Tag Archives: Current Depression

Manufacturing Recession Goes Global as Demand Withers, by Wolf Richter

Posted on May 24, 2016 | Leave a comment

The depression continues. From Wolf Richter at wolfstreet.com:

The “strong dollar” has been blamed for the manufacturing doldrums in the US that started over a year ago. But then manufacturing in other countries should boom, or at least not decline, but that’s not the case. Manufacturing is sick and weakening in just about every major economy!

References to 2009 and the Global Financial Crisis keep popping up in the latest spate of reports because that’s how bad it has gotten.

US manufacturing gets ugly.

On Monday, Markit reported that its US Manufacturing PMI, which tracks the overall health of the manufacturing sector via surveys sent to purchasing managers, dropped to 50.5 (below 50 = contraction) in May, the weakest reading since October 2009.

Production actually declined for the first time since September 2009, “the height of the Global Financial Crisis.” Companies blamed “reduced foreign demand” as new export orders fell for the second month in a row. And they blamed the “uncertainty around the general economic outlook” which had caused their customers “to delay spending decisions,” which then triggered production cuts.

Backlog of work fell for the fourth month in a row, at the same rate as in April, which had been a “post-recession record,” which means that companies “will be poised to cut capacity unless inflows of new work start to pick up again.”

The report summarized it this way: “The weak manufacturing PMI data cast doubt on the ability of the US economy to rebound from its disappointing start to the year in the second quarter.”

Then Japan hit the world with its collapsing trade figures.

Exports plunged 10.1% in April from a year ago, on weakness in China and other emerging markets, as Japan’s Ministry of Finance reported on Monday. Imports plummeted 23% on lower commodity prices and weak demand at home, despite (or because of) the Bank of Japan’s reckless scorched-earth monetary double whammy of QQE and negative interest rates.

So it fits in nicely that the Nikkei Japan Manufacturing PMI, also released on Monday, dropped to 47.6 (below 50 = contraction), with the output index plunging to 46.9, the sharpest decline in 25 months.

The new orders index, a harbinger for future business, dropped to 44.1, the sharpest decline in 41 months. Turns out, one of the primary reasons for the drop wasn’t the April earthquake, but “a marked contraction in foreign demand, which saw the sharpest fall in over three years.”

Overall, Japanese companies experienced the “sharpest decline in operating conditions since December 2012,” which was when Abenomics became the new economic religion of the land.

To continue reading: Manufacturing Recession Goes Global as Demand Withers

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The U.S. Is At The Center Of The Global Economic Meltdown, by Brandon Smith

Posted on January 21, 2016 | Leave a comment

From Brandon Smith at alt-market.com

While the economic implosion progresses this year, there will be considerable misdirection and disinformation as to the true nature of what is taking place. As I have outlined in the past, the masses were so ill informed by the mainstream media during the Great Depression that most people had no idea they were actually in the midst of an “official” depression until years after it began. The chorus of economic journalists of the day made sure to argue consistently that recovery was “right around the corner.” Our current depression has been no different, but something is about to change.

Unlike the Great Depression, social crisis will eventually eclipse economic crisis in the U.S. That is to say, our society today is so unequipped to deal with a financial collapse that the event will inevitably trigger cultural upheaval and violent internal conflict. In the 1930s, nearly 50% of the American population was rural. Farmers made up 21% of the labor force. Today, only 20% of the population is rural. Less than 2% work in farming and agriculture. That’s a rather dramatic shift from a more independent and knowledgeable land-utilizing society to a far more helpless and hapless consumer-based system.

What’s the bottom line? About 80% of the current population in the U.S. is more than likely inexperienced in any meaningful form of food production and self-reliance.

The rationale for lying to the public is certainly there. Economic and political officials could argue that to reveal the truth of our fiscal situation would result in utter panic and immediate social breakdown. When 80% of the citizenry is completely unprepared for a decline in the mainstream grid, a loss of savings through falling equities and a loss of buying power through currency destruction, their first response to such dangers would be predictably uncivilized.

Of course, the powers-that-be are not really interested in protecting the American people from themselves. They are interested only in positioning their own finances and resources in the most advantageous investments while using our loss and fear to extract more centralization, more control and more consent. Thus, the hiding of economic decline is enacted because the decline itself is useful to the elites.

And just to be clear for those who buy into the propaganda, the U.S. is indeed in a speedy decline.

To continue reading: The U.S. Is At The Center Of The Global Economic Meltdown

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Why This Slump Has Legs, by Raúl Ilargi Meijer

Posted on January 18, 2016 | Leave a comment

“Abandon all hope, ye who enter here,” is the inscription on the Gates of Hell, according to Dante. It’s also an apt description of Raúl Ilargi Meijer’s take on the economy. Not that he’s wrong. The downturn in the economy has only just begun, and unwinding history’s greatest debt bubble will take years. From Meijer at theautomaticearth.com:

We’ve only really been in two weeks of trading in the new year, things are looking pretty bad to say the least, so predictably the press are asking -and often answering- questions about when the slump will be over. Rebound, recovery, the usual terminology. When will we get back to growth?

For me personally, but that’s just me, that last question sounds a bit more stupid every single time I hear and read it. Just a bit, but there’s been a lot of those bits, more than I care to remember. Luckily, the answer is easy. The slump will not be over for a very long time, there will be no rebound or recovery, and please stop talking about a return to growth unless you can explain what you want to grow into.

I’m sorry, I know that’s not what you want to hear, but life’s a bitch and so’s the economy. You’ve lived on pink fumes for a long time, most of you for their whole lives, but reality dictates that real ‘growth’ stopped decades ago, and you never figured that out because, and I quote here (see below), you and the world you’re part of became “addicted to borrowing money, spending it, and passing this off as ‘growth’”.

That you believed this was actual growth, however, is on you. You fell for a scam and you’re going to have to pay the price. If there’s one single thing people are good at, it’s lying. It’s as old as human history, and it happens every day, so you’re no exception to any rule. You’re perhaps just not particularly clever.

How do we know a ‘recovery’ is so far off it’s really no use to even talk about it? As I said, it’s easy. Let me lead this in with a graph I saw just today, which deals with a topic the Automatic Earth has covered a lot: marginal debt, or more precisely, the productivity/growth gained from each additional dollar of debt.

Please note, this particular graph deals with private non-financial debt only, we’ll get to other kinds of added debt, but that restriction is actually quite illuminating.

Now of course, you have to wonder about the perimeters the St. Louis Fed uses for its data and graphs, and whether ‘growth’ was all that solid in the run up to 2008. There’s plenty of very valid arguments that would say growth in the 1960’s was a whole lot more solid than that in the naughties, after the Glass-Steagall repeal, and after the dot.com blubber.

However, that’s not what I want to take away from this, I use this to show what has happened since 2008, more than before, when it comes to “passing debt off as ‘growth’”.

But it’s another thing that has happened since 2008, or rather not happened, that points out to us why this slump will have legs. That is, in 2008 a behemoth bubble started bursting, and it was by no means just US housing market. That bubble should have been allowed to fully deflate, because that is the only way to allow an economy to do a viable restart.

Instead, all that has been done since 2008, QE, ZIRP, the works, has been aimed at keeping a facade ‘alive’, and aimed at protecting the interests of the bankers and other rich parties. That facade, expressed most of all in rising stock markets, has allowed for societies to be gutted while people were busy watching the S&P rise to 2,100 and the Kardashians bare 2,100 body parts.

To continue reading: Why This Slump Has Legs

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2016 Is An Easy Year To Predict, by Raúl Ilargi Meijer

Posted on December 28, 2015 | Leave a comment

From Raúl Ilargi Meijer at theautomaticearth.com:

No year is ever easy to predict, if only because if it were, that would take all the fun out of life. But still, predictions for 2016 look quite a bit easier than other years. This is because a whole bunch of irreversible things happened in 2015 that were not recognized for what they are, either intentionally or by ‘accident’. Things that will therefore now be forced to play out in 2016, when denial will no longer be an available option.

A year ago, I wrote 2014: The Year Propaganda Came Of Age, and though that was more about geopolitics, it might as well have dealt with the financial press. And that goes for 2015 at least as much. Mainstream western media are no more likely to tell you what’s real than Chinese state media are.

2015 should have been the year of China, and it was in a way, but the extent to which was clouded by Beijing’s insistence on made-up numbers (GDP growth of 7% against the backdrop of plummeting imports and exports, 45 months of falling producer prices and bad loans reaching 20%), by the western media’s insistence on copying these numbers, and by everyone’s fear of the economic and financial consequences of the ‘Great Fall of China‘.

2015 was also the year when deflation, closely linked -but by no means limited- to China, got a firm hold on the global economy. Denial and fear have restricted our understanding of this development just as much.

And while it should be obvious that 2015 was the year of refugees as well, that topic too has been twisted and turned until full public comprehension has become impossible. Both in the US and in Europe politicians pose for their voters loudly proclaiming that borders must be closed and refugees and migrants sent back to the places they’re fleeing due to our very own military interventions.

And that said politicians have the power to make that happen, the power to close borders to hundreds of thousands of fellow human beings arriving on their countries’ doorsteps. As if thousands of years of human mass migrations never occurred, and have no lessons to teach the present or the future.

The price of oil was a big story, and China plays the lead role in that story, even if again poorly understood. All the reports and opinions about OPEC plans and ‘tactics’ to squeeze US frackers are hollow, since neither OPEC as a whole nor its separate members have the luxury anymore to engage in tactical games; they’re all too squeezed by the demise of Chinese demand growth, if not demand, period.

Ever since 2008, the entire world economy has been kept afloat by the $25 trillion or so that China printed to build overleveraged overcapacity. And now that is gone, never to return. There is nowhere else left for our economies to turn for growth. Everyone counted on China to take them down the yellow brick road to la-la-land, forever. And then it didn’t happen.

To continue reading: 2016 Is An Easy Year To Predict

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Posted in Collapse, Debt, Debtonomics, Economics, Economy, Geopolitics, Governments, Immigration

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Crisis Progress Report (8): Acceleration, by Robert Gore

Posted on July 2, 2015 | 8 comments

Debt deflations and depressions are preceded by years, usually decades, of debt build up. Growth rates of indebtedness exceed the underlying economic growth rate, increasing debt’s claim on assets and production. Debt reaches a point where the economy can no longer support the interest and repayment burden—peak debt. Slowly at first, and usually limited to one sector of the economy, debt formation and asset price appreciation go into reverse. SLL first identified this initial reversal last December, in the oil patch (see “Oil Ushers in the Depression,” SLL, 12/1/14), similar to the financial crisis of 2008’s reversal in housing and mortgage debt. Now, just like then, most mainstream economists are assuring us that the problems will remain contained. The assurances betray ignorance about the negative marginal returns on debt in a debt saturated world economy, and the complex interlinkages across debt, asset, and derivative markets that can turn a seemingly limited debt problem into a global financial crisis.

Greece has defaulted on a loan from the International Monetary Fund (IMF). Puerto Rico’s governor has said the government and related public entities cannot pay their debts. The margin-fueled Chinese stock market has reminded investors that markets can go down—hard—and China is trying to pull back from years of debt-funded housing and infrastructure malinvestment. Just as in the 2008 crisis, the financial stress points are increasing. If it has not already been reached, the point of inflection is near.

Every unraveling strand in this tapestry is woven in with many others, which in turn unravel. Regardless of how the Greek situation resolves, Greece cannot repay all its debts on their present terms. Most of the losses will be borne by the constituent nations of the IMF (including the US), the governments of the EU, and the European Central Bank. The losses will undoubtedly be “socialized,” in other words, paid for by taxpayers. Even if they are just added to the debt pile, with debt’s current negative marginal return, more debt will be economically and financially contractive, in Europe and beyond. The prices of Puerto Rico’s municipal bonds, and the share prices of US companies that have provided guarantees for some of those bonds, have plummeted. Direct and indirect owners (through mutual funds) of Puerto Rico bonds and municipal bond insurer stocks have sustained losses, which impairs their ability to spend, invest, or pay back their creditors. China’s attempt to throttle back margin and other debt will reduce both the price of financial assets and its economic growth rate. Profits and growth in many other countries are dependent on Chinese growth.

The point of inflection is the lift off where debt induced contraction and financial stress generate uncontainable and unstoppable momentum and the financial crisis greatly accelerates. The vortex of the 2008 crisis was housing and mortgage finance. The vortex of this one is sovereign credit, which will make it much more severe. Governments, aided by their central banks, picked up much of the tab for the 2008 crisis, and their debt loads have increased since then. Central banks have monetized much of that debt and have kept its cost to governments down by suppressing interest rates. The notion that expanding debt and central bank machinations could keep economies afloat was always specious. Now those nostrums have been exhausted, so governments and central banks can’t staunch the coming global margin call with hastily conceived rescues and other chimeric Hail Marys.

Monday’s turmoil was a preview, both in terms of disclosures of financial problems and their effects on financial markets. Debt contraction will act as an increasingly strong undertow on economic activity, now anemic, soon to be contracting. Look for an acceleration of disclosures and a huge ramp up of financial market volatility—jaw dropping crashes and brief, shorts-crucifying rallies. The only certainly: once what is happening becomes obvious and acknowledged by all, those who never saw it coming will continue to occupy prestigious and high-paying positions, their ignorance and wayward analyses respectfully featured in leading journals, editorial pages, television, and the Internet. Meanwhile, SLL and other blogs, commentators, and websites who have seen it coming for years will labor in comparative obscurity for their loyal audiences—those who seek the truth, face facts, and reject slogans, bromides, and conventional wisdom.

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