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In my archives there is a column or two that introduces the reader to John Perkins’ important book, Confessions of an Economic Hit Man. An EHM is an operative who sells the leadership of a developing country on an economic plan or massive development project. The Hit Man convinces a country’s government that borrowing large sums of money from US financial institutions in order to finance the project will raise the country’s living standards. The borrower is assured that the project will increase Gross Domestic Product and tax revenues and that these increases will allow the loan to be repaid.

However, the plan is designed to over-estimate the benefits so that the indebted country cannot pay the principal and interest. As Perkins’ puts it, the plans are based on “distorted financial analyses, inflated projections, and rigged accounting,” and if the deception doesn’t work, “threats and bribes” are used to close the deal.

The next step in the deception is the appearance of the International Monetary Fund. The IMF tells the indebted country that the IMF will save its credit rating by lending the money with which to repay the country’s creditors. The IMF loan is not a form of aid. It merely replaces the country’s indebtedness to banks with indebtedness to the IMF.

To repay the IMF, the country has to accept an austerity plan and agree to sell national assets to private investors. Austerity means cuts in social pensions, social services, employment and wages, and the budget savings are used to repay the IMF. Privatization means selling oil, mineral and public infrastructure in order to repay the IMF. The deal usually imposes an agreement to vote with the US in the UN and to accept US military bases.

…click on the above link to read the rest of the article…

Bert Dohmen Is Uber-Bearish and Here’s Why

February 20, 2016

Bert Dohmen Is Uber-Bearish and Here’s Why

Bert Dohmen, founder of Dohmen Capital Research, is uber-bearish and believes that it is time for investors to panic (before everyone else does) given a potential collapse of the stock market greater than what we saw in 2008.

Here’s what he had to say on Thursday’s podcast:

“Over a year ago we said that we are now in a transition year from a bull market to a bear market and from a growing economy to a recession—and this could be a very deep recession… now we see that we are finally there and more and more people are starting to realize it. But I raise the question here, ‘Is it too late to panic?’ Because…the advice given by so many analysts is ‘Don’t panic, don’t sell, don’t panic.’ And I say, ‘Yes, panic!’ And it’s not too late to panic. Panicking at the right time can save you a lot of money…

I predict in this bear market you will see the majority of stocks—majority meaning over 50% of the stocks—selling at $5 or less. Okay, just put that into your portfolio and see if you should be selling some stocks…

We here other analysts say, ‘Oh, this is nothing like 2008’ and I agree with that, but I say that because I think it’s going to be much worse. 2008 was really a crisis triggered by the subprime mortgage market and the confetti that the Wall Street firms distributed around the world. They took those subprime mortgages, put them into pools, they sold participations in these pools, in these CDOs…they got a triple-AAA rating on all this garbage and sold it around the world and then they started defaulting. That caused ripples throughout the financial system and a global financial crisis, okay; but it was basically a mortgage crisis—that’s how it started.

…click on the above link to read the rest of the article…

The US Economy Has Not Recovered And Will Not Recover

February 18, 2016

The US Economy Has Not Recovered And Will Not Recover

The US economy died when middle class jobs were offshored and when the financial system was deregulated.

Jobs offshoring benefitted corporate executives and shareholders, because lower labor and compliance costs resulted in higher profits. These profits flowed through to shareholders in the form of capital gains and to executives in the form of “performance bonuses.” Wall Street benefitted from the bull market generated by higher profits.

However, jobs offshoring also offshored US GDP and consumer purchasing power. Despite promises of a “New Economy” and better jobs, the replacement jobs have been increasingly part-time, lowly-paid jobs in domestic services, such as retail clerks, waitresses and bartenders.

The offshoring of US manufacturing and professional service jobs to Asia stopped the growth of consumer demand in the US, decimated the middle class, and left insufficient employment for college graduates to be able to service their student loans. The ladders of upward mobility that had made the United States an “opportunity society” were taken down in the interest of higher short-term profits.

Without growth in consumer incomes to drive the economy, the Federal Reserve under Alan Greenspan substituted the growth in consumer debt to take the place of the missing growth in consumer income. Under the Greenspan regime, Americans’ stagnant and declining incomes were augmented with the ability to spend on credit. One source of this credit was the rise in housing prices that the Federal Reserves low inerest rate policy made possible. Consumers could refinance their now higher-valued home at lower interest rates and take out the “equity” and spend it.

The debt expansion, tied heavily to housing mortgages, came to a halt when the fraud perpetrated by a deregulated financial system crashed the real estate and stock markets. The bailout of the guilty imposed further costs on the very people that the guilty had victimized.

…click on the above link to read the rest of the article…

Japanese Trade Data Collapses, Crushes “Devalue Our Way To Prosperity” Dreams

February 17, 2016

Japanese Trade Data Collapses, Crushes “Devalue Our Way To Prosperity” Dreams

Seriously – how many more times can a central bankers’ policies be exposed for the total sham that they are?

Japanese trade data was just unleashed on the world… and it is abysmal.

*JAPAN JAN. EXPORTS FALL 12.9% Y/Y

Notably worse than the expected 10.9% drop and the biggest YoY plunge since October 2009.

Proving once and for all that the devaluation of the JPY did less-than-nothing to improve Japan’s competitiveness…

And then there is Imports – reflecting the “modest” improvement in the domestic economy…

*JAPAN JAN. IMPORTS FALL 18.0% Y/Y

Nope – complete carnage!! The biggest YoY drop since october 2009…

Is it any wonder Abe says no more stimulus and Kuroda did not unleash anymore QE – they know it’s over and now it’s desperation.

We leave it to Alhambra’s Jeff Snider to sum up… Japan is the very definition of insanity…

GDP fell 1.4% in Q4 2015, marking the fifth contraction out of the past nine quarters and yet the word “stimulus” remains attached to QQE, the Bank of Japan and Abenomics in general. At this point, how much more time and sample size is necessary before calling it a failure? In about six weeks, Kuroda’s massive “stimulus” will mark its third anniversary and the best that can be said of it is that GDP has gone nowhere. Two and three quarters years later, real GDP (SAAR) in the last three months of 2015 was the slightest bit higher than Q2 2013 when everyone was so sure “stimulus” was all so sure.

ABOOK Feb 2016 Japan GDP Real SAAR

The media provides all the evidence necessary as to why everything is so “unexpected.”

The data suggest Japan’s economy is still plagued by the weakness of domestic demand as it enters a fourth year of record monetary stimulus, with wages not rising fast enough to persuade consumers to spend.

…click on the above link to read the rest of the article…

Deranged Central Bankers Blowing Up the World

February 15, 2016

DERANGED CENTRAL BANKERS BLOWING UP THE WORLD

It is now self-evident to any sentient being (excludes CNBC shills, Wall Street shyster economists, and Keynesian loving politicians) the mountainous level of unpayable global debt is about to crash down like an avalanche upon hundreds of millions of willfully ignorant citizens who trusted their politician leaders and the central bankers who created the debt out of thin air. McKinsey produced a report last year showing the world had added $57 trillion of debt between 2008 and the 2nd quarter of 2014, with global debt to GDP reaching 286%.

The global economy has only deteriorated since mid-2014, with politicians and central bankers accelerating the issuance of debt. These deranged psychopaths have added in excess of $70 trillion of debt in the last eight years, a 50% increase. With $142 trillion of global debt enough to collapse the global economy in 2008, only a lunatic would implement a “solution” that increased global debt to $212 trillion over the next seven years thinking that would solve a problem created by too much debt.

The truth is, these central bankers and captured politicians knew this massive issuance of more unpayable debt wouldn’t solve anything. Their goal was to keep the global economy afloat so their banker owners and corporate masters would not have to accept the consequences of their criminal actions and could keep their pillaging of global wealth going unabated.

The issuance of debt and easy money policies of the Fed and their foreign central banker co-conspirators functioned to drive equity prices to all-time highs in 2015, but the debt issuance and money printing needs to increase exponentially in order keep stock markets rising. Once the QE spigot was shut off markets have flattened and are now falling hard. You can sense the desperation among the financial elite. The desperation is borne out by the frantic reckless measures taken by central bankers and politicians since 2008.

…click on the above link to read the rest of the article…

Hottest Year Ever Recorded + Collapsing Oil Prices = Broken Fossil Fuel Economy

February 2, 2016

Hottest Year Ever Recorded + Collapsing Oil Prices = Broken Fossil Fuel Economy

“I read the news today, oh boy.” —John Lennon

Two overlapping news stories in the past few weeks must focus our attention on the need to move away from fossil fuels as quickly as possible and to transition our global economy to a more just and resilient system, especially for the world’s poor and vulnerable peoples.

First, it was widely reported that 2015 was the hottest year ever recorded in human history. Specifically, the global temperature was not just higher than ever, but it rose faster than ever and the 5-year period, 2011-2015, was also the hottest 5-years ever. Climate change is real, is happening right now and seems to be accelerating in speed and intensity with every passing year.

The fossil fuel economy is broken and is collapsing around us. Photo credit: Kristian Buss

Second, global oil prices continue to collapse, now below $30/barrel. This sent world stock markets down and had a number of negative impacts on human rights issues around the world. A New York Times article last month reported the devastating impact that falling oil prices are having on poor and marginalized people in Russia. Oil is Russia’s biggest export commodity, makes up more than 15 percent of the Gross Domestic Product and around 50 percent of its federal budget. As oil prices dropped, the Russian government began making cuts to social spending, focusing on cuts to the poorest people first. Retirees, teachers, factory workers—all have seen large cuts to their incomes and struggle to get by.

Near-disastrous news stories are also pouring out of other countries that export large amounts of oil. News from Nigeria, Angola, Ecuador and Brazil is describing serious economic problems, with cuts to social spending for poor people first in line to make up for government shortfalls from oil revenues.

…click on the above link to read the rest of the article…

Red Ponzi Ticking

January 28, 2016

Red Ponzi Ticking

There is something rotten in the state of Denmark. And we are not talking just about the hapless socialist utopia on the Jutland Peninsula——even if it does strip assets from homeless refugees, charge savers 75 basis points for the deposit privilege and allocate nearly 60% of its GDP to the Welfare State and its untoward ministrations.

In fact, the rot is planetary. There is unaccountable, implausible, whacko-world stuff going on everywhere, but the frightful part is that most of it goes unremarked or is viewed as par for the course by the mainstream narrative.

The topic at hand is the looming implosion of China’s Red Ponzi; and, more specifically, the preposterous Wall Street/Washington presumption that it’s just another really big economy that overdid the “growth” thing and is now looking to Beijing’s firm hand to effect a smooth transition. That is, an orderly migration from a manufacturing, export and fixed investment boom-land to a pleasant new regime of shopping, motoring, and mass consumption.

Would that it could. But China is not a $10 trillion growth miracle with transition challenges; it is a quasi-totalitarian nation gone mad digging, building, borrowing, spending and speculating in a magnitude that has no historical parallel.

So doing, It has fashioned itself into an incendiary volcano of unpayable debt and wasteful, crazy-ass overinvestment in everything. It cannot be slowed, stabilized or transitioned by edicts and new plans from the comrades in Beijing. It is the greatest economic trainwreck in human history barreling toward a bridgeless chasm.

And that proposition makes all the difference in the world. If China goes down hard the global economy cannot avoid a thundering financial and macroeconomic dislocation. And not just because China accounts for 17% of the world’s $80 trillion of GDP or that it has been the planet’s growth engine most of this century.

…click on the above link to read the rest of the article…

Is China About To Drop A Devaluation Bomb?

January 27, 2016

Is China About To Drop A Devaluation Bomb?

Though she had no intention of being funny, we laughed out loud, as undoubtedly many did with us, when incumbent and wannabe IMF head Christine Lagarde said last week in Davos that China has a communication issue. Of course, Lagarde knows full well that Beijing has much bigger problems than communication ‘with the market’. Or, to put it differently, if Xi and Li et al would ‘improve’ their communication by telling the truth about their economy, nobody would be talking about communication anymore.

Mixed signals from China, which is attempting to shift its economy away from exports and investment to a consumer-driven model, have deepened concerns about the outlook for world growth, she said. Uncertainty is “something that markets do not like”, Ms Lagarde told a panel of business leaders and economic regulators in the snow-blanketed Swiss ski resort. Investors have struggled with “not knowing exactly what the policy is, not knowing exactly against what the renminbi is going to be valued”, she said, referring to China’s currency. “I think better and more communication will certainly serve that transition better.”

The world’s second-largest economy this week announced its 2015 GDP growth as 6.9%, its slowest in a quarter of a century. The figure cast a shadow over the summit, where IHS chief economist Nariman Behravesh told AFP that Chinese policymakers had “fumbled” and had “added to the uncertainty and the volatility by their behaviour”. Mr Fang Xinghai, the vice-chairman of China’s securities regulator, said at the same panel that “in terms of communication, we should do a better job”. “We have to be patient because our system is not structured in a way that is able to communicate seamlessly with the market,” he added.

…click on the above link to read the rest of the article…

Why Dip Buyers Will Get Clobbered: The US Economy Isn’t Doing “Just Fine”

January 26, 2016

Why Dip Buyers Will Get Clobbered: The US Economy Isn’t Doing “Just Fine”

As of June 2008 no Wall Street banking house was predicting a recession, yet by then the Great Recession—–the worst economic downturn since the 1930s—– was already six months old, as per the NBER’s subsequent official reckoning.

Actually, it was already several years old if you concede that the phony housing boom of 2005-2007 was generating merely transient “statistical” GDP, not permanent gains in main street wealth. Even the movie houses now showing “The Big Short” have some pretty palpable reminders on that point——not the least being the strip club dancer who owned 5 residential properties, with two adjustable rate mortgages on each.

In fact, by then main street America was crawling with strippers. That is, equity strippers who were repeatedly doing “cash out” refinancings in order to generate between $20,000 and $100,000 or more of mortgage proceeds to spend on vacations, cars, man caves, aspirational leather goods, shoes and apparel, among much else.

At the peak in 2006-2007, upwards of 10% of personal consumption expenditures were accounted for by MEW (mortgage equity withdrawal). The utter unsustainability of that kind of Potemkin prosperity goes without saying, but the point here is that it was no deep dark secret buried in the economic entrails.

In fact, Chairman Greenspan went to great lengths to publicize the facts of MEW on an up-to-date basis. But he wasn’t trying to warn that the end was near. Unaccountably, he and his Wall Street acolytes concluded that the US economy had become virtually recession proof because of the extra firepower being accorded to household consumption by MEW!

In short, the economic booby trap of MEW was hiding in plain sight and so was the Great Recession. Yet there was nothing at all unusual about the 2008 recession call miss.

…click on the above link to read the rest of the article…

Soon Comes The Deluge

January 20, 2016

Soon Comes The Deluge

The robo-machines are now having a grand old time hazing the August lows at 1870 on the S&P, and may succeed in ginning up another dead-cat bounce or two. But this market is going down for the count owing to a perfect storm.

To wit, the global and US economies are heading into an extended deflationary recession; S&P earnings peaked at $106 per share more than a year ago and are already at $90, heading much lower; and the central banks of the world are out of dry powder after a 20-year binge of balance sheet expansion.

Global Central Bank Balance Sheet Explosion

The latter is surely the most important of the three. It means there will be no printing press driven reflation of the financial markets this time around. And without more monetary juice it’s just a matter of time before a whole generation of punters and front-runners abandon the casino and head for the hills.

Even with today’s ragged bounce, the broad market has now gone sideways for nearly 700 days. The BTFD meme is loosing its mojo because it only worked so long as the Fed-following herd could point to more printing press cash flowing into the market or promises of “accommodation” that were credible. But that will soon be ancient history.

^SPX data by YCharts

Indeed, it is already evident that “escape velocity” has again escaped. Q4 GDP growth is now running at barely 0.5%, and the current quarter could actually be negative for reasons we will analyze in the days ahead.

But the real economic situation is actually worse than the apparent flatling trend of recent months. As we have long insisted, the GDP does not measure true gains in national wealth or main street living standards.

…click on the above link to read the rest of the article…

Gail Tverberg: Something Has Got To Break

January 3, 2016

Gail Tverberg: Something Has Got To Break

Growing debt faster than your energy supply has hard limits

Actuary Gail Tverberg explains the tight correlation between the rates of GDP growth and growth in energy supply. For decades, energy has been becoming more costly to obtain, and instead of accepting lower GDP growth, we have been using debt to fund further energy exploration and extraction.

That strategy has diminishing returns, Tverberg warns. And we are close to the moment of reckoning:

The more we look at it the more we see that the rate of growth and energy supply is very closely correlated with the rate of GDP growth. And I know on some of my recent posts I’ve included a chart that goes back to 1820 that shows the same correlation. You have to have an increasing supply of energy in order to get GDP growth. The GDP growth tends to be a little higher than the energy growth. That’s especially the same when we made the change in the mid 70’s, when we had the big first oil crisis and we realized that Japan had already started making small cars, and so we could make smaller cars, too, and save quite a bit of oil very quickly. And we realized then that we didn’t have to burn oil to create electricity; there were a lot of other alternative approaches, including nuclear. So we pulled those off line, and where home heating had been done by oil it was easy to transfer that to other types of energy. So we had a number of different things we could do very quickly back then — and I think people got the idea that because we could pick the low-hanging fruit, then somehow or other we could do the same thing again. But we’re not getting that same kind of effect any more.

…click on the above link to read the rest of the article…

Now Comes The Great Unwind—-How Evaporating Commodity Wealth Will Slam The Casino

January 1, 2016

Now Comes The Great Unwind—-How Evaporating Commodity Wealth Will Slam The Casino

The giant credit fueled boom of the last 20 years has deformed the global economy in ways that are both visible and less visible. As to the former, it only needs be pointed out that an economy based on actual savings from real production and income and a modicum of financial market discipline would not build 65 million empty apartment units based on the theory that their price will rise forever as long as they remain unoccupied!

That’s the Red Ponzi at work in China and its replicated all across the land in similar wasteful investments in unused or under-used shopping malls, factories, coal mines, airports, highways, bridges and much, much more.

But the point here is that China is not some kind of one-off aberration. In fact, the less visible aspects of the credit ponzi exist throughout the global economy and they are becoming more visible by the day as the Great Deflation gathers force.

As we have regularly insisted, there is nothing in previous financial history like the $185 trillion of worldwide credit expansion over the last two decades. When this central bank fueled credit bubble finally reached its apogee in the past year or so, global credit had expanded by nearly 4X the gain in worldwide GDP.

Moreover, no small part of the latter was simply the pass-through into the Keynesian-style GDP accounting ledgers of fixed asset investment (spending) that is destined to become a write-off or public sector white elephant (wealth destruction) in the years ahead.

The credit bubble, in turn, led to booming demand for commodities and CapEx. And in these unsustainable eruptions layers and layers of distortion and inefficiency cascaded into the world economy and financial system.

…click on the above link to read the rest of the article…

Time For Torches & Pitchforks——-The Little Guy Is About To Get Monkey-Hammered Again

December 30, 2015

Time For Torches & Pitchforks——-The Little Guy Is About To Get Monkey-Hammered Again

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?

…click on the above link to read the rest of the article…

$10 Trillion Investment Needed To Avoid Massive Oil Price Spike Says OPEC

December 29, 2015

$10 Trillion Investment Needed To Avoid Massive Oil Price Spike Says OPEC

The OPEC published its World Oil Outlook 2015 (WOO) in late December, which struck a much more pessimistic note on the state of oil markets than in the past. On the one hand, OPEC does not see oil prices returning to triple-digit territory within the next 25 years, a strikingly bearish conclusion. The group expects oil prices to rise by an average of about $5 per year over the course of this decade, only reaching $80 per barrel in 2020. From there, it sees oil prices rising slowly, hitting $95 per barrel in 2040.

Long-term projections are notoriously inaccurate, and oil prices are impossible to predict only a few years out, let alone a few decades from now. Priced modeling involves an array of variables, and slight alterations in certain assumptions – such as global GDP or the pace of population growth – can lead to dramatically different conclusions. So the estimates should be taken only as a reference case rather than a serious attempt at predicting crude prices in 25 years. Nevertheless, the conclusion suggests that OPEC believes there will be adequate supply for quite a long time, enough to prevent a return the price spikes seen in recent years.

Part of that has to do with what OPEC sees as a gradual shift towards efficiency and alternatives to oil. The report issued estimates for demand growth five years at a time, with demand decelerating gradually. For example, the world will consume an extra 6.1 million barrels of oil per day between now and 2020. But demand growth slows thereafter: 3.5 mb/d between 2020 and 2025, 3.3 mb/d for 2025 to 2030; 3 mb/d for 2030 to 2035; and finally, 2.5 mb/d for 2035 to 2040.

…click on the above link to read the rest of the article…

Why the oil price slump hasn’t kickstarted the global economy

December 27, 2015

Why the oil price slump hasn’t kickstarted the global economy

There has only been a modest boost to global growth despite the oil price plummeting to as low as $35 a barrel. But as prices fall so the risks to producers rise

An oil pump at sunset in the desert oilfields of Sakhir, Bahrain. As the low oil price endures, so the risks rise for producers. Photograph: Hasan Jamali/AP

One of the biggest economic surprises of 2015 is that the stunning drop in global oil prices did not deliver a bigger boost to global growth. Despite the collapse in prices, from over $115 a barrel in June 2014 to $45 at the end of November 2015, most macroeconomic models suggest that the impact on global growth has been less than expected – perhaps 0.5% of global GDP.

The good news is that this welcome but modest effect on growth probably will not die out in 2016. The bad news is that low prices will place even greater strains on the main oil-exporting countries.

The recent decline in oil prices is on par with the supply-driven drop in 1985-1986, when Opec members (read: Saudi Arabia) decided to reverse supply cuts to regain market share. It is also comparable to the demand-driven collapse in 2008-2009, following the global financial crisis. To the extent that demand factors drive an oil-price drop, one would not expect a major positive impact; the oil price is more of an automatic stabilizer than an exogenous force driving the global economy. Supply shocks, on the other hand, ought to have a significant positive impact.

Although parsing the 2014-2015 oil-price shock is not as straightforward as in the two previous episodes, the driving forces seem to be roughly evenly split between demand and supply factors. Certainly, a slowing China that is rebalancing toward domestic consumption has put a damper on all global commodity prices, with metal indices also falling sharply in 2015.

…click on the above link to read the rest of the article…

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