The OECD just came out with its “Interim Assessment” of the major economies within the OECD (34 countries). This article amounts to what is known on the blogosphere as “chart porn” since most of the data comes in the form of … charts. Personally I think “chartocopia” is a better term. Whatever. I am going to inundate you with charts from the report. Charts are a good way to view data quickly. I think it will give you a good idea of what is happening in the US, Japan, and Europe, with a few details on the BRICs.
The GDP reports for 2012 are forecasts, but for the most part North America, according to them, will be pulling the heavier load through H2 2012. That would be consistent with my estimate for the U.S.
These data are the more worrisome because it reveals that the world is in slow-growth mode, including the U.S. World trade appears to be flattening. Of course a major part of the world trade statistic are oil prices which as we know have stayed high, and which would skew the data to the positive. They have no data in this report that is ex. oil. But it’s worse than it looks.
While U.S. unemployment rates have been falling, the rest of the world is going in the opposite direction because of their stage of the business cycle. We are emerging from a round of monetary stimulus (QE2). So is the Eurozone, but their QE is more recent. They and Japan have more fundamental problems with sovereign debt and their banking system, things that the U.S. has been dealing with for the past 3 years and have made more progress than the rest of the world. However, all countries are having problems with long-term unemployed workers which reflects a growing problem with economic stagnation worldwide. The chart below shows why Europe is having problems.
Here is the most serious problem that the Eurozone faces:
A total of €1.15 trillion has been pumped into the economy by the ECB. I believe this will not end well for them.
In looking at credit and deleveraging, the U.S. has had a head start because of where we are in the business cycle:
But the problem is that we in the U.S. are still highly leveraged and have a long way to go.
They noted that US consumer credit has improved, but their data is out of date because the latest Fed report showed a contraction, so I have omitted it. But Eurozone credit is shrinking and confidence measures are weak:
And then there is price inflation. It appears to me that as credit shrinks worldwide, the result is deflation, not inflation. Certainly that is evident in the BRICs who are producers of commodities. The U.S. and Japan appear to be deflationary as capital is destroyed by many rounds of malinvestment from bubble activities and government fiscal stimulus spending, thus bringing about stagnation. The Eurozone is still dealing with its QE but, with output falling, and with banks in difficulty, one would expect price inflation to drop as well.
In a world with government/central bank-induced business cycles, deflation is confusing to economists. By all measures, they say, we should have more inflation. But when there is a dearth of capital and production falls, it is difficult to juice the economy with QE. At some point, I have no doubt that any central bank can induce more price inflation, but they all are afraid of the specter of runaway price inflation as too high of a cost. The other side of deflation is that as wages fall, prices are cheaper for consumers as money becomes more valuable. But someone always pays the price of business cycle manipulation and in these times it can be the debtor and the lender. Debtors find that loans based on their homes can’t be repaid as prices fall. The lender doesn’t benefit in that people walk away from their debts or declare bankruptcy, and they aren’t repaid either.
At best, pegging price inflation is a difficult game because of different methodologies being used to measure it. But, even under today’s measures, we would expect to see more inflation than is reported. This can occur if there are substantial deflationary factors that are suppressing price inflation. This can also occur if bank credit is not rapidly expanding, which it isn’t, although at this point in the cycle one would expect it to be much higher. It all points to a lack of capital and the fundamental underlying causes for such.
There is more to this report, but these data best explain the current world situation. It looks like stagnation.