Monday, July 6, 2015

Greece's Problems Explained in Six Charts

http://www.bloomberg.com/news/articles/2015-07-06/greece-s-problems-explained-in-six-charts

Greece's Problems Explained in Six Charts

Here's some of what needs fixing

July 6, 2015 — 12:46 PM EDT

El-Erian: 61% of Greeks Are 'Mad As Hell'

Greek Prime Minister Alexis Tsipras heads into meetings with creditors with a fresh democratic mandate from the people of Greece. The stakes are high and the nation's problems vast. Here's some of what needs fixing in six charts:

The International Monetary Fund is willing to countenance debt relief; the Eurogroup is not. The IMF's Chief Economist Olivier Blanchard neatly summarizes the impasse between Greece and its official creditors here. The dotted line on the chart below shows the latest GDP forecasts — these are likely to deteriorate.

The end of 2014 brought with it a foreboding sign: the unemployment rate ticking up in the two groups between the ages of 20 to 29. Since the government's public wranglings with creditors, the jobless figures may have risen further, fueling the potential for civil unrest.

As the Greece crisis escalated, European Central Bank President Mario Draghi has tried to stay politically neutral; without a surge in contagion — which seems remote — or a resolution between Greece and its creditors, Draghi is unlikely to ride to the rescue.

The imposition of capital controls was well signaled and many took notice, converting their bank deposits to cash. The capital controls could be a first step to a new currency. (Click here for details on the cash calculation used in the chart below.)

Greece is a relatively closed economy. This means a sharp devaluation would immediately make all Greeks worse off as the cost of imports soars. "Devaluation would lift competitiveness but, with a relatively small exporting sector, the Greek economy would not be in a good place to benefit from that," said Jamie Murray, chief EMEA economist at Bloomberg Intelligence. "It will take time for resources to shift toward more outward-looking activities."

Target2, a transfer payment system for euro-area central banks, illustrates the large imbalances within the region. According to anarticle by Paul De Grauwe and Yuemei Ji back in 2012, Target2 "claims are just a repackaging of risks that Germany took by accumulating large current account surpluses." In the event of a break-up of the euro area, "Germany would lose massively."

This story first appeared in Bloomberg Brief's special edition onGreece.

This Is Why Participation in the U.S. Workforce Has Plunged to Its Lowest Since 1977

http://www.bloomberg.com/news/articles/2015-07-02/this-is-why-participation-in-the-american-workforce-has-plunged-to-its-lowest-since-1977

This Is Why Participation in the U.S. Workforce Has Plunged to Its Lowest Since 1977

June's typically a month when millions of people enter the labor force

by Victoria Stilwell

July 2, 2015 — 12:27 PM EDT

U.S. Payrolls Rise 223K, Jobless Rate Falls to 5.3%

The size of the labor force tanked last month, helping to make for a very mixed June jobs report.

Though payrolls climbed at a healthy clip, some 432,000 people left the workforce, Labor Department data showed. That sent the participation rate — which tracks the share of working-age people who are either employed or looking for work — to 62.6 percent, the lowest level since October 1977. While the rate has been trending down ever since baby boomers started retiring in droves, the decrease last month was the sharpest in more than a year.

The decline was made all the more surprising by the fact that June tends to be a month where the U.S. sees loads of people moving into the labor force — think teenagers snagging lifeguard gigs, recent college graduates scouring the internet for job postings and teachers taking up summer work. That "just did not happen," said Karen Kosanovich, an economist at the Bureau of Labor Statistics in Washington.

In the last decade, an average 1.35 million workers have entered the labor force every June on a not seasonally adjusted basis. This year, the gain was 564,000. That translates into a decline for the seasonally adjusted data, since the monthly increase was much less than it usually is.

There could be a couple explanations for this. The BLS gets its labor force data from Current Population Survey, in which households say whether they were employed, unemployed and looking for work, or neither during the Sunday-to-Sunday period that includes the 12th day of the month.

Last month, this reference period occurred earlier than normal, and as a result a smaller share of the labor force gains were captured, according to Betsey Stevenson, a member of the President Barack Obama’s Council of Economic Advisers. This discrepancy could account for 500,000 people missing from the labor force, she wrote in a blog post.

Economists are also considering whether this year's severe winter weather is to blame for yet another disappointing data point. A high number of snow days could have extended the school year in some locations, limiting the normal flow of people into the workforce.

"If that hypothesis is true, then we could see a substantial seasonally adjusted pop in labor force participation in July and likely a rebound in the unemployment rate,'' Stephen Stanley, chief economist at Amherst Pierpont Securities LLC, wrote in a note to clients. "I have my doubts about this hypothesis, but it makes more sense than to believe that the labor force collapsed in June because potential workers felt that there were no job prospects."

Certain demographic groups also showed significant drops. Some 402,000 men left the labor force on a seasonally adjusted basis, accounting for 93 percent of the overall decline.

Looking at age groups, the labor force participation rate for workers 45 to 54 years old declined to 79.2 percent, the lowest since December 2013, from 79.6 percent. For 16- to 19-year-olds, it declined to 34.3 percent from 35 percent.

When there's no one clear cause as to what's responsible for labor force fluctuations, it's better to wait for more data before making a call, BLS's Kosanovich said.

And parsing this trend will be increasingly important in the months to come, as Federal Reserve policy makers try to time their first interest rate increase since 2006. Gauging how much room for improvement is left in the labor force will be key to that decision.

Combined with the weakness in wage growth, the low labor force participation rate "will bolster the arguments of those on the Federal Open Market Committee who think that there is still a lot of slack in the labor market," Nariman Behravesh, chief economist at IHS Inc. in Lexington, Massachusetts, wrote in a note to clients.

Sunday, July 5, 2015

COMMENTARY: Why Greece should vote 'No!'

http://www.cnbc.com/id/102806202

Why Greece should vote 'No!'

Peter Morici

Thursday, 2 Jul 2015 | 10:20 AM ETCNBC.com

COMMENTSJoin the Discussion

Sunday, Greeks should vote "No!"

Hellenic voters are being asked whether they accept the terms offered by the European Union, European Central Bank and International Monetary Fund to extend the bailout for Athens' troubled finances or give Prime Minister Alexis Tsipras a mandate to insist on a better deal.

Yves Herman | Reuters

Greek Prime Minister Alexis Tsipras leaves the European Council headquarters after a summit in Brussels.

Those conditions include more cuts in government-supported pensions, higher taxes and labor-market reforms other European governments' are often not inclined to accept in the conduct of their own affairs.

Urging a "Yes" vote, European leaders and their supporters in private institutions claim more austerity would reinvigorate the Greek economy and permit Greeks to keep the euro as their currency, but such claims simply contradict the facts.

Already, the Troika, led by German Chancellor Angela Merkel and IMF Managing Director Christine Lagarde, has imposed five years of budget cuts, higher taxes and labor market adjustments. The Greeks have endured a 25- percent contraction in GDP, 25-percent cut in private-sector wages and 25 percent unemployment.

Greece's debt-to-GDP ratio has soared to 180 percent from 130 percent of GDP, and that is an impossible burden to repay.

The only solution is for Greece to replace existing bonds with securities having longer maturities and paying lower interest rates, and with reduced face value — essentially, a haircut for creditors.

According to my conservative estimate, European governments, either directly or through EU institutions, hold about 100 billion euros ($111 billion) of Greece's foreign debt, and Merkel flat out refuses to entertain German taxpayers taking losses.

Yet, neither Germany's finance ministry, nor any other European government or competent private institution, has tabled a credible analysis demonstrating how more austerity and labor-market reforms (read more layoffs and wage cuts) will instigate growth and not result in even bigger losses for bondholders down the road.

Another round of austerity would only further pummel the Greek economy, and impose economic deprivation that European leaders should be ashamed to engineer.

The euro has great appeal as a symbol of European unity—one Greeks are reluctant to abandon despite the pain and peril acceding to the bailout terms.

By voting "No," Greeks would provide Tsipras with leverage he does not now have to negotiate debt relief and more realistic economic policies.

Alexandros Avramidis | Reuters

Anti-EU protesters hold a burned and torn European Union flag during a protest at the northern city of Thessaloniki, Greece July 1, 2015. A defiant Prime Minister Alexis Tsipras urged Greeks on Wednesday to reject an international bailout deal, wrecking any prospect of repairing broken relations with EU partners before a referendum on Sunday that may decide Greece's future in Europe.

Athens need not spend more but relieved of some debt, it could invest, for example, in infrastructure to put the unemployed back to work and rebuild an economy pummeled by eight years of financial crisis and hair shirt bailout terms. And that could potentially allow Greece to stay in the euro.

If European governments balked and refused to face the facts, Greece would then be forced to abandon the euro, issue its own currency and remark the debt held by the Troika and private creditors in drachma.

Reintroducing the drachma would impose losses on both creditors and citizens, because Greek bonds and domestic bank accounts would fall in value as the new currency depreciated on foreign-exchange markets to balance Greece's foreign receipts and payments.

Critics argue such moves would impose too much pain as the rising cost of imports would cause terrible inflation. However, the Greeks have a limited import sector — Greece produces much more of what it consumes than most small nations and its export sector is dominated by shipping, petroleum refining and tourism which would continue to generate lots of receipts in dollars and euros.

Much would depend on the terms of Greece's exit from the euro. If it were permitted to continue tariff-free access to EU markets, Greece would attract a lot of foreign investment. That would limit drachma depreciation and the losses taken by Greek creditors.

One thing is certain: Voting "No" offers Greeks some prospects for better solutions, whereas voting "Yes" guarantees penury.

Commentary by Peter Morici, an economist and business professor at the University of Maryland, and a national columnist. Follow him on Twitter @pmorici1.

Economics news, commentary, research

Monday, July 6, 2015