How the privileged few have access to a massive subsidy

 

Remember, how in life, people say: “it’s the little things that make life great”. In this case, it’s the little things that make life a complete clusterf*ck. If the next picture is so blatantly shown to the public, just what happens behind close doors?

The next list shows bus fares from the city of Zagreb to the town of Novalja on the Adriatic Coast.  The foremost right numbers are the prices represented in the local currency – HRK (1$ = 5,5 HRK). The “J” stands for the price in one way, while the “AR” stands for a return ticket. 202 HRK is a one way ticket to Novalja, while students, the blind pay 134 HRK and small children 104 HRK for one way. 202 HRK, 300 HRK and 241 HRK are paid by children, adults and students and the blind respectively. The bus ticket purchased for a return trip is valid for 180 days.

This is all fine, if not for the yellow bolded part I highlighted. The highlighted part reads: Parliament members pay 6 HRK= 1,2 dollars. And this was decided by the Parliament.

So, I wonder, in the aggregate and in at the margin, how much am I subsidizing these royal individuals? Well, it depends on the average price on the average bus fare for all citizens. And, since its law, all carriers are FORCED to subsidize these passengers. This means an explicit marginal loss for the carrier.

Brilliant.

0     Rezervacija.     6,00
1     Karta za 1 SMJER     202,00
1000     ZASTUPNICI u HRV.SABORU ! ( odluka Sabora )     6,00
1035     J / 35% / STUDENTI, +65 god., SLIJEPE OSOBE!     134,00
1072     J / 50% / DJECA 5-10 g.     104,00
5072     AR / 50% / 60 D/ DJECA 5 -10 g.     202,00
5329     AR / 25% / 60 DANA     300,00
5330     AR / 40% / 60 D/ STUDENTI,+ 65 go.,SLIJEPE OSOBE !     241,00
LEGENDA: J - Jedan smjer, AR - Povratna karta, 180 D - Vrijedi 180 dana, X-ica - Studentska iskaznica

Unemployment in Europe as a precursor for more stimulus

 

BRUSSELS (AP) — Unemployment in the 17 country euro currency bloc hit another record in May as the continent continued to be buffeted by its debt crisis, official figures showed Monday.

Eurostat, the EU's statistics office, said unemployment rose to 11.1 percent in May from 11 percent the previous month. That's the highest rate since the euro was launched in 1999, and compares badly with an unemployment rate of 8.2 percent in the United States and only 4.4 percent in Japan.
In total, 17.6 million people were out of work in the Eurozone in May, 1.8 million higher than a year earlier.

Unemployment has been edging higher for over a year as concerns over the debt crisis and the future of the euro currency itself have weighed on economic activity.
There are huge disparities across the Eurozone. The labor markets of those countries at the front line of the debt crisis, such as Greece and Spain, are suffering in the wake of stringent austerity measures and recession. The highest unemployment rate across the Eurozone was recorded in Spain, where 24.6 percent of people were out of work in May. Even more dramatically, 52.1 percent of the country's youth were unemployed.

Other countries in the Eurozone are faring fairly better. Germany's unemployment rate, for example, stood at only 5.6 percent. However, a raft of surveys in recent weeks have pointed to tougher times ahead in Europe's biggest economy.

Across the wider 27-country European Union, which includes non-euro countries such as Britain and Poland, unemployment edged up to 10.3 percent in May from 10.2 percent the month before.

Does the ECB need to intervene while the EUR is at 1,226?

There has been talk lately, coming from analysts in the financial district for the ECB to continue easing. The ECB has already been active in the market for the past two year by propping up the sovereign markets and buying wholesale government debt loads.

The goal was to make the term structure of the government debt in the Eurozone periphery more manageable. It also induced a short stock market rally. But with every new dose of stimulus, the hangover is ever so greater. In my opinion, it is not the government that need the bailout, but the banking industry that has been supplying cheap credit to the governments are let holding a lot of illiquid debt on their books.

The ECB is risking the fallout of its interventionist policies, that will be in the form of additional moral hazard, higher interest rates and more TBTF banks. You cannot shore up unsound positions by accumulating more debt in the same positions. Bad debt must be liquidated and the nominal price levels must reflect pricing realities.

As the amount of leverage in the system grows, and as the implicit guarantees by the ECB to peripheral debt continues, there will be GDP growth, financed with ex nihilo deposit origination. Any uptick in the GDP will be followed by further capital consumption and a lower standard of living.

The ECB is trying to stimulate its way out of a problem it itself created. You cannot forcefully feed money in an unsound position if there is no demand at the other side. And, even if there is demand, the government will have to redistribute resources from somewhere else to manage the implicit or explicit guarantees. If rates fall for instance as the central banks ease to support the real estate market, rates will rise elsewhere. Pushing rates toward the ZIRP boundary will encourage speculation and consumption, but not rebuild the capital stock which is desperately needed. The ECB is here to help the banking community avoid any losses they might occur, while at the same time devaluing the currency, subsidizing borrowing costs to the banks.

So, no. The ECB has to retrench and take the hit now on its asset side. Will the ECB manage this shortfall with printed Euros it will ignite the shadow inflation currently in the system. What is also needed is a structural reform of the labor market. Minimum wage laws, price floors on wages must be abolished. The notion of a fiscal union is just absurd. If the monetary union wasn’t a transfer mechanism in of its own, do we really need an automatic stabilizer on a supranational level? A stabilizer put in place to shore up the problems the monetary system will continue to produce?

No thank you.