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The Fed’s Dangerous Inflation Game

The Fed’s Dangerous Inflation Game

The Fed’s Dangerous Inflation Game

By now you’ve heard that the U.S. economy expanded at an annualized rate of 3.2% in the first quarter of 2019. That was reported by the Commerce Department last Friday morning.

That strong growth coming on top of 4.2% in Q2 2018 and 3.4% in Q3 2018 means that in the past twelve months, the U.S. economy has expanded at about a 3.25% annualized rate. That’s a full point higher than the average growth rate since June 2009 when the expansion began and it’s in line with the 3.22% growth rate of the average expansion since 1980.

It looks as if the “new normal” is back to the old normal of 3% or higher trend growth. Or is it?

The headline growth rate of 3.2% was certainly good news. But, the underlying data was much less encouraging. Most of the growth came from inventory accumulation and government spending (mostly on highway projects). But, business won’t keep building inventories if final demand isn’t there. That’s where the 0.8% growth in personal consumption is troubling.

The consumer didn’t show up for the party in the first quarter.

If they don’t show up soon, that inventory number will fall off a cliff. Likewise, the government spending number looks like a one-time boost; you can’t build the same highway twice. Early signs are that the second quarter is off to a weak start.

Dig deeper and you can see that core PCE (the Fed’s preferred inflation metric) cratered from 1.8% to 1.3%. That’s strong disinflation and dangerously close to outright deflation, which is the Fed’s worst nightmare.

The data just show that the Fed is as far away as ever from its 2% target. But why should it even have 2% as its target?

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

Globally Synchronized…

Globally Synchronized…

The economic sickness is predictably spreading. While unexpected in most of the world which still, somehow, depends on central banking forecasts, it really has been almost inevitable. From the very start, just the utterance of the word “decoupling” was the kiss of death. What that meant in the context of globally synchronized growth, 2017’s repeatedly dominant narrative, wasn’t the end of synchronized as many tried to say but the end of growth.

This was more than an economic factor. A fixed system leading into full, meaningful recovery was supposed to heal more than economy. Those political extremists who had multiplied and spread while waiting for it would be revealed as illegitimate, their complaints nothing more than some form of evil “ism.” The New York Times in January 2018 succinctly described its wider significance:

A decade after the world descended into a devastating economic crisis, a key marker of revival has finally been achieved. Every major economy on earth is expanding at once, a synchronous wave of growth that is creating jobs, lifting fortunes and tempering fears of popular discontent.

Well, purported significance anyway. If globally synchronized growth was “tempering fears of popular discontent”, the risks are pretty clear should there not be any. I wrote last September what wasn’t any sort of special insight:

From 2003 to 2009, it went: globally synchronized growth, decoupling, globally synchronized downturn. From 2010 to 2012, it went: globally synchronized growth, decoupling, globally synchronized downturn. From 2013 to 2016, it went: strong global growth (not synchronized), decoupling, synchronized downturn.

Last year [2017] to this year [2018], it has gone: globally synchronized growth, decoupling. What comes next?

The answer is here before us. Yesterday, the Bank of Canada throws in the towel on its end of the global economy. Last October, the Canadians were thinking how they had to get serious with their rate hikes. Now, officials admit in all likelihood there won’t be any more.

Something sure changed.

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

Fake Growth? Exploring The Big Mystery In Friday’s GDP Report

Fake Growth? Exploring The Big Mystery In Friday’s GDP Report

We have become accustomed to the miraculous economic data ‘surprises’ that are propagandized out of China month after month – not too hot, not too cold, but just right – but in the latest US GDP data, as MarketWatch’s Greg Robb investigates, mystery theater comes to American government data…

It is a case that would make Sherlock Holmes proud.

Growth in the first quarter smashed expectations, fueled in part by strong inventory building. According to the government, $32 billion of goods were added to inventories this quarter, or $128 billion annualized.

This stockpiling of goods boosted first-quarter GDP growth by about 70 basis points and helped propel growth to a 3.2% annual rate, well above forecasts.

The problem is that it is not at all obvious where these inventories came from. Goods have to come from somewhere, either produced by domestic firms or imported from abroad.

The mystery is that both production and imports fell in the first three months of the year, according to government data.

“You can’t stockpile what you do not import or do not produce,” said Robert Brusca, chief economist at FAO Economics.

The Fed reported last week that industrial output slipped at a 0.3% annual rate in the first quarter.

And the government’s GDP report estimates that imports fell 3.7% in the first three months of the year.

The one other explanation — that consumption fell sharply enough to leave businesses with unexpected unsold goods — also doesn’t fit the evidence, Brusca said.

Consumption did not fall faster than industrial production or imports to generate any surplus, he said. To be sure, spending on consumer durable goods fell 5.3%, the biggest drop in 10 years. Business spending on equipment was also weak.

“Any way you slice it, this GDP report…is an apparent mess,” he said.

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

GDP: Fake News

GDP: Fake News

GDP: Fake News

The first-quarter GDP number was released this morning. And at 3.2%, it came in far above estimates. Consensus was about 2.3%. It was also the highest Q1 GDP print since 2015.

But there’s probably less here than meets the eye.

About half the GDP gain came from a surge in inventories and a sharp reduction in the trade deficit, neither of which is sustainable. They are likely one-time boosts.

The economy has been growing since June 2009, making this the second-longest economic expansion on record. However, it has also been the weakest economic expansion on record. That has not changed under President Trump.

Even during Obama’s weak expansion we saw strong quarters including the first quarter of 2015, which was 3.2%, and the second quarter of 2015, which was almost 3%. The problem is that these strong quarters soon faded; growth in the fourth quarter of 2015 was only 0.5%, almost recession level.

Under Trump, second-quarter 2018 growth was a very impressive 4.2% annualized. Third-quarter 2018 growth was 3.4%. Trump’s tax cuts seemed to be producing exactly the kind of 3–4% sustained trend growth Trump had promised.

But then the economy put on the brakes and growth slowed to only 2.2% in the fourth quarter. It looked like the 2018 “Trump bump” in growth was over and growth was returning to the 2.2% trend that had prevailed during the Obama administration.

And despite the first quarter’s 3.2% outlier, I expect lower GDP in the quarters ahead, returning to the same punk levels we’ve seen for nine years.

For the year, economists believe GDP will expand 2.4%, down from last year’s 2.9% gain, as the boost from the 2017 tax cuts and increased government spending over the past two years start to fade.

What about the possibility of recession?

Most investors are familiar with the conventional definition of an economic recession. It’s defined as two consecutive quarters of declining GDP combined with rising unemployment and a few other technical factors.

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

The Japanification of the World

The Japanification of the World

Zombification / Japanification is not success; it is only the last desperate defense of a failing, brittle status quo by doing more of what’s failed.

A recent theme in the financial media is the Japanification of Europe.Japanification refers to a set of economic and financial conditions that have come to characterize Japan’s economy over the past 28 years: persistent stagnation and deflation, a low-growth and low-inflation economy, very loose monetary policy, a central bank that is actively monetizing debt, i.e. creating currency out of thin air to buy government debt and a government which funds “bridges to nowhere” and other stimulus spending to keep the economy from crashing into outright contraction.

The parallels with Europe are obvious, but they don’t stop there: the entire world is veering into a zombified financial, economic, social and political status quo that is the core of Japanification.

While most commentators focus on the economic characteristics of Japanification, social and political stagnation are equally consequential. If we only measure economic/financial stagnation, it appears as if Japan and Europe are holding their own, i.e.maintaining the status quo via near-zero growth and near-zero interest rates.

But if we measure social and political decay, the erosion is undeniable. Here’s one example. Few Americans have access to or watch Japanese TV, so they are unaware of the emergence of the homeless as a permanent feature of urban Japan. The central state propaganda media is focused on encouraging tourism, a rare bright spot in Japan’s moribund economy, and so you won’t find much media coverage of homelessness or other systemic signs of social breakdown.

If you watch Japanese detective / police procedural dramas, however, you’ll find constant references to homeless people and homeless encampments: detectives seek witnesses to a crime in the nearby homeless encampment; a homeless man living in an abandoned warehouse is found murdered, etc.

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

How the Concentration of Wealth is Driving a New Global Imperialism 

Shell Protest Philippines

How the Concentration of Wealth is Driving a New Global Imperialism 

Corporate media today is highly concentrated and fully international. Their primary goal is the promotion of product sales and pro-capitalist propaganda through the psychological control of human desires, emotions, beliefs, fears, and values. 

Regime changes in Iraq and Libya, Syria’s war, Venezuela’s crisis, sanctions on Cuba, Iran, Russia, and North Korea are all reflections of a new global imperialism imposed by a core of capitalist nations in support of trillions of dollars of concentrated investment wealth. This new world order of mass capital has become a totalitarian empire of inequality and repression.

The global 1%, comprised of over 36-million millionaires and 2,400 billionaires, employ their excess capital with investment management firms like BlackRock and J.P Morgan Chase. The top seventeen of these trillion-dollar investment management firms controlled $41.1 trillion dollars in 2017. These firms are all directly invested in each other and managed by only 199 people who decide how and where global capital will be invested. Their biggest problem is they have more capital than there are safe investment opportunities, which leads to risky speculative investments, increased war spending, privatization of the public domain, and pressures to open new capital investment opportunities through political regime changes.

Power elites in support of capital investment are collectively embedded in a system of mandatory growth. Failure for capital to achieve continuing expansion leads to economic stagnation, which can result in depression, bank failures, currency collapses, and mass unemployment.  Capitalism is an economic system that inevitably adjusts itself via contractions, recessions, and depressions. Power elites are entrapped in a web of enforced growth that requires ongoing global management and the formation of new and ever-expanding capital investment opportunities. This forced expansion becomes a worldwide manifest destiny that seeks total capital domination in all regions of the earth and beyond.

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

Here’s The Problem: The Pie Is Shrinking

Here’s The Problem: The Pie Is Shrinking

At that point, the only way to enable debt-serfs to service their debts is too give them free money, i.e. Universal Basic Income (UBI).

Scrape away the churn and distraction and the problem is simple: the pie of prosperity is shrinking, and the “fixes” are failing. The status quo arrangement is based on the endless expansion of “growth” and debt, which is the monetary fuel of more, more, more of everything: money, energy, resources, goods, services, jobs, wealth and income, all of which make up the elixir of prosperity.

Prosperity is shorthand for a positive return on investment (ROI), a.k.a. primary surplus. Prosperity is the result of there being a surplus which can be distributed after capital, resources and labor are put to work.

The higher the return on investment, the more surplus there is to distribute.When the surplus is bountiful, there’s enough to go around for everyone to feel that life is getting better.

But all systems eventually track an S-Curve of rapid growth, maturation and depletion/decline, and surpluses diminish: the pie stops expanding and starts shrinking. There’s less to go around, and suddenly the political squabbling intensifies as every elite and every constituency seeks to preserve their slice of the pie at the expense of others.

This means shifting the losses of purchasing power and prosperity onto others without appearing to do so. Openly ripping a slice from the grasping hands of another elite or constituency will launch a protracted political battle, as every group will fight to the death to keep its share untouched.

By far the best ways to shift the losses to others are 1) inflation (reducing the purchasing power of their income) and 2) creating phantom wealth that can be used to buy up all the income-producing assets. Unsurprisingly, this is precisely what we see happening globally.

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

The Real New Deal

The Real New Deal

Wassily Kandinsky Succession 1935

While we’re on the issue of the Green New Deal, here’s an article by Dr. D. with an intro by Dr. D., one he sent me in the mail that contained the actual article, and that I think shouldn’t go to waste. I hope he agrees.

Waste being the key term here, because he arrives at the same conclusion I’ve often remarked upon: that our societies and economies exist to maximize waste production. Make them more efficient and they collapse. 

Ergo: no Green New Deal is any use if you don’t radically change the economic models. Let’s see AOC et al address that, and then we can talk. It’s not as if a shift towards wind and solar will decrease the economic need for waste production (though it may change the waste composition), and thus efficiency is merely a double-edged sword at the very best. 

Here’s Dr. D. First intro, then article:

Dr. D: [..] of course there are a thousand things I can say, but I wanted to make just this one point:  that the economy as we know it is prohibited from contracting by its own system structure.  One thing I couldn’t expand on is that I believe it is almost entirely unconscious.  People like AOC, the Aspen Ecological Center, these people have in the back of their minds “What is possible” and “how things are done” and “can I sell this or will people turn away.” 
 
As I say, the idea of saying, “Everything will be perfect, just live like a Zen Monk” is a non-starter.  Why, I don’t know, as it’s very pleasant and quite provable. 

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

Managing without Growth. Slower by Design, not Disaster

Managing without Growth. Slower by Design, not Disaster

Book cover

It took homo sapiens some 200,000 years to reach the first billion by about 1800. In just the 10 years separating the first and second edition of Managing without Growth: Slower by Design, not Disaster, the human population increased by the same amount putting increased pressure on an already crowded planet. In the past decade the global use of resources spiked upwards, greenhouse gas emissions continued to increase, income and wealth inequality rose to the highest levels in half a century, the global financial system almost crashed, and mammal, bird and insect populations declined markedly because of increased deforestation and industrialized agriculture. So, while material living standards of the poorest rose, mostly in China, which is something to celebrate, there are many reasons to be deeply concerned about what lies ahead. Humanity’s grossly unequal ecological footprints greatly exceed the Earth’s regenerative biocapacity and it is doubtful whether the planet can support the continued economic growth to which virtually all of the world’s governments are committed.  Can we do better?

The opening chapters of this updated, revised, and expanded second edition Managing without Growth tell how the recent idea of economic growth emerged from the idea of progress, itself only a few hundred years old. There are many reasons for questioning growth as a key economic policy objective supported in the book based on extensive data as well as on conceptual and methodological considerations.  Critical attention is given to the commodification of nature through monetization. ‘Natural’ capital captures the spirit of the times, but it can hardly be said to capture the spirit of nature.

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

Are Investors Finally Waking up to North America’s Fracked Gas Crisis?

Are Investors Finally Waking up to North America’s Fracked Gas Crisis?

natural gas flare

The fracked gas industry’s long borrowing binge may finally be hitting a hard reality: paying back investors.

Enabled by rising debt, shale companies have been achieving record fracked oil and gas production, while promising investors a big future payoff. But over a decade into the “fracking miracle,” investors are showing signs they’re worried that payoff will never come — and as a result, loans are drying up.

Growth is apparently no longer the answer for the U.S. natural gas industry, as Matthew Portillo, director of exploration and production research at the investment bank Tudor, Pickering, Holt & Co., recently told The Wall Street Journal.

“Growth is a disease that has plagued the space,” Portillo said. “And it needs to be cured before the [natural gas] sector can garner long-term investor interest.”

Hints that gas investors are no longer happy with growth-at-any-cost abound. For starters, several major natural gas producers have announced spending cuts for 2019.

After announcing layoffs this January, EQT, the largest natural gas producer in the U.S., also promised to decrease spending by 20 percent in 2019.Embed from Getty Images

Such pledges of newfound fiscal restraint are most likely the result of natural gas producers’ inability to borrow more money at low rates.

As DeSmog has reported, the historically low interest rates following the 2008 housing crisis were a major enabler of the free-spending and money-losing attitudes in the shale industry. Wall Street has funded a decade of oil and gas production via fracking and incentivized production over profits. Those incentives have worked, with record production and large losses.

However, much like giving mortgages to people without jobs wasn’t a sustainable business model, loaning money to shale companies that spend it all without making a profit is not sustainable.

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

238 academics call on the EU to plan for a post-growth future

238 academics call on the EU to plan for a post-growth future

Preface. We know there’s going to be no growth soon due to peak oil and limits to growth, and ought to be planning for it so that the financial system doesn’t “freak out” and crash like Humpty Dumpty, beyond repair.  We will eventually be forced to reach a steady state economy, but the landing when civilization snaps from resource shortages could be softened by evolving to a non-growth society, which would also hugely help the environment and reduce biodiversity loss.

September 16, 2018. The EU needs a stability and well-being pact, not more growth. 238 academics call on the European Union and its member states to plan for a post-growth future in which human and ecological wellbeing is prioritised over GDP. The Guardian.

This week, scientists, politicians, and policymakers are gathering in Brussels for a landmark conference. The aim of this event, organised by members of the European parliament from five different political groups, alongside trade unions and NGOs, is to explore possibilities for a “post-growth economy” in Europe.

For the past seven decades, GDP growth has stood as the primary economic objective of European nations. But as our economies have grown, so has our negative impact on the environment. We are now exceeding the safe operating space for humanity on this planet, and there is no sign that economic activity is being decoupled from resource use or pollution at anything like the scale required. Today, solving social problems within European nations does not require more growth. It requires a fairer distribution of the income and wealth that we already have.

Growth is also becoming harder to achieve due to declining productivity gains, market saturation, and ecological degradation.

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

The greatest good for the greatest number: A doctrine of acceptable losses

The greatest good for the greatest number: A doctrine of acceptable losses

In 1776 philosopher Jeremy Bentham wrote a phrase that continues to be central to our modern way of thinking: “[I]t is the greatest happiness of the greatest number that is the measure of right and wrong.”

That phrase has morphed into the familiar one cited in the title of this piece. Happiness, however, has been reinterpreted first as “good” meaning something which gives pleasure, a move toward a kind of hedonism. “Good” has, however, become associated with “goods,” that is, objects which consumers and businesses buy to further their personal and occupational goals.

This drift from the original meaning of what Bentham called his “fundamental axiom” is, in part, why we are addicted to economic growth and the consumerism that derives from it. We believe that “goods” are good for us and so more “goods” will always bring more good in their wake.

But now I want to examine the second part of this phrase: “the greatest number.” It just makes sense to most of us that a right-thinking person would endorse the idea of the greatest good for the greatest number. Doesn’t such a framework maximize the life chances of the greatest number of people? Of course, it all depends on what one means by “life chances.”

What I want to point out is that “the greatest number” implies a doctrine of “acceptable losses.” If the net benefits of any course of action are measured for society as a whole instead of for every individual, then actions which kill many people are justified on the basis of the benefit to those who remain living. Such benefits are presumed to outweigh the loss incurred by those dying and those related to the deceased.

This is the bargain we have made, and it has led to mayhem everywhere.

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

That Green Growth at the Heart of the Green New Deal? It’s Malignant

That Green Growth at the Heart of the Green New Deal? It’s Malignant

Longview, Washington. Photo: Jeffrey St. Clair.

A burgeoning save-the-climate effort called the Green New Deal, explains Vox’s David Roberts, “has thrust climate change into the national conversation, put House Democrats on notice, and created an intense and escalating bandwagon effect. … everyone involved in green politics is talking about the GND. … But WTF is it?”

Roberts goes on to give a good summary, but no one can fully answer that question until someone puts a complete plan down on paper. We do know that the vision as it’s being described by its fans (and it seems to have nothing but fans in the climate movement) explicitly draws its inspiration from the New Deal that the Roosevelt Administration launched eighty-four years ago in an effort to end the Great Depression.

A Tale of Two Deals

The Green New Deal would emulate its predecessor’s use of public investment and hiring, improvement of wages, and socioeconomic safety nets to accelerate economic growth and reduce unemployment. That part of the vision should be pretty straightforward. But in asking whether success in reaching those economic goals could also help head off ecological catastrophe, we first need to take into account how the original New Deal worked, both as a civilian project and as it morphed into the war effort of the 1940s.

The massive public investment in the civilian economy that began in 1933 carried on through that decade. And the war production and recruitment boom of the early 1940s should be seen as an extension of the New Deal, in part because that turned out to be the spending that finally ended the Depression.

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

2019: World Economy Is Reaching Growth Limits; Expect Low Oil Prices, Financial Turbulence

2019: World Economy Is Reaching Growth Limits; Expect Low Oil Prices, Financial Turbulence

Financial markets have been behaving in a very turbulent manner in the last couple of months. The issue, as I see it, is that the world economy is gradually changing from a growth mode to a mode of shrinkage. This is something like a ship changing course, from going in one direction to going in reverse. The system acts as if the brakes are being very forcefully applied, and reaction of the economy is to almost shake.

What seems to be happening is that the world economy is reaching Limits to Growth, as predicted in the computer simulations modeled in the 1972 book, The Limits to Growth. In fact, the base model of that set of simulations indicated that peak industrial output per capita might be reached right about now. Peak food per capitamight be reached about the same time. I have added a dotted line to the forecast from this model, indicating where the economy seems to be in 2019, relative to the base model.1

Figure 1. Base scenario from The Limits to Growth, printed using today’s graphics by Charles Hall and John Day in Revisiting Limits to Growth After Peak Oil with dotted line at 2019 added by author. The 2019 line is drawn based on where the world economy seems to be now, rather than on precisely where the base model would put the year 2019.

The economy is a self-organizing structure that operates under the laws of physics. Many people have thought that when the world economy reaches limits, the limits would be of the form of high prices and “running out” of oil. This represents an overly simple understanding of how the system works. What we should really expect, and in fact, what we are now beginning to see, is production cuts in finished goods made by the industrial system, such as cell phones and automobiles, because of affordability issues.

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

Black Swan Watch: China Has Added Over $50 TRILLION in Financial Assets Since 2014

Black Swan Watch: China Has Added Over $50 TRILLION in Financial Assets Since 2014

The biggest black swan facing the financial system is China.

China has been the primary driver of growth for the global economy since the 2008 Crisis. Despite only accounting for 15% of global GDP, China accounts for 25%-30% of GDP growth.

Put simply, from an economic perspective,  if China catches cold, the world gets sick…  and if China goes into a coma…

Which is why anyone paying attention should be truly horrified by the latest round of data from China’s economy.

In December, China’s Manufacturing PMI came in below 50, signaling a contraction is underway.

This is a massive deal because this was an OFFICIAL data point, meaning one that China had heavily massaged to look better than reality.

Let me explain…

Over the last 30 years China’s economic data has ALWAYS overstated growth. The reason for this is very simple: if you are an economic minister/ government employee who lives in a regime in which leadership will have you jailed or executed for missing your numbers, the numbers are ALWAYS great.

Indeed, this is an open secret in China, to the degree that former First Vice Premiere of China, Li Keqiang, admitted to the US ambassador to China that ALL Chinese data, outside of electricity consumption, railroad cargo, and bank lending is for “reference only.”

With that in mind, we have to ask… how horrific is the situation in China’s financial system that even the heavily massaged data is showing a contraction is underway?

Think “systemic risk” bad.

I’ve already outlined how China is sitting atop 15% of all junk debt in the global financial system, resulting in the country’s “bad debt” to GDP ratio exceeding 80% (a first in history).

However, it now appears that even that assessment was too rosy.

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

Olduvai IV: Courage
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