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One week ago, Bank of America’s CIO Michael Hartnett predicted that Europe will be the “missing link” for the emerging market crisis to spread to the rest of the developed world and “morph into a global deleveraging event.”

But where would the crack appear: after all, until recently European economic data had been surprisingly strong… if not so much in the past few days, because after emerging into the green, the Citi Eurozone economic surprise index appears to have rolled over, and returned back into negative territory.

Then, as if to confirm that Europe was finally starting to groan under the weight of EM turmoil, overnight Bloomberg reported that the ECB was set to revise its forecasts lower for euro-area economic growth during its press conference on Thursday “as global trade tensions damp external demand, according to officials familiar with the latest projections.”

According to Bloomberg’s sources, the main nations dragging on demand were the U.K. and Turkey, though the U.S. outlook is still positive.

In June, the ECB predicted economic growth would slow from 2.1 percent this year to 1.7 percent in 2020, with inflation averaging 1.7 percent in all three years covered in the forecast.

The growing pessimistic outlook comes at an “awkward time” for the Governing Council, just as it prepares to wind back stimulus, though the adjustments probably aren’t big enough to derail those plans yet, unless of course the EM turmoil continues and results in even more German foreign factory order weakness.

The silver lining: the path of inflation, the primary consideration for monetary policy, remains unchanged… for now.

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

Fiscal Stimulus and Economic Growth–Are They Related?

September 3, 2018

FISCAL STIMULUS AND ECONOMIC GROWTH – ARE THEY RELATED?

For most experts a key factor that policy makers should be watching is the gap between the actual real output and the potential real output. The potential output is the maximum output that the economy could attain if all the resources are used efficiently.

The gap is labelled as the output gap. In June this year the output gap – expressed in percentage terms – stood at 3.8% against 3.25% in March and 2.75% in June last year.

A strong positive output gap can be of concern because according to experts it can set in motion inflationary pressures. To prevent the possible escalation of inflation, experts tend to recommend tighter monetary and fiscal policies.

Their preferential outcome would be to soften the aggregate demand, which is considered as the key driving factor behind the positive output gap.

However, of greater concern to most experts is a negative output gap, which is associated with a severe recession.

The output gap was in the negative area between November 2008 and June 2013. Note that in June 2009 it had plunged to minus 3.34% (see chart).

Most commentators are of the view that with the emergence of a negative output gap the most effective policy to erase this gap is aggressive fiscal stimulus i.e. the lowering of taxes and increasing government outlays – a policy of large government deficit.

This way of thinking follows the ideas of John Maynard Keynes.

Briefly, Keynes held that one could not have complete trust in a market economy, which is inherently unstable. If left free the market economy could lead to self-destruction.

Hence, there is the need for governments and central banks to manage the economy.

Successful management in the Keynesian framework can be achieved by influencing the overall spending in an economy.

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

Defending degrowth at ecomodernism’s home

August 19, 2018

Defending degrowth at ecomodernism’s home

In June, I was invited to speak at the eight annual Breakthrough Dialogue, an annual invite-only conference where accomplished thinkers debate how to achieve prosperity for humans and nature. The Breakthrough Institute, anecomodernist think-tank, welcomed my presence as a provocateur.

I was to participate in a panel called “Decoupling vs. Degrowth”. My role was the token “degrowther” making my case to a majority “decoupler” crowd. In this context, degrowth is the proposal to intentionally shrink the physical size of wealthy economies, whereas decoupling is the hope that growing economies will at last break free from growing resource use and environmental damage. The former renews environmentalism as a subversive political movement. The latter is firmly post-environmentalist, often associated with support for nuclear energy, industrial agriculture, and artificial technologies. With my mentorGiorgos Kallis, we’ve spent three years working together on a critical analysis of this post-environmentalism that emanates from the Breakthrough Institute and their self-styled ecomodernist friends.

risingtideloge — The logo of the 2018 Breakthrough Dialogue, titled “Rising Tides.” *Source: The Breakthrough Institute*

The panel and the whole event went well. I think I made a bulletproof case for degrowth. I learned lots about geoengineering, carbon capture, agricultural modernization, and other topics from brilliant thought leaders – whom Noam Chomsky might call the intelligentsia – both through their panel discussions and informal conversations. Talking with journalists and scientists who had never engaged with degrowth before made the Dialogues worthwhile. I expected to feel like a visiting team player in a hostile professional sports arena, but really it was more like being a foreigner who people are interested in but don’t always know how to interact with.

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

Can Deflation Undo the Damage of Inflation?

August 4, 2018

CAN DEFLATION UNDO THE DAMAGE OF INFLATION?

In our various writings, we have suggested that loose monetary policy of the central bank, which amounts to the lowering of interest rates and monetary pumping, gives rise to activities that cannot exist by themselves without the support from this loose monetary policy.

An increase in money supply as a result of an easy monetary stance by the central bank sets an exchange of nothing for something i.e. the diversion of real wealth from wealth generators towards activities that emerge on the back of loose monetary policy. We label various activities that emerge on the back of loose monetary policy as bubble activities. Given that these activities cannot support themselves, they constitute a burden on wealth generators.

It is tempting to suggest that a tighter monetary stance of the central bank could undo the negatives of the previous loose monetary stance i.e. inflationary policy through the removal of bubble activities. In fact, this type of policies carries a label of countercyclical policies.

On this way of thinking, whenever economic activity slows down it should be the duty of the central bank to give it a push, which will place the economy back on the trajectory of an expanding economic growth. The push is done by means of loose monetary policy i.e. the lowering of interest rates and raising the growth rate of money supply.

Conversely, when economic activity is perceived to be “too strong”, then in order to prevent an “overheating” it should be the duty of the central bank to “cool off” economic activity by a tighter monetary stance.

This amounts to raising interest rates and slowing down monetary injections. It is believed that a tighter stance will place the economy on a trajectory of stable non-inflationary growth. On this way of thinking, the economy is perceived to be like a space ship, which occasionally slips from the trajectory of stable economic growth.

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

Kass: Tops Are Processes & We May Be In That Process

July 31, 2018

Kass: Tops Are Processes & We May Be In That Process

The Yield Curve Will Likely Invert by November, 2018

Economic growth is less synchronized than the consensus believes
On a trending and rate of change basis the economic data is slowing down
The Fed’s continued pivot to tighter money will likely lead to curve inversion – which will likely stoke fears of recession

“China, Europe and the Emerging Market Economic Data All Signal Slowdown: It’s in the early innings of such a slowdown based on any realtime analysis of the economic data. The rate of change slowdown (on a trending basis) is as clear as day. A rising US Dollar and weakening emerging market economic growth sows the seeds of a possible US dollar funding crisis.” – Kass Diary, Investors are Not Being Compensated For Risk

At economic peaks everything on the surface looks Rosy (except to some observors like myself and Rosie (David Rosenberg)!) – until it doesn’t.

Towards that end, here is what I wrote yesterday about US and overseas economic growth in my two part opener:

“Global Growth Is Less Synchronized as the trajectory of worldwide growth is becoming more ambiguous. I have featured the erosion in soft and hard high frequency data in the US, Europe, China and elsewhere extensively in my Diary – so I wont clutter this missive with too many charts. But needless to say (and seen by these charts and here), with economic surprises moderating from a year ago and in the case of Europe falling to two year lows – we are likely at ‘Peak Global Growth’ now. (The data is even worse in South Korea, Taiwan, Indonesia and Thailand).

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

Can nuclear power extend the economic expansion?

July 9, 2018

Can nuclear power extend the economic expansion?

Richard Rhodes’ new book Energy: A Human History does an excellent job of describing the scientific and technological hurdles that had to be cleared in the development of, for example, an internal combustion engine which can convert refined petroleum into forward motion.

But he gives short shrift to the social and political forces that have been equally important in determining how technological advances shape our world. That internal combustion engine might be a wonder of ingenuity, but was there any scientific reason we should make multi-tonne vehicles the primary mode of transportation for single passengers in cities, drastically reconfiguring urban landscapes in the process? When assiduous research resulted in more efficient engines, did science also dictate that we should use those engines to drive bigger and heavier SUV’s, and then four-wheel-drive, four-door pick-up trucks, to our suburban grocery superstores?

Unfortunately, Rhodes presents the benefits of modern science as if they are all inextricably wrapped up in our current high-energy-consumption economy, implying that human prosperity must end unless we find ways to maintain this high-energy system.

In this second part of a look at Energy (first installment here), we’ll delve into these questions as they relate to Rhodes’ strident defense of nuclear power.

To set the context, Rhodes argues that the only realistic – and the most ethical – way forward is a gradual progression on the path we are already taking, and that means an “all energy sources except coal and oil” strategy:

“Every energy system has its advantages and disadvantages …. And given the scale of global warming and human development, we will need them all if we are to finish the centuries-long process of decarbonizing our energy supply – wind, solar, hydro, nuclear, natural gas.”¹

Three key points here: First, Rhodes recognizes the severity and urgency of the climate problem.

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

Why The Coming Oil Crunch Will Shock The World

July 7, 2018

Anton Balazh/Shutterstock

Why The Coming Oil Crunch Will Shock The World

And why we need a new energy strategy — fast.

My years working in corporate strategy taught me that every strategic framework, no matter how complex (some I worked on were hundreds of pages long), boils down to just two things:

Where do you want to go? (Vision)
How are you going to get there? (Resources)

Vision is the easier one by far. You just dream up a grand idea about where you want the company to be at some target future date, Yes, there’s work in assuring that everybody on the management team truly shares and believes in the vision, but that’s a pretty stratightforward sales job for the CEO.

By the way, this same process applies at the individual level, too, for anyone who wants to achieve a major goal by some point in the future. The easy part of the strategy is deciding you want to be thinner, healthier, richer, or more famous.

But the much harder part, for companies and individuals alike, is figuring out ‘How to get there’. There are always fewer resources than one would prefer.

Corporate strategists always wish for more employees to implement the vision, with better training with better skills. Budgets and useful data are always scarcer than desired, as well.

Similar constraints apply to us individuals. Who couldn’t use more motivation, time and money to pursue their goals?

Put together, the right Vision coupled to a reasonably mapped set of Resources can deliver amazing results. Think of the Apollo Moon missions. You have to know where you’re going and how you’re going to get there to succeed. That’s pretty straightforward, right?

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

The Punishment of Nemesis

July 6, 2018

The Punishment of Nemesis

“Heraclitus, the inventor of the notion of the constant change of things, nevertheless set a limit to this perpetual process. This limit was symbolized by Nemesis, the goddess of moderation and implacable enemy of the immoderate.”

A story that gets repeated over and again – hybris.

Certain stories recur in the history of humanity – and one of the most dramatic and traumatic is that of hybris. Hybris is a drama brought about by actions motivated by excessive pride – for example the overestimation by leaders – and the society or institutions in their charge – of their power.

Such an overestimation leads to actions that have the exact opposite outcome to what is intended. Driven to assertions of a power that is actually more limited than they realised leaders overstep unseen limits. Assertion of power which does not exist to the extent believed reveals weakness. Some kind of fall occurs, bringing misfortune or, indeed catastrophe. It is not just the leader who is dragged into catastrophe – those they lead are too. In the terms of Greek mythology – the leader and the society following him (it usually is a him) is punished by the Goddess Nemesis.

We can see that happening now in the drive for greater geo-political power by Donald Trump – rather than accomodating the USA to inevitable decline, and taking steps to protect the most vulnerable members of society from the consequences of decline, making decline more equitable, Trump believe that he can drive American and global society in the opposite direction.

The bigger drama – the hybris of economic growth

But Donald Trump and America’s hybris is actually a sub plot in an even bigger drama – again of hybris. In the bigger drama all the major players in global geo-politics are involved

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

The Gathering Storm

July 6, 2018

The Gathering Storm

The gathering storm cannot be dissipated with propaganda and bribes.

July 4th is an appropriate day to borrow Winston Churchill’s the gathering storm to describe the existential crisis that will envelope America within the next decade. There is no single cause of the gathering storm; in complex systems, dynamics feed back into one another, and the sum of destabilizing disorder is greater than a simple sum of its parts.

Causal factors can be roughly broken into two categories: systemic and social/economic. The central illusion of those who focus solely on social, political and economic issues as the sources of destabilization is that tweaking the parameters of the status quo is all that’s needed to right the ship: if only Trump were impeached, if only GDP hits 4% annual growth rate, if only the Federal Reserve started controlling the price of bat guano, etc., etc., etc.

The unwelcome reality is the systemic issues cannot be reversed with policy tweaks or shuffling those at the top of a crumbling centralized order. The systemic problems arise from the structures of centralization and monopoly capital, theinstitutionalization of perverse incentives and the depletion of natural capital: soil, water, fossil fuels, etc.

We can create “money” out of thin air but we can’t print fresh water, productive soil or affordable energy out of thin air.

Regardless of their ideological labels, centralized socio-economic systems follow an S-Curve of rapid expansion during a “boost phase,” a period of stable expansion (maturity) and then a period of stagnation and decline as the system’s participants do more of what’s failed, as they cannot accept that what worked so well in the past no longer works.

A successful model traps those within it; escape becomes impossible. That’s the lesson of the S-Curve:

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

Eric Peters: “People Assume That Stocks Always Rise Over Time. They’re Wrong”

July 6, 2018

Eric Peters: “People Assume That Stocks Always Rise Over Time. They’re Wrong”

This week on the MacroVoices podcast, host Erik Townsend welcomed Eric Peters, the CEO and CIO of One River Asset Management, for a discussion about the long-term future of the US economy, and how demographics, the expanding US debt, and the waning influence of central banks will impact growth, inflation and – most importantly – markets.

After a brief discussion about the future of USD hegemony, and the factors that could lead to the dethroning – so to speak – of the dollar, the two plunged into a discussion about one of the most vexing issues of the modern US economy: Why sub-4% unemployment hasn’t driven a runup in inflation back toward levels witnessed before the financial crisis.

We’ve all looked at the stats, and we’re now at an unemployment rate in the US of sub-4% – 3.8%–3.7%. I think what a lot of people focus on is if the participation rate were back where it was pre-2008 you’d end up with an unemployment rate that had an 8 handle or something like that. So that’s what people are referring to. But making comparisons like that is difficult because a lot of things are changing. The US labor force is shrinking because people are getting older. There is the opioid issue. And this disability issue. Which are difficult to really handicap in terms of how big an impact that’s having on the US labor force.

Up until recently, the actions of central bankers have been much more important to markets in a general sense than the behavior of politicians. But that’s about to change…

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

Govt economic advisor warns British defence planners that growth is ending

July 6, 2018

Govt economic advisor warns British defence planners that growth is ending

Study charts the protracted collapse of industrial economic growth and why prosperity must be built on a new economic model. And no, the Singularity won’t save us.

Economic growth isn’t coming back. While some level of growth might continue in coming decades, the boom era of seemingly unlimited material throughput we became accustomed to in the middle of the twentieth century is unlikely to ever return again as we enter a fundamentally new age of diminishing returns

These are the conclusions of a new working paper by leading ecological economist Professor Tim Jackson, Director of the University of Surrey’s Centre for Understanding Sustainable Prosperity (CUSP).

And the UK Ministry of Defence (MoD) is taking notes.

An earlier draft of the paper, notes Jackson, was “prepared as input into the UK Global Strategic Trends Review”, a forecasting research programme run by the MoD’s Defence Concepts and Doctrines Centre (DCDC), which every few years produces an updated Global Strategic Trends report for the MoD and wider UK government. Jackson also acknowledges feedback from MoD officials in revising that draft to create the concurrent version.

Jackson is former Economics Commissioner for the UK government’s Sustainable Development Commission. From 2010 to 2014, he was Director of the Sustainable Lifestyles Research Group, funded by the UK Department for the Environment, Food & Rural Affairs, Scottish Government, and the Economic and Social Research Council. He also advised many other government departments, and held advisory roles for the UN Environment Programme, the UN’s Department of Economic and Social Affairs, the UN Industrial Development Organissation, the European Environment Agency, the European Parliament, and the New Zealand Parliamentary Commissioner for the Environment.

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

Does Economic Growth Cause Inflation?

July 4, 2018

DOES ECONOMIC GROWTH CAUSE INFLATION?

Most experts are of the view that as the economy gains strength the Fed must step in at some stage and introduce a tighter stance in order to prevent the rate of inflation getting out of control.

Why however, should economic growth be positively associated with a general increase in the prices of goods and services?

Let us examine how prices in general could go up. The price of a good is the amount of dollars paid per unit of this good.

Therefore, with all things being equal an increase in the quantity of dollars in the economy must lead to a general increase in the prices of goods and services.

Now, when we talk about economic growth what we mean by that is an increase in the production of goods and services that people require to support their life and wellbeing.

Obviously then, for a given amount of money an increase in economic growth i.e. an increase in the amount of goods and services, must lead to a decline and not to an increase in the prices of goods and services in general. (We now have more goods for an unchanged amount of dollars).

Therefore, if what we are saying is correct, why are the yearly growth rate of the consumer price index adjusted for food and energy (the core CPI) and the lagged yearly growth rate in industrial production are moving in tandem (see chart below)?

Does the positive correlation between the growth momentum of the core CPI and the lagged growth momentum of industrial production make sense?

Why should more wealth, which raises people’s living standards, also generate bad things – such as a general increase in prices of goods and services?

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

The Growing Pool of Real Savings Permits the Illusion That Central Bank Can Cause Economic Growth

June 28, 2018

THE GROWING POOL OF REAL SAVINGS PERMITS THE ILLUSION THAT CENTRAL BANK CAN CAUSE ECONOMIC GROWTH

Many commentators are of the view that the US central bank should pursue policies that will prevent the possible decline of the economy into a liquidity trap hole. What is this all about?

In the popular framework of thinking that originates from the writings of John Maynard Keynes, economic activity is presented in terms of a circular flow of money. Spending by one individual becomes part of the earnings of another individual, and spending by another individual becomes part of the first individual’s earnings.

Recessions, according to Keynes, are a response to the fact that consumers — for some psychological reasons — have decided to cut down on their expenditure and raise their savings.

For instance, if for some reason people have become less confident about the future, they will cut back their outlays and hoard more money. Therefore, once an individual spends less, this will worsen the situation of some other individual, who in turn also cuts his spending.

A vicious circle sets in – the decline in people’s confidence causes them to spend less and to hoard more money, and this lowers economic activity further, thereby causing people to hoard more, etc.

Following this logic, in order to prevent a recession from getting out of hand, the central bank must lift the growth rate of money supply and aggressively lower interest rates.

Once consumers have more money in their pockets, their confidence will increase, and they will start spending again, thereby re-establishing the circular flow of money, so it is held.

In his writings however, Keynes suggested that a situation could emerge when an aggressive lowering of interest rates by the central bank would bring rates to a level from which they would not fall further. As a result, the central bank will not be able to revive the economy.

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

Art Berman: Think Oil Is Getting Expensive? You Ain’t Seen Nothing Yet.

June 2, 2018

Art Berman: Think Oil Is Getting Expensive? You Ain’t Seen Nothing Yet.

A global supply crunch approaches…

After issuing clear warnings on this program that sub-$50 oil prices were going to be short-lived, oil expert and geological consultant Art Berman returns to the podcast this week to explain why today’s $70 oil prices will go higher — likely much higher — and start materially contricting world economic growth.

Art explains how the current glut of oil created by the US shale boom — along with high crude output by both OPEC and non-OPEC producers — is a temporary anomaly. Fundamentally, we are not finding nearly as much oil as we need to continue the trajectory of the global demand curve. And at the same time, we’re extracting our reserves at a faster rate than ever. That’s a mathematical recipe for a coming supply crunch — it’s not a matter of if, but when:

The price of oil has gone up 30%+ percent just here in the last year alone. There are some very good reasons for that.

In the United States, we’ve been drawing down our reserves, our inventory and the amount of oil we have in storage, consistently since February of 2017. We’re going into the 15th month of drawing from storage each week because we’re not producing enough to meet the need.

To those paying attention: the United States is right now producing more oil than it ever has in its history. We are a million barrels a day higher than the peak in 1970 — the one that King Hubbert got in trouble for warning about. We’re higher by 50,000 or so barrels per month of production. Yet, here we are, still sucking oil out of storage. What does that tell you? There is only one way to interpret that: We are using more than we are producing.

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

Savings as the Engine of Economic Growth

May 29, 2018

SAVINGS AS THE ENGINE OF ECONOMIC GROWTH

Most economists concur with the view that what keeps the economy going is consumption expenditure. Furthermore, it is generally held that spending rather than individual saving is the essential condition for production and prosperity.

Savings is seen to be detrimental to economic activity as it weakens the potential demand for goods and services.

In this framework of thinking, economic activity is depicted as a circular flow of money. Spending by one individual becomes part of the earnings of another individual, and spending by another individual becomes part of the first individual’s earnings.

If however, people become less confident about the future it is held they will cut back on their outlays and hoard more money. Therefore, once an individual spends less, this worsens the situation of some other individual, who in turn also cuts his spending.

A vicious circle emerges– the decline in people’s confidence causes them to spend less and to hoard more money. This lowers economic activity further, thereby causing people to hoard more etc. The cure for this, it is argued, is for the central bank to pump money.

By putting more cash in people’s hands, consumer confidence will increase, people will then spend more and the circular flow of money will reassert itself.

All this sounds very appealing and various surveys of business activity show that during a recession businesses emphasize the lack of consumer demand as the major factor behind their poor performances.

Notwithstanding this, can demand by itself generate economic growth? Furthermore, nothing is said here about goods and services – are we to take them for granted? Are they always around and all that is required is to have demand for them?

It would appear that what impedes economic prosperity is the scarcity of demand. However, is it possible for the general demand for goods and services to be scarce?

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

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