European youth grow agitated
Unemployment for the under-25 crowd is still stubbornly high across most of the Western world. As I’ve said before, young people with little by way of job prospects and facing the reality of a lower standard of living via rising taxes and shrinking government spending have a dangerous tendency to embrace radical ideals. The next few years will see the increasing popularity of fringe political parties in Europe, as they tap into growing resentment in generation Y’ers in particular.
“The outrage of the young has erupted, sometimes violently, on the streets of Greece and Italy in recent weeks, as students and more radical anarchists protest not only specific austerity measures in flattened economies but a rising reality in Southern Europe: People like Ms. Esposito feel increasingly shut out of their own futures.”
“The contrast could not have been stronger. Indeed, experts warn of a looming demographic disaster in Southern Europe, which has among the lowest birth rates in the Western world. With pensioners living longer and young people entering the work force later — and paying less in taxes because their salaries are so low — it is only a matter of time before state coffers run dry.”
“Yet many young people in Southern Europe see labor union leaders like Mr. Fernández, and the left-wing parties with which they have been historically close, as part of the problem. They are seen as exacerbating a two-tier labor market by protecting a caste of tenured older workers rather than helping younger workers enter the market.”
Meanwhile we have massive entitlement obligations here in Canada, a demographic bulge that will see 1000 boomers hit 65 each year, and a significant tax bill to be paid.
Yet my thesis has always been that once our made-in-Canada credit bubble bursts and monetary deflation tugs at incomes and leveraged assets like real estate causing anemic economic growth and stubbornly high unemployment, the true burden of these entitlement promises will be felt. Add to this the fact that 2/3rds of Canadians plan on working after retirement meaning still more competition for jobs, and you have a recipe for similar frustration being felt among Canada’s youth.
Public unions under the gun in the States
During prosperous times, people are willing to tolerate the antics of public sector unions to a greater degree. But when times are lean, union leaders who don’t properly assess the prevailing sentiment of the public will quickly find that they’ve created the political climate that ensures a reduction in their own bargaining ability. A look some financially strapped US states certainly bears this out:
The article starts out with a sob story from poor Marie Corfield, the teacher who got her arse kicked by NJ State Governor Chris Christie in a town hall discussion.
It’s well worth watching purely for the comedic value.
“In California, New York, Michigan and New Jersey, states where public unions wield much power and the culture historically tends to be pro-labor, even longtime liberal political leaders have demanded concessions — wage freezes, benefit cuts and tougher work rules.”
“It is an angry conversation. Union chiefs, who sometimes persuaded members to take pension sweeteners in lieu of raises, are loath to surrender ground. Taxpayers are split between those who want cuts and those who hope that rising tax receipts might bring easier choices.”
With austerity coming to Canada either willingly or indirectly through a bond market rebuke and associated higher borrowing costs, these same issues will come home to roost in Canada. For more on this topic, check out ‘The social fallout of a dying credit bubble’.
China property tax in the works
As the world remains on red alert over China’s surprising inflation, the Chinese government is considering more drastic measure to curb credit creation and pull house price levels back to “more reasonable” levels. After raising reserve requirements and boosting interest rates, new and potentially massive property taxes are being considered to squeeze the hot air out of the largest housing bubble in the world.
“China may impose a property tax soon, to try and curb soaring property prices, China Business News reported on Tuesday.
“The tax will be from 0.8 percent to 20 percent of the market value of properties and be levied on people with multiple homes or oversize houses,” the source said.
“The property tax can be considered a new measure to adjust the demand and supply chain, and so curb property speculation and squeeze the housing bubble,” said Chen Guoqiang, head of the Peking University Real Estate Institute.
Premier Wen Jiabao last month voiced the government’s determination to pull prices back to a reasonable level.”
“Given such rigorous terms, property prices will definitely drop as the demand will largely shrink, especially in the high-end sector. The pre-owned home market, however, will be more active as multiple home owners may choose to sell some of their apartments”
The structural imbalances in China’s miracle economy are staggering. Whether it implodes this year or whether the central government can keep the mirage going for another 10 makes for interesting conversation but does little to change the facts. A country that relies on construction for 60% of its GDP, when that construction is going to build millions of empty homes and entire empty cities, has a problem.
The big question is whether China can control excess credit creation and induce a soft landing in their ridiculously overvalued real estate without harming commodity prices or stemming the flow of all the hot Asian money supposedly buoying all house prices in Vancouver (despite representing far less than 10% of the total transaction volume).