Where's the bottom?

Is inflation or deflation in the works? The Telegraph reports that the word “bad” doesn’t even begin to describe some of the developments in Europe — and the worst may be yet to come.

German exports and industrial orders have both plunged at the steepest rate since modern records began and Spain’s unemployment has surged above three million, capping one of the most disastrous days for Europe’s economy since the Second World War. … “It makes truly dismal reading,” said Julian Callow, Europe economist at Barclays Capital. “Industrial sentiment has never experienced such a rapid slump. There is an implosion of demand.”

Spain lost almost 140,000 jobs in December, pushing unemployment to 3.1m or 13.4pc. The Labour Office said the country had shed a million in jobs in 2008 as the building boom collapsed. This is equivalent to 7m job losses in the United States.

The Labour Secretary Maravillas Rojo said she could not rule out a rise in unemployment to 4m this year. “We are in an unprecedented situation, and 2009 is going to be very difficult,” she said.

Although I have no way to quantify my conjecture, I suspect that at least part of malaise is due to a lack of confidence in the institutions which had charge of the economy. When a company goes bankrupt getting it back on its feet normally requires making changes to management. But in this case its unclear what has fundamentally changed in the ways of doing business. The same old faces and the same old spending, with minor differences, are on order just like last time. If anything the bailouts suggest that the game of musical chairs will continue, but this time with publicly borrowed money.