Tuesday, 2 April 2013

Today's Articles from The Economics Nexus (2 April 2013)

Here are today's articles from The Economics Nexus, our sister publication:
Posted: 02 Apr 2013 03:09 AM PDT
By Eurostat

The euro area1 (EA17) seasonally-adjusted unemployment rate3 was 12.0% in February 2013, stable compared with January. The EU27 unemployment rate was 10.9%, up from 10.8% in the previous month. In both zones, rates have risen markedly compared with February 2012, when they were 10.9% and 10.2% respectively. These figures are published by Eurostat, the statistical office of the European Union.

Eurostat estimates that 26.338 million men and women in the EU27, of whom 19.071 million were in the euro area, were unemployed in February 2013. Compared with January 2013, the number of persons unemployed increased by 76 000 in the EU27 and by 33 000 in the euro area. Compared with February 2012, unemployment rose by 1.805 million in the EU27 and by 1.775 million in the euro area.

Among the Member States, the lowest unemployment rates were recorded in Austria (4.8%), Germany (5.4%), Luxembourg (5.5%) and the Netherlands (6.2%), and the highest in Greece (26.4% in December 2012), Spain (26.3%) and Portugal (17.5%).

Compared with a year ago, the unemployment rate increased in nineteen Member States and fell in eight. The highest increases were registered in Greece (21.4% to 26.4% between December 2011 and December 2012), Cyprus (10.2% to 14.0%), Portugal (14.8% to 17.5%) and Spain (23.9% to 26.3%). The largest decreases were observed in Latvia (15.6% to 14.3% between the fourth quarters of 2011 and 2012), Estonia (10.8% to 9.9% between January 2012 and January 2013) and Ireland (15.1% to 14.2%).

Between February 2012 and February 2013, the unemployment rate for males increased from 10.7% to 11.9% in the euro area and from 10.1% to 10.9% in the EU27. The female unemployment rate rose from 11.2% to 12.0% in the euro area and from 10.3% to 10.9% in the EU27.

In February 2013, 5.694 million young persons (under 25) were unemployed in the EU27, of whom 3.581 million were in the euro area. Compared with February 2012, youth unemployment rose by 196 000 in the EU27 and by 188 000 in the euro area. In February 2013, the youth unemployment rate was 23.5% in the EU27 and 23.9% in the euro area, compared with 22.5% and 22.3% respectively in February 2012. In February 2013, the lowest rates were observed in Germany (7.7%), Austria (8.9%) and the Netherlands (10.4%), and the highest in Greece (58.4% in December 2012), Spain (55.7%), Portugal (38.2%) and Italy (37.8%).

The unemployment rate in the USA was 7.7% in February 2013. In Japan it was 4.2% in January 2013.

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Posted: 02 Apr 2013 03:04 AM PDT
By Friedrich A. Hayek

The German essay, of which the following is a translation, represents an expanded version of a paper prepared for the meeting of the Verein für Sozialpolitik, held in Zurich in September 1928, and of some remarks contributed to the discussion at that meeting. Although, in revising the translation, I have made numerous minor alterations and additions (mainly confined to the footnotes), the general course of the argument has been left unchanged. The book, therefore, still shows signs of the particular aim with which it was written. In submitting it to a public different from that for which it was originally intended, a few words of explanation are, perhaps, required.

In Germany, somewhat in contrast to the situation in English-speaking countries, monetary explanations of the trade cycle were always, or at least until quite recently, regarded with some mistrust. One of the aims of this study — one on which an English reader may feel that I have wasted unnecessary energy — was to justify the monetary approach to these problems. But I hope that this more explicit statement of the role of the monetary factor will not be found quite useless, for it is not only a justification of the monetary approach but also a refutation of some oversimplified monetary explanations that are widely accepted. In order to save the sound elements in the monetary theories of the trade cycle, I had to attempt, in particular, to refute certain theories that have led to the belief that, by stabilizing the general price level, all the disturbing monetary causes would be eliminated. Although, since this book was written, this belief has been somewhat rudely shaken by the crisis of 1929, I hope that a systematic examination of its foundations will still be found useful. The critique of the program of the "stabilizers," which is in many ways the central theme of this book, has now occupied me for many years, and since I deal here only with some special problems that have grown mainly out of these studies, I may perhaps be permitted to refer below to other publications, in which I have partly dealt with certain further theoretical problems and partly attempted to use these considerations for the elucidation of contemporary phenomena. In particular, my Prices and Production, originally published in England, should be considered as an essential complement to the present publication. While I have here emphasized the monetary causes that start the cyclical fluctuations, I have, in that later publication, concentrated on the successive changes in the real structure of production, which constitute those fluctuations. This essential complement of my theory seems to me to be the more important since, in consequence of actual economic developments, the over-simplified monetary explanations have gained undeserved prominence in recent times. And since, in all my English publications, I have purposely refrained from combining purely theoretical considerations with discussions of current events, it may be useful to add here one or two remarks on the bearing of those considerations on the problems of today.

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Posted: 02 Apr 2013 02:20 AM PDT
By EcPoFi

The broad measures of money supply in the U.S. continued, as has become customary, to expand rapidly on last year for the bi-weekly period ending 20 March 2013. Bank credit also expanded on last year, but at a slower pace than the broad measures of money supply. However, all the broad measures of money supply and bank credit are currently lower (although not by much) than the all-time highs achieved on 9 January this year:
  • M2 is 0.28% lower
  • MZM is 0.18% lower
  • M2+IMF+LTD* is 0.35% lower 
  • Bank Credit is 0.17% lower

The M2 money supply was up 6.78% on the same period last year while the M2+IMF+LTD* money supply increased 5.64%. For the last seven bi-weekly periods the latter has increased at the fastest pace since the middle of 2009, but this growth has slowed somewhat during the last three bi-weekly periods.

Bank Credit contracted 0.04% on two weeks ago, but expanded 4.10% on the same period last year. This however remains lower than the around 6% YoY increase during the summer of last year (and at the end of December). All money supply values and bank credit are close to their all-time highs.

The longer term growth rates (12 month moving average YoY growth) for M2+IMF+LTD and bank credit are still heading upwards, but are considerably lower than they were during most of the 1997 to 2010 period. On the same basis, the M2 money supply is currently growing at its fastest pace since the early parts of 1987.

Posted: 01 Apr 2013 12:18 PM PDT
By William L. Anderson

ABSTRACT: Economists have tried to explain business cycles as well as fluctuations in the economy, but over the past two centuries, the explanations have fallen into two areas. The first area tries to explain business cycles as being the result of fluctuating aggregate demand; if overall demand for goods is strong (or to put it another way, consumers are confidently buying goods), then the economy is in a boom. However, if consumers choose not to spend, then the economy is in recession. The second area, as outlined by
Sowell is that of seeing an economy as operating within internal proportions that are brought into imbalances. Say’s Law is found in this second category, and the Austrian theory of the business cycle (ATBC) also is a proportionality-based theory. However, most economists have failed to make the connection between
Say’s Law and the ATBC.

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Posted: 01 Apr 2013 10:19 AM PDT
By EcPoFi

Base money (monetary base) increased rapidly for the sixth bi-weekly period in a row according to data released by FRED for the period ending 20 March 2013. The increase of 1.57% during the last two weeks put base money at yet another all-time high, ending the week on USD 2.9528 trillion, 9.7% higher than at the at the end of 2012.  

The M1 and M2 money supply measures continue to increase significantly on a year on year basis. The trend in recent weeks for both series is however a slowdown in the YoY growth rate: 
  • The M1 YoY growth rate (smoothed over four bi-weekly periods) as of this week was 11.12% compared to an average of 15.35% for 2012. M1 money supply is now 3.3% lower than it was at the end of 2012.
  • The M2 YoY growth rate on the same basis was 6.82% this week compared to an average of 8.50% in 2012.

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Posted: 01 Apr 2013 09:11 AM PDT
By Alasdair Macleod

Almost certainly prices for goods in Cyprus will rise as a result of its banking crisis, because the imposition of capital controls will restrict imports, leading to supply bottlenecks. In addition residents will no longer be complacent about keeping money on deposit, but seek other alternatives. Large depositors may be trapped, but smaller local depositors will draw them down for cash to stock up on things needed tomorrow while they are available.

Cypriots will therefore change their preferences from money in the bank in favour of goods. And the lessons from Cyprus are not being lost on ordinary folk across the eurozone, so bank depositors elsewhere are likely to alter their preferences away from bank deposits as well, depending on how they view the soundness of their own banks.

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Posted: 01 Apr 2013 08:31 AM PDT
By David A. Stockman

The Dow Jones and Standard & Poor’s 500 indexes reached record highs on Thursday, having completely erased the losses since the stock market’s last peak, in 2007. But instead of cheering, we should be very afraid.

Over the last 13 years, the stock market has twice crashed and touched off a recession: American households lost $5 trillion in the 2000 dot-com bust and more than $7 trillion in the 2007 housing crash. Sooner or later — within a few years, I predict — this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode, too.

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Posted: 01 Apr 2013 08:26 AM PDT
By Ron Paul

The dramatic recent events in Cyprus have highlighted the fundamental weakness in the European banking system and the extreme fragility of fractional reserve banking. Cypriot banks invested heavily in Greek sovereign debt, and last summer's Greek debt restructuring resulted in losses equivalent to more than 25 percent of Cyprus' GDP. These banks then took their bad investments to the government, demanding a bailout from an already beleaguered Cypriot treasury. The government of Cyprus then turned to the European Union (EU) for a bailout.

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