2010, the year than began with a whimper and may leave with a bang.
First up, Iceland’s parliament, known as the Althing, has announced that it will make good on deposit guarantees…. quotes from their ministry of finance below:
“Yesterday evening the Icelandic parliament Althingi approved a legislation authorising a state guarantee for loans by the UK and the Netherlands to the Depositors’ and Investors’ Guarantee Fund to cover payment of mandatory minimum deposit guarantees to holders of savings accounts in branches of Islands hf. in those countries.
Adoption of this legislation marks the end of a difficult and protracted international dispute with an agreement providing for the equitable sharing of the burden of the lost savings deposits between the states concerned. The dispute has impeded Iceland’s relations with other nations and the issue has been the subject of heated and widespread controversy among the general public. The adoption of the Act was a difficult step for the Althingi. Resolving the dispute in this manner is regarded as a prerequisite for continuing reconstruction efforts which have been underway since the economic shocks suffered by Iceland in the autumn of 2008 and which have already made very significant progress”.
(Ministry of Finance, December 31, 2009)
We’ll take that as a good sign that the reconstruction of the post-crash economy is proceeding apace. Note, however, that a condition of relative stability is not the same thing as a full return to normality.
Goldman Sachs‘ chief economist Jan Hatzius sounded somewhere between restrained and downbeat for the prospects of 2010 in the brief interview he granted the WSJ. See the interview here.
Our own chart study of inflationary expectations based on the data from the University of Michigan and published on the Federal Reserve’s FRED database shows a weak concern for inflationary processes taking hold anytime soon. Mind you, this isn’t a chart of actual inflation, but rather the prediction of inflation in the future.
Note also that the phase after the dot com meltdown until the credit crisis showed an accelerating belief that inflation would assert itself in the future. It is the expectation of future inflation that drives people to accumulate debt (as inflation reduces the cost of repaying debt, assuming you got a fixed rate loan), accumulate real estate and physical assets, and generates a general surge in “animal spirits”. For now, the inflation mind set appears to have fallen well below the trend of the past 25 years.
Anything else we might care to notice ? The map below – first published on Wikipedia and composed by Mike Sefras – shows an interesting situation with regard to US unemployment. There are regions with much worse than average unemployment – some which appear to be bordering on the true desperation conditions of a real depression mirroring the 1930s (black zones on map), other regions that appear to be in fairly good shape (light blue), and an equal amount of in-between zones.
The take home lesson is that the generalized state of misery that brings about massive collective action is absent in the US. There’s enough true catastrophe to get a certain amount of legislative change done, but not nearly enough for a grand social overhaul. This no doubt explains the long and contentious debates in the media and the political mechanisms where radical change and social stasis are in a tug of war for meme dominance.