Tag Archives: Recession

The Myth that Central Banks Assure Economic Stability, by Richard M. Ebeling

Central banks promote economic instability; just check their record. From Richard M. Ebeling at fff.org:

The world has been plagued with periodic bouts of the economic rollercoaster of booms and busts, inflations and recessions, especially during the last one hundred years. The main culprits responsible for these destabilizing and disruptive episodes have been governments and their central banks. They have monopolized the control of their respective nation’s monetary and banking systems, and mismanaged them. There is really nowhere else to point other than in their direction.

Yet, to listen to some prominent and respected writers on these matters, government has been the stabilizer and free markets have been the disturber of economic order. A recent instance of this line of reasoning is a short article by Robert Skidelsky on “Why Reinvent the Monetary Wheel?” Dr. Skidelsky is the noted author of a three-volume biography of John Maynard Keynes and a leading voice on public policy issues in Great Britain.

Skidelsky: Central Banking Equals Stable Prices and Markets

He argues against those who wish to denationalize and privatize money and the monetary system. That is, he criticizes those who want to take control of money and monetary affairs out of the hands of the government, and, instead, put money and the monetary order back into the competitive, private market. He opposes those who wish to separate money from the State.

Skidelsky sees the proponents of Bitcoin and other “cryptocurrences” as “quacks and cranks.” He says that behind any privatization of the monetary system reflected in these potential forms of electronic money may be seen “the more sordid motives” of “Friedrich Hayek’s dream of a free market in money.” The famous Austrian economist had published a monograph in 1976 on theDenationalization of Money, in which Hayek insisted that governments have been the primary cause behind currency debasements and paper money inflations through the centuries up to our own times. And this could not be brought to an end without getting government out of the money controlling and the money-creating business.

In Skidelsky’s view, any such institutional change would be a disaster. As far as he is concerned, “human societies have discovered no better way to keep the value of money roughly constant than by relying on central banks to exercise control of its issue and to act directly or indirectly on the volume of credit created by the commercial banking system.”

To continue reading: The Myth that Central Banks Assure Economic Stability


The Next Recession Will Be Devastatingly Non-Linear, by Charles Hugh Smith

Some people will be hurt in the next recession, some people will be slaughered, some will be unaffected, and some will be like Michael Lewis’s heroes in The Big Short—laughing all the way to the bank. From Charles Hugh Smith at oftwominds.com:

The acceleration of non-linear consequences will surprise the brainwashed, loving-their-servitude mainstream media.
Linear correlations are intuitive: if GDP declines 2% in the next recession, and employment declines 2%, we get it: the scale and size of the decline aligns. In a linear correlation, we’d expect sales to drop by about 2%, businesses closing their doors to increase by about 2%, profits to notch down by about 2%, lending contracts by around 2% and so on.
But the effects of the next recession won’t be linear–they will be non-linear, and far more devastating than whatever modest GDP decline is registered. To paraphrase William Gibson’s insightful observation that “The future is already here — it’s just not very evenly distributed”the recession is already here, it’s just not evenly distributed– and its effects will be enormously asymmetric.
Non-linear effects can be extremely asymmetric. Thus an apparently mild decline of 2% in GDP might trigger a 50% rise in the number of small businesses closing, a 50% collapse in new mortgages issued and a 10% increase in unemployment.
Richard Bonugli of Financial Repression Authority alerted me to the non-linear dynamic of the coming slowdown. I recently recorded a podcast with Richard on one sector that will cascade in a series of non-linear avalanches once the current asset bubbles pop and the current central-bank-created “recovery” falters under its staggering weight of debt, malinvestment and speculative excess.
The Intensifying Pension Crisis (37-minute podcast)
The core dynamic of the next recession is the unwind of all the extremes:extremes in debt expansion, in leverage, in the explosion of debt taken on by marginal borrowers, in malinvestment, in debt-fueled speculation, in emerging market debt denominated in US dollars, in financial repression, in political corruption–the list of extremes that have stretched the system to the breaking point is almost endless.
Public-sector pensions are just the tip of the iceberg. What happens when the gains in equities and bonds that have nurtured the illusion that public-sector pension funds are solvent and can be funded by further tax increases reverse into losses?

Next Stop, Recession: The Financial Meteor Storm Is Headed Our Way, by Charles Hugh Smith

Winter is coming (Charles Hugh Smith uses a meteor storm analogy; SLL will go with Game of Thrones). From Smith at oftwominds.com:

Many of those about to be vaporized did not grasp the fragility of the “prosperity” they assumed was both solid and permanent.
Business-cycle recessions are not just inevitable, they are necessary to flush bad debt and marginal investments/projects from the system.
The next recession–which I suggested yesterday has just begun–will be more than a business-cycle downturn; it will be a devastating meteor storm that destroys huge chunks of the economy while leaving other sectors virtually untouched.
The dynamic that’s about to play out is simple: wages for the bottom 95% have gone nowhere for 17 years, while costs have soared far above official inflation for everyone exposed to real-world costs.
We have filled the widening gap between stagnant household income and rising expenses with debt. This stop-gap works for a while, but eventually the cost of servicing debt consumes the entire budget, leaving little to nothing to save or invest.
Absent savings and incentives for productive investment, productivity falters once productivity falters, wealth is no longer being generated or distributed widely.
After eight long years of filling the widening gap with borrowed money, the jig is up: the returns on adding debt have diminished to zero, and the financialization games that were supposed to be temporary emergency measures are now permanent.
Like a field exposed to toxins for 8 long years, all this permanent monetary and fiscal stimulus has weakened the productive economy while causing the most destructive weeds to flourish.
When credit expansion stops, the effect is like a meteor storm: marginal borrowers and lenders crater, and every sector that depends on marginal borrowers and lenders for sales and profits also craters.
Those sectors that are heavily in debt and dependent on marginal borrowers for sales implode once sales slump. As these enterprises default, all the lenders who issued this commercial debt also blow up.
Every node of the economy that is heavily indebted and dependent on marginal borrowers for sales, profits and taxes will be struck by a financial meteor. Every sector that avoided debt and sales funded by debt will escape with only light damage.

Are We Already in Recession? by Charles Hugh Smith

Charles Hugh Smith argues the US economy is already in a recession. He’ll get no argument from SLL. From Smith at oftwominds.com:

If we stop counting zombies, we’re already in recession.
How shocked would you be if it was announced that the U.S. had just entered a recession, that is, a period in which gross domestic product (GDP) declines (when adjusted for inflation) for two or more quarters?
Would you really be surprised to discover that the eight-year long “recovery,” the weakest on record, had finally rolled over into recession?
Anyone with even a passing acquaintance with the statistical pulse of the real-world economy knows the numbers are softening.
— Auto/light truck sales: either down or off a cliff, depending on how much lipstick has been applied to the pig.
— Restaurant/dining sales: down.
— Tax receipts: down.
— Retail sales: flat, stagnant or down, depending on the sector and if the numbers have been adjusted for inflation/loss of purchasing power.
— Rents in high-rent regions: finally softening after years of relentless increases.
— Consumer debt: hitting new highs.
— Corporate profits: stripped of gimmickry, stagnant or down.
Those who study recessions know that employment often tops out just before the economy rolls over into recession. Strong employment is the last gasp of an expansionary phase.
There are several fundamental reasons why we might be in a recession that manages to avoid the official definition. The starting place is the artificial nature of the eight-year long “recovery” since 2009; in the view of many observers, the economy never really exited the 2008-09 recession.
Those in this camp look at fundamentals, not the stock market, which has been held up as a proxy for the real economy, when in fact it is only a proxy for financialization and official selection of the market as the (easily manipulated) signifier of economic vitality and prosperity.
To continue reading: Are We Already in Recession?

Why This Market Needs To Crash, And likely will, by Chris Martenson

This article’s conclusions are nothing you haven’t heard from SLL and its guest posters, but it is well reasoned and well supported. From Chris Martenson at peakprosperity.com:

Like an old vinyl record with a well-worn groove, the needle skipping merrily back to the same track over and over again, we repeat: Today’s markets are dangerously overpriced.

Being market fundamentalists who don’t believe it’s possible to simply print prosperity out of thin air, we’ve been deeply skeptical of the financial markets ever since the central banks began their highly interventionist policies. Since 2009, they have unleashed over $12 Trillion in new money into the world, concentrating wealth into the hands of an elite few, while blowing asset price bubbles everywhere in the process (see our recent report The Mother Of All Financial Bubbles).

Our consistent view is that price bubbles always burst. Which is why we predict the world’s financial markets will implode spectacularly from today’s heights — destroying jobs, dreams, hopes, economies and political careers alike.

When this happens, it will frighten the central bankers enough (or merely embarrass them enough, being the egotists that they are) that they will respond with even more aggressive money printing — and that will then cause the entire money system to blow up. Ka-Poom! First inwards in a compressed ball of deflation, then exploding outwards in a final hyperinflationary fireball (see our recent report When This All Blows Up…).

It really cannot end any other way. Money is not wealth; it is merely a claim on wealth. Debt is a claim on future money. The only way to have faith in our current monetary policies is if one believes that we can always grow our debts at roughly twice the rate of GDP — forever. That is, compound the claims at twice the rate of income year after year from here on out.

This would be like having your credit card balance rolled over every month as the balance grows at 10% each year, while your income advances at only 5% per year. Eventually you simply have a math problem: your income becomes swamped by your debt service payment. First you are insolvent, then bankruptcy eventually follows.

To continue reading: Why This Market Needs To Crash, And likely will


This Is How the Status Quo Unravels: As the Pie Shrinks, Everybody Demands Their Piece Should Get Bigger, by Charles Hugh Smith

Demographics and debt guarantee that the American pie will shrink for a long time. That will inevitably lead to political conflict. From Charles Hugh Smith at oftwominds.com:

Fragmentation, discord, discontent, class war: this is the inevitable result of a shrinking pie.

The politics of the past 70 years was all about horsetrading who got what share of the growing pie: the “pie” being cheap energy, government revenues and consumption, sales and profits.

Horsetrading over a growing pie is basically fun. There’s always a little increase left for the losers, so there is a reason for everyone to cooperate in a broad political consensus.

Horsetrading over a shrinking pie is not fun. Everybody is shrilly demanding their piece of the pie should either grow or be left untouched; any cuts must come out of someone else’s slice.

Everyone turns on their most compelling emotion-based defense: “we wuz promised” is a reliable standard, as is “we need more money to defend the nation from the rising threat of XYZ.” “Help those in need” plays the heartstrings effectively–as long as the “help” comes out of somebody else’s pocket.

Everyone sharpens their knives, the better to carve a slice off somebody else’s slice of the pie. A passive-aggressive free-for-all ensues as everyone reacts with aggrieved defensiveness to any attempt to diminish their slice, even as they launch shrill attacks on everyone else’s defense.

As the pie shrinks, the motivation to join a broad consensus vanishes like mist in Death Valley. Any cooperation is merely a brief tactical move designed to carve a big chunk off another player’s slice. Once that’s accomplished, the alliance quickly splinters as the survivors battle over the meager spoils.

To continue reading: This Is How the Status Quo Unravels: As the Pie Shrinks, Everybody Demands Their Piece Should Get Bigger

Recession 2017? Things Are Happening That Usually Never Happen Unless A New Recession Is Beginning, by Michael Snyder

Real GDP increased an estimated 1.6 percent in 2016, and for each $1 increase in growth, debt increased $5.70. If you have to borrow $5.70 to generate a buck’s worth of growth, are you even growing? Notwithstanding growth bought with debt and the official statistics, SLL argues that the economy has been in a recession, headed for depression, for several years (see Debtonomics Archive). More support from Michael Snyder at theeconomiccollapseblog.com:

Is the U.S. economy about to get slammed by a major recession? According to Gallup, U.S. economic confidence has soared to the highest level ever recorded, but meanwhile a whole host of key economic indicators are absolutely screaming that a new recession is beginning. And if the U.S. economy does officially enter recession territory in 2017, it certainly won’t be a shock, because the truth is that we are well overdue for one. Donald Trump has inherited quite an economic mess from Barack Obama, and it was probably inevitable that we were headed for a significant economic downturn no matter who won the election.

One of the key indicators to watch is average weekly hours. When the economy shifts into recession mode, employers tend to start cutting back hours, and that is happening right now. In fact, as Graham Summers has pointed out, we just witnessed the largest percentage decline in average weekly hours since the recession of 2008…

In addition to the decline in hours, Summers has suggested that there are a number of other reasons to believe that a new recession is here…

The fact is that the GDP growth of 4%-5% is not just around the corner. The US most likely slid into recession in the last three months. GDP growth collapsed in 4Q16, with a large portion of the “growth” coming from accounting gimmicks.

Consider the following:

• Tax receipts indicate the US is in recession.
• Gross private domestic investment indicates were are in a recession.
• Retailers are showing that the US consumer is tapped out (see AMZN’s recent miss).
• UPS, another economic bellweather, dramatically lowered 2017 forecasts.

To me, even more alarming is the tightening of lending standards. In our debt-based economy, the flow of credit is absolutely critical to economic growth, and when credit starts to get tight that almost always leads to a recession.

To continue reading: Recession 2017? Things Are Happening That Usually Never Happen Unless A New Recession Is Beginning