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What’s up with the global economy, and where do we go from here?

October 27, 2015

What’s up with the global economy, and where do we go from here?

A deflationary spiral, such as is now becoming evident globally, acts as a natural poison.

economy cartoon

It now appears that the grand yearly addition to total human wealth, the global GNP, is no longer growing. If so, this means the world is headed toward a global deflationary spiral, a contraction in the global economy similar in nature to the trade slump that spread globally during the era of the Great Depression.

There really is no other explanation but a global trade slump that can account for the steep decline in the prices of basic essential commodities like oil and copper, and also the decreased demand for shipping capacity reflected in the Baltic Dry Index.

The troubled Chinese economy, its reduced demand for commodities, the devaluation of its currency to try to capture more trade, and the Chinese support for a new trade alliance in competition with the new U.S./Japanese TPP alliance — all these are symptoms that indicate that aggregate global buying power has stalled out. That means that investment capital is unable to find new profitable investments in the global marketplace, which is very bad news for finance capitalism as a global system.

At this point let me refer readers to Gail Tverberg and her blog, Our Finite World, which focuses on the key interactions between energy and economics. In fact we now see just the sort of troubled global economy that we might anticipate from a world that peaked in production of historically cheap conventional oil almost a decade ago in 2006. Tverberg is able to explain the global economic situation so clearly, so convincingly, and so persistently that she has attracted a huge popular economic following. One of her recent posts drew over a thousand reader responses; “Low Oil Prices – Why Worry?.”

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

Economic Stagnation And The Global Bubble

July 3, 2015

Economic Stagnation And The Global Bubble

You’d think with all the “stimulus” from Washington over the fifteen years since the dotcom bust, American capitalism would be booming. It’s not. On the measures which count when it comes to sustainable growth and real wealth creation, the trends are slipping backwards — not leaping higher.

After a look at new jobs data in April, we find the number of breadwinner jobs in the US economy is still two million below where it was when Bill Clinton still had his hands on matters in the Oval Office. Since then we have had two presidents boasting about how many millions of jobs they have created and three Fed chairmen taking bows for deftly guiding the US economy toward the nirvana of “full employment.”

When you look under the hood, it’s actually worse. These “breadwinner jobs” are important because they’re the only sector of the payroll employment report where jobs generate enough annual wage income — about $50k — to actually support a family without public assistance.

Moreover, within the 70 million breadwinner jobs category, the highest paying jobs which add the most to national productivity and growth — goods production — have slipped backward even more dramatically. There were actually 21 percent fewer payroll jobs in manufacturing, construction and mining/energy production reported in April than existed in early 2000.

Now let’s look at productivity growth. If you don’t have it, incomes and living standard gains become a matter of brute labor hours thrown against the economy. In theory, of course, all the business cycle boosting and fine-tuning from fiscal and monetary policy, especially since the September 2008 crisis, should be lifting the actual GDP closer to its “potential” path, and thereby generating a robust rate of measured productivity growth.

Not so. Despite massive policy stimulus since the late 2007 peak, nonfinancial business productivity has grown at just 1.1 percent per annum. That is just half the 2.2 percent annual gain from 1953 until 2000. So Washington-engineered demand stimulus is self-evidently not pulling up productivity by its bootstraps.

 

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

“If It Looks Like A Duck” – The Man In The Moon: Part 2

June 3, 2015

“If It Looks Like A Duck” – The Man In The Moon: Part 2

In part 2 of the “Man in the Moon” series we look at Paul Volcker’s roundtrip – monetary policies and their impacts from 1971 through the Great Leveraging to today. Part 1 can be found here.

If it Looks Like a Duck…

Prior to 1971, all global currencies were valued based on a fixed exchange rate system, commonly referred to as “Bretton Woods”. Each currency was directly linked to the US dollar’s fixed exchange rate to gold.

Bretton Woods effectively died in August 1971 (officially 1973) when the U.S. Treasury ceased exchanging dollars for gold in what became known as “The Nixon Shock”. Overnight, global money and credit became un-tethered to anything scarce. (The Man in the Moon is concerned only with understanding the value of money, not gold’s status as an economic, financial and political lightning rod.)

What followed from 1973 to 1982 in the West was a period of significant inflation coincident with economic stagnation (i.e., “stagflation”), a state of dis-equilibrium with which most global economists were unfamiliar. 1970s stagflation is now commonly blamed on two Middle East wars, in 1973 and 1979, which led the Organization of Oil Producing Exporters (OPEC) to embargo crude oil and drive its price higher. It is thought the embargo created higher prices coincident with an economic slowdown because consumption dropped without a commensurate and offsetting downward adjustment in oil prices.

Such macroeconomic analysis begins with the vagaries of geopolitics – the wars. Less blame is placed on what was then the new threat of a dramatically increasing stock of global currency – currency the OPEC cartel would have to accept in exchange for their relatively finite oil.

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

Our Social Depression

May 21, 2015

Our Social Depression

This erosion of opportunities to complete life’s stages and core dramas is rarely recognized, much less addressed.

The consequences of economic stagnation are not limited to finance: stagnation is causing a social depression. We can best understand this social depression by examining how the natural stages of human life are being disrupted.

Each stage has various tasks, goals and duties, which establish the foundation for the next stage.Confucian thought views life as a developmental process with seven stages, each roughly corresponding to a decade: childhood, young adulthood (16-30), age of independence (30-39), age of mental independence (40-49), age of spiritual maturity (50-59), age of acceptance (60-69), and age of unification (70 – end of life).

I see each stage as centered on a core human drama: for the teenager, establishing an identity and life that is independent of parents; for the young adult, finding a mate and establishing a career; for the middle-aged, navigating the challenges of raising children and establishing some measure of financial security; for those in late middle-age, helping offspring reach independent adulthood and caring for aging parents; early old age, seeking fulfillment now that life’s primary duties have been accomplished and managing one’s health; and old age, the passage of accepting mortality and the loss of vitality.

The End of Secure Work and the diminishing returns of financialization are disrupting these core human dramas and frustrating those who are unable to proceed to the next stage of life:

1. Teenagers are being pressured to focus their lives on achieving a conventional financial success (see “Training for Discontent” in From Left Field) that is becoming harder to achieve.

2. Young adults without secure full-time careers cannot afford marriage or children, so they extend the self-absorption of late adolescence into middle age.

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

 

 

 

 

oftwominds-Charles Hugh Smith: We Just Enjoyed the Last Christmas in America

December 26, 2014

oftwominds-Charles Hugh Smith: We Just Enjoyed the Last Christmas in America.

The end of rising wages = the end of mass affluence: we just enjoyed the Last Christmas in America (TLCIA).


As unemployment topped 10%, the January 1975 cover of Ramparts magazine blared: The End of Affluence: The Last Christmas in America. (TLCIA)
The government responded to the high unemployment, rampant inflation and rising budget deficits by manipulating data to mask the politically inconvenient realities of inflation, unemployment and deficits by playing with Social Security Trust Funds, inflation data, etc.–games it continues to play to cloak reality from the media-numbed public.

The economic stagnation, despite various stock market rallies and false starts, essentially lasted 10 years, from 1973 to 1982.

The malaise had a happy ending: huge new oil fields were discovered in Alaska, the North Sea, West Africa and elsewhere, ushering in a renewed era of cheap, abundant petroleum. President Reagan re-set Social Security for a generation and introduced a lower taxes, higher permanent deficits ideology that is now accepted as the only possible way to sustain the Status Quo: deficits don’t matter, even when they reach the trillions, because our good friends the Gulf Oil Exporters and Asian exporters will buy all our debt forever and ever, keeping interest low forever and ever.

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

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