientific research again. *sigh*

We still have to get the truth and I hope this scandal will have a chilling effect on corrupt scientists.

Dubai Financial Problems Get Worse

I’m still watching with keen interest what is going on with the collapse of Dubai’s commercial real estate ventures.  Dubai World is not going to be bailed out or their debt backed up by the government of the small nation. $60 billion in liabilities will not be paid back and this is going to cause quite a few problems for the UK banks.  The Bank of Scotland may be on the hook for billions of dollars but things are murky yet.

An intervention by the central bank of the United Arab Emirates has helped markets recover, but I don’t see how a liquidity infusion will help a solvency problem in the long term.  It may not even help in the short term other than to temporarily reassure the stock markets.  Whatever the case, this may be another canary in the coal mine. I fully expect bank failures to come out of this.

Black Friday and a Hint of Black Tuesday

Another day and more bad economic news.

It is the day after Thanksgiving, when minds turn toward shopping for Christmas presents that often go to oneself. It will be interesting to see how all the sales go, some stores and online firms have had them going all week already. My gut feeling is that they will be down because high unemployment combined with overextended credit means no money to spend.  Personally, I can’t afford gifts or even to mail Christmas cards this year, unless I find a way to get extra cash – which is very hard for a chronically ill disabled guy.

But I doubt I’m alone in this boat.  One of the shoes I’ve been predicting to drop has been the hidden problems with commercial real estate loans. Nobody has been more ambitious in growing their commercial land than Dubai and things have come to a head there.  The city state of Dubai has asked for a suspension of their loan payments for six month and that has spooked the world markets today.  UK banks are particularly at risk due to this, but the ripple effect looks to be large and spanning the globe.  The Dow Jones opened with a 200 point slide before stabilizing around 150 points down.

Meanwhile, the dollar continues to slide.  I wouldn’t consider Japan to be that strong an economy due to its going into deflation. So if the US dollar is so weak against it what does it say about the US economy?  We will be seeing considerable inflation as this continues and that in turn will depress domestic spending even further.

Oil is down as well, going below $75 a barrel due to the Dubai crisis. I remember when a crisis was a much bigger thing, but that is the media for you.  Gold and precious metals are down for the same reason but that will be temporary as foreign central banks move out of the US dollar.

All the ballyhooing going on by various governments that the recession is over seems to be more propaganda (and wishful thinking) than reality.  The instability still remains and the world market reactions reflect it. With commercial real estate investments set to blow up and only a lull in the home loan failures, much will go wrong with in the next 10 months.

A Time to Give Thanks

It is that time of year again, the time of turkeys, cranberry sauce, and relatives gathering together.  In our case, two out of three apply – we have turkey and cranberry sauce.  But what is this holiday called Thanksgiving is really about?

It helps to flash back to those struggling Puritan settlers; you know them, the guys with with the funny black hats and muskets that look like some guy should be playing a jazz tune through. Colonizing untamed lands was not easy and starvation was a constant threat.  Early attempts at communal farming were a failure and the colonists were fortunate to be given charity by a local tribe of American Indians.  Not starving to death was something to be very grateful for and so was the ability to practice their religion without government interference or persecution.

Flash forward to today and compare our lives to their hard scrabble existence.  Even though times are tough by modern standards there is much to be grateful for.  We are yet free and live in a land of abundance. While times are tough at the Boonedocks right now and won’t be getting any better in the foreseeable future, I am thankful that I have a roof over my head, food to eat, heat to keep me warm, and electricity to power the PC I’m typing this on.  There are people who don’t have those things or are facing horrendous trials in their lives.

My prayer for this Thanksgiving:

I thank Thee, oh Father, for the blessings I enjoy. May those shattered families and individuals suffering today know comfort and healing, find their strengths that they have lost or not discovered, and know that redemption can be found by all of God’s children.  May they know hope and peace during these hard times and find inspiration from those who have gone before them. Please help them to feel Thy love for them and remind them that they have the divine within them.  Please help those of us who are blessed be better servants to those in need. In the name of the Savior, Jesus Christ. Amen.