Why A Crisis Is Coming – – Two Charts Which Explain It All

The great ‘science’ of economics once discovered an empirical relationship between GDP and unemployment that has been dubbed Okun’s Law. It simply states that the unemployment rate rises as GDP contracts, or vice versa, as production shrinks less people will be employed. It is not exactly rocket science.
However, this made us think about another relationship we have observed lately. US government real tax receipts have been trending downwards while employment has kept up remarkably well. If we draw a chart of US withholding taxes (smoothed from all the short-term noise) and overlay that with employment growth, we find a worrisome divergence that has historically not been the

This post was published at David Stockmans Contra Corner by Eugen Von Bohm-Bawerk ‘ September 3, 2016.

Heaps Of Lies

Since truth hardly matters anymore, we all get numb to the day-to-day barrage of falsities and outright lies that come at us every day. But something clicked today and caused me to simply stop and take it all in.
And even “take it all in” is an exaggeration on my part. I couldn’t take it all in if I wanted to. I simply paused this morning as I perused the headlines and let the lies and corruption wash over me for a moment.
Let’s start with The Federal Reserve. Not only is this organization named in a way that is intentionally trying to deceive you, their mission of sparking inflation through the endless creation of new fiat cash (upon which their owners can charge interest) is theft on a grand scale. All of your hard work, in the form of your accumulated savings, is being constantly devalued and stolen by these criminal bankers. But no, you’re told that The Fed is this omnipotent, altruistic and benevolent organization that works for the American people. Wrong! They work for their owners, first and foremost. And who are their owners? Their member Banks.
And then there’s this notion that The Fed must now raise the Fed Funds rate because “the economy is robust and strong”. Really? Last I checked, Q1 GDP came in at just 1.1% and the just-revised estimate of Q2 GDP is also just 1.1%. Even today, productivity has declined again while US manufacturing levels have collapsed to economic contraction levels.
Again, you’re being lied to. A Fed Funds rate hike by The Fed is NOT designed to benefit you or the general economy. Instead, it’s designed to benefit The Fed’s member Banks. How and why is hard to know but, like every other Fed decision from TARP to QE, the moves the FOMC and Fed make are ALL designed with The Banks’ best interests at heart, not yours. Is this what you are told on CNBS or BBG? Of course not. Instead, just lies and deception in order to pump an agenda.

This post was published at TF Metals Report on September 1, 2016.

The Monetary Wildfires In Canada

The massive wildfires in Alberta earlier this year had a tremendously negative effect upon not just the oil sector but all of Canada. Not surprisingly, Canadian GDP released today was abysmal. Falling 1.6% in Q2, that was the worst quarter since 2009. Fortunately for the Bank of Canada who had been ‘stimulating’ again since last July when it cut the overnight rate by 25 bps to 0.50%, the wildfires give its policies some cover to explain what would have been otherwise already dismal.
Pre-report estimates showed that the wildfires were expected to contribute about 1% to 1.1% of the GDP decline. Thus, even without the hellish conflagration across a huge chunk of Alberta’s oil production fields Canadian GDP would still have contracted in Q2. After such an atrocious and devastating year last year, as ‘transitory’ oil prices crashed the Canadian economic margins, 2016 was supposed to be the year to forget all that.
Instead, what we find in Canadian GDP is what we find almost everywhere else – unstable growth. From the start of 2015, GDP has contracted in half of the six quarters since; and of the other three, one, Q4 2015, was near zero, leaving just two quarters as significantly positive where even the best was just 2.5%.

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ August 31, 2016.

The Mother Of Peak Debt – – Japan’s Total Debt-to-GDP Ratio Stands At 600%

There’s ‘very little’ that Japan can do about its mounting debt pile, which presents a potential risk to growth, according to Pacific Investment Management Co.’s Jamil Baz.
With a government debt load that’s 2 1/2 times the size of annual gross domestic product and a total national borrowing burden that’s six times as large, ‘Japan is suffering from the excesses of the past’ and the country ‘is in a bind right now,” the fund manager’s head of client analytics said in an interview in Sydney last week.
Japan’s economy is still struggling to gain traction even after policy makers hit it with repeated doses of budgetary stimulus and unprecedented monetary easing to drag the country out of its deflationary funk. The Bank of Japan’s adoption of negative interest rates has pushed down debt financing costs for now, but repeated delays to a planned sales tax increase, a new 28 trillion yen ($272 billion) fiscal boost from Prime Minister Shinzo Abe and the pressures of an aging population mean the borrowing pile is likely to keep on growing.

This post was published at David Stockmans Contra Corner By Narayanan Somasundaram and Benjamin Purvis via Bloomberg Business ‘ August 31, 2016.

China’s Credit Party Winds Down in Headwind for GDP Growth

Chinese companies’ borrowing costs have never been so low. That’s little consolation to firms cutting debt rather than investing amid a slowing economy.
The amount of local yuan bond sales minus maturities fell 39 percent in August from a year earlier for non-financial firms to 124 billion yuan ($18.6 billion), data compiled by Bloomberg show. Net issuance since March 31 has slowed to 496 billion yuan after a record 810 billion yuan in the first quarter of 2016. Yields on AA and AA rated five-year securities dropped to record lows this month.
The decline in bond financing and the lowest fixed-asset investment growth since 1999 suggest central bank monetary easing will have trouble reviving growth that’s forecast to slow through next year. China must balance cutting corporate debt, which more than doubled in five years to 111.7 trillion yuan at the end of 2015, with steps to revive the world’s second-biggest economy.
‘Firms are adjusting their balance sheets by slowing further investments and hoarding cash because they see more uncertainty with economic growth,’ said Xia Le, chief Asia economist in Hong Kong at Banco Bilbao Vizcaya Argentaria SA. ‘For the aggregate economy, it means slower growth because fewer companies are expanding.’

This post was published at David Stockmans Contra Corner on August 30, 2016.

Bubbles In Bond Land – -A Central Bank Made Mania, Part 2

Why The Eurozone Is A Financial Powder Keg
………. In short, Europe is a financial and political powder keg. The ECB is bluffing a $40 trillion debt market (including bank loans) and the Brussels apparatchiks are bluffing 340 million citizens.
The only problem is that the true facts of life are so blindingly obvious that it’s only a matter of time before these bluffs are called. And then the furies will break loose.
In the first place, the EU-19 is marching toward the fiscal wall and even Germany’s surpluses cannot hide the obvious. During the last six years, the collective debt-to-GDP ratio among the Eurozone nations has gone from 66% to 91% of GDP. The sheer drift of current policy momentum will take the ratio over the 100% mark long before the end of the decade.

This post was published at David Stockmans Contra Corner on August 23, 2016.

Why A Weak US Consumer Makes A Grim Outlook for the Economy, Stocks

For some time, Stephanie Pomboy, an economist and the founder of MacroMavens, has pushed a provocative theory that a crisis-chastened U. S. consumer would retard global growth. That is why a U. S. recovery has taken so long to take off, and why Japan and Europe look set to embark on more rounds of quantitative easing.
An avid reader of Shakespeare, Pomboy appreciates the comic and tragic dimensions of the markets – the giddy optimism for the second half of the year, and the potentially disastrous consequences of excessively low rates. As stocks teetered at new highs, we phoned Pomboy in Vail, Colo., where she lives when not in Manhattan, to hear her latest views. They aren’t rosy: Investors and policy makers are deluding themselves that we will soon return to a pre-financial crisis framework. Things have changed, she says, which means expectations for economic growth in the second half are far too optimistic. And today’s low rates could cause another financial crisis, bankrupting pension plans, putting retirees at risk, and hurting stocks.
Barron’s: You like to focus on the consumer – and plot U. S. consumer spending as a percentage of GDP versus world trade. Why?
Pomboy: What ignited and supported the entire era of globalization was the spendthrift U. S. consumer; economies have been totally reliant on trade to U. S. consumers. This once-in-a-generation asset deflation will fundamentally change behavior, just as the Depression changed an entire generation’s attitude about spending and saving.

This post was published at David Stockmans Contra Corner on August 22, 2016.

Global Deflation Alert: Australia’s Unprecedented Collapse of CapEx in One chart

You’ve probably heard of the ‘capex cliff’, the term for the collapse in capital expenditure plans by Australian businesses that is an inevitable feature of the economy following the once-in-a-lifetime mining investment boom driven mainly by the surge in Chinese demand over the past two decades.
But with Australia’s manufacturing industry having been hollowed out too over the past decade, the capital investment pipeline for both mining and manufacturing are gone. So the fall-off, when measured in terms of a percentage of GDP, is nothing short of spectacular in historical context, as shown in this chart from Macquarie:

This post was published at David Stockmans Contra Corner By PAUL COLGAN, Business Insider ‘ August 22, 2016.

Abenomics At Work: Japan’s July Exports Drop 14 Percent in Biggest Fall Since 2009

Japan’s exports declined the most since 2009, with shipments down for a 10th consecutive month. The continued drop highlights the difficulty of kick-starting growth and pulling Japan’s economy out of the doldrums.
Key Points
Overseas shipments fell 14 percent in July from a year earlier, the Ministry of Finance said on Thursday. The median estimate of economists surveyed by Bloomberg indicated a 13.7 percent decline. Imports dropped 24.7 percent, leaving a trade surplus of 513.5 billion yen ($5.2 billion). Big Picture
Weak exports have been a drag on Japan’s growth, with net exports cutting 0.3 percentage point off gross domestic product growth in the second quarter.

This post was published at David Stockmans Contra Corner By Connor Cislo via Bloomberg Business ‘ August 18, 2016.

On The Impossibility Of Helicopter Money And Why The Casino Will Crash

…….. As the stock market reached its lunatic peak near 2200 in August, the certainty that the Fed is out of dry powder and that the so-called economic recovery is out of runway gave rise to one more desperate pulse of hopium.
Namely, that the central banks of the world were about to embark on outright ‘helicopter money’, thereby jolting back to life domestic economies that are sliding into deflation and recession virtually everywhere – – from Japan to South Korea, China, Italy, France, England, Brazil, Canada and most places in-between.
That latter area especially includes the United States. Despite Wall Street’s hoary tale that the domestic economy has ‘decoupled’ from the rest of the world, the evidence that the so-called recovery is grinding to a halt is overwhelming.
After all, the real GDP growth rate during the year ending in June was a miniscule 1.2%. It reflected the weakest 4-quarter rate since the Great Recession.
And even that was made possible only by an unsustainable build-up in business inventories and the shortchanging of inflation by the Washington statistical mills. Had even a semi-honest GDP deflator been used, the US economy would have posted real GDP on the zero-line, at best.

This post was published at David Stockmans Contra Corner on August 17, 2016.

Broader Alarm And Business Cycles

The NBER does not define a recession as two consecutive quarters of contracting GDP. That is the mainstream definition that largely survives as a coping mechanism to deny what might otherwise be quite apparent. That was certainly true in 2008, as only Q1 GDP declined and it wasn’t until Q4 2008 that this mythical ‘technical’ definition was met. The NBER only made it worse by waiting until December that year to declare what was by then obvious to everyone, already one year in length.
The organization actually employs a Business Cycle Dating Committee whose job it is to decide both cycle peaks and troughs. The Committee, according to the NBER, considers a broad range of data that includes GDP, but relies primarily on four sources or accounts. The first two are broad monthly figures, real personal income less transfer payments and employment, while the second two are basically manufacturing, industrial production and inflation-adjusted total sales aggregated for the whole supply chain.
Updated figures for Industrial Production continue to show contraction, even if only slightly. The decline now stretches about a year, which suggests something more significant than simple and expected variation. And we already know that total sales across the whole of the ‘goods economy’, from manufacturing to wholesale to retail, are declining, with particularly acute weakness again in retail sales and the lingering, heightened inventory imbalance. The NBER committee takes into account ‘inflation’ here, but with total business sales already a negative number just in nominal terms the specific level of ‘real’ decline isn’t really the issue.

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ August 17, 2016.

More ‘Dollar’ Details in Autos

With auto sales coming in exceptionally weak in the retail sales report today and given the importance of the auto sector in an otherwise awful economy, it makes sense to go further in detail to try to tease out corroboration. The Bureau of Economic Analysis provides a wealth of supplementary data on motor vehicles that it uses to construct GDP. It gives us a breakdown across vehicle segments, as well as domestic vs. imports.
Since the dollar figures prominently in everything over the past two years, we should be able to find a couple of expected effects related to its ‘rise.’ The first is any oil price follow-through, as consumers should have been further attracted via the advertised savings in gasoline. The second is the traditional idea of the import effect via the ‘strong’ dollar. In other words, as the exchange rate rises, absent any changes in overall demand, the mix of US auto sales should distinctly favor imports.
There is evidence for both of those within the BEA figures, but only in narrow circumstances. As to the first, sales of automobiles have been declining since August 2014 in favor of light trucks. That might be due to gasoline prices, although it may also be an income effect as trucks are typically more expensive, on average, than passenger cars. This level of analysis, however, only gives us unit figures which are a companion to the retail sales numbers from earlier.

This post was published at David Stockmans Contra Corner by Jeffrey P. Snider via August 13, 2016.

The Stock Market Is Disappearing In One Giant LBO – – The Wilshire 5000 is Now Down To 3607 Companies

Numbers and false advertising have a long history: 4.9% unemployment, 2.5% GDP growth, 72 virgins. Now we can add the Wilshire 5000 to the list.
What started with good intentions ended with embarrassment as American economic dynamism collapsed in a cascade of falling profit margins, financial engineering, labor devaluation, and lopsided ‘free trade’ agreements. In 1974, Wilshire Associates created the Wilshire 5000, an index of 5,000 stocks that represented nearly the entire stock market. As new companies went public, the index expanded over the years, reaching a peak of 7,562 on July 31, 1998. Since then, the number of companies has been cut in half to 3,607 as of March 31, 2016. Wilshire notes, ‘The last time the Wilshire 5000 actually contained 5,000 or more companies was December 29, 2005.’

This post was published at David Stockmans Contra Corner on August 7, 2016.

There’s been a ‘serious and dangerous’ slowdown in productivity

When the US gross-domestic-product growth was released last Friday, the numbers were disappointing. The US economy grew at an annualized rate of just 1.2% in the second quarter, much weaker than expected. When combined with the results of the first quarter, the economy is growing at about a 1% annual rate, according to The Wall Street Journal – the worst first-half performance since 2011.
Many economists think one of the big reasons for this weak expansion is a slowdown in total-factor productivity, a phenomenon that has been occurring in the US – and, to some extent, other developed countries – since 2004.
A Deutsche Bank research note, which was sent out before the release of the GDP numbers, lamented productivity as ‘abysmal’ and a ‘substantial risk to the growth outlook.’
‘Annualized productivity growth has been just 0.9% during the current expansion, and even this low reading has been buoyed by large productivity gains early in the cycle due to massive economy-wide layoffs in the aftermath of the recession,’ the report said.
And the recent trend has been even weaker, the note said: ‘Productivity has grown at just 0.7% over the last four quarters and at an annualized pace of only 0.6% since the start of 2010.’
This ‘productivity puzzle’ was the subject of a recent episode of ‘Alphachatterbox,’ the Financial Times’ podcast about economics and business. ‘Puzzle’ refers to the seemingly paradoxical idea that our productivity isn’t going up, despite all the innovation around us, said Isabella Kaminska, the host of the podcast.

This post was published at David Stockmans Contra Corner on August 5, 2016.

Not “The Onion”: Argentina’s Fernandez Says She Deserves A Nobel Prize In Economics

Cristina Fernandez de Kirchner, former First Lady and President of Argentina (2003-2015), confessed in an interview that ‘instead of having the courts chase us, they should be giving us a Nobel prize for economics… We inherited a country in default and we left it without any debt. ‘ Brilliant.
Amongst her accomplishments, Cristina boasts one sovereign debt default after failing to negotiate with creditors (2014), cooking the national economic figures for 8 years, an IMF censure for faking such data, devaluing her currency from 4:1 to 15:1 USD, and leaving her successful with 50% inflation. Perhaps the BoJ could use her advice?
She and her cabinet have also been the subject of multiple corruption scandals following her departure of office. She has naturally expressed shock, condemned any corrupt officials and denied any knowledge of such actions.
For those who like to focus on her track record, Bloomberg has compiled a helpful GDP growth that compares GDP in Cristina’s mind versus GDP growth in the real world.

This post was published at Zero Hedge on Aug 3, 2016.

(Don’t)Mind The Economic Statistics – – Big Revisions Whipsaw Their Message

The Personal Savings Rate is a rather important economic indication. Because it is derived from the difference between income and spending, it can tell us a great deal about the state of the economy from the consumer perspective. Unfortunately, nobody can say with any degree of confidence what the savings rate is right now, or even what it has been over the past few years.
Back in March, it was thought that the savings rate for November 2015, a rather important month situated between (so far) both bouts of ‘global turmoil’, was 4.9% and down slightly from 5.1% in October. The rate was fairly steady throughout 2015, only achieving an upward bend in December last year on into 2016.
Income and spending figures have since been revised, with incomes, like GDP, especially at the start of 2013 pushed upward. Spending, overall, was revised slightly lower. The combination of those two revisions is to produce a savings rate history that is completely unlike what was believed just a month ago. The figures now suggest that personal savings were 6.0% of income in November 2015, not 4.9%. Further, not only was the savings rate higher it had started rising as far back as late 2014.

This post was published at David Stockmans Contra Corner on August 2, 2016.

The QE Forever Cycle Will Have A Catastrophic End

Policymakers have chosen to ignore the central issue of debt as they try to resuscitate activity.
Since 2008, total public and private debt in major economies has increased by over $60tn to more than $200tn, about 300 per cent of global gross domestic product (‘GDP’), an increase of more than 20 percentage points.
Over the past eight years, total debt growth has slowed but remains well above the corresponding rate of economic growth. Higher public borrowing to support demand and the financial system has offset modest debt reductions by businesses and households.
If the average interest rate is 2 per cent, then a 300 per cent debt-to-GDP ratio means that the economy needs to grow at a nominal rate of 6 per cent to cover interest.
Financial markets are now haunted by high debt levels which constrain demand, as heavily indebted borrowers and nations are limited in their ability to increase spending. Debt service payments transfer income to investors with a lower marginal propensity to consume. Low interest rates are required to prevent defaults, lowering income of savers, forcing additional savings to meet future needs and affecting the solvency ofpension funds and insurance companies.
Policy normalisation is difficult because higher interest rates would create problems for over-extended borrowers and inflict losses on bond holders. Debt also decreases flexibility and resilience, making economies vulnerable to shocks.

This post was published at David Stockmans Contra Corner By Satyajit Das, Financial Times ‘ August 1, 2016.

USA Watchdog Interview

Greg Hunter does a nice job, and asked me to appear — here it is, embedded at the bottom.
The take-away from this, if you don’t feel like watching the interview, is quite simple: Without the Rule of Law we have nothing, and our nation currently faces a critical fiscal emergency at the federal level just a few years down the road — certainly, during the next President’s term.
There is no way out of that box without taking on the medical monopolies. None.
That’s the math.
2009 / Obamacare was an attempt to “buy more time” along with protecting said monopolies from a market-driven incipient collapse. This was rank public corruption on a grand scale, and it did nothing more than add a small amount of time, much like closing “watertight” doors on the Titanic when the water can cascade over bulkheads (as I expected it would and wrote on at the time) because all it could do is force more people onto a sinking ship. The compound growth nature of federal spending on medical care has remained unaltered; it was not flattened to zero, or even to the expansion of nominal GDP. Worse, the expansion rate for Medicaid, several years after its one-time expansion under Obamacare (in other words the one-time effects are gone), exceeds that of Medicare — so those who claim the cost escalation is due to people getting older are lying through their teeth.
The bigger-picture issue, and the one that threatens to turn this entirely-predicted fiscal catastrophe (one that I’ve talked about for 25 years and written about pretty-much continually for the last 8 right here in The Ticker) into an economic and social disaster never before seen in America (but seen repeatedly in other nations such as Venezuela and Argentina!) is that innovation has effectively collapsed at the same time.
Why?

This post was published at Market-Ticker on 2016-07-31.

About Those ‘Strong’ Consumers

In advance of today’s GDP release, it was expected that the Q2 estimate would be around 2.6% (it was only 1.2%). The major reason for the anticipated rebound was ‘strong’ consumers, a theme that has been a part of the dominant economic narrative since 2014 introduced the phantom ‘best jobs market in decades.’ No matter what happens in the economy, however, GDP or otherwise, consumer spending is always brought up as the basis for what will just around the corner erase all memory of persistent failure.
Before the GDP release, Fox Business had this to say under the headlineConsumers Seen Powering 2Q GDP:
The U. S. economy likely regained speed in the second quarter as robust consumer spending offset a sharp moderation in inventory investment and weak exports, pointing to underlying growth momentum that could be maintained for the rest of the year…
‘The economy clearly bounced back in the second quarter because consumers put the economy on their backs. Things are falling in place, the economy will continue to move forward,’ said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.
It doesn’t help that the Moody’s economist quoted above made much the same declaration last year at this same time about Q2 2015, but the media doesn’t care about anything other than perpetuating ‘strong’ on behalf of economists who seem to be unable to calibrate their views to anything other than what ‘should be.’ Even though the actual published GDP figure for the latest quarter was less than half of what it was thought to be under the ‘strong’ consumer, these expectations haven’t in any way changed with the new number.

This post was published at David Stockmans Contra Corner on July 29, 2016.

What Escape Velocity – – 3 Straight Quarters Of @1% GDP

The advance estimate for second quarter GDP came in lower than expected. At just 1.211%, the anticipated rebound from the dreadful winter failed to materialize in any significant way. Worse, benchmark revisions now suggest that GDP has been around 1% for three straight quarters; Q4 2015 was revised down from 1.377% to just 0.869%; Q1 2016 was revised back 0.831%.
Most of the benchmark revisions instead focused on seasonality, a particularly troubling result since it can only reduce faith in the statistical processes while at the same time further confirming what we have charged all along – that this economy is very different and thus statistics that were designed for ‘normal’ circumstances are largely inappropriate. Recognizing that they have a very real problem with all this, the BEA now proposes starting 2018 to also publish the unadjusted GDP figures.
The most visible example of revisions rewriting short-term economic history was the first half of 2015. Under the 2014 benchmarks, Q1 GDP was first estimated to have been 0.2% in the advance release, revised to -0.7% at the second estimate, and then -0.2% for the ‘final’ number. The benchmark revisions in July 2015 added the controversial ‘residual seasonality’ further seasonal adjustment, which brought the GDP rate to 0.6%. In accordance with the new July 2016 benchmarks released today, Q1 2015 GDP is now thought to be 2.0%. That is a significant difference.

This post was published at David Stockmans Contra Corner on July 29, 2016.