What about Spain and Italy ?

We recently made a reference to the social unrest in the UK stating that the low economic activity and unemployment were the basic reasons for the riots in August 2011. There are other causes from sociological and cultural perspectives, of course.

Having said that, we should conclude that a similar pattern could be followed by countries hit by unemployment (Spain 21% and Italy 8,4%) and low economic activity.

In the case of Spain, it is needed a GDP increase higher than 2% in order for the economy to create employment. In the case of Italy that increase is in the area of 1,6%.

Clearly the adjustment measures required by the European Central Bank is creating certain “social” unrest. Both in Spain and Italy, unions and minority political parties are creating an atmosphere which may end up in serious social unrest.

Spain will have presidential elections on November 20^th 2011. The pools show that the Popular Party (center- right) will win.

According to the recent history, we can expect strikes early next year since the strict  austerity measures requested by the EU will ignite the left wing political parties and unions.

Italy´s eroded image of its Prime Minster, plus its debt ratio close to 120% of GDP and low growth expectations of 0,6 – 0,8% for this year make a dangerous combination regarding social stability.

On top of these worrisome scenario for both countries, the major rating agencies are constantly issuing warnings of quality raising decreases.

Not a very encouraging scenario for both peninsulas in the short term.  

Unenployment plus weak economic activity = social unrest

The youth unemployment rate has doubled in United Kingdom since the beginning of the recession. Unemployment among young people was 20% in the last quarter of 2010 as published in January 2011 by the National Bureau of statistics. This means that one in five people between 15 and 24 years do not have a job.

The British economy (GDP) shrank 0.5% the last quarter of 2010. Although it got a 0,7% increase in the first half of the year, the slugish recovery it is not strong enough to induce employment creation.

This is just one of the causes for the social unrest that led to the riots in August 2011

yes .....recession is here to stay

Undoubtedly the present economic downturns will fade away sooner or later.

If recession nests in the world economy there will be collateral damages in the social fronts worldwide.

What we are seeing in the UK, Greece and to a lesser degree in Spain, will be seen more often.

The social networks should not be blamed for the social turmoil but the increasing number of depleted families throughout the world after  the so called sub prime crisis.

In 2007/2008 the world started a change that is slowly unfolding

Becoming poor is probably worst than being poor.

Preparing for a worst case situaiton...answer to FerFal

I like to answer ferfal ´s following question

Hi! A reader just asked me what to do to prepare for a worst case situaiton in the next 48hs, what would you do this Monday if you knew that the roof wont rise in August 2nd? An interesting article could be, what would you do if you knew USA will default next week?

Hi Ferfal:

In any event a possible default of a Government, generally does not mean instant disaster. In recent years Turkey and Argentina declared default on their debt and the consequences for the population were very bad but not immediate.

The case of the USA is slightly different since it will imply the lack of salaries payment to public sector  employees.  Certain essential services like health, police, air controllers, firemen and the like, would have practical consequences and a striking effect on the population´s perception of safety and coverage.

The medium term effects  in the economy could be dramatic since the cost of financing (debt) would increase. All prices will go upwards. The subsequent deterioration of the economic situation would be inevitable. I would like to elaborate on this aspect in future comments.

Al in all and although this is not the first time that financial collapse is alarmingly near in the USA, the psychological aspects and impact, are worrisome for the American public.

In order to answer  your question, if a financial major problem is near, try to keep as much cash as you might get.... just in case.

If you have health problems, build up an inventory of medicines you need and keep back up of essential goods for every day consumption. Electricity generation is crucial. In February 2010, the hearthquaqk in Chile left hundreds of thousands of people "incomunicados" when their cell phones run out of batteries. Of course there was no electricity for days in certain areas.

In countries like Argentina gas and energy shortages could be a consequence of disrupted distribution services.

For the time being and as we anticipated a few days ago, this will not happen, an agreement was reached today (August 2nd) by the two major US political parties so, relax....and enjoy it, at least for the short run

A new world order is in preparation hopefully it will not be done by organizations like the Bildelberg Conference Group.

The US and Europe.... dancing in the dark

Both are facing serious economic problems. Both will come out of the present situation although with wounds and pain. Europe is fighting to keep its economic union with stronger economies "helping" the weaker members of the Union. Most probably the 27 will maintain their links and uniform currency. New rules and constraints will be imposed to avoid the "big spenders" to get carried away again.

The US will come out at the last minute with an agreement between the two main political parties. However the relevant point here is the size of the fiscal deficit. Undoubtedly the US will have to learn to adjust to higher constraints. Spending has to be reduced and it will be necessary to agree what to cut. Social expense does not look like the accounts to touch momentarily

The new economic scenario

Today July 21st the European leaders will meet in Brussels to decide whether Greece second rescue package will take place and how it will be developed.

Eventually Greece and the other weaker European countries like Ireland, Portugal, Spain and Italy will have to adjust their economies to the required constraints imposed by the severe crisis scenario since the so called sub- prime portfolios crisis burst in 2007/2008.

Regardless of the mechanisms to be used to resolve the present crisis in Europe and the US budget restrictions that is keeping the US economy holding everybody´s breadth, we can be sure that the future is going to be different since most of the population the world is poorer.

Surely there are countries in Africa, Latam and Asia that have been poorer for ages. But, you one thing is to be poor and a different thing is to become poor.

In that sense I think that there will be changes in the social texture and behavior of some countries.

Avoiding to be dramatic I would recommend to read the blog of Feral,  http://ferfal.blogspot.com/2008/10/thoughts-on-urban-survival-2005.html

You will find very good recommendations in terms of safety, personal finances and survival strategies.

On the other hand, for the economic perspective I will continue to post my views, probable outcomes and recommendations on how to evaluate the situations to come and proceed accordingly on economic and financial matters

What the hell are stress tests ?

Stress tests for financial institutions are, supposedly, the measurement of the impact that adverse economic conditions will produce in the situation of a bank or other financial institutions.

That is true but, who decides which are this supposed worse economic conditions?

This is not a trivial point. We remember that back in April 2010 a stress test was effected to European banks. Almost all of them "passed" the exam. A few months later three Iris banks required the financial support of the Government in order to avoid bankruptcy.

The test measurement was not effective.

Last week the European Central Bank conducted a new ser of tests. This time a handful of banks showed a weaker financial condition (lack of capital to support its credits)

We will see if this time the tests were done correctly.

In any event this is a rather complicated subject from a technical perspective.

We will see this in future posts from a simple and understandable point of view