In case you haven’t noticed, the rest of the world continues to slow down and the negative data is accelerating. The big powerhouses of the world, the eurozone including Germany, Japan, and China are leading this trend and there is no reason to believe that the U.S. will not follow.
I’ve been writing about this theme frequently lately because, while we are seeing some positive numbers here in the U.S., we are also seeing signs of weakness starting to show up, and since we live in a world of international trade, the world’s woes will hit us.
The first thing to note about this phenomenon is that the central banks of the world, including the Fed, have been doing all they can to support their economies with plentiful money. According to a recent Bloomberg article, “Central banks across five continents are undertaking the broadest reduction in borrowing costs since 2009 to avert a global economic slump stemming from Europe’s sovereign-debt turmoil.”
Monetary easing will push the average worldwide central bank interest rate, weighted for gross domestic product, to 1.79 percent by next June from 2.16 percent in September, the largest drop in two years, according to data and projections from JPMorgan, which tracks 31 central banks. The number of those banks loosening credit is the most since the third quarter of 2009, when 15 institutions cut rates, the data show. …
The People’s Bank of China has raised its main interest rate three times this year to fight inflation. India’s central bank lifted rates on Oct. 25 by a quarter of a percentage point, while signaling it was nearing the end of its record cycle of increases as the economy cooled.
This is nothing new. Since the Crash of 2008, most central banks have been pumping fiat money into their economies.
The multiple EU sovereign insolvencies—you don’t need to default to be insolvent—are hitting eurozone credit hard, which is a trigger for deflation as money supply declines. Lenders are stuck with bad sovereign loans and there isn’t enough money to bail them all out, much less the PIIGS.
The thing to remember about the eurozone is that it’s not just sovereign insolvencies that is their problem. They became insolvent, yes because governments spent too much, but also because their economies are in the tank mainly for many of the same reasons the U.S. economy declined (money inflation boom, high debt/spending, housing market collapse triggering depression, high taxes and regulation, and various bailouts to prevent recovery). Until they fix the underlying causes, their banks will collapse and countries will default.
China’s economy relies on the West for its exports, and as a result:
- Manufacturing production falls at fastest rate in 3 months; the lowest service sector growth since August;
- Overall input costs fall for the first month since July 2010;
- Service sector business optimism second-lowest in series history.
China’s frequent monetary stimulus, along with government real estate policies, keeps feeding their real estate boom-bust cycles.
Once you look at the data, below, you will see where we and the world are headed.
While these economies are shrinking, demand for commodities, capital goods, and manufactured goods all decline. This is impacting commodity prices; they have been falling since this summer (mainly a supply-demand factor, not just a money deflation issue). Each country/zone will have a different reaction to all this. Most will continue to inflate (“print” money).
Money printing will have little impact on declining prices for the time being. Unless they panic. If they panic, that is, massively pump money, they will suffer from price inflation. China will have more booms and the eurozone will also stagnate as well. Japan will continue to go “Japanese”, and depending on what the Fed does, it is likely we’ll go Japanese as well.
Here is what it looks like:
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N.B. The word “depression” frightens a lot of people. It should. But, we are in one now. Our leaders just invented the word “recession” to take our minds off what’s really happening. Murray Rothbard in his book, America’s Great Depression noted that when the economy crashed again in 1937, FDR and his advisers didn’t want to use the “D” word so they came up with “recession.” Until that time there were no “recessions.” Now a “recession” is just a mini-depression. Since we, in my opinion, have not yet recovered from the Crash of 2008, we are in a depression. Just ask the 25 million Americans who either don’t have a job, can’t find one, stopped looking, or are working part-time because they can’t find full-time work. Just ask the 24% of home owners whose homes are financially underwater.
Great piece Jeff. Those who think that China will bail out the world, or that money printing will fix anything should read this article carefully.
I read this morning an article from Mish that more than 50% of 23 economists expect global “growth” for 2012 and no recession in the US! Of course economists are optomists until the last moment, and I don’t believe them anyway. Jeff’s charts tell it all, and add to them Harry Dent’s forecasts of demographically driven lack of spending (Baby Boomers retire and save, not spend) we have the perfect storm for DEPRESSION, just as Jeff writes. Governments may delay it a little through stupid stimulus packages, but I agree with Jim Rogers who also expects a global depression. Even Prechter forecasts Depression. Get ready for the storm. Oh yes, don’t forget the Arab Spring in the mid-east – that’s where the world gets its oil, and I think a major upheaval is due there and will send the price of oil up to $500/barrel, which will give “oil-shock” to the fragile global economy resulting in Depression! Just add it all up.
hopefully long before $500/barrel the government removes the obstacles to domestic production of oil, gas, and nuclear, pipelines, shale, fracking, etc.
Mish is the biggest mushy moronic clown in the entire industry. People who fall for his big mouth are simply naive.
Jeff,
As far as solutions go for this fiscal mess, what do you think of Coinnie Mack’s proposal (cut spending 1% per year for 6 years etc., sorry if you addressed it already)?
thanks,
Tim
I don’t think it would stop the growth of the budget. Even under sequestration it will grow. Many feel that a balanced budget amendment wouldn’t stop spending since they could just raise taxation. How about an amendment that restricts the level of government spending to less than 20% of GDP? They’d figure a way to gimmick GDP even more. Mainly we have to change things in a fundamental way in terms of our view of what government can do for us and what they do to us. Thanks for the query.
Jeff
Does anyone see a viable solution or are we going to go with the flow and be crushed?
Cut your personal debt and spending. Maintain a level of gold to offset inflation and instability in the markets (see DoctoRx and Keith Weiner for direction on this), try to maintain job security/independence, protect your capital in the best way you can. I don’t see a collapse of civilization. Remember that what we have been seeing in this cycle is pretty close the the ’30s and society is still intact. We’ll just see more of the same. On a global scale look for recession, stagnation, and inflation (in certain countries) and declining asset and commodity prices. In the U.S. look for economic stagnation (flat to declining economic activity) as measured by GDP. Don’t panic. Be cautious.
Thanks for the comment.
Jeff
Last Depression we did not have 48.6% of our population receiving some kind of Government Payment, I think we are in uncharted territory this time around, with Entitlements. Since we all know the last one only stopped with WWII, I Pray that we do not repeat the cycle, this time.
My Grandparents did not have any debt, but it took until 1950 for their assets to recover, that is a longtime for a society that now thinks in milliseconds.
William Latta asks,”Does anyone see a viable solution…?
Let,s see how this flys.
1. Immediately,Jan 1,2012 end FICA .This will create an immediate stimulus.
2. Create one line income tax form for 2012.
RATES: 0%-10%-20%
Income per person up to $75,000 pays 0% taxes.
$75,001 to 150,000;pays 10%.
$150,001 up to the moon pays 20%.
3.AMEND FEDERAL RESERVE CHARTER.
Stop the stupid practice of paying interest on our own money,and as well the even more stupid practice of allowing lenders to “print our money” using fractional reserve principles.ALL LENDING OF OUR CURRENCY MUST BE AT 100% MARGIN,PERIOD.
As Thomas Jefferson said,”I believe that banking institutions are more dangerous to our liberties than standing armies.If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around (these banks) will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power (of currency) should be taken from the banks and restored to the people,to whom it properly belongs,”
DETAIL AVAILABLE AT…READ IT,CHALLENGE IT,OR ENDORSE IT.
“THE ALL INCLUSIVE SOLUTION. THE FEDERAL BANK OF AMERICA” (www.justaluckyfool.wordpress.com)
[...] The Worldwide Depression/Recession Of 2012 [...]
[...] Jeff Harding at the Daily Capitalist sees bad things ahead in 2012. [...]
Love the piece, just read it on zero hedge. Since you quoted Rothbard, I would like to put my two cents worth. To me a depression is twenty to forty year event. It is caused by too much societal debt. If left to the market, it would lead to default, with a resolution being a haircut in the debt to allow for sustainable growth. Debt in excess of three hundred percent is not sustainable, this event occurred during the great depression. Today our debt is 57 trillion with revenue of 14 trillion, worse than the great D! What Roosevelt’s team discovered during the last Depression, was that very expensive stimulus would lead to short periods of growth, followed by recession when the stimulus ended. It all leads to either default or austerity. Team O is following the Keynes formula from the past. Without a war to force austerity, we are doomed, the government does not believe it can force austerity. Modern progressivism (since March 1929, the government has been controlled by the progressives) has doomed us to long periods of depression, due to the movement’s need for money readily supplied by a fiat money regimen fueling excessive debt!
[...] By Jeff Harding DailyCapitalist.com [...]
[...] The Worldwide Depression/Recession Of 2012 – “In case you haven’t noticed, the rest of the world continues to slow down and the negative data is accelerating. The big powerhouses of the world, the eurozone including Germany, Japan, and China are leading this trend and there is no reason to believe that the U.S. will not follow. I’ve been writing about this theme frequently lately because, while we are seeing some positive numbers here in the U.S., we are also seeing signs of weakness starting to show up, and since we live in a world of international trade, the world’s woes will hit us.” Read more. [...]
[...] The world-wide depression/recession of 2012 http://dailycapitalist.com/2011/12/06/the-worldwide-redepression-of-2012/ [...]
[...] word ‘depression’ frightens a lot of people. It should. But, we are in one now,” noted economic analyst Jeff Harding. “Since we, in my opinion, have not yet recovered from the Crash [...]
[...] word ‘depression’ frightens a lot of people. It should. But, we are in one now,” noted economic analyst Jeff Harding. “Since we, in my opinion, have not yet recovered from the Crash of [...]
[...] “The word ‘depression’ frightens a lot of people. It should. But, we are in one now,” noted economic analyst Jeff Harding. “Since we, in my opinion, have not yet recovered from the Crash of [...]