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The Year of the Plague in Charts: Weirdest Economy Ever

The Year of the Plague in Charts: Weirdest Economy Ever

GDP fell by 3.5% in the year 2020, the worst annual decline since 1946. Trade deficit in Q4 hit new all-time worst.

The size of the US economy, as measured by GDP in “current dollars” (not adjusted for inflation), fell to $20.9 trillion in the year 2020, according to the Bureau of Economic Analysis this morning.

In the discussion below, you will see inflation-adjusted figures, with adjustments being made based on “2012 dollars.” In these 2012 dollars, GDP fell by 3.5% in the year 2020, the worst annual decline since 1946 (when it plunged by 11.6%).

In the fourth quarter, GDP grew by 1.0% from the third quarter, adjusted for inflation (but not “annualized”), which left Q4 GDP still down 2.5% from a year ago.

The plunge in Q2 and the jump in Q3 were the sharpest moves ever in the quarterly GDP data, which began in 1947. Before then, there were only annual data. Q4 growth, at 1% (green column), is back in the normal quarterly growth range over the past two decades:

In the headlines this morning, you saw “4%” GDP growth for Q4, which was an “annualized” figure, meaning Q4 growth (1.0%) multiplied by four to project what the growth would be if it continues for an entire year at the same rate, which is kind of silly, but that’s what “annualized” growth rates do. And they sure make things look bigger.

Adjusted for inflation via these infamous “2012 dollars,” GDP in Q4 amounted to a “seasonally adjusted” “annual rate” of $18.8 trillion, same where it had been in Q4 2018:

Consumer spending (69.5% of GDP) edged up just 0.6% in Q4 from Q3 to an annual rate of $13.0 trillion in 2012 dollars. And it was still down 2.6% from Q4 last year:

  • Spending on goods eased a smidgen from Q3, to $5.1 trillion (annual rate).
  • Spending on services rose 1.0% from Q3 to $8.0 trillion (annual rate).

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

The Real Economic Numbers: 21.5 Percent Unemployment, 10 Percent Inflation And Negative Economic Growth

The Real Economic Numbers: 21.5 Percent Unemployment, 10 Percent Inflation And Negative Economic Growth

Every time the mainstream media touts some “wonderful new economic numbers” I just want to cringe.  Yes, it is true that the economic numbers have gotten slightly better since Donald Trump entered the White House, but the rosy economic picture that the mainstream media is constantly painting for all of us is completely absurd.  As you are about to see, if honest numbers were being used all of our major economic numbers would be absolutely terrible.  Of course we can hope for a major economic turnaround for America under Donald Trump, but we certainly are not there yet.  Economist John Williams of shadowstats.com has been tracking what our key economic numbers would look like if honest numbers were being used for many years, and he has gained a sterling reputation for being accurate.  And according to him, it looks like the U.S. economy has been in a recession and/or depression for a very long time.

Let’s start by talking about unemployment.  We are being told that the unemployment rate in the United States is currently “3.8 percent”, which would be the lowest that it has been “in nearly 50 years”.

To support this claim, the mainstream media endlessly runs articles declaring how wonderful everything is.  For example, the following is from a recent New York Times article entitled “We Ran Out of Words to Describe How Good the Jobs Numbers Are”

The real question in analyzing the May jobs numbers released Friday is whether there are enough synonyms for “good” in an online thesaurus to describe them adequately.

So, for example, “splendid” and “excellent” fit the bill. Those are the kinds of terms that are appropriate when the United States economy adds 223,000 jobs in a month, despite being nine years into an expansion, and when the unemployment rate falls to 3.8 percent, a new 18-year low.

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

“GDP Growth Driving Rates Higher!” – Is That True?

“GDP Growth Driving Rates Higher!” – Is That True?

“Peter Cook is the author of the‘Is That True?’ series of articles, which help explain the many statements and theories circulating in the mainstream financial media often presented as “truths.” The motives and psychology of market participants, which drives the difference between truth and partial-truth, are explored.”

Summing up the current conventional wisdom:

  1. Global GDP growth has bottomed and is accelerating systematically higher,
  2. Which will cause the inflation rate to accelerate higher.
  3. Bond markets hate higher inflation, so interest rates have bottomed and will move even higher.
  4. The stock market, dependent on low rates for high valuations, will fall if rates move higher,
  5. Which is why the stock market peaked on January 26, 2018, and then declined dramatically,
  6. Ushering in an era of systematically higher volatility

In this article, we will investigate the data behind the first three assertions related to GDP growth, inflation, and the bond market and offer explanations that differ from the conventional wisdom. Next Friday, we will continue this theme with a discussion of the following three assertions.

  1. Global GDP Growth Is Accelerating

Unless GDP can be exported from another planet to Earth, the main drivers of global GDP growth are in four large economic zones.  Here are the past 30 years of GDP growth in the U.S……

The past ten years in China……

The past 20 years in Europe…..

and Japan.

In summary, each of the main economic zones are growing at lower rates than they did 10-20 years ago.  While they are each trending slightly higher after bouncing off recent troughs in early 2016, all are well within a range established since the Global Financial Crisis (GFC).

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

Who Is It That Wants to Buy Trillions of US Treasury’s???

Who Is It That Wants to Buy Trillions of US Treasury’s???

As of the latest Treasury update showing federal debt as of Wednesday, February 15…federal debt (red line below) jumped by an additional $50 billion from the previous day to $20.76 trillion.  This is an increase of $266 billion essentially since the most recent debt ceiling passage.  Of course, this isn’t helping the debt to GDP ratio (blue line below) at 105%.

But here’s the problem.  In order for the American economy to register growth, as measured by GDP (the annual change in total value of all goods produced and services provided in the US), that growth is now based solely upon the growth in federal debt.  Without the federal deficit spending, the economy would be shrinking.

The chart below shows the annual change in GDP minus the annual federal deficit incurred.  Since 2008, the annual deficit spending has been far greater than the economic activity that deficit spending has produced.  The net difference is shown below from 1950 through 2017…plus estimated through 2025 based on 2.5% average annual GDP growth and $1.2 trillion annual deficits.  It is not a pretty picture and it isn’t getting better.

Even if we assume an average of 3.5% GDP growth (that the US will not have a recession(s) over a 15 year period) and “only” $1 trillion annual deficits from 2018 through 2025, the US still continues to move backward indefinitely.

The cumulative impact of all those deficits is shown in the chart below.  Federal debt (red line) is at $20.8 trillion and the annual interest expense on that debt (blue line) is jumping, now over a half trillion.  Also shown in the chart is the likely debt creation through 2025 and interest expense assuming a very modest 4% blended rate on all that debt.

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

What has gone wrong with oil prices, debt, and GDP growth?

What has gone wrong with oil prices, debt, and GDP growth?

(1) The big thing that pulls the economy forward is the time-shifting nature of debt and debt-like instruments.

If we want any kind of specialization, we need some sort of long-term obligation that will make that specialization worthwhile. If one hunter-gatherer specializes in finding flints that will start fires, that hunter-gatherer needs some sort of guarantee that others, who are finding food, will share some of their food with him, so that the group, as a whole, can prosper. Others, who specialize in gathering firewood, or in childcare, also need some kind of guarantee that their efforts will be rewarded.

At first, these obligations were enforced by social norms such as, “If you don’t follow the rules of the group, we will throw you out.” Gradually, reciprocal obligations became more formalized, and included more time shifting, “If you will work for me, I will pay you at the end of the month.” Or, “If you will pay my transportation costs to a land of more opportunity, I will repay you with 10% of my wages for the first five years.” Or, “I will sell you this piece of land, if you will pay me x amount per month for y years.”

In some cases, the loan (or loan-like agreements) takes the form of stock ownership of an enterprise. In this case, the promise is for future dividends, and the possibility of growth in the value of the stock, in return for the use of funds. Even though we generally refer to one type of loan-like agreement as “equity ownership” and the other as “debt,” they have a great deal of similarity. Funds are being provided to the enterprise, with the expectation of greater return in the future.

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

Energy round-up: tectonic shifts

Energy round-up: tectonic shifts

Photo credit:   gnuckx

Three things you shouldn’t miss this week
  1. Chart: Is the global economy becoming less energy intensive?

Source: BP Statistical Review of World Energy 2015

  1. Article: Fossil fuel divestment is rational, says former Shell chairman – Mark Moody-Stuart is also worried about the lack of industry progress in addressing climate change.
  1. Article: BP sees ‘tectonic shift’ in world energy production – Energy consumption slows dramatically as China cutback and Opec battle US shale drillers.

This week the latest edition of the BP Statistical Review of World Energynoted two important trends.

  1. Renewables are still the fastest growing source of global energy

In 2014 global energy consumption growth fell to its lowest level since 1998: even better is that renewables made up 30% of that growth. While this is positive, the scale of the challenge can’t be underestimated: BP’s report shows that renewables still contribute just 3% of global primary energy.

Indeed, a new report from the IEA this week called for more policy support for the sector because the current rate of progress is not fast enough to meet the 2°C climate target. For the same reason, a group of scientists and economists led by Sir David King, former chief scientific advisor to the UK government, called for an Apollo-style mission to make renewable power cheaper than coal within a decade.

  1. Global greenhouse gas emissions growth has slowed to 0.5%

However, the emissions figures aren’t as positive as the IEA’s preliminary estimates which showed 2014 emissions stalling at 2013 levels. While it’s encouraging to see emissions growth starting to slow, we mustn’t forget that what we really need is a rapid decrease overall.

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

 

 

 

Australian housing near world’s most expensive but forecast to rise further

Australian housing near world’s most expensive but forecast to rise further

A major ratings agency forecasts Australian home price growth to slow, as the nation approaches an “affordability ceiling”.

Fitch Ratings is forecasting 4 per cent growth in Australian residential property prices this year, down from around 7 per cent in 2014.

In its 2015 Global Housing and Mortgage Outlook report, Fitch finds that Australian homes are the third most expensive of the 22 countries it looks at on the level of prices compared with rents and also compared with incomes.

“Australian property remains among the most expensive on almost all metrics,” noted the report.

“With almost 25 years of continuous GDP growth, record low rates and stable unemployment, Fitch expects Australian prices to remain high and affordability likely to slightly worsen in the near term before levelling off as it reaches an affordability ceiling.”

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

 

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