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It may be pleasant to think that the economies that are “on top” now will stay on top forever, but it is doubtful that this is the way the economy of the world works.

Figure 1. Three-year average GDP growth rates for Advanced Economies based on data published by the World Bank, with a linear trend line. GDP growth is net of inflation.

Figure 1 shows that, for the Advanced Economies viewed as a group (that is, members of the Organization for Economic Co-operation and Development (OECD)), GDP has been trending downward since the early 1960s; this is concerning. It makes it look as if within only a few years, the Advanced Economies might be in permanent shrinkage. In 2022, the expected annual GDP growth rate for the group seems to be only 1%.

What is even more concerning is the fact that the indications in the graph are based on a period when the debt of the Advanced Economies was growing. This growing debt acted as an economic stimulus; it helped the industries manufacturing goods and services as well as the citizens buying the goods and services. Without this stimulus, GDP growth would no doubt appear to be falling even faster than shown.

In this post, I will look at underlying factors that relate to this downward trend, including oil consumption growth and changes in interest rate policies. I will also discuss the Maximum Power Principle of biology. Based on this principle, the world economy seems to be headed for a major reorganization. In this reorganization, the Advanced Countries seem likely to lose their status as world leaders. Such a downfall could happen through a loss at war, or it could happen in other ways.

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

The Biggest Risks of This Decade

May 20, 2024

The Biggest Risks of This Decade

Since the 2020 pandemic, many things have changed, but nothing more than geopolitics. Wars and clashes that used to be largely national have given way to more regional conflicts that threaten to upend the current world order. The Ukraine War and Israel-Iran conflicts have the potential to lead to world war.

The international arena once dominated by the United States has gradually changed into a more multipolar stage. China and India have grown in economic and military significance, and Russia and Iran have reasserted their influence. Rising world powers are increasingly challenging the over-extended leading power.

“The disintegration of the old order is visible everywhere…It is close to collapse.”

The Economist

Half of world’s nations feel that they are victims of economic and political inequality. A similar sentiment is found in the rising tide of populism—even in rich countries—because most people know that their economic situation has worsened in recent decades. At the core of both is the higher cost of energy and materials.

Figure 1 shows that oil price, inflation and interest rates rise and fall in tandem, and are considerably higher now than during the period before the Covid pandemic. The Ukraine War contributed to an energy shock that has moderated but oil prices have averaged nearly 60% higher after 2020 than they were in the six previous years. U.S. interest rates and inflation are more than three times higher.

Figure 1. U.S. inflation and oil price fell in 2023 but federal funds rate increased. Inflation was lower in Q1 2024, oil price rose and federal funds rate was marginally higher.
Source: St. Louis Federal Reserve Bank, EIA & Labyrinth Consulting Services, Inc.

French president Emmanuel Macron observed in 2022 that these changes are probably secular.

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

Economy Plunges into Stagflation with Both Feet

April 28, 2024

Economy Plunges into Stagflation with Both Feet

Talk about a one-two-three punch to the ground!

Stagflation came in perfectly on target for The Daily Doom’s predictions today. Real GDP is now falling much harder than was expected yesterday by two-faced Jamie Dimon when he spoke out of his second face, saying the economy is “booming,” backed by “healthy consumer finances.” He called it an “unbelievable” economy. I’ll agree with that part. I certainly didn’t believe it when he said it yesterday.

You see, only the day before, his first face said the economy looked like we could be heading into the stagflation of the 70s, which means a stagnant economy with high inflation. Those are diametrically opposite claims to my way of thinking. After he appeared to walk stagflation back yesterday when he said the economy was booming, today we all learned we are already in the stagflation of the 70s. (We’ve actually been in it all year, but it finally got reported.)

The official report on Q1 real GDP for 2024 showed the economy is stagnant, while the Personal Consumption Expenditures (PCE) price index scored its largest inflation gain all year (at 3.4% annualized). To be specific, GDP fell off to a 1.6% annualized pace (adjusted for seasonality and inflation), according to the Bureau of Economic Analysis. That is a plunge to less than half of the 3.4% growth the BEA claimed for the final quarter of 2023 and the 4.9% in the quarter before that, and it even came in well below the 2.4% that was forecast recently by economists in a Dow Jones survey.

So, the two-faced Dimon should have stayed with what his first face said two days ago because GDP readings under 2% are usually considered borderline recession—far from “BOOMING,” which means the US economy is, in fact, stagnant with rising inflation, which means the 1970s are back … because …

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

Expect Big Negative Revisions to BLS Monthly Jobs in 2023, GDP Too

April 26, 2024

Expect Big Negative Revisions to BLS Monthly Jobs in 2023, GDP Too

Yesterday, the BLS released a little-read jobs report that shows reported jobs in 2023 may be wildly overstated. In turn, that means GDP is likely overstated as well.

Business Employment Dynamics (BED) data and and Monthly Job Data both from the BLS, chart by Mish

BED Chart Notes

Data is from the BLS Business Employment Dynamics (BED) report and the BLS monthly jobs reports (CES).
BED data is less timely but far more accurate than the BLS monthly jobs reports/
For 2023 Q3, the BED reports shows gross job gains of 7.559 million and gross job losses of 7.751 million for a net loss of 192,000 jobs.
The BLS monthly jobs reports show a gain of 640,000 jobs.

BED Job Gains and Losses by Quarter

Summary of Major Differences

Note that BED data is based on 9.1 million establishments while the monthly jobs reports are only based on 670,000 establishments.

The monthly reports are timely but inaccurate. And the BLS annual benchmark revisions do not also revise the monthly numbers. This makes year-over-year comparisons inaccurate as well.

I created the lead chart by netting BED data and comparing the BED net jobs to net quarterly jobs from the CES data.

BED vs CES

2023 Q2 BED: +332,000
2023 Q3 BED: -192,000
2023 Q2 CES: +821,000
2023 Q3 BED: +640,000

CES Overstatement

2023 Q2 CES Overstatement: 489,000 Jobs
2023 Q3 CES Overstatement: 832,000 Jobs
Q2+Q3 Overstatement: 1.321 Million Jobs

Thus, the BLS says that the BLS monthly job reports for 2023 Q2 and Q3 are overstated by a total of 1.321 million jobs.

Jobs Up 303,000 Full Time Employment Down 6,000 in March

In March, the economy continued to add a high percentage of government and social assistance jobs. Part time employment rose by 691,000 as full time employment fell by 6,000.

Nonfarm payrolls and employment levels from the BLS, chart by Mish.

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

The Great Growth Hoax

February 6, 2024

The Great Growth Hoax

For several days, ever since the supposedly amazing GDP report from quarter four 2023, we’ve been blasted by the media about how great the economy is doing.

It’s exasperating because these claims do not fit with human experience. Last we heard from the Census Bureau, real income is down, and no one doubts it. Everyone, or at least most average people, has felt strong downgrades in living standards over these last four years.

And yet, no recession has been declared. This is for technical reasons. A recession is supposed to show up in the technical reading of the GDP plus unemployment.

We’ve known for years that the unemployment data is broken. It does not account for labor dropouts or adjust for multiple job holders or otherwise reveal anything about labor participation or remuneration.

Unemployment is technically low, but so what?

As for GDP, it is not a measure of the standard of living or even economic growth. It is a measure of output — stuff going on as measured in dollar terms, whether necessary, productive, society serving, efficient or not at all.

The aggregate was concocted at a time when economists believed that spending was itself productive, whether it flowed from a sustainable capital base or government itself. Anything moving and churning was regarded as good.

We Don’t Need More GDP Reports Like These

When the latest report came out and everyone cheered, I dug around the data a bit but figured I would wait for my favorite analysts to weigh in. Sure enough, Peter St Onge writes it up and it is a doozy:

Fresh GDP numbers came in and it was a blowout. The kind of blowout that only a $2.7 trillion government deficit can buy while the private economy crumbles around it. Another couple blowout GDP reports like this and Americans will be living under an overpass.

…click on the above link to read the rest…

Financing the End of Modernity

November 24, 2023

Financing the End of Modernity

How financialization heralds the end of the industrial age

That didn’t worked out as intended… Who would’ve thought? Photo by micheile henderson on Unsplash

Western neoliberal economies are on the brink of a steep economic decline. Barring an energy / productivity miracle a prolonged and deep recession is clearly on the horizon. While mainstream pundits keep “informing” the public how GDP was actually growing in the past decades (except for a few brief moments), and how the G7 is still the top economic power block, the real economy of goods and services tells a completely different story. Growth — in the sense of real economic output — has stopped 18 years ago in the West, and conditions are now ripe for a rapid contraction. A sobering assessment of the real economy — in which your humble blogger is still actively involved — has become due. Buckle up.

As long time readers might already know by heart: money is not the economy, energy is. Money is but a claim on energy and resources. Everything we mine, grow, manufacture and consume takes energy to produce. No energy, no production, no services. The more we produce / consume the more energy is used up. And while it may seem like that rich countries have somehow decoupled their economies from energy use (ie managed to grow GDP much faster than energy consumption), in fact the opposite is true. All they did was send their high energy intensity manufacturing and mining abroad, then imported all they needed using their overvalued currencies, thus becoming more independent on foreign trade than ever.

The public, together with it’s ruling elite, was led down the primrose path with GDP, and now a reckoning is in short order.

…click on the above link to read the rest…

Rising GDP + Rising Yields = A MAJOR Sign of “Uh-Oh”

September 5, 2023

Rising GDP + Rising Yields = A MAJOR Sign of “Uh-Oh”

Have you heard the good news?

The Atlanta Fed GDPNow estimates a 5.9% growth in real GDP for Q3 2023. In nominal terms, we can even boast of an 8.9% surge.

What fantastic news! Growth! Productivity!

This must mean we can all breath a collective sigh of relief as Powell continues his valiant war against inflation as GDP rises, right?

I can almost hear the champagne bottles popping from the Eccles Building to the Bezos-owned Washington Post.

The financial wizards have saved us once again, right?

Wrong.

Oh, so, so, so, so WRONG.

Why?

Debt-Driven Growth is Not Growth, but a Slow Death Trap

As usual, the answer lies in math, history and, of course, THE BOND MARKET.

For years and years, I have tried to make one point (and indicator) almost reflexively clear, namely: The Bond Market Is the Thing.

This is because the bond market reflects debt forces, the most cancerous of all market killers once they metastasize from the acceptable to the fantastical, and the cheap to the unaffordable.

Today, we stare upon the greatest national and global debt bubble in history.

And the cost of that debt is getting higher, not lower.

This should be the key theme of every conversation, but instead, our citizens are arguing over gender neutral bathrooms and exciting politicos (opportunists) scurrying for power like donkeys fighting for hay.

Far better, in my opinion, if the people understood boring things like sovereign bonds…

In particular, they just need to consider and understand yields on Uncle Sam’s IOU (with particular emphasis on his 10-Year UST), which tells us the market’s measurement of the cost of debt.

…click on the above link to read the rest…

The Green Growth Delusion

April 17, 2023

THE GREEN GROWTH DELUSION

Advocates of “Green Growth” promise a painless transition to a post-carbon future. But what if the limits of renewable energy require sacrificing consumption as a way of life?A tree is surrounded by solar panels in Los Arcos, Spain, on Feb. 24, 2023. (AP Photo/Alvaro Barrientos, File)

In the annals of industrial civilization, the Green New Deal counts as one of the more ambitious projects. Its scale is vast, promising to reform every aspect of how we power our machines, light our homes and fuel our cars. At this late hour of ecological and climate crisis, the Green New Deal is also an act of desperation. Our energy-ravenous culture cannot continue producing carbon without destroying the systems that are the basis of any advanced civilization, not to mention life itself. Something must be done, and quickly, to moderate the pressure on the atmospheric sink while powering the economic machine.

The consensus on the need for scaling up renewable energy is rarely disturbed by a disquieting possibility: What if techno-industrial society as currently conceived — based on ever-increasing GDP, global trade and travel, and complex global production and distribution chains designed to satisfy the rich world’s unquenchable appetite for bigger, faster, more of everything — what if that simply cannot function without energy-dense fossil fuels? What if, despite the promises of Green New Deal boosters, it is impossible to make sustainable the current system that provides billions of people sustenance, shelter, goods?

This possibility is not mentioned thanks to the dominance of “green growth.” This is the idea that the organizing principle of our civilization — endless growth of economies and populations — can be decarbonized swiftly in a way that will involve no material disruption. Green Growth holds out the promise of transitioning from fossil fuels directly into something like an earth-friendly utopia without a hitch and without meaningful sacrifice…

…click on the above link to read the rest…

Are You the Collateral Damage of Central Planners?

January 29, 2023

Are You the Collateral Damage of Central Planners?

The Conference Board – a nonprofit think tank that delivers cutting edge research – recently published its latest Leading Economic Index (LEI) for the United States. The findings were a giant bummer. In December, the LEI dropped for the tenth consecutive month.

The LEI, if you’re unfamiliar with it, consolidates various measures of economic activity, including credit, interest rate spreads, consumer expectations, building permits, new orders of goods and materials, and several other items, to assess which way the economic winds are blowing. Over the past six months, the LEI has fallen by 4.2 percent. This is the fastest six-month decline since the great coronavirus panic.

This week, the Bureau of Economic Analysis provided its advance estimate of Q4 U.S. gross domestic product (GDP). For the final quarter of 2022, real GDP increased at an annual rate of 2.9 percent.

How could it be that GDP is expanding while the LEI is contracting?

The most probable answer we can think of is the massive expansion of consumer debt. For example, credit card balances hit a new record of $866 billion during Q3 2022. That marks a year-over-year increase of 19 percent.

Americans are borrowing from their future to make ends meet today. This may give GDP the appearance that it’s expanding. But, in reality, the GDP expansion is merely a measurement of the rate that consumers are going broke.

The fact is the U.S. economy is traversing headlong into a recession at the worst possible time. We expect things will get especially ugly, as consumers are operating in a world of chaos…

World of Chaos

In a centrally planned economy, decisions are not made between individuals through free market mechanisms. Instead, they’re made by politicians and bureaucrats through policies of mass market intervention.

…click on the above link to read the rest…

The Vital Connection Between Oil and the Economy Revealed in 2 Simple Charts

December 17, 2022

The Vital Connection Between Oil and the Economy Revealed in 2 Simple Charts

Poland’s central bank predicts double-digit inflation until 2024

November 22, 2022

Poland’s central bank predicts double-digit inflation until 2024

(Natural News) The National Bank of Poland (NBP) has predicted that the Central European nation will be saddled with high inflation for the next two years.

According to the NBP, yearly inflation will hit 14.5 percent in 2022 and drop to 13.1 percent in 2023. Single-digit rates will only begin by 2024, when the country’s inflation is projected to decrease to 5.9 percent. The central bank’s inflation target of 2.5 percent is only expected to be accomplished in 2025.

Figures from Statistics Poland (GUS) showed that inflation in the country hit 17.2 percent in September, and increased to 17.9 percent in October.

The NBP also forecast a 0.7 percent growth in Poland’s gross domestic product (GDP) for 2022. Meanwhile, the GUS predicts a 1.4 percent GDP growth in 2023 and a flat two percent GDP growth in 2024.

Amid all these projections, economic activity in Poland is about to weaken because of the heightened uncertainty, a tightening of financing settings and the economy’s adjustment to higher commodity costs, according to the European Commission’s latest economic forecast.

“The Polish economy continued its upward trajectory in the first half of 2022, although a marked drop in inventories and investment led to a contraction in real GDP in the second quarter. Data on the real economy suggest that growth was at full steam in the third quarter, with industrial output and retail sales expanding at a solid pace. As a result, despite a deterioration in confidence indicators, the second half of the year is expected to see a relatively good performance, leaving annual real GDP growth in 2022 at a projected 4.0 percent,” the European Commission (EC) report said.

Increase in inflation due to rise in food and energy prices

As stated by the NBP’s November report on inflation, the present increase can be largely attributed to the rise in food and energy prices brought by the war in Ukraine and the enormous increase in money printing by global central banks during the Wuhan coronavirus (COVID-19) pandemic…

…click on the above link to read the rest…

This Implosion Will Be Fast–Hold Onto Your Seats

July 4, 2022

THIS IMPLOSION WILL BE FAST – HOLD ONTO YOUR SEATS

The massive money creation in the 2000s has led to a debt and asset bubble, which is about to burst. Investors will be shocked by the speed of the decline and won’t react before it is too late.

The massive money creation by central and commercial banks in this century has resulted in a growth of global assets from $450 trillion in 2000 to $1,540 trillion in 2020.

DEBT TO GDP GROWTH

As the chart below shows US debt to GDP held well below 25% from 1790 to the 1930s, a period of almost 150 years. The depression with the New Deal followed by WWII pushed debt to GDP up to 125%. Then after the war, the debt came down to around 30% in the early 1970s.

The closing of the gold window in 1971 ended all fiscal and monetary discipline. Since then, the US and much of the Western world has seen debt to GDP surge to well over 100%. In the US, Public Debt to GDP is now 125%. Back in 2000 it was only 54% but since then we have seen a vote buying system with a money printing bonanza and an exponential increase in debt to 125%.

A major part of the debt increase has gone to finance the rapid growth in property values.

The table below shows that property has grown on average by 250% between 2000 and 2020. So individuals are creating wealth by swapping properties with each other. Hardly a sustainable form of wealth creation.

The exponential growth in property prices has been global although countries like China, Canada, Australia and Sweden stand out with over 200% gains since 2000. Most of the properties bought in the last 20+ years involve massive leverage. When the property bubble soon bursts, many property owners will have negative equity and could easily lose their homes.

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

The devil is in the detail

February 20, 2022

The devil is in the detail

If you get your news from the BBC, you might be forgiven for thinking that the economic hit from the pandemic lockdowns and restrictions has come to an end. Indeed, if you merely skim through the headlines in your social media feed, you might believe that the UK is poised for an explosion of growth, the like of which we haven’t witnessed since the late 1960s. “Retail sales,” we are told, “rebound in January as Omicron eases.” The “UK economy rebounds,” they say, “with fastest growth since WW2.” Chancellor Sunak – who wants to be seen as a prime-minister-in-waiting – announced that:

“Today’s figures show that despite Omicron the economy was remarkably resilient. We were the fastest growing economy in the G7 last year and are forecast to continue being the fastest growing economy this year.”

The GDP figures are certainly better than they might have been if more businesses had been left to go bust during lockdown. Nevertheless, they are still well below February 2020, following the massive crash immediately after lockdown was ordered. As the Office for National Statistics explain:

“UK gross domestic product (GDP) is estimated to have increased by 1.0% in Quarter 4 (Oct to Dec) 2021… Compared with the same quarter a year ago, GDP increased by 6.5%.

“Following the large 9.4% fall in 2020 because of the initial impact of the coronavirus (COVID-19) pandemic and public health restrictions, UK GDP saw an annual rise of 7.5% in 2021.”

Worse still, manufacturing GDP was negative, and continues to lag well behind its February 2020 level:

“Production output fell by 0.4% in Quarter 4 2021 and is now 3.6% below its pre-coronavirus levels. The fall in production output was because of a 3.2% fall in electricity, gas, steam and air conditioning supply (energy) and a 4.5% fall in mining and quarrying.”

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

Degrowth economy: The climate solution no one is talking about

January 31, 2022

Degrowth economy: The climate solution no one is talking about

For all the talk of renewable energy, electric vehicles and plant-based diets, there’s a gaping hole in the way we’re trying to solve accelerating climate change. We will not stay below 2°C of warming while pursuing economic growth — yet barely anyone talks about it.

Since the end of World War II, Gross Domestic Product (GDP) growth has been the metric of human prosperity in Western nations, the idea being that if the productivity of the economy increases so will the wellbeing of the people within that economy. And for a while, that was the case. But since the 1970s, increases in GDP have, on average, failed to translate into increases in wellbeing and happiness.

It is not surprising. Research has shown that once a certain GDP threshold, or level of wellbeing, has been met people gain little from consuming more “stuff” — a necessary requirement for continuous GDP growth.

Robert F Kennedy eloquently summed up the inadequacy of GDP as a metric of wellbeing at a speech he gave in 1968:

…the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.

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

#220. The human factor

January 25, 2022

#220. The human factor

CONTINUITY, CONTRACTION OR COLLAPSE

Over an extended period, but with growing intensity in recent times, there has been a discussion, here and elsewhere, about whether we can prevent economic contraction from turning into collapse.

This is part of a broader debate in which every point of view seems to begin with the letter C. The orthodox or consensus line is Continuity, meaning that the economy will continue to expand in the future as it has in the past, and is claimed still to be doing in the present. The main contrarian theme is the inevitability of Collapse. Those of us who believe even in the existence of a third possibility – Contraction – are in a tiny minority.

Of these three points of view, the only one that we can dismiss is continuity. The economic “growth” that we’re told can be extended indefinitely into the future isn’t even happening in the present.

Most – roughly two-thirds – of the reported “growth” of the past twenty years has been cosmetic. The preferred metric of gross domestic product (GDP) measures activity, not prosperity. If we inject liquidity into the system, and count the use of that liquidity as ‘activity’, we can persuade ourselves that the world economy has been growing at rates of between 3% and 3.5%.

The classic illustrative example is of a government paying one large group of workers to dig holes in the ground, and another group to fill them in again. This adds no value, of course, but it does increase activity, and therefore boosts GDP.

In this example, the obvious question is that of how the government pays for all this zero-value ‘activity’. The simple answer is to use borrowed money. Conveniently, GDP, as a measure of activity, calculates flow without reference to stock…

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

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