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Whenever the so-called economy shows signs of weakness most experts are of the view that what is required to prevent the economy sliding into recession is to boost the overall demand for goods and services.

If the private sector fails to increase its demand then it is the role of the government to fill this void.

Following the ideas of Keynes and Friedman, most experts associate economic growth with increases in the demand for goods and services.

Both Keynes and Friedman felt that the great depression of the 1930’s was due to an insufficiency in aggregate demand and thus the way to fix the problem was to boost aggregate demand.

For Keynes, this could be achieved by having the federal government borrow more money and spend it when the private sector would not. Friedman on the other hand advocated that the Federal Reserve pump more money to revive demand.

There is however never such a thing as insufficient demand as such. We suggest that an individual’s demand is constrained by their ability to produce goods. The more goods that an individual can produce the more goods he can demand i.e. acquire.

Note that the production of one individual enables him to pay for the production of another individual. (The more goods an individual produces the more of other goods he can secure for himself. An individual’s demand therefore is constrained by his production of goods).

Observe that demand cannot stand by itself and be independent – it is limited by production. Hence, what drives the economy is not demand as such but the production of goods and services.

In this sense, producers and not consumers are the engine of economic growth. Obviously, if he wants to succeed then a producer must produce goods and services in line with what other producers require ie. consume.

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Darkening Outlook For Global Economy Threatens Crude

January 10, 2019

Darkening Outlook For Global Economy Threatens Crude

“The outlook for the global economy in 2019 has darkened.”

That conclusion came from a new report from the World Bank, citing a variety of data, including softening international trade and investment, ongoing trade tensions, and financial turmoil in emerging markets over the past year. “Storm clouds are brewing for the global economy,” the World Bank warned.

As a result, economic growth in emerging markets could “remain flat” this year, while overall growth could be “weaker than anticipated.”

One of the key backdrops to this assessment is the rate tightening from the U.S. Federal Reserve. “Advanced-economy central banks will continue to remove the accommodative policies that supported the protracted recovery from the global financial crisis ten years ago,” the World Bank report said. After several rate hikes in 2018, the Fed had suggested that two more were on the way in 2019, although the central bank’s chairman Jerome Powell recently softened that tone.

Higher interest rates and a corresponding strengthening of the dollar puts enormous pressure on indebted countries, companies and consumers in emerging markets. Such countries are vulnerable to sudden capital outflows, which could leave them crushed under the weight of dollar-denominated debt. Worse, government debt in low-income countries has surged over the last four years, from 30 percent of GDP to 50 percent of GDP, according to the World Bank. Related: Energy Experts Are Watching This Hotspot In 2019

Growth contracted in Japan, Italy and Germany in the third quarter of last year, and financial turmoil rocked global equities in the final few weeks of 2018.

“At the beginning of 2018 the global economy was firing on all cylinders, but it lost speed during the year and the ride could get even bumpier in the year ahead,” said World Bank Chief Executive Officer Kristalina Georgieva.

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

Gold Outlook 2019: Uncertainty Makes Gold A “Valuable Strategic Asset” – WGC

January 10, 2019

Gold Outlook 2019: Uncertainty Makes Gold A “Valuable Strategic Asset” – WGC

Gold Outlook 2019 – World Gold Council

As we look ahead, we expect that the interplay between market risk and economic growth in 2019 will drive gold demand. And we explore three key trends that we expect will influence its price performance:

financial market instability
monetary policy and the US dollar
structural economic reforms.

Against this backdrop, we believe that gold has an increasingly relevant role to play in investors’ portfolios.

Gold Outperformed Most Assets In 2018

Why gold why now

Gold’s performance in the near term is heavily influenced by perceptions of risk, the direction of the dollar, and the impact of structural economic reforms. As it stands, we believe that these factors likely will continue to make gold attractive.

In the longer term, gold will be supported by the development of the middle class in emerging markets, its role as an asset of last resort, and the ever-expanding use of gold in technological applications.

In addition, central banks continue to buy gold to diversify their foreign reserves and counterbalance fiat currency risk, particularly as emerging market central banks tend to have high allocations of US treasuries. Central bank demand for gold in 2018 alone was the highest since 2015, as a wider set of countries added gold to their foreign reserves for diversification and safety.

More generally, there are four attributes that make gold a valuable strategic asset by providing investors:

a source of return
low correlation to major asset classes in both expansionary and recessionary periods
a mainstream asset that is as liquid as other financial securities
a history of improved portfolio risk-adjusted returns.

‘Outlook 2019: Global economic trends and their impact on gold’ – Full report from World Gold Council here

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

Weekly Commentary: Global Markets’ Plumbing Problem

January 6, 2019

Weekly Commentary: Global Markets’ Plumbing Problem

“Goldilocks with a capital ‘J’,” exclaimed an enthusiastic Bloomberg Television analyst. The Dow was up 747 points in Friday trading (more than erasing Thursday’s 660-point drubbing) on the back of a stellar jobs report and market-soothing comments from Fed Chairman “Jay” Powell.

December non-farm payrolls surged 312,000. The strongest job gains since February blew away both estimates (184k) and November job creation (revised up 21k to 176k). Manufacturing jobs jumped 32,000 (3-month gain 88k), the biggest increase since December 2017’s 39,000. Average Hourly Earnings rose a stronger-than-expected 0.4% for the month (high since August), pushing y-o-y gains to 3.2%, near the high going back to April 2009.

Just 90 minutes following the jobs report, Chairman Powell joined Janet Yellen and Ben Bernanke for a panel discussion at an American Economic Association meeting in Atlanta. Powell’s comments were not expected to be policy focused (his post-FOMC press conference only two weeks ago). But the Fed Chairman immediately pulled out some prepared comments, perhaps crafted over the previous 24 hours (of rapidly deteriorating global market conditions).

Chairman Powell: “Financial markets have been sending different signals – signals of concern about downside risks, about slowing global growth particularly related to China, about ongoing trade negotiations, about – let’s call – general policy uncertainty coming out of Washington, among other factors. You do have this difference between, on the one hand, strong data, and some tension between financial markets that are signaling concern and downside risks. And the question is, within those contrasting set of factors, how should we think about the outlook and how should we think about monetary policy going forward. When we get conflicting signals, as is not infrequently the case, policy is very much about risk management.

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

The Sequel: life after economic growth

December 13, 2018

The Sequel: life after economic growth

Image courtesy of David Martin Jr

As Simon Mont wrote in Tikkun’s recent issue on the New Economy, “capitalism is collapsing under the weight of itself, and it’s not pretty.”[i]

Our globalised world finds itself caught on the horns of a seemingly impossible dilemma – either cease growing, and so collapse the economy on which we all depend, or continue to grow until we overwhelm and destroy the ecosystems on which we all depend.

As my late mentor, the historian and economist David Fleming, put it,

It is certain that there are no simple answers to this—none that could be proposed without proposing at the same time a transformation in the whole of the way we think, work and order our lives.[ii]

And yet, faced with this fundamental systemic conundrum, our leaders hold tight to their simple answer – growth. Having worked supporting people with drug addiction for several years, it is hard to escape the parallels to the more tragic cases. The dire consequences of our choices are piling ever higher around us, threatening the very continuation of our lives and those around us. And the response is to double down on the current path and turn a blind eye – to sink deeper into denial. It is just too difficult, too brave, to undergo that dark night of the soul – to admit the problem, to seek a new paradigm.

So we hear it over and over – we must keep growth high, keep unemployment low. Donald Trump’s recent Twitter boast that U.S. GDP growth (4.2%) was higher than unemployment (3.9%) for the first time in over a century was both inaccurate and bizarre, but it betrays his allegiance to these numbers.

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

COP24: climate protesters must get radical and challenge economic growth

December 6, 2018

COP24: climate protesters must get radical and challenge economic growth

What do we want … when do we want it? Now. Etienne Laurent/EPA

At the COP24 conference in Poland, countries are aiming to finalise the implementation plan for the 2015 Paris Agreement. The task has extra gravity in the wake of the recent IPCC report declaring that we have just 12 years to take the action needed to limit global warming to that infamous 1.5ᵒC target.

Although the conference itself is open to selected state representatives only, many see the week as an opportunity to influence and define the climate action agenda for the coming year, with protests planned outside the conference halls.

A crucial role of environmental activists is to shift the public discourse around climate change and to put pressure on state representatives to act boldly. COP24 offers a rare platform on which to drive a step change in the position of governments on climate change.

However, many environmental movements in Europe are not offering the critical analysis and radical narratives needed to achieve a halt to climate change.

Growing pains

By now most people agree that greenhouse gas emissions (including CO₂) are the proximate driver of climate change, and that climate change is not only a future problem, but is already causing significant environmental and social problems across the world. Further, the trend in global CO₂ emissions still appears to be increasing, driven largely by consumption in advanced and emerging economies.

Economic growth measures the increase in the amount of goods and services produced by an economy over time, and it has historically been tightly coupled to CO₂ emissions. Decoupling these two factors is not impossible, and indeed many leading academics argue that the power of human ingenuity will solve the climate crisis. However, this is certainly unlikely in the timescales needed to tackle climate change in a just and equitable way.

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

Stability without Growth: Keynes in an Age of Climate Breakdown

December 5, 2018

What do Keynesian Democrats think about the movement for post-growth and de-growth economics? Dean Baker, a senior economist at the Center for Economic Policy Research in Washington, DC, has given us some insight into this question. In a recent blog post, republished by Counterpunch, he takes aim at two articles that I wrote for Foreign Policy in which I argue that it is not feasible to reduce our emissions and resource use in line with planetary boundaries while at the same time pursuing exponential GDP growth.

Baker agrees — thankfully — that we need to dramatically reduce emissions and resource use to prevent ecological collapse. But he thinks that this is entirely compatible with continued GDP growth.

Let’s imagine, he says, that a new government imposes massive taxes on greenhouse gas emissions and resource extraction while at the same time increasing spending on clean technologies, with subsidies for electric vehicles and mass transit systems. Baker believes that this will shift patterns of consumption toward goods that are less emissions and resource intensive. People will spend their money on movies and plays, for example, or on gyms and nice restaurants and new computer software. So GDP will continue growing forever while emissions and resource use declines.

It sounds wonderful, doesn’t it? I, for one, would embrace such an outcome. After all, if growth was green, why would anyone have a problem with it? Baker makes the mistake of believing that degrowthers are focused on reducing GDP. We are not. Like him, we want to reduce material throughput. But we accept that doing so will probably mean that GDP will not continue to grow, and we argue that this needn’t be a catastrophe — on the contrary, it can be managed in a way that improves people’s well-being.

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

Degrowth as a concrete utopia

November 20, 2018

Degrowth as a concrete utopia

Economic growth can’t reduce inequalities; it merely postpones confronting exploitation. Español

“My Visit to the Mountain Homestead.” Credit: Flickr/Eli Duke. CC BY 2.0.

The emergence of interest in degrowth can be traced back to the 1st International Degrowth Conference organized in Paris in 2008. At this conference, degrowth was defined as a “voluntary transition towards a just, participatory, and ecologically sustainable society,” so challenging the dogma of economic growth. Another five international conferences were organized between 2010 and 2018, with the latest in Malmo in August.

This year also saw the publication of Giorgos Kallis’ landmark book Degrowth,which opens with three bold statements. First, the global economy should slow down to avert the destruction of Earth’s life support systems, because a higher rate of production and consumption will run parallel to higher rates of damage to the environment. Hence, we should extract, produce and consume less, and we should do it all differently. Since growth-based economies collapse without growth we have to establish a radically different economic system and way of living in order to prosper in the future.

Second, economic growth is no longer desirable. An increasing share of GDP growth is devoted to ‘defensive expenditure,’ meaning the costs people face as a result of environmental externalities such as pollution. Hence, growth (at least in rich countries) has become “un-economic:” its benefits no longer exceed its costs.

Third, growth is always based on exploitation, because it is driven by investment that, in turn, depends on surplus. If capitalists or governments paid for the real value of work then they would have no surplus and there would be no growth. Hence, growth cannot reduce inequalities; it merely postpones confronting exploitation.

The growth paradigm.

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

An economy that does not grow?

November 14, 2018

An economy that does not grow?

There is now plenty of evidence that economic growth is highly problematic for human welfare and survival. The evidence comes from three domains. 1) The ecological: continual growth uses up the resources that supply and the sinks that take the waste from human activity globally. 2) The social: economic growth does not correlate well with human welfare and its supposed benefits, rather than being shared, become ever more concentrated at the top of the wealth and income pyramid. 3) The economic: economic systems that rely on perpetual growth are inherently unstable, and meet internal and external constraints (or contradictions) that undermine them.

While it may be clear that the wager on endless growth is a bad one, a more difficult question arises: “what would be the characteristics of an economy that does not grow?”.

In his book “Macroeconomics Without Growth¹” Steffen Lange attempts to construct a framework for answering this question, rooted in the three main approaches to theorising the economy, hence the subtitle: “Sustainable Economies in Neoclassical, Keynesian and Marxian Theories”. The book is a valuable contribution to the theory and practice of degrowth and provides a solid grounding for interventions in the policy arena, including those by political parties that seek to construct a coherent alternative, rather than a mishmash wish list of proposals. A strength of the book is its rigorous, formal analysis of the main theoretical approaches and what they say about the preconditions for growth, and the possibilities of zero growth.

As such the book extends to 583 pages, and the detail, with recourse to mathematical formulae to capture the various models and sub-models, will mean that many will not read it. The aim of this essay review, then, is to summarise the book, emphasising the synthesis reached by Lange, and suggesting a few issues that arise.

In search of the macroeconomics of post-growth.

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

Beware Fireworks As Italy’s Budget Resubmission Deadline Looms

November 13, 2018

Beware Fireworks As Italy’s Budget Resubmission Deadline Looms

With stocks in Europe attempting a modest relief rally after yesterday’s sharp selloff, traders remain on edge over political developments as today is the deadline for Italy’s cabinet to resubmit their budget proposal after the EC requested a new fiscal plan. Virtually nobody expects any material changes, especially with Il Sole reporting this morning that Italy will maintain its 2019 deficit target at 2.4% of GDP and could alter the 2019 GDP growth rate of 1.5%

When looking at next steps, Deutsche Bank economists yesterday concluded that as contagion has been relatively limited for now, the commission will continue to adopt a tough stance on Italy, and it now seems inevitable they will recommend an Excessive Deficit Procedure (EDP) in the next few weeks.

And speaking of Deutsche Bank, the German lender’s Head of Research and Chief Economist David Folkerts-Landau penned a hard hitting Financial Times op-ed on the Italian situation, whose argument is that Europe must cut a grand bargain with Italy and that another costly sovereign debt crisis is inevitable unless the confrontational approach of the EC gives way to greater co-operation. According to Landau, Italy has actually been a frugal member of the single currency with a cumulative primary surplus every year outside of the GFC. However, these surpluses have simply helped finance the interest on the legacy debt and debt/GDP has still climbed. Meanwhile, the associated spending cuts and austerity required to run a primary surplus have lowered the standard of living for the population and led us to the political situation we find ourselves at today. What is his proposal?

The only viable option left is to reduce Italy’s debt service payments. This would create room to increase spending to modernise its economy without increasing the deficit and debt.

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

Global GDP Still Propped Up By A Massive Amount Of Debt

November 10, 2018

Global GDP Still Propped Up By A Massive Amount Of Debt

While the government agencies and economists continue to publish strong GDP figures, they seem to overlook how much debt it took to produce that growth. Or should I say, the “supposed growth.” The days of adding one dollar of debt to get one dollar of GDP growth have been long gone for more than 40 years. And, as global debt has increased, it has forced governments to lower interest rates.

Yes, it’s really that simple. I get a good chuckle when I hear analysts talk about rising interest rates to 10-15%. If the U.S. Government interest rate on the Treasury Bonds increased to just 5%, Uncle Sam would be paying over a trillion dollars a year just to service the debt. So, no… we aren’t going to see 10-15% rates again.

Well, we could… but, most of the global debt would have to collapse or be forgiven. Unfortunately, if global debt vaporizes or is forgiven, then the entire economy collapses as well. We must remember, GDP growth is also driven by oil production growth. There is no way in HADES that the oil industry can fund future production with 10-15% interest rates. IT JUST AIN’T GONNA HAPPEN.

Why? If it weren’t for the Fed dropping rates down to nearly zero, the Great U.S. Shale Oil Ponzi Scheme and the six million barrels per day of unprofitable shale oil production would have been a pipe dream. I can assure you that the shale oil industry could not fund operations or service their debt with 10-15% interest rates.

Most shale oil companies are paying on average between 4-5% interest to service their debt. If the companies’ interest rates double or triple, then it would make it extremely difficult to service the shale industry debt that is estimated to be $280-$300 billion.

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

Is The Long-Anticipated Crash Now Upon Us?

October 27, 2018

Shutterstock

Is The Long-Anticipated Crash Now Upon Us?

Is this the market’s breaking point?

I admit: I’m a permabear.

This is no surprise to those who know and have followed me over the years. But I’m publicly proclaiming my ‘bearishness’ because doing so might open up a needed and long overdue dialog.

Here’s my fundamental position: Infinite growth on a finite planet is impossible.

Cutting to the chase, this is why I predict a major crash/collapse across stocks, bonds and real estate is on the way.

The recent market weakness seen over the past two weeks is nothing compared to what’s in store. As we’ve been carefully chronicling, bubbles burst from ‘the outside in’, starting at the weaker places at the periphery before progressing to the center.

Emerging market equities are now down -26% from their January highs and -18% year-to-date. China’s stocks market is down -32%, even with substantial intervention by the government to prop things up.

The periphery has been weakening all year, and the contagion has now spead worldwide.

Taken as a whole, global equities have shed some $13 trillion of market capitalization for a -15% decline:

The rot has spread to the core with surprising speed. Now even the formerly bullet-proof US equity markets are stumbling.

The S&P 500 is now negative on the year:

It’s been obvious for a long time to those who have watched The Crash Course that endless growth is simply not possible. Not for a bacteria colony in a petrie dish, not for an economy, not for any species on the planet. Eventually, when finite resources are involved, limits matter.

But the vast majority of society pretends as if this isn’t true.

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

IEA: Expensive Energy Is Threatening Economic Growth

October 12, 2018

IEA: Expensive Energy Is Threatening Economic Growth

Expensive energy is back and it is threatening global economic growth, the International Energy Agency (IEA) said in its Oil Market Report on Friday, joining other organizations like the International Monetary (IMF) and OPEC that also expressed this week concerns about mounting challenges to economic and oil demand growth.

Brent Crude prices have been holding above $80 a barrel, while pipeline constraints have caused WTI Crude prices to lag somewhat, the IEA said in its report, but noted that “Nonetheless, our position is that expensive energy is back, with oil, gas and coal trading at multi-year highs, and it poses a threat to economic growth.”

Emerging economies are grappling not only with higher energy prices, but they are also seeing their currencies depreciate against the U.S. dollar, which increases the threat of economic growth slowing down, the IEA said.

Earlier this week, the IMF slightly downgraded its projection for global growth for this year and next—at 3.7 percent, growth is now expected 0.2 percentage point lower than IMF’s forecast from April this year. The key reasons for the downgrade included trade disputes, geopolitical tensions, and a weaker outlook for emerging economies due to higher oil import bills, among other factors, according to the IMF.

On Thursday, OPEC revised down its oil demand growth estimates for this year and next—a third downward revision in three months—citing potential headwinds to global economic growth ranging from trade disputes to weakening finances in emerging markets and geopolitical challenges. OPEC revised down its global oil demand growth to 1.54 million bpd this year, down by 80,000 bpd from the estimate in the September report. The cartel now sees global oil demand growth next year at 1.36 million bpd, down by around 50,000 bpd from last month’s assessment, to reflect expectations for lower economic growth for Turkey, Brazil, and Argentina.

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

While economic growth continues we’ll never kick our fossil fuels habit

September 28, 2018

While economic growth continues we’ll never kick our fossil fuels habit

Illustration: Sébastien Thibault

We’re getting there, aren’t we? We’re making the transition towards an all-electric future. We can now leave fossil fuels in the ground and thwart climate breakdown. Or so you might imagine, if you follow the technology news.

So how come oil production, for the first time in history, is about to hit 100m barrels a day? How come the oil industry expects demand to climb until the 2030s? How is it that in Germany, whose energy transition (Energiewende) was supposed to be a model for the world, protesters are being beaten up by police as they try to defend the 12,000-year-old Hambacher forest from an opencast mine extracting lignite – the dirtiest form of coal? Why have investments in Canadian tar sands – the dirtiest source of oil – doubled in a year?

The answer is, growth. There may be more electric vehicles on the world’s roads, but there are also more internal combustion engines. There be more bicycles, but there are also more planes. It doesn’t matter how many good things we do: preventing climate breakdown means ceasing to do bad things. Given that economic growth, in nations that are already rich enough to meet the needs of all, requires an increase in pointless consumption, it is hard to see how it can ever be decoupled from the assault on the living planet.

When a low-carbon industry expands within a growing economy, the money it generates stimulates high-carbon industry. Anyone who works in this field knows environmental entrepreneurs, eco-consultants and green business managers who use their earnings to pay for holidays in distant parts of the world and the flights required to get there.

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

The Biggest Risk In Today’s Oil Markets

September 19, 2018

The Biggest Risk In Today’s Oil Markets

The oil market is “tightening up,” but the Trump administration could still spoil oil prices if its aggressive trade war against China drags down economic growth.

The U.S. stepped up the trade conflict with China on Monday when the Trump administration announced $200 billion in tariffs on Chinese imports. The move had been expected for weeks but trade proponents had hoped that the administration would ultimately shelve the idea when push came to shove.

Not only did Trump move forward with punitive tariffs on China, but he also hinted that another $267 billion in tariffs are under consideration.

The trade war could hit the oil and gas markets in several ways. First, the back-and-forth escalation of tariffs could drag down economic growth. The first round of tariffs, which hit $50 billion in Chinese goods, targeted a relatively narrow set of products. But the latest $200 billion in tariffs will raise the cost for a wide array of consumer goods in the U.S., which could slow the economy. Specific industries that are affected by the tariffs will see more concentrated damage.

Second, oil and gas are likely to be specifically affected by the trade war, which wasn’t the case in the previous rounds of tariffs. China announced $60 billion in retaliatory measures on Tuesday, which included a 10 percent tariff on imported LNG from the United States.

The problem with the trade fight is that once the tariffs are in place, there is pressure on both sides not to back down. That doesn’t bode well to a swift resolution of this conflict.

Over the longer-term, the tariff upends the economics of building new LNG export terminals in the United States. China has emerged as the main driver of LNG demand growth, and any new export terminal located anywhere around the world likely has China at the center of its calculations.

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

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