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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

Category: Eurozone
May 17, 2013 at 10:28 AM

Poll: Your big economic worries

The Dow is over 15,000, corporations are sitting on record amounts of cash, M&A activity is picking up, the deficit problem is on track to being solvedinflation is nearly non-existent and the U.S. economy is performing better than that of almost all other industrialized nations. Metropolitan Seattle, with 5.5 percent unemployment, is getting close to what economists would consider full employment. On the other hand, millions remain unemployed, wages are stagnant and inequality is the highest we’ve seen since the 1920s and perhaps even at a historic record. It’s a recovery, but one very different from those seen in the post World War II era.

Consider that a recession comes along around every seven years or so. Also, the banking industry is as dangerous as ever, and so politically powerful that it was most recently able to push back meaningful regulation of derivatives. Federal austerity is holding back a more robust recovery. Recession in the eurozone, a slowdown in China and political tensions in east Asia are among many concerns. What has you most worried?

Read on for the best links of the week and the haiku:


Comments | More in Aerospace/Boeing,, Banking, Boeing, Deficit, Eurozone, Global economy, Great reset, Jobs/Unemployment

March 20, 2013 at 10:46 AM

About the Cyprus canary

How horrible, fantastic, incredible it is that we should be digging trenches and trying on gas masks here because of a quarrel in a faraway country between people of whom we know nothing — Neville Chamberlain

Does the crisis in Cyprus matter? As the country has faced a bank run because the EU and IMF would impose a tax on even the poorest depositors to fund a bailout, forcing the banks to shut down, and as Cypriot lawmakers voted down the bailout, the Dow Jones Industrial Average is up today. The Republic of Cyprus has GDP of $22.5 billion, compared with more than $355 billion for Washington state. It’s a poor country dependent on tourism and services. It never should have been allowed into the eurozone because, like Greece and other southern European countries, it saw a huge influx of investment during the good times that withdrew in the Great Recession. But it’s so small, perhaps it doesn’t matter, even for the EU. Average Cypriots, not a wealthy bunch, will be ruined. The rich have taken out their money already. So one small island is economically devastated, end of story.

Unfortunately, this may not be the case. Bad loans rose this week for banks in Spain and Italy, not just with Cyprus exposure but a repeat of the “nobody trusts anybody else” mentality seen during the great panic of 2008 in America and later in Europe before the European Central Bank used its “fire hose” of liquidity.


Comments | More in Eurozone

October 11, 2012 at 9:50 AM

Turnabout: America heals as the global economy slows

The conventional wisdom held that this time China would lead the world out of recession. That hasn’t happened. China’s growth rate keeps being revised downward — most recently by the World Bank — and the leadership succession in Beijing is causing great uncertainty. Meanwhile, the eurozone crisis grinds on, with much of the continent as well as the United Kingdom in recession. Brazil, India and other hitherto fast-growing emerging markets are struggling.

In the United States, a long-awaited upswing in the business cycle is gaining traction. The unemployment rate fell to 7.8 percent in September from 8.1 percent the month before despite a rise of workers entering the labor force. September foreclosures fell to a five-year low, and evidence continues to accumulate that the housing market is finally hitting bottom. Prices in many areas are rising. Fresh evidence on the housing front just arrived, as Weyerhaeuser hiked its dividend two cents to of 17 cents per share on Nov. 30 to shareholders of record Nov. 9. It said there were signs of an improving housing market. The Consumer Confidence Index improved in September. The stock market rally continues. Inflation is tame.

This is not your father’s recovery, or like any we’ve seen since the end of World War II, but it’s real if very slow and uneven. Many signals are mixed.


Comments | More in China economy and business, Eurozone, Housing, Interest rates, Investing, Jobs/Unemployment

October 8, 2012 at 10:30 AM

October, beyond the election

Whatever happens in the American electioneering over the next month, here are a few things to watch that touch only peripherally on the campaigns:

1. Slowing in Asia. The World Bank today lowered its growth forecast for East Asia and the Pacific region, chiefly because of China’s ongoing slowdown and lack of effective stimulus. This will have a direct effect on the Pacific Northwest because of our trade dependency on Asia (China is Washington’s No. 1 export destination).

2. The eurozone. Yes, this is getting old, but it’s not getting better. Greece is still in the monetary union, barely. Germany continues to resist more aggressive measures to restart growth. Austerity is causing a deep recession in many eurozone nations. It’s amazing how far they can kick the can down the road. But the best outcome on this trajectory is a long downturn complete with social unrest. The worst: A sudden crisis that causes all the dominoes to fall down.


Comments | More in China economy and business, Debt ceiling debate, Dollar, Eurozone, Federal Reserve, Interest rates, Macro/Big picture, Oil prices, Outlook, Pacific Northwest economy, Politics and the economy, Stock market

September 5, 2012 at 1:30 PM

Meanwhile, big trouble in Europe

One of the biggest factors that affect American recovery is out of control of either presidential candidate: The ongoing crisis in the eurozone. In fact, it is worsening.

I know, after two years of trouble and diddling — and yet life went on — the euro mess sounds like the boy who cried wolf. Yet at the end of the tale, a real wolf showed up. And in the eurozone’s case, the wolf has been munching on the periphery for some time. Greece was just the appetizer.

The zone’s purchasing manager’s index fell again in July. It was already in contraction territory. Worse, the contagion has spread to Germany, whose index fell to a three-year low. The meme is that now, finally, the European Central Bank will step up and use the bazooka. As important is the permanent euro bailout fund, which has been mired in German courts.


Comments | More in Eurozone

August 30, 2012 at 10:00 AM

Five things to watch for this fall

Europe is back from vacation, American economic growth remains weak and the presidential campaign will suck all the oxygen from the room. Here are five things to watch for in the economy in the weeks ahead:

1. The European recession and political crisis will get worse. It begins with the need for the Greek parliament to approve another 11.5 billion euros in spending cuts or risk losing its lifeline from the European Central Bank and International Monetary Fund. As I’ve written before, the only real answer is an “orderly” exit mechanism for the euro or a complete write-down of the debt.

2. Europe’s recession will spread. The EU accounts for 20 percent of U.S. trade and is a huge trading partner with Asia. The slowdown there is already affecting global commerce. The big unknown: The danger to “counterparty” U.S. banks (Mr. Dimon, call your office).

2. The danger of a new bubble popping. Will it be student loans or food futures?


Comments | More in China economy and business, Debt, Debt ceiling debate, Deficit, Eurozone, Income/living standards, International Monetary Fund, Jobs/Unemployment, Trade

July 30, 2012 at 9:50 AM

All quiet in the eurozone (not)

European Central Bank President Mario Draghi pledged pledge to save the euro with “decisive action.” This would supposedly come from printing euros to buy the bonds of the nations in worst trouble. That calmed markets last week, but the details offer little solace. According to the Financial Times, Germany’s Bundesbank issued a statement saying it was opposed to the purchases. So don’t expect any action when the ECB’s policy committee meets Thursday.

Inaction means continued slipping into recession, and not just in the PIIGS. Although Germany’s economy has remained strong, its bonds a safe haven and consumer confidence high, that may be changing. Big German companies are reporting disappointing earnings. For all the temporary breather, Spiegel reports that economists warn the zone is on the “threshold of catastrophe.”

The Europeans will take their August vacations and then make sure your seat belts are fastened and your tray tables are in their full upright and locked position.


Comments | More in Eurozone

July 2, 2012 at 9:44 AM

Hangfire on the economy || Jon Talton

A month ago, it looked as if the economy was confronting its worst dangers since the collapse of 2007-2008. In the United States, job creation and GDP growth had slowed significantly. Washington, D.C., was paralyzed and unable to address the situation. Europe, already in another recession, was facing the breakup of the eurozone. And growth was decelerating at an alarming rate in China. Since then, the Dow Jones Industrial Average has rebounded, a euro-supporting government was elected in Greece and life goes on.

Have we dodged the bullet? Unfortunately, no.

Today, the Institute for Supply Management reported that its manufacturing index had contracted for the first time since 2009. Things are no better in Europe, and Germany’s manufacturing sector is now slipping fast. Yet another report showed China factory output fell in June. And, as the New York Times reported, Beijing manipulates data to conceal the real condition of China’s economy. Commodity prices are dropping because of fears of a worse slowdown.


Comments | More in Banking, China economy and business, Eurozone, Global economy, Manufacturing

June 19, 2012 at 10:15 AM

The Fed in a box

The Federal Reserve is beginning two days of its policy setting Federal Open Market Committee as the world economy is slowing, Europe is in recession and the tepid recovery in the United States could turn into a double-dip. The conventional wisdom ranges from the Fed doing nothing to extending Operation Twist, a mild effort to sell short-term bonds and buy longer-term securities. This will do little to help.

As a leading scholar on the central bank and the Great Depression, Chairman Ben Bernanke knows that inflation is not the big danger facing the economy, however much the Fed’s portfolio and the monetary base have expanded since 2007. But he faces a divided FOMC, something that Alan Greenspan never encountered as he was, say, helping keep the 1997 Asian financial crisis from becoming a global meltdown. Hawks on the board are against anything that would seem to invite future inflation.

Bernanke led the Fed in doing as Milton Friedman suggested, in his seminal work with Anna Schwartz, on what the central bank did wrong to help make the Great Depression so bad. Deflation was avoided. Unlike the Depression, however, the Fed also enabled saving the too-big-to-exist banks and other dangerous components of an over-financialized economy. And fiscal policy has not been a New Deal, to put it mildly. Since 2011, it has been paralyzed.


Comments | More in Eurozone, Federal Reserve, Global economy

June 15, 2012 at 9:39 AM

Vote: How the euromess turns out

This weekend, Greece holds elections again, and the fate of the eurozone hangs in the balance. (New York magazine has the “absolute moron’s guide” to the crisis here). Spain’s borrowing costs are rising. The trouble is spreading to Italy. Austerity has caused a continental recession. Clyde Prestowitz wonders, what if France is next? How bad could things get? Really, really bad.

Where do you think we’re headed?

Europe and a year from now…

Read on for the top links of the week and the haiku:


Comments | More in Eurozone

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