Sunday, 13 March 2016

The world economy - 03/12/2016

Here is a cross-section of news from the global economic collapse

Gerald Celente - Gary Null show - March 9, 2016

Are You Kidding Me? Chinese Exports Plunge 25.4 Percent Compared To Last Year

Exports Declining - Public Domain

10 March, 2016

We just got more evidence that global trade is absolutely imploding.  Chinese exports dropped 25.4 percent during the month of February compared to a year ago, and Chinese imports fell 13.8 percent compared to a year ago.  For Chinese exports, that was the worst decline that we have seen since 2009, and Chinese imports have now fallen for 16 months in a row on a year over year basis.  The last time we saw numbers like this, we were in the depths of the worst economic downturn since the Great Depression of the 1930s.  China accounts for more global trade than any other nation (including the United States), and so this is a major red flag.  Anyone that is saying that the global economy is in “good shape” is clearly not paying attention.

If someone would have told me a year ago that Chinese exports would be 25 percent lower next February, I would not have believed it.  This is not just a slowdown – this is a historic implosion.  The following comes from Zero Hedge
Things are not getting better in China as Exports crashed 25.4% YoY (the 3rd largest drop in history), almost double the 14.5% expectation and Imports tumbled 13.8%, the 16th month of YoY decline – the longest ever. Altogether this sent the trade surplus down to $32.6bn (missing expectations of $51bn) to 11-month lows.
Chinese Exports - Zero Hedge
So much for that whole “devalue yourself to export growth” idea…
I don’t know how anyone can possibly dismiss the importance of these numbers.  As you can see, this is not just a one month aberration.  Chinese trade numbers have been declining for months, and that decline appears to be accelerating.
Another very interesting piece of news that has come out in recent days regards the massive layoffs that are coming at state industries in China.  According toReuters, five to six million Chinese workers are going to be losing their jobs during this transition…
China aims to lay off 5-6 million state workers over the next two to three years as part of efforts to curb industrial overcapacity and pollution, two reliable sources said, Beijing’s boldest retrenchment program in almost two decades.
China’s leadership, obsessed with maintaining stability and making sure redundancies do not lead to unrest, will spend nearly 150 billion yuan ($23 billion) to cover layoffs in just the coal and steel sectors in the next 2-3 years.

For years, the Chinese economic miracle has been fueling global economic growth, but now things are changing dramatically.

Another factor that we should discuss is the fact that the relationship between the United States and China is going downhill very rapidly.  This is something that I wrote about yesterday.  China has seized control of several very important islands in the South China Sea, and in response the Obama administration has been sailing military vessels past the islands in a threatening manner.  Most recently, Obama decided to have an aircraft carrier task force cruise past the islands, and this provoked a very angry response from the Chinese
The four-ship U.S. strike group that patrolled the disputed South China Sea was followed by Chinese warships, a show of force that prompted a hard-line response from China doubling down on its claim to nearly all of the resource-rich sea.  
China’s foreign minister said his country’s sovereignty claims are supported by history and made a veiled reference to the 5-day patrol by the Stennis Carrier Strike Group, as well as recent passes by China’s man-made islands by destroyers Lassen and Curtis Wilbur in recent months.
The South China Sea has been subject to colonial invasion and illegal occupation and now some people are trying to stir up waves, while some others are showing off forces,” Wang Yi said, according to an Associated Press report, a day after the Stennis CSG departed the South China Sea.  “However, like the tide that comes and goes, none of these attempts will have any impact. History will prove who is merely the guest and who is the real host.”
Most Americans are not even paying attention to this dispute, but in China there is talk of war.  The Chinese are absolutely not going to back down, and it does not look like Obama is going to either.  Needless to say, a souring of the relationship between the largest economy on the planet and the second largest economy on the planet would not be a good thing for the global economy.

And of course China is far from the only country that is having economic problems.  Yesterday, I discussed how Italy’s banking system is on the verge of completely collapse.  A few days before that I discussed the economic depression that has gripped much of South America.  A new global economic crisis has already begun, and just because the United States is feeling less pain than the rest of the world so far does not mean that everything is going to be okay.

There are huge red flags in Europe, Asia and South America right now.  In addition, our neighbor to the north (Canada) is experiencing a very significant slowdown.  The irrational optimists can continue to believe that the U.S. economy will somehow escape relatively unscathed if they would like, but that is not going to be what happens.

Just like virtually everyone else on the planet, we are heading into hard times too, and this is going to become a dominant theme in the presidential campaign as we move forward into the months head.

The Financial System Is A Larger Threat Than Terrorism

by Paul Craig Roberts

Federal Reserve Building, Washington DC, USA
Federal Reserve Building, Washington DC, USA
12 March, 2016

In the 21st century Americans have been distracted by the hyper-expensive “war on terror.” Trillions of dollars have been added to the taxpayers’ burden and many billions of dollars in profits to the military/security complex in order to combat insignificant foreign “threats,” such as the Taliban, that remain undefeated after 15 years. All this time the financial system, working hand-in-hand with policymakers, has done more damage to Americans than terrorists could possibly inflict.

The purpose of the Federal Reserve and US Treasury’s policy of zero interest rates is to support the prices of the over-leveraged and fraudulent financial instruments that unregulated financial systems always create. If inflation was properly measured, these zero rates would be negative rates, which means not only that retirees have no income from their retirement savings but also that saving is a losing proposition. Instead of earning interest on your savings, you pay interest that shrinks the real value of your saving.

Central banks, neoliberal economists, and the presstitute financial media advocate negative interest rates in order to force people to spend instead of save. The notion is that the economy’s poor economic performance is not due to the failure of economic policy but to people hoarding their money. The Federal Reserve and its coterie of economists and presstitutes maintain the fiction of too much savings despite the publication of the Federal Reserve’s own report that 52% of Americans cannot raise $400 without selling personal possessions or borrowing the money.

Negative interest rates, which have been introduced in some countries such as Switzerland and threatened in other countries, have caused people to avoid the tax on bank deposits by withdrawing their savings from banks in large denomination bills. In Switzerland, for example, demand for the 1,000 franc bill (about $1,000) has increased sharply. These large denomination bills now account for 60% of the Swiss currency in circulation.

The response of depositors to negative interest rates has resulted in neoliberal economists, such as Larry Summers, calling for the elimination of large denomination bank notes in order to make it difficult for people to keep their cash balances outside of banks.

Other neoliberal economists, such as Kenneth Rogoff want to eliminate cash altogether and have only electronic money. Electronic money cannot be removed from bank deposits except by spending it. With electronic money as the only money, financial institutions can use negative interest rates in order to steal the savings of their depositors.

People would attempt to resort to gold, silver, and forms of private money, but other methods of payment and saving would be banned, and government would conduct sting operations in order to suppress evasions of electronic money with stiff penalties.

What this picture shows is that government, economists, and presstitutes are allied against citizens achieving any financial independence from personal saving. Policymakers have a crackpot economic policy and those with control over your life value their scheme more than they value your welfare.

This is the fate of people in the so-called democracies. Any remaining control that they have over their lives is being taken away. Governments serve a few powerful interest groups whose agendas result in the destruction of the host economies. 

The offshoring of middle class jobs transfers income and wealth from the middle class to the executives and owners of the corporation, but it also kills the domestic consumer market for the offshored goods and services. As Michael Hudson writes, it kills the host. The financialization of the economy also kills the host and the owners of corporations as well. When corporate executives borrow from banks in order to boost share prices and their performance bonuses by buying back the publicly held stock of the corporations, future profits are converted into interest payments to banks. The future income streams of the corporations are financialized. If the future income streams fail, the companies can be foreclosed, like homeowners, and the banks become the owners of the corporations.

Between the offshoring of jobs and the conversion of more and more income streams into payments to banks, less and less is available to be spent on goods and services. Thus, the economy fails to grow and falls into long-term decline. Today many Americans can only pay the minimum payment on their credit card balance. The result is massive growth in a balance that can never be paid off. It is these people who are the least able to service debt who are hit with draconian charges. The way the credit card companies have it now, if you make one late payment or your payment is returned by your bank, you are hit for the next six months with a Penalty Annual Percentage Rate of 29.49%.

In Europe entire countries are being foreclosed. Greece and Portugal have been forced into liquidation of national assets and the social security systems. So many women have been forced into poverty and prostitution that the hourly price of a prostitute has been driven down to $4.12.

Throughout the Western world the financial system has become an exploiter of the people and a deadweight loss on economies. There are only two possible solutions. One is to break the large banks up into smaller and local entities such as existed prior to the concentration that deregulation fostered. The other is to nationalize them and operate them solely in the interest of the general welfare of the population.

The banks are too powerful currently for either solution to occur. But the greed, fraud, and self-serving behavior of Western financial systems, aided and abeted by governments, could be leading to such a breakdown of economic life that the idea of a private financial system will become as abhorent in the future as Nazism is today.

'Love affair' with negative rates ends as central banks step back from global currency wars

12 March, 2016

he world’s most powerful central banks will come under renewed to pressure to regain control over the global economy this week as faith in extraordinary monetary stimulus fades.

Following last week's shock and awe stimulus blitz from the ECB , nervy investors will turn their attention on the US and Japan amid speculation that central banks' brief "love affair" with endless interest rate cuts is over.

Five of the world's major monetary authorities, including the ECB, Swedish Riksbank and Bank of Japan, have resorted to sub-zero rates in a bid to weaken their currencies and stoke inflation.

Last week Mario Draghi, ECB president, announced a three pronged interest rate cut, including another 10 basis point reduction to its deposit rate to -0.4pc.

But Mr Draghi stressed the bank was not willing to slash interest rates to as "low as we want", instead turning to unconventional tools such as quantitative easing to stimulate demand.

His comments sent the euro rocketing by 3pc from its weekly low to $1.1148 against the dollar.

"The ECB's love affair with negative rates has ended", said Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch.

Central banks have played the rates card as aggressively as they can. The ECB is done and the Bank of Japan has nothing in the tank.”

Negative interest rates - widely seen as a central bank ploy to depreciate their currencies - have been called a "dangerous experiment" due to their adverse impact on the profitability of retail banks.

But any new found reticence to continue slashing rates below zero suggests policymakers are also wary of stoking international currency wars after the issue was raised by the US during a G20 finance ministers meeting in Shanghai last month, said Simon Derrick at BNY Mellon.

Bank of England governor Mark Carney has said central bank action to stimulate domestic activity with negative rates was a "zero sum game" for the world.

"At the global zero bound, there is no free lunch" he said at the G20.

Mark Carney speaks at the IIF conference in Shanghai 

The comments suggest Mr Carney believes "that the use of negative deposit rates in this fashion bordered on currency manipulation" said Mr Derrick.

Maxime Alimi, senior economist at AXA Investment Managers, said the ECB has now all but given up on trying to manipulate the currency in favour of boosting growth through QE.

"The ECB no longer counts on a weaker euro to raise inflation, perhaps for fear of a reaction from the Federal Reserve," said Mr Alimi.

Responding to claims the ECB is involved in competitive devaluation, Mr Draghi launched a staunch defence of his actions.

"The ECB has never ever started [a currency war]. Our measurs are entirely addressed to our domestic economy. We are not in this war at all."

Mapped: Where in the world have rates turned negative?

On Monday, the Bank of Japan is expected to refrain from slashing interest rates a month after its foray into sub-zero territory sent investors into a tailspin.

Relaunching its bid to fight off low inflation, the ECB also bolstered bond purchases by $20bn to $80bn-a-month and will allow retail banks to borrow cheap loans at negative rates - moves described as “throwing the kitchen sink” at the moribund eurozone.

But despite exceeding expectations, markets took fright at Mr Draghi’s hint that interest rates would fall no further for now.

Central banks have played the rates card as aggressively as they can. The ECB is done and the BoJ has nothing in the tank
Michael Hartnett, BaML
Germany’s DAX index lost 2.3pc in a turbulent day of trading - suggesting central bank action is losing its magic touch, said Mr Harnett.

Investor reaction - which also saw oil prices fall and gold soar - “screamed of 'quantitative failure’”, he said.

The febrile market environment means the US Federal Reserve, which was on course to raise interest rates four times this year, is set to hold fire on another hike at its March policy meeting on Wednesday.

Investors are now pricing in just a 4pc chance the Fed will implement another 25 basis point rate hike this week. US policymakers have also jettisoned their target to lift rates to as high as 1.25pc by the end of 2016, fearing the spillover effects of tighter policy and a rising dollar on the rest of the world.

Fed governor Lael Brainard has warned against the US diverging too far from its peers in the developed world. She argued now was a good time for “policymakers to reaffirm their commitment to work toward the common goal of strengthening global demand”.

In the UK, the Bank of England will have kept interest rates at their record low of 0.5pc for seven years when the Monetary Policy Committee meets on Thursday.

oil bankruptcy
Cash-strapped oil companies are officially in scramble mode.

U.S. oil and gas companies are trying to survive the crash in oil prices by selling stock to investors at a record-setting pace to raise cash.

The wave of additional stock sales from these publicly-traded companies highlights the enormous amount of stress and fear in the oil patch right now.

Cheap oil has already forced drilling and exploration companies to dramatically cut costs by laying off workers, shelving expensive projects and even ditching their coveted dividends.

With oil prices stuck below $40 a barrel, companies are racing to quiet bankruptcy fears. And to do that they have to raise cash -- fast. The preferred method usually is to sell bonds. But that's not an option for many companies that are already loaded up on too much debt taken on during the good times.

Bond Central Banks Deutsche Bank Excess Reserves Global Economy Monetary Policy Money Supply Money Velocity Unemployment
Negative interest rates may or may not be a thing of the past (many thought that the ECB had learned its lesson, and then Vitor Constancio wrote a blog post showing that the ECB hasn't learned a damn thing), but the confusion about their significance remains. Here is Deutsche Bank's Dominic Konstam explaining how, among many other things including why Europe will need to "tax" cash before this final Keynesian experiment is finally over, negative rates are merely the logical failure of globalization.

For the past month, the price of oil has soared by a 50% on no fundamental catalyst; in fact, the "fundamental" situation has gotten progressively worse with the record oil inventory glut increasing by the day even as US crude oil production posted a modest rebound in the past week after two months of declines, while the much touted OPEC/non-OPEC oil production freeze has yet to be discussed, let alone implemented.

With or without a valid catalyst, however, the short squeeze price action has drastically changed not only investor psychology, but that of the IEA as well, which on Friday announced that oil may have bottomed (if the agency's predictive track record is any indication, oil is about to crash).

But while traders, algos and CNBC guest "commodity experts" may be certain that oil will never drop to $27 again, someone else is not at all convinced that oil prices will not drop again: oil producers themselves.....

Greenspan Explains The Fed's Miserable Track Record: "We Didn't Forecast Better Because We Can't"

"This is a reason why the Board is getting an unfair rap on this stuff. We didn’t forecast better than anyone elsewe regulated banks that got in trouble like anyone else. Could we have done better? Yes, if we could forecast better. But we can’t. This is why I’m very uncomfortable with the idea of a systemic regulator, because they can’t forecast better"

"Gloom" Returns To China's Economy: Industrial Production, Retail Sales Miss Lowest Estimates

After an unprecedented surge in Chinese attempts to stimulate the economy in late 2015, mostly on the fiscal side, coupled with recent monetary easing by the PBOC which cut the banks' reserve ratio recently and unleashed a tsunami of new loan creation in January, many expected that this unprecedented credit impulse would translate into at least a modest rebound for the economy, prompting a stable pick up in spending for the economy which many are touting is now consumer-spending driven as opposed to export and production.

However, that did not happen: according to data released overnight by the National Bureau of Statistics, Chinese factories and retailers not only missed expectations, but slowed down materially from the December prints, as anemic demand and excess capacity continued to bear down on the world’s second-largest economy.

Specifically, Jan-Feb factory output grew just 5.4% in January and February from a year earlier, data released by the National Bureau of Statistics (NBS) showed, slowing from a 5.9% rise in December to the weakest since November 2008; the print matched the lowest Wall Street estimate.

Meanwhile, retail sales rose 10.2% over the two-month period from a year ago, below the lowest Wall Street estimate of 10.5%, and far below the December’s 11.1% increase, pushing the trend growth in this series to lows not seen since early 2015.

"Overall, the picture is still quite gloomy," said Commerzbank AG economist Zhou Hao. “Normally, because of Chinese New Year, there’s a big drop and a big jump. This year there’s only a big drop.”

The retail data was particularly disappointing because as the WSJ writes "while industries have been battered by the economic slowdown, retail sales have been relatively buoyant, so the downtick surprised some economists, especially since it occurred around the Lunar New Year holiday when consumption is usually strong."

And to think record, if fake, box office numbers were supposed to carry China's economy in the aftermath of the absolutely disastrous trade data released earlier in the month.

To be sure, the commentary immediately explained that the weak data will mean even more stimulus, even though it was just last week when the Congress laid out all the measures that China will adopt to assure "GDP growth" of 6.5%-7.0%.
Here's Reuters: "China's activity data remained weak in the first two months of 2016, with factory output growth hitting the weakest since the global financial crisis, keeping pressure on policymakers to do more to avert a sharper showdown in the world's second-largest economy."

Unlike the recent collapse in Chinese exports and imports, the overnight data could not be "explained away" due to calendar effects as it combines the January and February timeframe: China's government combines some economic data for January and February to minimize distortions tied to the Lunar New Year holiday, which falls during those two months. It was in early February this year.

It wasn't all bad news: one area that did pick up was investment in factories, buildings and other fixed assets, which increased a faster-than-expected at 10.2?% year-over-year in January and February, compared with a 10% increase for all of 2015. However, economists said that boost came largely from government spending on infrastructure and from investment in parts of the overbuilt property market.

In other words, China is adding even more excess capacity to an economy already drowning in excess capacity.

Ultimately, the problem for China remains: weak demand at home and abroad is weighing on industries and many factories continue to churn out unneeded goods. "A recovery is still eluding China’s industrial sector,” Mizuho Securities Asia Ltd. said in a recent report, before the release of the data Saturday.

Worse, for all the talk about a massive stimulus, China's economy continues to deteriorate: as quoted by the WSJ, Chen Zhenxing, sales manager with Zhejiang Lanxi Shanye Machinery Co., which produces hand carts and other logistics equipment in the eastern city of Jinhua, said his company faces ongoing problems raising capital and boosting prices: "competition is cutthroat,” he said. 
Too many companies make products that are pretty much the same, so the focus turns to lowering prices."

Ultimately many will have to go out of business, leading to millions in layoffs, and forcing the Beijing politburo to face its greatest nightmare.

The problem with China's economy  is that the local population, having tired of the stock market bubble, has now shifted its attention back to reflating the housing bubble, where as we reported recently there has been an unprecedented 50% surge in some Tier 1 cities such as Shenzen. As such the economy is focused not on creating new goods and services, but merely facilitating financialization and extracting rents.

This is why China's leaders have now put all their eggs in the housing market basket:  Zhang Yiping, an economist with China Merchants Securities, said property investment and domestic consumption could be China’s major growth drivers this year given sluggish global demand and Beijing’s plans to cut industrial overcapacity.

Commerzbank’s Mr. Zhou and other economists expressed concern that investment is flowing into a few real-estate markets that show signs of overheating, rather than into new ventures. “Monetary policy is relaxed, but it’s reluctant to go to the real economy, only to property assets,” he said.
The slower pace of retail sales in January and February may reflect the turbulent financial markets and weak corporate profits last year, which dampened wage hikes and bonuses, economists said.

Even accounting for data volatility around the Lunar New Year holiday, China’s economy is off to a slow start this year following economic growth in 2015 of 6.9%, the slowest pace in 25 years. A host of stimulus measures late last year and into 2016—most recently a 0.5 percentage point cut in bank reserves late last month, have yet to reverse the slide in momentum.

The biggest problem, one which we have warned about since 2010, is that China remains mired under an unprecedented debt load, one which makes any forecast for 6.5% growth on the back of credit which is growing at double this pace, laughable.

What The Average Zhou Thinks Of China's Housing Bubble: "Only After War Breaks Out, We'll Be Able To Afford It"

Chinese home prices are soaring. In fact, according to the latest data, the bubble among China's top, or "Tier 1" cities has never been bigger entirely at the expense of all other cities.

And while this appears at first glance a positive, for central-planners and leveraged speculators, we wondered what the man on the street of Beijing thought of it.

Policies by Chinese authorities to stimulate the country’s housing market have contributed to sky-high prices in some big cities such as Beijing, Shanghai and Shenzhen – with developers and real estate agents adding to the craze. What do Beijing residents make of the current market? Do they fear that a property bubble might be on the horizon?....

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