Category Archives: Economy

Close Up and Long Shot, by James Howard Kunstler

The world is whirling centrifugally apart and it can only end badly. What if they held a “climactic bloodbath” and nobody came? From James Howard Kunstler at kunstler.com:

Be careful about what you see in the foreground of the news vis-à-vis what’s in the background. Sunday, the cable networks were on fire over the 30-or-so white nationalists marching across Washington DC — with much larger hordes of masked, black-clad Antifa street-fighters following them around, and an army of DC cops in fluorescent green riot vests following the Antifas and the white nationalist knuckleheads.

The event was a billed as an attempt to commemorate the clash that happened between the same contestants in Charlottesville, Virginia, a year ago in the uproar over Confederate statues. That fiasco ended in the death of a bystander named Heather Heyer. Not a whole lot has changed since then, except perhaps the Left has become more strident in its calls to penalize white people for their crimes of “privilege,” no doubt further inflaming the Unite-the-Right crew. (And the anti-statue campaign has dropped down the memory hole.)

There was plenty of “hate” to go around on both sides Sunday. But those who were waiting for a climactic bloodbath in Lafayette Park must have been disappointed after a long day of tension when a big blob of rain hunkered over the District at suppertime and the theatrics concluded. Both the Antifas and the Unite-the-Right marchers had to go home and get out of their wet clothes. At least they could agree on that.

The cable TV anchors had issued the usual calls for “national unity,” exhorting President Trump to emerge from his Bedminster, New Jersey, golfing bunker and “bring the country together,” a sadly fatuous proposition. There is nothing to come together within. There’s nothing left of an American common culture besides a few Disney movies and that’s not nearly enough. That’s what happens when you opt for multiculturalism as your number one political principle. It automatically negates shared values, so why even expect any agreement between groups contending for dominance?

To continue reading: Close Up and Long Shot

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How the Global Trade Contraction Begins, by MN Gordon

Like almost all financial measures, global trade doesn’t proceed ever upward, a straight line on a graph from lower left to upper right. From MN Gordon at economicprism.com:

The world grows increasingly at odds with itself, with each passing day.  Divided special elections.  Speech censorship by Silicon Valley social media companies.  Increased shrieking from Anderson Cooper.  You name it, a great pileup’s upon us.

From our perch overlooking San Pedro Bay, the main port of entry for Chinese made goods into the USA, facets of the mounting economic catastrophe come into focus.  These elements, even for the most untrained of eyes, are impossible to miss.

To meet the relentless expansion of international trade, berths have been widened, and channels have been deepened to accommodate the definitive absurdity of perpetual credit creation: The CMA CGM Benjamin Franklin.  This mega container ship, if you’re unfamiliar with it, is over 20 stories tall, the width of a 12 lane freeway, and longer than four football fields.  It has enough cargo space to hold 90 million pairs of ‘Made In China’ shoes.

The secondary distortions of this mammoth – next generation – cargo ship will provide historical evidence to future generations of a political economy that went seriously awry.  For example, at the Port of Long Beach the Gerald Desmond Bridge replacement is currently being constructed at a cost of $1.5 billion.  With two towers stretching 515 feet into the sky, this will be the second tallest cable-stayed bridge in the United States.

The purpose of the bridge replacement is to provide greater clearance into the Port’s Inner Harbor for mega container ships.  As the new bridge deck goes up, it dwarfs the prior edifice like some futuristic motorway traversing up to the heavens.  We’re certainly eager to drive it when it’s complete in late-2019.

Episodes of Global Trade Contraction

The general philosophy of the bridge’s proponents appears to be that global trade expands in perpetuity.  Hence, more and more space will be needed for more and more next generation container ships.  There’s even 50-years of data to support this belief.  But that doesn’t mean what is will always be.

To continue reading: How the Global Trade Contraction Begins

The Recession of 2019, by Charles Gave

A number of indicators with good (albeit not perfect) records are pointing towards a recession next year. From Charles Gave at evergreengavekal.com:

“While the Trump administration may crow endlessly about how swell the economy performed last quarter, that 4.1% GDP print will quickly become a wistful memory.”
-BERNARD BAUMOHL, Economist at the Economic Outlook Group

INTRODUCTION

Towards the tail-end of July, the Commerce Department reported that Gross Domestic Product (also known as GDP), or the total value of goods and services produced in the US, increased at an annual pace of 4.1% in this year’s second quarter. As expected, President Trump took a victory lap around these numbers, which were the highest GDP growth results since 2014. (However, lost in the fanfare was the fact that the first quarter GDP number was revised down from 2.9% to 2.3%.)

In an equally anticipated move, the President went on to predict that this is just the start of a long-term trend, and that these numbers are “very, very sustainable” and are “going to go a lot higher.” With all due respect to the Trumpeter-in-Chief, the Evergreen Gavekal team is not nearly as confident. In fact, we would argue that there is a glaring black hole in his economic outlook.

Particularly, we believe that three unstainable factors led to this inflated higher-than-expected GDP number: tax cuts, a surge in government spending, and a rush to ship exports out of the country as the result of the trade war. We believe all three factors are based on high-risk policies that will eventually turn from a catalyst to a drag on the economy in the medium- to long-term—perhaps right around, if not before, President Trump seeks re-election in 2020.

This week’s Gavekal EVA comes from one of our most admired partners, Charles Gave. Charles also sees danger brewing on the economic horizon, both in the US and globally. In fact, he even goes so far as to postulate the exact year this brewing will turn into a full-fledge storm: 2019. In this week’s EVA, Charles explains his reasoning for making this bold, timestamped prediction. His forecast is based on several macro-economic factors that are already letting-on to a slowdown in the mostly elusive synchronized global expansion.

However, Evergreen itself is still holding off on issuing a call for the next recession, one we haven’t made since 2007. We admit, though, that the expansion clock is nearing midnight, which shouldn’t come as a surprise since this party has been going on for almost nine years. Keep dancing at your own risk!

To continue reading: The Recession of 2019 

Talk Cold Turkey, by Raúl Ilargi Meijer

Will Turkey turn to Russia and China as a way out of its financial problems? From Raúl Ilargi Meijer at theautomaticearth.com:

Recep Tayyip Erdogan became Prime Minister of Turkey in 2003. His AKP party had won a major election victory in 2002, but Erdogan was banned from political office until his predecessor Gül annulled the ban. Which he had gotten in 1997 for reciting an old poem to which he had added the lines “The mosques are our barracks, the domes our helmets, the minarets our bayonets and the faithful our soldiers….”

The Turkish courts of the time saw this as “an incitement to violence and religious or racial hatred..” and sentenced him to ten months in prison (of which he served four in 1999). The courts saw Erdogan as a threat to the secular Turkish state as defined by Kemal Ataturk, the founder of modern Turkey in the 1920’s. Erdogan is trying to both turn the nation towards Islam and at the same time not appearing to insult Ataturk.

The reality is that many Turks today lean towards a religion-based society, and no longer understand why Ataturk insisted on a secular(ist) state. Which he did after many years of wars and conflicts as a result of religious -and other- struggles. Seeing how Turkey lies in the middle between Christian Europe and the Muslim world, it is not difficult to fathom why the ‘father’ of the country saw secularism as the best if not only option. But that was 90 years ago.

And it doesn’t serve Erdogan’s purposes. If he can appeal to the ‘silent’ religious crowd and gather their support, he has the power. To wit. In 2003, one of his first acts as prime minister was to have Turkey enter George W.’s coalition of the willing to invade Saddam Hussein’s Iraq. As a reward for that, negotiations for Turkey to join the EU started. These are officially still happening, but unofficially they’re dead.

In 2014 Erdogan finally got his dream job: president. Ironically, in order to get the job, Erdogan depended heavily on the movement of scholar and imam Fethullah Gülen, who, despite moving to Pennsylvania in 1999, still had (has?) considerable influence in Turkish society. Two years after becoming president, Erdogan accused Gülen of being the mastermind behind a ‘failed coup’ in 2016, after which tens of thousands of alleged Gülenists were arrested, fired, etc.

To continue reading: Talk Cold Turkey

Bankrupt America: A Fragile Nation Grappling With Unprecedented Debt Problems, by Michael Snyder

The debt problem is like watching the streams, levies, and rivers rising during a heavy flood. If it keeps raining, eventually the water overflows over the banks. Debt keeps rising, eventually it will overflow its banks. From Michael Snyder at theeconomiccollapseblog.com:

America, you officially have a debt problem, and I am not just talking about the national debt.  Consumer bankruptcies are surging, corporate debt has doubled since the last financial crisis, state and local government debt loads have never been higher, and the federal government has been adding more than a trillion dollars a year to the federal debt ever since Barack Obama entered the White House.  We have been on the greatest debt binge in human history, and it has enabled us to enjoy our ridiculously high standard of living for far longer than we deserved.  Many of us have been sounding the alarm about our debt problem for a very long time, but now even the mainstream news is freaking out about it.  I have a feeling that they just want something else to hammer President Trump over the head with, but they are actually speaking the truth when they say that we are facing an unprecedented debt crisis.

For example, the New York Times just published a piece that discussed the fact that the bankruptcy rate among retirees is about three times higher than it was in 1991…

For a rapidly growing share of older Americans, traditional ideas about life in retirement are being upended by a dismal reality: bankruptcy.

The signs of potential trouble — vanishing pensions, soaring medical expenses, inadequate savings — have been building for years. Now, new research sheds light on the scope of the problem: The rate of people 65 and older filing for bankruptcy is three times what it was in 1991, the study found, and the same group accounts for a far greater share of all filers.

Overall, Baby Boomers are doing a whole lot better financially than the generations coming after them, and so this is very troubling news.

And here is another very troubling fact from that same article

Not only are more older people seeking relief through bankruptcy, but they also represent a widening slice of all filers: 12.2 percent of filers are now 65 or older, up from 2.1 percent in 1991.

The jump is so pronounced, the study says, that the aging of the baby boom generation cannot explain it.

Of course it isn’t just Baby Boomers that are drowning in debt.

Collectively, U.S. households are 13.15 trillion dollars in debt, which is the highest level in American history.

To continue reading: Bankrupt America: A Fragile Nation Grappling With Unprecedented Debt Problems

Federal Deficits Are Worse than You Think, by Mark Brandly

Here’s a surprise. The federal government and its media henchpeople tend to put the deficit in its absolute best light. From Mark Brandly at mises.org:

Voters tend to be rationally ignorant. Since a single vote does not matter, for most potential voters the cost of being politically well-informed is greater than the benefit of being knowledgeable about political affairs. Therefore it’s rational for most voters to be ignorant regarding political issues.

A main reason for the high cost of being well-informed is that government officials may not want the public to be well-informed. They purposefully conceal their schemes to reduce the opposition to their policies. A well-informed body politic would be a threat to the welfare and warfare state.

This obscurantism is on full display regarding the government budget.

Let’s start with the annual deficit. You may have noticed that the stated annual deficit is less than the increase in government debt. In order to explain this, consider a small scale example. Assume that you were $20,000 in debt at the beginning of 2017 and you earned $3,000 and spent $4,000 during the year. You borrowed $1,000 to cover this spending so your total debt increased to $21,000. A sensible reading of this situation would be that you had a $1,000 deficit in 2017 (multiply these numbers by a billion dollars to roughly approximate what is generally asserted to be the federal budget).

However, if you followed the federal government’s method, you would claim a deficit of, say, $600. According to the feds, the official deficit is less than the increase in total debt. How do they do this? Well, some of the borrowed money is simply not included in the deficit. For example, in fiscal year 2016, they claimed a deficit of $587 billion even though the total debt increased $1,422 billion and the debt held by the public (the total debt less the intragovernmental debt) increased $1,049 billion. They hide some of the deficit by simply declaring that some of the increased debt is not part of the deficit.

But this deception is of little consequence compared to the government’s claims about their spending habits.

According to the “Economic Report of the President,” government spending (outlays) over the twenty year period from Fiscal Year 1998 to FY 2017 more than doubled from $1,652.5 billion to $3,981.6 billion. In real terms, using the implicit price deflator as our measure of inflation, this was a 67% increase in spending.

To continue reading: Federal Deficits Are Worse than You Think 

Why the Boomers Are Going Broke, by Bill Bonner

It’s hard to accumulate wealth when the value of the supposed store of value is whatever central bankers and politicians say it is. From Bill Bonner at bonnerandpartners.com:

POITOU, FRANCE – We were taken aback on Friday by the ferocity of our dear readers’ comments. [Read more in today’s Mailbag.]

What were they so sore about? we wondered.

Son of Satan

Of course, we are frequently wrong about a great number of things. When connecting the dots, we are bound to draw a few stray lines. And we will no doubt be proven wrong in many of our opinions and predictions.

Will The Donald’s trade war pay off for Americans? We don’t think so.

Will the tax cut really boost the U.S. economy and reduce the deficit? There is no sign of it.

Will Mr. Trump really make America great again? The odds, based on what we’ve seen so far, seem very, very slim.

But what do we know? And we’d be happy to be proven wrong.

What was surprising – to us – was that readers did not write to correct us or help us get the lines in the right place.

Instead, they seemed to suggest that we were a son of Satan, sent to destroy all that the good patriots of the United States of America hold most dear.

In other words, the discussion seems to have hit a religious nerve… like setting fire to a cathedral; the faithful fear their most sacred relics will be incinerated.

We have no remedy for this condition, so we will cheerfully ignore it. Besides, cross readers may be right. And those who have a better idea of how the dots connect are invited to send their thoughts by clicking right here.

Goldilocks Report

So, what do we see today?

What we see is an economy staggering under the weight of phony wars and phony finances.

It took more than 200 years for the country to reach its first $1 trillion in debt; now, it adds that much every 12 months. In addition, the Fed increased the base money supply by roughly 400% over the past decade.

What do you get for that kind of money? The feds got the weakest recovery in history… with no real gains in per-hour wages… and GDP growth rates only half those of the 1950s and ‘60s.

In 1821, John Quincy Adams described American foreign policy: “She goes not abroad in search of monsters to destroy…”

Here we are, nearly 200 years later, and U.S. troops are looking for monsters in every godforsaken sh*thole in the world. And where none can be found… they create one.

To continue reading: Why the Boomers Are Going Broke