In response to an FT article by Martin Wolf on 10th November 2015, entitled 'In the long shadow of the great recession'
“In the long shadow of the Great Recession…a recovery is under way".
Wrong. We are not in the ‘long shadow of the Great Recession”. We are leaving the eye of a financial storm that hit us in 2008, and entering into the trailing edge of it.
We are not in a ‘recovery’; we are entering a global recession, which will affect everyone. Neither the US nor the UK will be immune, and no amount of jawboning or money printing will prevent the final reaping of what our central planners have been sowing for the past two decades.
A few weeks ago all the talking heads were saying, ‘it’s bad - no rate hike from the Fed this year’. Fast forward a few weeks…we get a non-farm payrolls report that includes a veritable feast of part-time, low wage jobs, boosted with seasonal adjustments and figures that are ‘invented’ by the birth-death model…throw in a few vague adjectives from the jawbone of Janet Yellen…and now we have ‘rate hikes are a done deal for December’.
My point is this – the Fed, the financial media, and the ‘talking heads’ that hang on their every word couldn’t forecast a stone falling back to earth if they’d personally tossed it into the air. Employment figures are a lagging indicator. If we were in a recovery, global trade would be telling us that. It is not – it is telling us that we are entering a dramatic slowdown:
First let’s look at China – the engine that has kept the world ticking over since 2008:
1. In October, Chinese exports were down 6.9% compared to a year ago. That follows a decline of 3.7% in September
2. Again in October, Chinese imports were down 18.8% compared to a year ago after falling 20.4% in September
3. Demand for steel is down 8.9% compared to last year
4. Rail freight volume is down 10.1% compared to last year
5. China’s Containerized Freight Index has dropped to the lowest level it has been since its creation in 1998 at a base of 1000. It is now at 742 down 31% since February
And China is not the only Asian engine sputtering - In October, South Korean exports were down 15.8% from a year ago
How about Europe?
We can always rely on Germany right? Wrong - German export orders were down 18% in September
What about the US?
a) U.S. exports are down 11% for the year so far. The only other times they have fallen this hard since the turn of the century were during the last two recessions
b) The ISM Manufacturing Index, which is the most important measurement of U.S. manufacturing activity, has fallen for four months in a row
c) The Dallas Fed’s Manufacturing Outlook has dropped for 10 months in a row
d) The inventory to sales ratio has risen to the highest level since the last recession. This means that there is a large quantity of unsold inventory that is just sitting there
e) Wal-Mart is projecting that its earnings will fall by 12% in 2016
How about commodities - what are they telling us?
According to the Dutch Government's commodity index, a year ago global trade in primary commodities was sitting at a reading of 150, but now it has fallen to 114
So…these are not the trade figures you see after 6 years of ‘recovery’ – this is global trade saying “buckle up’– recession is here, your useless forecasters will eventually get it in about 9 months time”
Coming to the conclusion of the article:
"Experience indicates something else no less important. It may be hard to avoid crises but it is vital to make them both small and rare. Financial crises lead to deep recessions and prolonged slowdowns, partly because policymakers fear making sufficiently strong responses".
How on earth are a group of policy makers who couldn’t find their own noses in a fog, who’ve never seen a crisis coming in their entire lives – supposed to avoid them, make them small, or make them rare?
In the near future, there is no stopping what’s coming. There will be a deflationary collapse, followed by massive programmes of QE and fiscal expenditure, possibly negative interest rates, all of which may finally give the central planners the inflation they have been praying for, though probably too much for their comfort.
Whatever, eventually there will be global reset, probably overseen by the IMF (God help us). The dollar will not be the global reserve currency anymore, and neither will the Yuan or anything else. I have absolutely no doubt that the IMF is already sitting on plans to recapitalize the world with the SDR.
What comes after that? Maybe the best of humanity will shine through; maybe the worst kind of politics; maybe we still don't get the message and carry on making the same dumb mistakes with our Ponzi monetary schemes and tooth fairy economics. But whatever happens, I sincerely hope that we finally rid ourselves of the politicians, the central planners and the ‘economists’ who have been the architects of this fiasco:
1. The politicians and policy wonks who thought that the socialisation of credit risk was such a great idea they abolished Glass-Steagall - completing the ‘casinoisation’ of the banking system – yes, step forward Professor Summers et al
2. The rating agencies that were so keen not to upset their future employers on Wall Street that they gave AAA to mountains of securitised ‘junk' they didn’t understand
3. The academics and central bankers who have spent the last 8 years blowing the bubbles that are just about to burst, by suppressing interest rates and pumping trillions of dollars of QE into the economy – dollars which have done nothing to boost productive investment, nothing to raise living standards for ‘normal’ people, and everything to enrich the banks and the bankers, which the market selected for bankruptcy in 2008
4. Finally, the looters and skimmers in the banks, and their lackeys in Congress, whom I believe history will rightfully cast as criminals