Global Economic Decline Is Here, Now

Today’s U.S. manufacturing report is at the top of a mountain of bad economic news coming out. Whether these data will lead to a “new” recession (as defined by the NBER) remains to be seen, but at the very least the U.S. economy is stagnating, and it is likely to remain that way for some time. These reports beg the question of what the Fed will do. It also gives us concern that the malaise is spreading worldwide.

The ISM manufacturing report for June was actually quite dramatic in the details. The overall index was down 3.8 % to 49.7 %. Here is the trend:

While the Report stresses that this is the 37th straight month of economic growth, that belies the reality of the current contraction. The most important point here: new orders were down, -12.3%, which is a significant contraction. Other important factors: production -4.6%, order backlog -2.5%, exports -6.0%, inventories -2.0%, and prices -10.5%.

These results are not so much based on exogenous events like the worldwide economic decline, as they are on the U.S.’s own internal dynamics. As we have stressed here, the current economic decline is the logical result of policies implemented by the Fed and the federal government which have had the opposite effect as the planners had intended. The Fed has proven over and over (QE1 and 2, Twist 1 and 2) that economic growth cannot be built on the printing press. Policies that inhibit the liquidation of bad investments by homeowners and banks have drawn this recession/depression out by deterring the formation and investment of new real capital. After all of the unprecedented efforts to revive our economy, the reality of these failed policies continue to reassert themselves.

If there is a better explanation of our current malaise, I haven’t seen it yet.* 

I wish to point out that we have been forecasting economic decline to occur at about this point for more than a year now. As it now occurs, it gives me no joy to see that these destructive economic policies continue to be employed toward the same failed result. On the other hand, we feel that our analysis gives valuable information to investors and businesses in their quest to understand current economic events. 

The other data that has erupted today are all bad. For example, here are the headlines from today’s Markit reports:

Global manufacturing prices fall at fastest rate for three years :

Global manufacturing conditions deteriorate at fastest rate for three years :

Deteriorating Eurozone manufacturing conditions in June round off weakest quarter for three years:

UK manufacturing input prices fall at fastest pace in three years:


Greek manufacturing sector registers accelerated contraction during June:

China: Sharper declines in output, new business and export orders in June:

US PMI signals weakest manufacturing expansion for 18 months:


 These aren’t cherry-picked reports, rather they are a global trend. This is not surprising as we realize that there is almost unanimity, if not international coordination, in the implementation of the same failed economic policies applied in the U.S. There is some fear here that the continued implementation of these policies on a worldwide basis has the potential to create economic consequences that could bring about negative political consequences for the globe. I am not hyperventilating here, but, if these governments continue to apply policies which continue to destroy real capital, it could cause political disruption as citizens globally protest their continued impoverishment. It brings to mind the end of WWII when the world was exhausted of blood, treasure, and spirit. That is, except for the United States which remained a beacon of economic growth that helped propel the free world. If the U.S. is now one of “them” (as I pointed out in my article on the Supreme Court decision which paved the way toward national medical care), then who is left? This is, of course, an oversimplification of a complex problem. But it bears keeping in mind.


*I ignore the flummery of economists like Paul Krugman and Joe Stiglitz who repeat the same things over and over, namely that the Fed should inflate more and the Administration should spend more. They fail to see the “been there, done that” aspect of those policies.


8 comments to Global Economic Decline Is Here, Now

  • The graphs say it all as always

  • Hans

    Thank you to all of the contributors who have been lighthouses in this world wide economic malaise…

    Because of sentinels like Dr X and yourself, we obtained the knowledge to make timely investment decisions to fit today’s market condition…

    There also has been a 12 month decline in gasoline use and as well diesel..This reduction in energy use should not be discount, especially the use of diesel and jet fuel..

    I would rate our Central Bank with a CCC grade, as they continue with their social economic engineering..But their defense will always be – if we had not acted we would be in a depression…

    We barely managed to hang on to our DTO position last Friday, as the goo market had it’s 4th best day since trading in futures commenced…

    Perhaps is was the Prime Minister of Qatar, who just purchased a “home” in NYC for cool $100 million dollars, that drove the oil market rally..

  • David Pristash

    The only disagreement i would have with any of this is that I would rate the US central bank at an FFF+ for after all it was their loose money policies that allowed the housing bubble to develop. And if weren’t for that we would not be here now.

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  • John Howard

    The FED gets an F if their purpose is to save the economy. They get an A+ if their purpose is to aid the major banks in looting the economy. They have always been looters. Counterfeiting works.

  • Hans

    Flummery had to be add to the spell checker…Never had the pleasure to meet Flummery before..

    When it comes to Krugman and or Stiglitz it is very descriptive and germane…

    The rally in the comods since 6.29.12, has been beyond belief…Goo is up $10.oo! per barrel in only four trading days…I guess the Iranians closed their short positions and went long, especially with their recent launch of another rocket…

  • Dear Jeff,
    Excellent as always!
    Since the recent Delhi Conference of the B.R.I.C.S., I understand that Saudi Arabia has joined with them to end the hegemony of the U.S.Dollar. Pricing both Oil and Gold in Euros or in U.S. Dollars is no longer an acceptable option. With the opening of the Chinese Gold and Silver Exchange and the recent purchase of the London Metal Exchange by a Hong Kong firm effectively buying out JPM Chase & Goldman Saks strangle hold on these markets… What do you think will happen next ? ? ?

  • [...] results and the other data that we have been commenting on demonstrate the ineffectiveness of the Fed as a kind of [...]