Sunday, 25 December 2011

Merry Christmas and a Happy New 2012!

The new 2012 bears a lot of questions on the eurozone, UK, US, China and so on, but lacks to provide many answers. Unemployment is still at high levels and is likely only to rise. Output on the other hand, as well as investments, are likely to fall. Stagnation is upon us. The reports of the most prominent world institutions predict this, but they also predict a bounce back in 2013. This is a bias their models hold, since no one takes into account the possible reactions if the euro falls, or if the Chinese bubble finally bursts. The picture is gloomy and the politicians are realizing this more quickly than before as their election dates are closer. The current situation of postponing the necessary solutions is only pilling up the pressure on them and is increasing the dissatisfaction and antagonism among voters. Sooner or later, we will all have to face the necessary consequences and accept painful solutions. Balanced budgets and increased bailout funds will result only in more debt accumulation and won’t create a favourable environment for private sector growth. It may temporary restore investor confidence but the banks will still be reluctant to lend and the regulatory requirements will still raise costs for private sector enterprises. The upcoming year will eventually give us the answers on why the recovery is taking so long and why worldwide investor and consumer confidence is experiencing its longest low streak since the 1930s. We already know the welfare state is unsustainable in a productive-less and freedom lacking economy. Now we must find out how to fix it and find the proper remedy for an overblown and overdependent system. 

In the mean time, in these festive times let us enjoy the moment and celebrate the holidays, fearfully looking forward to the new 2012.

2 comments:

  1. The reason for the continued slump can be summed up in one word, Uncertainty.

    Consider all of the following reasons for uncertainty. A feckless government, record debt, allied governments going bankrupt, coups and revolts in sensitive parts of the world, and natural disasters.

    All of these things add up to uncertainty which harms not only investment, but consumption.

    By the way, I had an Economics professor named Vukovik in the 1970's

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  2. I agree, uncertainty is adding to the economic woes around the world more than anything else at the moment.
    I covered this in a previous blog post entitled 'restoring confidence' http://im-an-economist.blogspot.com/2011/10/restoring-confidence.html
    It's an interesting read, one of the most viewed on the blog

    Unfortunately, I'm not your professor from the 70-ies, I was born a bit later than that :) but it's nice to know there's more Vukovics around

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