Frustration in Europe’s youth; Public unions under the gun in the States; China considering major property tax to squeeze bubble

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.

Europe’s Young Grow Agitated Over Future Prospects

“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:

Public Workers Face Outrage as Budget Crises Grow

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.

Property tax aims to squeeze real estate bubble

“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).

Cheers

Ben

 

 

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14 Responses to Frustration in Europe’s youth; Public unions under the gun in the States; China considering major property tax to squeeze bubble

  1. jesse says:

    There were rumors earlier this week that the implementation of the Chinese property tax overhaul will be delayed. Construction shares rose on the news. Yeah, that sounds healthy…

    As for engineering a soft landing, I always like to turn to the poetic waxers of the 21st century for inspiration:

    “I’ve never seen a soft-landing in 53 years, so we have a ways to go before this levels out,” – Former Countrywide CEO Angelo Mozilo

  2. Chad says:

    While I agree that the boomer demographics will require a change in mindset from all of in the near future, I don’t see why we’re having to pay for the mess created by the greed and over-consumption of others. This sentiment is summed up by a cartoon I saw in a newspaper where a banker had just jumped out of a Wall Street office building but had survived the fall. Saying: ‘Thank god I landed on a taxpayer.’

    This lack of accountability has been a major factor in the protests we’ve seen so far and, I think, will continue as these cuts bite deeper. The boomer demographics is the bottom part of this iceberg which hasn’t been seen by the masses.

  3. mac says:

    Got an email from a friend who lives in one of those ho-hum suburban homes in Richmond, BC where prices have risen this year, she says, by a whopping and China-Hot-Money-Induced 30%. It ain’t the locals doin’ it, baby.

    Don’t believe me? Hear if from Garth:

    Speaking of weenies, we now flash to Richmond BC, jewel of the Pacific Rim and home of a delusion which threatens to surpass that of neighbouring Vancouver, where there’s actually a culture. One of the local dogs sends this report:

    “Approximately 2 weeks ago my friend decided they would sell their home in Richmond, BC and something rather interesting happened. The house went on the market at a lower price than valued at ($800K) and within the week it sold….for $1.1M. Seems that a bidding war was started by the low price and the 200+ people that viewed it on one weekend that resulted in almost 50 offers in a 2 hour time frame. Offshore money from Asia it seems. The thing is, this is not uncommon here. Yes, the market is down in general, we see it in our business, but wow, how long can this last?”

    http://www.greaterfool.ca/page/3/

    Of course, Garth can’t explain it either.

  4. Sam says:

    No one has ever looked at who “sells” the land in China??? It’s the government, that is how they get cash to fund those roads, etc. The money is recycled over and over, sometimes fast, sometimes slow..I would not read into this too much. The Asia economy is booming and you are worried about houses in Richmond????

    The world Ben is not 25, well maybe India and Turkey. In fact from your data, people should be dropping like fly’s at rate higher than the incoming youth into the system. So you should probably do a deeper analysis in looking for negative news, your graphs actually support those radicals being fully employed and then some…

    Ben here is a link to long time loser, who missed every rally and popped his head in bad times, please don’t turn out to be like him. This guy has been the worst guy in history to forecast anything. You and your followers are going to miss yet another rally.

    http://www.zerohedge.com/article/rosenberg-goes-offensive-mocks-birinyi-tells-skeptics-put-it-their-pipe-and-smoke-it

  5. mac says:

    You bet I’m worried. I can’t afford to bid $350,000 over asking for a crappy house in a so-s0 neighbourhood with 50 other people. And neither can any of my friends or family (some of them pretty well off by Western standards).

    • Sam says:

      I believe agents have many tricks, however let’s review the whole transaction process. This market is highly unethical. The buyer has no clue on price history and everyone wants a higher price except the buyer. Agents, loan desk, banks, seller all make more on higher price. Everyone does the same work to sell a 5m or 50m dollar house, yet no caps or checks and balance exist. In the us the sad thing is they never reviewed the process.

      Now to sell a house in west van for 2.5m I offer at 3m. The buyer low balls and trades and thinks he got a deal. Not a bidding war price range
      Now for a suburb of hong kong like Richmond, you price a house to sell at 1m plus lower to get a bidding war, but you ask what if it doest work? The buyers agent are aware of the action and get the buyers to pay up to make more fees. They know exactly how to do it. Both agents win and houses are sold

  6. mac says:

    Rosenberg, Mish, Chanos… these are the stars of this blog. Plus you and me, Sam 😉

  7. buff_butler says:

    Ben, congradulations on your first perma-bull troll. 😛

  8. alf says:

    What is the end game in China with a Banking system which seems to have no accountability? If this lack of accountability runs through the whole system will all this construction end up being of the same quality of the “building boom” in Stalinist Russia, which resulted in not only shoddy construction but also the use of slave labor.

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