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Marc Riboud Zazou, painter of the EIffel Tower 1953Central bankers have never done more damage to the world economy than in the past 10 years. One may argue this is because they never had the power to do that. If their predecessors had had that power, who knows? Still, the global economy has never been more interconnected than it is today, due mostly to the advance of globalism, neoliberalism and perhaps even more, technology.

Ironically, all three of these factors are unremittingly praised as forces for good. But living standards for many millions of people in the west have come down and/or are laden with uncertainty, while millions of Chinese now have higher living standards. People in the west have been told to see this as a positive development; after all, it allows them to buy products cheaper than if they had been made in domestic industries.

But along with their manufacturing jobs, their entire way of life has mostly disappeared as well. Or, rather, it is being hidden behind a veil of debt. Still, we can no longer credibly deny that some three-quarters of Americans have a hard time paying their bills, and that is very different from the 1950s and 60s. In western Europe, this is somewhat less pronounced, or perhaps it’s just lagging, but with globalism and neoliberalism still the ruling economic religions, there’s no going back.

What happened? Well, we don’t make stuff anymore. That’s what. We have to buy our stuff from others. Increasingly, we lack the skills to make stuff too. We have become dependent on nations half a planet away just to survive. Nations that are only interested in selling their stuff to us if we can pay for it. And who see their domestic wage demands go up, and will -have to- charge ever higher prices for their products.

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

Productivity and Debt

August 8, 2017

Productivity and Debt

William Blake Europe Supported by Africa and America 1796

Earlier this week I was struck by the similarities and differences between two graphs I saw float by. And the thought occurred that they are as scary as they are interesting. The graphs show eerily similar trends. And complement each other. The first graph, which Tyler Durden posted, shows productivity, defined as more or less the same as GDP per capita. It goes all the way back to 1790 and contends that 2017 productivity is about back to the level it was at in 1790. In the article, Tyler suggests a link with the amount of time people spend on Instagram et al, but perhaps there is something more going on.

That is, America and Western Europe exported almost their entire manufacturing capacity to China etc. And how can you be productive if you don’t manufacture anything? Yeah, I know, ‘knowledge economy’ and ‘service economy’ and all that, but does anyone still really believe those terms? Sure, that may have worked for a while as others were still actually making stuff (and nobody really understood the idea anyway), but it’s a sliding scale. As productivity plunged, so did GDP per capita. We can all wrap our heads around that.

America’s Productivity Plunge Explained

For the first time since the financial crisis, US multifactor productivity growth turned negative last year, mystifying economists who have struggled to find something to blame for the fact that worker productivity is declining despite a technology boom that should make them more efficient – at least in theory. To be sure, economists have struggled to find explanations for the exasperating trend, with some arguing that the US hasn’t figured out how to properly measure productivity growth correctly now that service-sector jobs proliferate while manufacturing shrinks. But what if there’s a more straightforward explanation? What if the decline in US productivity measured since the 1970s isn’t happening in spite of technology, but because of it?

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

James Howard Kunstler: The World’s Greatest Misallocation Of Resources

January 23, 2017

James Howard Kunstler: The World’s Greatest Misallocation Of Resources

And why we appear poised to repeat it

James Howard Kunstler returns to the podcast this week, observing that despite the baton being handed to a new American president, the massive predicaments we face as a society remain the same. And it seems the incoming administration is just as in denial of them as the old.

Kunstler adds fresh critique to his now decades-old warning that we are sleepwalking our way deep into the Long Emergency. The longer we delude ourselves and waste our energies in pursuit of reviving the failed “endless growth” model, the farther our journey back to a sustainable way of living will be when our current system collapses:

I don’t think there is any sense that they really know where we’re headed, what our destination is, and what the imperatives are and what the future is actually telling us that we need to do. Don’t forget that the so-called psychology of previous investment is a very powerful force in American life and it’s prompting us to do everything we can to maintain the investments we’ve already made. Those investments are the ones I have already mentioned: the freeways, the suburban housing developments, the strip malls.

A lot of the hope pinned on Trump is based on the idea that he’s assembling this team of mega-competent capitalist movers and shakers who know how to make deals — the Wilbur Rosses and Rex Tillersons of the world — and that they are going to conjure up a tremendous surge of economic activity that will be majorly fruitful going forward in the future and produce a tremendous amount of new wealth. Of course the stock market has been pricing that in.

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

Canada’s Goods Producing Sector Caves

December 24, 2016

Canada’s Goods Producing Sector Caves

Exports get blamed, despite the crushed loonie.

Many countries, including the US, report GDP on a quarterly basis. Canada reports on a monthly basis. So today Statistics Canada reported GDP for October. What’s disconcerting isn’t so much that GDP fell 0.3% on a monthly basis – these things happen – though it disappointed economists along the way…

The “results were surprisingly bad,” wrote Krishen Rangasamy, senior economist at Economics and Strategy, National Bank of Canada.

“The GDP report is an ugly snowball of reality to the face of the economy to end the year after a nice run earlier in the fall,” said Douglas Porter, chief economist BMO .

But what was disconcerting was just how much the goods producing sectors are getting hammered across the board.

This chart by NBF Economics and Strategy shows the decline in October (blue bars, left scale), and it also shows that this type of monthly decline, during our mediocre economic era, is not rare. The red line (right scale) shows the annualized rate for the last three months, which is still positive, but careening lower:

Output of the overall goods producing industries caved 1.3% from September. It was broad-based, with manufacturing, mining, quarrying, and oil & gas extraction, construction, utilities, agriculture, and forestry all declining. It more than wiped out the gains of the goods producing sectors in September.

Manufacturing, which contributes about 10% to GDP, has taken a big beating, despite the loonie that the Bank of Canada has successfully devalued over the past few years to make exports more competitive, particularly in the US. But manufacturing output fell 2% on a monthly basis, the largest monthly decline since December 2013. It has gone nowhere since February 2014 (red line):

Both durable and non-durable manufacturing fell. StatCan:

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

Is Globalization Really Fueling Populism?

May 8, 2016

Is Globalization Really Fueling Populism?

BRUSSELS – On both sides of the Atlantic, populism of the left and the right is on the rise. Its most visible standard-bearer in the United States is Donald Trump, the Republican Party’s presumptive presidential nominee. In Europe, there are many strands – from Spain’s leftist Podemos party to France’s right-wing National Front – but all share the same opposition to centrist parties, and to the establishment in general. What accounts for voters’ growing revolt against the status quo?

The prevailing explanation is that rising populism amounts to a rebellion by “globalization’s losers.” By pursuing successive rounds of trade liberalization, the logic goes, leaders in the US and Europe “hollowed out” the domestic manufacturing base, reducing the availability of high-paying jobs for low-skill workers, who now have to choose between protracted unemployment and menial service-sector jobs. Fed up, those workers are now supposedly rejecting establishment parties for having spearheaded this “elite project.”

Central Banking’s Final Frontier?

Anatole Kaletsky weighs the views of Raghuram Rajan, Adair Turner, Stephen Roach, and others on how far today’s increasingly exotic monetary policies can and should go.

This explanation might seem compelling at first. It is true, after all, that globalization has fundamentally transformed economies, sending low-skill jobs to the developing world – a point that populist figures never tire of highlighting.

Moreover, educational attainment correlates strongly with income and labor-market performance. Almost everywhere, those with a university degree are much less likely to be unemployed than those without a secondary education. In Europe, those with a graduate degree are, on average, three times as likely to have a job as those who have not finished secondary school. Among the employed, university-educated workers earn, on the whole, much higher incomes than their less-educated counterparts.

But if these factors account for the rise of populism, they must have somehow intensified in the last few years, with low-skill workers’ circumstances and prospects deteriorating faster vis-à-vis their high-skill counterparts. And that simply is not the case, especially in Europe.

In fact, higher education has provided significant labor-market advantages for a long time. Judging from the available data, the “wage premium” for workers in occupations that require high levels of education has been roughly constant in Europe over the last decade. While it has increased in some countries (Germany and Italy), it has decreased in others (France, Spain, and the United Kingdom). The difference in employment rates of the highly educated and the less educated has also remained relatively constant, with the less educated actually closing the gap slightly in recent years.

A comparison between trends in the US and Europe further weakens the “losers of globalization” argument. The wage premium is substantially larger in the US (300-400%) than in Europe (50-80%). Other labor-market statistics, such as unemployment rates, show a similar pattern, indicating that higher education is more valuable in America’s labor market. Yet the US economy is less open to – and less affected by – trade than the European economy is.

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

Plunging Manufacturing Numbers Mean That It Is Time To Hit The Panic Button For The Global Economy

March 2, 2016

Plunging Manufacturing Numbers Mean That It Is Time To Hit The Panic Button For The Global Economy

We haven’t seen numbers like these since the last global recession. I recently wrote about how global trade is imploding all over the planet, and the same thing is true when it comes to manufacturing. We just learned that manufacturing in China has now been contracting for seven months in a row, and as you will see below, U.S. manufacturing is facing “its toughest period since the global financial crisis”. Yes, global stocks have bounced back a bit after experiencing dramatic declines during January and the first part of February, and this is something that investors are very happy about. But that does not mean that the crisis is over. All bear markets have their ups and downs, and this one will not be any different. Meanwhile, the cold, hard economic numbers that keep coming in are absolutely screaming that a new global recession is here.

Just consider what is happening in China. Manufacturing activity continues to implode, and factories are shedding jobs at the fastest pace since the last financial crisis…

Chinese manufacturing suffered a seventh straight month of contraction in February.

China’s official Purchasing Managers’ Index (PMI) stood at 49.0 in February, down from the previous month’s reading of 49.4 and below the 50-point mark that separates growth from contraction on a monthly basis.

A private survey also showed China’s factories shed jobs at the fastest rate in seven years in February, raising doubts about the government’s ability to reduce industry overcapacity this year without triggering a sharp jump in unemployment.

For years, the expansion of the Chinese economy has helped fuel global economic growth. But now things have shifted dramatically.

At this point, things are already so bad that the Chinese government is admitting that millions of workers are going to lose their jobs at state-controlled industries in China…

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

Is This the Beginning of the Next Recession?

February 26, 2016

Is This the Beginning of the Next Recession?

“Significant risk” of “falling into contraction” with “worse to come.”

The US economy is largely service based. So when the “manufacturing renaissance” and “on-shoring” that everyone had been waiting for turned into no-shows, and when instead manufacturing started slowing in early 2015, it was no big deal, according to the meme.

OK, it was terrible for the folks who lost their jobs. But manufacturing accounts for only 12% of the US economy and employs only about 9% of the workforce. So overall, it’s not the end of the world, we heard constantly. And besides, we could always make it up with fast food.

Manufacturing alone can’t drag the US into a recession, we were assured. And the service economy would continue to be strong. That was the meme.

Then, a few days ago, Evan Koenig, Senior Vice President at the Dallas Fed, gave a presentation that showed that manufacturing contractions preceded service contractions in the run-up of the past two recessions. When service sector growth begins to dwindle – so still growth, but slower growth – after the manufacturing sector has already begun to shrink, that’s the point he called “prelude to recession.” And when the service sector begins to actually shrink, that event marks what officials will later call the beginning of the recession [read… “Prelude to Recession”: the Dallas Fed’s Unsettling Charts].

That “prelude to a recession” happened a few months ago. At the time, manufacturing was already shrinking; and the services index had just started heading south. But now the services index entered a contraction as well. So this could mark the beginning of what will much later be officially called a recession.

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

China’s Hard Landing Suddenly Gets a Lot Rougher

August 9, 2015

China’s Hard Landing Suddenly Gets a Lot Rougher

This has become a sign of the times: Foxconn, with 1.3 million employees the world’s largest contract electronics manufacturer, making gadgets for Apple and many others, and with mega-production facilities in China, inked a memorandum of understanding on Saturday under which it would invest $5 billion over the next five years in India!

In part to alleviate the impact of soaring wages in China.

Meanwhile in the city of Dongguan in China, workers at toy manufacturer Ever Force Toys & Electronics were protesting angrily, demanding three months of unpaid wages. The company, which supplied Mattel, had shut down and told workers on August 3 that it was insolvent. The protests ended on Thursday; local officials offered to come up with some of the money owed these 700 folks, and police put down the labor unrest by force.

These manufacturing plant shutdowns and claims of unpaid wages are percolating through the Chinese economy. The Wall Street Journal:

The number of labor protests and strikes tracked on the mainland by China Labour Bulletin, a Hong Kong-based watchdog, more than doubled in the April-June quarter from a year earlier, partly fueled by factory closures and wage arrears in the manufacturing sector. The group logged 568 strikes and worker protests in the second quarter, raising this year’s tally to 1,218 incidents as of June, compared with 1,379 incidents recorded for all of last year.

The manufacturing sector is responsible for much of China’s economic growth. It accounted for 31% of GDP, according to the World Bank. And a good part of this production is exported. But that plan has now been obviated by events.

Exports plunged 8.3% in July from a year ago, disappointing once again the soothsayers surveyed by Reuters that had predicted a 1% drop. Exports to Japan plunged 13%, to Europe 12.3%. And exports to the US, which is supposed to pull the world economy out of its mire, fell 1.3%. So far this year, in yuan terms, exports are down 0.9% from the same period last year. As important as manufacturing is to China, this debacle is not exactly conducive to economic growth.

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

Manufacturing in Canada Sags, Triggers Chilling References to Financial Crisis

June 16, 2015

Manufacturing in Canada Sags, Triggers Chilling References to Financial Crisis

It’s also happening in the US, but it’s much worse in Canada.

In the US, May industrial production dropped “unexpectedly,” as it was roundly called on Monday, by 0.2%, according to the Federal Reserve. The index value has now dropped from month to month since December, except in March when it was unchanged. The Empire State Manufacturing Survey, also released on Monday, confirmed this sort of scenario, ending up in the negative (-2.0) for the second time in three months.

But in Canada, manufacturing is getting hit hard – and not just because of the oil bust, though it plays a big role. Originally the hope was that a lower Canadian dollar would boost manufacturing through increased exports. The loonie dropped 17% against the US dollar from January 2014 through mid-March 2015, though it has ticked up a smidgen since. But the theory didn’t work out.

Manufacturing sales fell 2.1% to C$49.8 billion in April, seasonally and inflation adjusted, Statistics Canada reported today. The index can be jumpy from month to month. For example, sales of food dropped 5.7% in April, the largest monthly drop since August 2013, after rising 3.4% in March. But the problem isn’t limited to one month. Sales are now down 7.3% from July 2014, the largest and steepest such decline since the Financial Crisis. This is what this trend looks like:

The biggest culprits in April were food (-5.7%), aerospace products and parts (-17.8%), petroleum and coal products (-2.7%), motor vehicles (-2.5%), and machinery (-2.7%). Of note, sales of machinery for the mining and oil & gas sectors plunged 30% year over year.

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

The Apex of Industrialism:Manufactured Fake Shit

June 3, 2015

The Apex of Industrialism: Manufactured Fake Shit

The Dr. Pooper Papers, Issue #2:

While it would be nice to think that in times before the industrial era that farming was a wholly benevolent practice, the truth of the matter is that similar to today, agriculture actually began with annual monocultures.

Nonetheless, there did emerge over the millennia various farming methods and practices of which were adapted to the unique and sometimes changing conditions of their particular places. Likewise, many different practices have been employed by many different cultures in order to maintain fertility of the land.

Those people of the Far East, as described by F.H. King in his (1911) book Farmers of Forty Centuries: Organic Farming in China, Korea and Japan, meticulously made efforts to return all organic materials back to the soil: food scraps, animal manures, straw, as well as night soil (human waste). As King put it,

when I asked my interpreter if it was not the custom of the city during the winter months to discharge its night soil into the sea, as a quicker and cheaper mode of disposal, his reply came quick and sharp, “No, that would be waste. We throw nothing away. It is worth too much money.” In such public places as railway stations provision is made for saving, not for wasting, and even along the country roads screens invite the traveler to stop, primarily for profit to the owner, more than for personal convenience.

Similar-minded practices include growing certain crops with the specific intent of plowing them back into the ground to reinvigorate the land with organic materials, while others, to varying degrees, have drawn upon outside sources to supplement fertility.

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

Chinese Company Moves to Replace 90% of its Workforce with Robots

May 7, 2015

Chinese Company Moves to Replace 90% of its Workforce with Robots

I’m not one of those people who thinks robots taking over menial labor from human employees is a bad thing. On the contrary, I think such a displacement could ultimately prove very positive for the species. Nevertheless, the short-term pain and suffering that this could cause for displaced workers and their families likely will have tremendous negative repercussions to the societies that are most affected in the near and intermediate-term.

Since robots entering the workforce is probably one of the most significant economic trends in the decades ahead, we should all start thinking about how to deal with what will be a major adjustment for hundreds of millions, if not billions, of people.

From the South China Morning Post:

Construction work has begun on the first factory in China’s manufacturing hub of Dongguan to use only robots for production, the official Xinhua news agency reported.

A total of 1,000 robots would be introduced at the factory initially, run by Shenzhen Evenwin Precision Technology Co, with the aim of reducing the current workforce of 1,800 by 90 per cent to only about 200, Chen Xingqi, the chairman of the company’s board, was quoted as saying in the report.

Robots are set to take over in many factories in the Pearl River Delta, the area of southern China known as the ‘world’s workshop’ because of the huge export manufacturing industry there, as labour shortages bite and local authorities face the need to spur innovation to counter the economic slowdown.

Since September, a total of 505 factories across Dongguan have invested 4.2 billion yuan in robots, aiming to replace more than 30,000 workers, according to the Dongguan Economy and Information Technology Bureau.

By 2016, up to 1,500 of the city’s industrial enterprises will began replacing humans with robots.

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

We Now Live in a “Pimpocracy”

March 29, 2015

We Now Live in a “Pimpocracy”

Shabby Immensity

Today, we continue mouth wide open … staggered by the shabby immensity of it … a tear forming in the corner of our eye.

Yes, we are looking at how the US economy, money and government have changed since President Nixon ended the gold-backed monetary system in 1971. It is not pretty.

We already know about the money. Since 1971, it’s been a credit-based, not a gold-based, system. The pre-1971 economy had three key characteristics:

1) It was healthy – Industry made things and sold them at a profit

2) It was fair – Financial progress was fairly evenly distributed.

3) It was solvent – The US was a creditor, not a debtor, nation.

cartoon_bushPimp_stockmarketHooker_472x373

Cartoon by David Horsey

baldwinPI_fig2 Change in global share of manufacturing output, selected countries (via Vox EU)

Platitudes and Hypocrisies

Americans still say they believe in free markets, democracy and financial rectitude. But only as platitudes and hypocrisies. America’s industries have largely been shipped over to China and other lower-cost producers in the emerging world.

That didn’t “just happen.” The Fed’s EZ money financed it. American consumers borrowed to spend more than they could afford. Walmart met their desires (if not their needs) with “Everyday Low Prices,” courtesy of low-paid Chinese workers.

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

Manufacturing Hit by Oil-Price Plunge? Southeast Worst Since Financial Crisis

January 21, 2015

Manufacturing Hit by Oil-Price Plunge? Southeast Worst Since Financial Crisis

Atlanta Fed suspects oil bust, strong dollar.

Despite President Obama’s emphatic assurances in the State of the Union Address that “our economy is growing and creating jobs at the fastest pace since 1999,” there have recently been some uncomfortable squiggles, so to speak.

The collapse in the prices of oil, natural gas, and natural-gas liquids has started to make its imprint on the largest hydrocarbon producer in the world, namely the US of A. Oilfield layoffs and project cancellations are raining down on the oil patch on a daily basis. Suppliers are hit too. Many energy stocks are in the process of evisceration. Energy junk bonds are in a rout.

But consumers love it – those who aren’t losing their jobs over it – because they spend less on fuel. Consumers are voters. So politicians love it because voters love it. Hence, it’s good for the economy. I get that.

These sorts of squiggles have been worming their way into national numbers. For example, Markit’s Services PMI for December dropped to 53.3, down for the sixth month in a row, after having peaked in June. This was “not just a one-month wobble,” the report said, as the economy “lost significant growth momentum at the close of the year.” But it remained above 50, the dividing line between expansion and contraction. It’s still an expansion, and “growth is merely slowing from an unusually powerful rate rather than stalling.”

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

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Central Banking’s Final Frontier?

Anatole Kaletsky weighs the views of Raghuram Rajan, Adair Turner, Stephen Roach, and others on how far today’s increasingly exotic monetary policies can and should go.

Shabby Immensity

Platitudes and Hypocrisies

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