So despite doing a Bachelor of Commerce, I don’t feel qualified posting about economics. Maybe studying something makes you realise how little you know about it. However, this is going to be quite basic so I should get all my info right.
I remembered a recent article I read about the UK prime minister stating that he will use “extraordinary legal powers” to close its borders to migrants in the case that the Eurozone collapses. Not very comforting news. This is tantamount to saying “we know the Eurozone is going to fall apart so we’ve found a legal way to deny entrance for people fleeing collapsed economies”. As it is, I think the collapse of the Eurozone is inevitable. The sovereign debt crisis is spreading and over the last few years, more and more countries have been added to the list.
The problem here is that there is no solution. I remember a post somewhere explaining how injecting money into the economy works. It showed money changing hands between people in Greece, who used that money to pay off their debt to another Greek person, and eventually the money all returned back to the person who spent it in the first place. It was then captioned “no money was spent but everyone paid off their debt” (or something along those lines). That’s all very well to pay off your debt to the butcher or pub owner, but the problem here is that these countries owe money to the rest of the world. Increasing domestic spending does very little to help with that. Why is there no solution? Because countries in the European Union use a common currency whose value is determined by an algorithm based on the combined economies of all member countries. That means the weaker countries are stuck with a stronger currency that their economy can’t support. With no fiscal or monetary policy available to them, the failing European economies lose all their international competitiveness for exports. Giving them money will not fix this problem – in the end, they can’t generate revenue because they can’t control the value of their currency. Rescue packages are just another of the human tendency to delay problems rather than solve them.
I remember an academic paper predicting that either the EU would collapse or it would split into two – with Germany championing the new European Union and taking its fellow strong-economy countries with it. That would be an interesting process to observe, but there are legal implications to kicking countries out of the EU, which is why they haven’t kicked out the PIIGS yet. Maybe the wealthier countries will voluntarily leave to form their own group. As always, I find the cyclical nature of a country’s power to be very interesting. Ancient Greek and Italy were the centers of the world in their time, and now they’re drowning in debt. This applies to many other civilisations, but that’s a discussion for another time.
Let’s go a bit closer to home. Sydney, Australia, is facing its own little economic struggle. Compared to the rest of the world, we’re quite sheltered. We weathered the GFC well owing to China’s huge spending in our resources sector, the fact that very few banks here invested in dodgy CDOs (collateralised debt obligations), and that the US banks reduced their interest rates and pushed their housing bubble higher whereas Australian banks increased interest rates significantly, slowing down the economy. As Australians, we were probably more chill about everything too, because there wasn’t any panic withdrawal and things proceeded as usual. Now the Eurocrisis is affected companies, and the advent of internet retail and the strong AUD, so we have another battle. Similarly to the currency problem I mentioned above, Australia’s strong dollar (pushed up by demand for natural resources) has hurt all other sectors in the economy. The government did really badly in this. Despite multiple academic papers saying that the resources sector was not a long-term replacement for every other sector in the economy, the government thought it would be a good idea to push the resources boom and sacrifice everything else. Well, retail is the shit that hit the fan first. All Australian retailers have been doing badly, and Darrel Lea recently went into administration, shutting down all across Australia. Of all Australian retailers, only Woolworths and Coles are doing alright, the two stores recently entering the top 25 retailers of the world. JB Hi-fi and Myer shares have been dropping steadily and both report tough times ahead.
On an even smaller scale, some particular stores are fighting with each other. Here’s an Easyway poster. Hopefully my fellow Sydney-siders can already see the humour in this. “Way more yummy than that time” with the T slanted to look like a C. This is blatantly trying to shake Chatime’s success in the bubble tea industry which has obviously damaged Easyway’s business. It’s funny because the sentence makes no sense by itself, as there is not context at all. The T is purposely slanted, and is the only letter out of place. It’s so obvious that it’s hilarious. Looks like everyone’s having a tough time.
I notice that I don’t source a lot of my stuff. This is mostly because it’s information off the top of my head. I know I’ve read it somewhere but I can’t remember exactly where and can’t be bothered finding it. However, this one was easy to find so I’ll source the article that says that the UK is closing it’s borders in response to the Eurozone crisis: http://www.dailymail.co.uk/news/article-2168367/Eurozone-crisis-UKs-borders-closed-refugees-Greece-countries-eurozone-collapses.html