One hundred years ago European civilization, as it had been known, was ending its life in the Great War, later renamed World War I. Millions of soldiers ordered by mindless generals into the hostile arms of barbed wire and machine gun fire had left the armies stalemated in trenches. A reasonable peace could have been reached, but US President Woodrow Wilson kept the carnage going by sending fresh American soldiers to try to turn the tide against Germany in favor of the English and French.
The fresh Amerian machine gun and barbed wire fodder weakened the German position, and an armistance was agreed. The Germans were promised no territorial losses and no reparations if they laid down their arms, which they did only to be betrayed at Versailles. The injustice and stupidity of the Versailles Treaty produced the German hyperinflation, the collapse of the Weimar Republic, and the rise of Hitler.
Hitler’s demands that Germany be put back together from the pieces handed out to France, Belgium, Denmark, Lithuania, Czechoslovakia, and Poland, comprising 13 percent of Germany’s European territory and one-tenth of her population, and a repeat of French and British stupidity that had sired the Great War finished off the remnants of European civilization in World War II.
The United States benefitted greatly from this death. The economy of the United States was left untouched by both world wars, but economies elsewhere were destroyed. This left Washington and the New York banks the arbiters of the world economy. The US dollar replaced British sterling as the world reserve currency and became the foundation of US domination in the second half of the 20th century, a domination limited in its reach only by the Soviet Union. Continue reading
Japan has a history of revising its economic figures all over the place. The QQE era seems to have made GDP accounting something of an art form rather than the quantitatively determined “science” of how it is presented. For example, last December the Japan Times ran a story on December 2, 2014, under the headline Japan’s Recession May Be Shallower Than First Thought only to run just six days later another purporting Japan’s Recession Deeper Than Initially Thought. The first article was predicated on a “surprise jump in capital spending” that was supposed to trim the contraction for Q3 2014 initially tallied as -1.6% to “just” -0.6%.
The updated estimate for GDP released on December 8, 2014, was instead a “surprising” -1.9%, leading to the contradiction of the second article.
One year later, Japan is still trying to figure out whether it is in recession or near it, or growing robustly as some like the New York Times recently suggested.
Japan’s latest recession turns out not to have been a recession at all.
The government said on Tuesday that the economy grew at a relatively robust pace last quarter, reversing a more pessimistic estimate it published three weeks ago.
That excited acclamation was based on an upward revision in the second GDP estimate for Q3 2015. Just a few weeks later, the New York Times redistributed a Reuters updatefor that “relatively robust”:
While Japan’s core consumer prices rose for the first time in five months in November, household spending tumbled, casting doubt on the central bank’s view that robust consumption will help accelerate inflation to its 2 percent target.
Indeed, the household spending and income estimates for November were atrocious, just as they were in October. Suddenly the wondrous upgrade for Q3’s GDP seems less of a foundation for future recovery (the same recovery promised in April 2013 and is yet to be delivered) and more so just what Japan’s economy has shown through the whole of Abenomics. It cannot be a healthy economy where households, the Japanese people, are essentially and perpetually devastated. There is no other way to classify it.
Submitted by Mark O’Byrne – GoldCore
Happy New Year. Thank you for all your support in 2015 and wishing you and yours a healthy, prosperous and happy 2016.
David Collum has again conducted a comprehensive, insightful and frequently witty review of the year past. Collum is a professor of Chemistry and Chemical Biology at Cornell University.
In addition to his academic interests, he authors an annual review of the financial, economic and geopolitical year. The review is a must read and includes interesting information about the astute academic’s investment strategy and indeed the breakdown of his investment portfolio:
Precious little of my portfolio changes most years. I began 2015 with the distribution shown below. Owing to downward adjustments in energy and metals prices and upward adjustments of putting savings back into those asset classes, my percent allocations remain about the same.
Cash equiv (short term): 60%
Precious metals etc.: 21%
Standard equities: 9%
‘2015 Year In Review – Scenic Vistas from Mount Stupid’ is in two parts and can be accessed here Continue reading
The reputations of Ben and Janet are going to be eviscerated in 2016. That’s because the US economy will slide into recession in defiance of every claim they have made for their snake oil monetary policies. The plain fact is, massive falsification of financial markets via their “wealth effects” doctrine did not levitate main street prosperity at all; it just fueled another giant speculative mania in the Wall Street casino.
The prospect that the leaders of our monetary politburo are about to be tarred and feathered by economic reality might be satisfying enough if it led to the repudiation of Keynesian central planning and a thorough housecleaning at the Fed. Unfortunately, it will also mean that tens of millions of retail investors and 401k holders will be taken to the slaughterhouse for the third time this century.
And this time the Fed is out of dry powder, meaning retail investors will never recover as they did after 2002 and 2009. Moreover, the overwhelming share of main street losses will be the among baby-boom demographic——sixty and seventy something’s who will be down for the count.
As Jim Quinn so graphically put it an the adjacent piece,
Investors are lazing around the waterhole like unsuspecting gazelles. This herd will be running for their lives in the near future, as danger is lurking.
With each passing day the evidence mounts, and this morning’s trade data was a doozy. During November exports shrank by 2% and are now down 12% from the peak, and at the lowest level since March 2010.
Yes, you can count on the Keynesian paint-by-the-numbers crowd to insist that exports don’t matter that much. Goods exports are just 8% of GDP and total exports including services are 12%.
So what is 12% when Janet is busy at the Fed’s dashboard, tweaking the dials and thereby goosing the labor market back to the pink of full employment health? Continue reading
From the perspective of foreign economies, the primary economic problem is US consumers. That sets up a contradiction as noted earlier today with durable goods estimates; economists think US consumers are quite healthy and the contraction in manufacturing is due to foreign economies. The inventory imbalance, or bloat as it was aptly described, cannot be an overseas problem and therefore more than suggests that US manufacturers hold the same depressive capacity as those foreign economies.
Examination of the US’ trade figures shows the export recession quite clearly, but instead of imports coming in furiously to gain market share from US manufacturing there only remains the opposite. Both exports and imports are contracting which can only add up to a global problem sharing common cause – US consumers (and European).
Since the trade balance tips so far in favor of imports, the global trade paradigm skews in the direction of US “demand” as a primary driver of activity. If global “demand” for US goods softens so sharply then it stands to reason that export economies are being subjected to decreases in activity originating here. The import numbers bear that out easily, as US import “demand” and flow has continued to sink all year. Imports fell sharply in October, -7.4%, matching May for the second worst month of the cycle (only March 2013 was more of a decline). These sharp declines continue month after month despite the dollar supposedly making imported goods that much more competitive.
And in the places where we are supposed to find foreign goods rapidly displacing US manufacturing in competition for “healthy consumers” there is only contraction. Imports from China fell 2% in October, bringing the 6-month average back down to just 3% yet again. For an economic system predicated on sustained 20% growth rates, sustained 3% growth is not just depressive it is dangerous (exactly as is unfolding there). Continue reading
The collapse of the Soviet Union in 1991 gave birth to a dangerous American ideology called neoconservativism. The Soviet Union had served as a constraint on US unilateral action. With the removal of this constraint on Washington, neoconservatives declared their agenda of US world hegemony. America was now the “sole superpower,” the “unipower,” that could act without restraint anywhere in the world.
The Washington Post neoconservative journalist Charles Krauthammer summed up the “new reality” as follows:
“We have overwheming global power. We are history’s designated custodians of the international system. When the Soviet Union fell, something new was born, something utterly new–a unipolar world dominated by a single superpower unchecked by any rival and with decisive reach in every corner of the globe. This is a stagering new development in history, not seen since the fall of Rome. Even Rome was no model for what America is today.”
The staggering unipolar power that history has given to Washington has to be protected at all costs. In 1992 top Pentagon official Undersecretary Paul Wolfowitz penned the Wolfowitz Doctrine, which became the basis for Washington’s foreign policy.
The Wolfowitz Doctrine states that the “first objective” of American foreign and military policy is “to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere, that poses a threat [to US unilateral action] on the order of that posed formerly by the Soviet Union. This is a dominant consideration underlying the new regional defense strategy and requires that we endeavor to prevent any hostile power from dominating a region whose resources would, under consolidated control, be sufficient to generate global power.” (A “hostile power” is a country sufficiently strong to have a foreign policy independent from Washington’s.) Continue reading
Submitted by James Howard Kunstler – www.kunstler.com
The really big item in last night’s 60-Minutes newsbreak was that the latest Star Wars movie passed the billion dollar profit gate a week after release. That says just about everything you need to know about our floundering society, including the state of the legacy news media.
The cherry on top last week was Elon Musk’s SpaceX company’s feat landing the first spent stage of its Falcon 9 rocket to be (theoretically) recycled and thus hugely lowering the cost of firing things into space. The media spooged all over itself on that one, since behind this feat stands Mr. Musk’s heroic quest to land humans on Mars. This culture has lost a lot in the past 40 years, but among the least recognized is the loss of its critical faculties. We’ve become a nation of six-year-olds.
News flash: we’re not going Mars. Notwithstanding the accolades for Ridley Scott’s neatly-rationalized fantasy, The Martian (based on Andy Weir’s novel), any human journey to the red planet would be a one-way trip. Anyway, all that begs the question: why are we so eager to journey to a dead planet with none of the elements necessary for human life when we can’t seem to manage human life on a planet superbly equipped to support us?
Answer: because we are lost in raptures of techno-narcissism. What do I mean by that? We’re convinced that all the unanticipated consequences of our brief techno-industrial orgy can be solved by… more and better technology! Notice that this narrative is being served up to a society now held hostage to the images on little screens, by skilled people who, more and more, act as though these screens have become the new dwelling place of reality. How psychotic is that? Continue reading
Durable goods estimates were somewhat better in November than they have been in recent months. Year-over-year, orders contracted by less than 1% in the latest month after contracting more than 2.7% in each of the prior six. In September, durable goods orders (ex transportation) were down almost 5.5%. While that counts as improvement it may not count as meaningful. The slump in manufacturing has continued, engulfing all of 2015 so far. While there is variability in the monthly numbers, as expected, durable goods orders have contracted in each of the past ten months leaving only January’s +0.04% on the growth side.
This has forced media commentary all over the place throughout the year as orthodox economics doesn’t know how to consider such a slump. In the past few months, that has coalesced into a reduction for manufacturing into just overseas weakness (the dollar) and 12%. From the Wall Street Journal:
“Unless we see a big rebound in December or upward revisions, it appears that investment in equipment contracted in the fourth quarter,” said Paul Ashworth, chief U.S. economist at Capital Economics, in a note to clients.
The manufacturing sector, which accounts for roughly 12% of the nation’s economic output, has slumped in the last year as low oil and gas prices squeeze domestic energy producers while weakness overseas and a strong dollar reduce demand for U.S. exports. A strong dollar also makes imported goods cheaper.
Manufacturing, which accounts for 12 percent of the economy, has also been hit by efforts by businesses to reduce an inventory bloat, which has curtailed new orders growth.
The dollar has gained almost 20 percent against the currencies of the United States’ main trading partners over the last 18 months.
Durable goods orders have tumbled 3.7 percent year-to-date. Slow economic growth among major U.S. trading partners — including Europe, China and Japan — has caused the dollar to rise in value, making U.S. goods more expensive overseas and less competitive. Lower oil prices have also squeezed demand for pipelines and equipment by energy companies.
“The manufacturing sector still looks fairly weak — weaker than non-manufacturing, reflecting more exposure to declining exports, a plunge in oil-related investment and an inventory cycle” where wholesalers are reducing their stockpiles, said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.
These almost coordinated narratives set up really heavy internal contradictions that are left unexplained. If there is “inventory bloat” and “an inventory cycle”, then you would expect some reasons as to why and how those might have come about. Such great imbalance as to push manufacturing into its own recession cannot originate with manufacturing alone. On some level, manufacturers, as wholesalers, are not keeping up with their expected sales, leaving the manufacturing slump as a matter of pure spending. Continue reading
Submitted by Mark O’Byrne – GoldCore
“Joseph urged the Pharaoh to set aside one fifth of the crop in the good times and store the grain to ease the famine in the bad times, because if he didn’t do that, the good times would be forgotten and all the people would remember was the bad times. This wouldn’t be politically good for the Pharaoh.”
“This is where economics began, on the shores of the Nile. This is where the Hebrew Joseph began to interpret the dreams of the Pharaoh, claiming that the economy moved in cycles. This was also the birth of the seven-year business cycle, plus countercyclical macro policy.”
David McWilliams looks in the past and ahead at the effects of enormous debt accumulation in a world where another seven-year business cycle is ending. The full article can be read here.