Friday, 16 October 2015

Major Global Recession Has Already Begun

The Numbers Say That A Major Global Recession Has Already Begun
Michael Snyder


15 October, 2015

The biggest bank in the western world has just come out and declared that the global economy is “already in a recession”.  According to British banking giant HSBC, global trade is down 8.4 percent so far this year, and global GDP expressed in U.S. dollars is down 3.4 percent.  So those that are waiting for the next worldwide economic recession to begin can stop waiting.  It is officially here.  

As you will see below, money is fleeing emerging markets at a blistering pace, major global banks are stuck with huge loans that will never be repaid, and it looks like a very significant worldwide credit crunch has begun.  Just a few days ago, I explained that the IMF, the UN, the BIS And Citibank were all warning that a major economic crisis could be imminent.  They aren’t just making this stuff up out of thin air, but most Americans still seem to believe that everything is going to be just fine.  The level of blind faith in the system that most people are demonstrating right now is absolutely astounding.

The numbers say that the global economy has not been in this bad shape since the devastating recession that shook the world in 2008 and 2009.  According to HSBC, “we are already in a dollar recession”…
Global trade is also declining at an alarming pace. According to the latest data available in June the year on year change is -8.4%. To find periods of equivalent declines we only really find recessionary periods. This is an interesting point. On one metric we are already in a recession. As can be seen in Chart 3 on the following page, global GDP expressed in US dollars is already negative to the tune of USD 1,37trn or -3.4%. That is, we are already in a dollar recession. 

Here is the chart that Zero Hedge posted along with the quote above.  As you can see, the only time global GDP expressed in U.S. dollars has fallen faster in recent years was during the horrible recession of seven years ago…

But there are still a whole lot of incredibly clueless people running around out there claiming that “nothing is happening” even though more signs of trouble are erupting all around us every single day.

For instance, just today CNBC published an article entitled “The US is closer to deflation than you think“, and Twitter just announced that it plans to lay off 8 percent of its entire workforce.

But of course the biggest problems are happening in “emerging markets” right now.  The following is an excerpt from an article that was just published in a major British news source entitled “The world economic order is collapsing and this time there seems no way out
Now act three is beginning, but in countries much less able to devise measures to stop financial contagion and whose banks are more precarious. For global finance next flooded the so-called emerging market economies (EMEs), countries such as Turkey, Brazil, Malaysia, China, all riding high on sky-high commodity prices as the China boom, itself fuelled by wild lending, seemed never-ending. China manufactured more cement from 2010-13 than the US had produced over the entire 20th century. It could not last and so it is proving.
China’s banks are, in effect, bust: few of the vast loans they have made can ever be repaid, so they cannot now lend at the rate needed to sustain China’s once super-high but illusory growth rates. China’s real growth is now below that of the Mao years: the economic crisis will spawn a crisis of legitimacy for the deeply corrupt communist party. Commodity prices have crashed.
Money is flooding out of the EMEs, leaving overborrowed companies, indebted households and stricken banks, but EMEs do not have institutions such as the Federal Reserve or European Central Bank to knock up rescue packages. Yet these nations now account for more than half of global GDP. Small wonder the IMF is worried.

It is one thing for The Economic Collapse Blog to warn that “the world economic order is collapsing”, but this is one of the biggest newspapers in the UK.

I was writing about these emerging market problems back in July, but at that time very few really understood the true gravity of the situation.  But now giant banks such as Goldman Sachs are calling this the third stage of the ongoing global financial crisis.  The following comes from a recent CNBC piece entitled “Is EM turmoil the third wave of the financial crisis? Goldman thinks so“…
Emerging markets aren’t just suffering through another market rout—it’s a third wave of the global financial crisis, Goldman Sachs said.
Increased uncertainty about the fallout from weaker emerging market economies, lower commodity prices and potentially higher U.S. interest rates are raising fresh concerns about the sustainability of asset price rises, marking a new wave in the Global Financial Crisis,” Goldman said in a note dated last week.
The emerging market wave, coinciding with the collapse in commodity prices, follows the U.S. stage, which marked the fallout from the housing crash, and the European stage, when the U.S. crisis spread to the continent’s sovereign debt, the bank said.

You know that it is late in the game when Goldman Sachs starts sounding exactly like The Economic Collapse Blog.  I have been warning about a “series of waves” for years.

When will people wake up?

What is it going to take?

The crisis is happening right now.

Of course many Americans will refuse to acknowledge what is going on until the Dow Jones Industrial Average collapses by several thousand more points.  And that is coming.  But let us all hope that day is delayed for as long as possible, because all of our lives will become much crazier once that happens.

And the truth is that many Americans do understand that bad times are on the horizon.  Just check out the following numbers that were recently reported by CNBC
The CNBC All-America Economic Survey finds views on the current state of the economy about stable, with 23 percent saying it is good or excellent and 42 percent judging it as fair. About a third say the economy is poor, up 3 points from the June survey.
But the percentage of Americans who believe the economy will get worse rose 6 points to 32 percent, the highest level since the government shutdown in 2013. And just 22 percent believe the economy will get better, 2 points lower than June and the lowest level since 2008, when the nation was gripped by recession.

If you want to believe that everything is going to be just fine somehow, then go ahead and believe that.

All I can do is present the facts.  For months I have been warning about this financial crisis, and now it is playing out as a slow-motion train wreck right in front of our yes.

We are moving into a period of time during which events are going to start to move much more rapidly, and life as we know it is about to change in a major way for all of us

Hopefully you have already been preparing for what is about to come.

If not, I wouldn’t want to be in your position.

The Economy Is Falling Apart And The US Government Cover-Up Is Not Working

UPDATE 2-Oil glut to persist as global demand growth slows – IEA

  • Slower demand, possible Iran return weigh on 2016 outlook
  • Non-OPEC supply growth disappearing fast on low prices
  • OPEC output rises in September, seen remaining elevated (Adds market reaction, details on Iran, context, quotes)

14 October, 2015

LONDON, Oct 13 (Reuters) - A global oil supply glut will persist through 2016 as demand growth slows from a five-year high and key OPEC members maintain near-record output, the International Energy Agency said, even as low prices curb supply outside the producer group.

The IEA, which advises industrialised countries on energy policy, said in a monthly report on Tuesday that world oil demand will rise by 1.21 million barrels per day (bpd) in 2016, down 150,000 bpd from last month's forecast.

"A projected marked slowdown in demand growth next year and the anticipated arrival of additional Iranian barrels - should international sanctions be eased - are likely to keep the market oversupplied through 2016," the Paris-based IEA said.

The cut in the demand outlook, due in part to a weaker world economy, makes the IEA's 2016 growth estimate lower than the two other closely watched government forecasters, the U.S. Energy Information Administration and OPEC.

Oil prices, which rose earlier on Tuesday, turned negative after the release of the IEA report.

A drop in prices because of abundant supply to around $50 a barrel - half the level of June 2014 - has led to a downgrade in supply forecasts from countries outside OPEC such as the United States.

Next year, non-OPEC output is expected to contract by nearly 500,000 bpd, the IEA said, as drilling activity slows in the United States and companies elsewhere delay projects.

"Non-OPEC supply growth is disappearing fast," it said. "The sharpest slowdown is in the U.S., where onshore crude and condensate production has started to drop."


While the IEA still sees a contraction in non-OPEC supply next year, it expects supply to be about 100,000 bpd higher than in last month's report. This, plus the weaker global demand projection, prompted the IEA to cut its estimate of the demand for OPEC oil to 31.1 million bpd.

The Organization of the Petroleum Exporting Countries is already producing more than that, even before a potential lifting of sanctions on Iran clears the way for Tehran to increase exports in 2016.

OPEC raised supply in September by 90,000 bpd to 31.72 million bpd, the IEA estimated, saying it expected output to hover around 31.5 million bpd in coming months.

The group, in a move led by Saudi Arabia, in 2014 dropped its longstanding policy of supporting prices by cutting output, choosing instead to defend market share against higher-cost producers, and there has been no sign of a change of tack.

Iran, traditionally OPEC's second-largest producer, is keen to recover the market share it lost as a result of tighter sanctions. The pace at which this oil returns is a big uncertainty for next year, the IEA said.

Oil inventories could rise by 1.1 million bpd if Iran brings back an extra 600,000 bpd of oil output over 2016, according to the agency, compared with the 600,000 bpd inventory build-up it assumes otherwise.

This, as well as rising geopolitical tension over Russia's military intervention in Syria and a wide range in the demand and supply forecasts for 2016, clouds the outlook for now.

"Some of this uncertainty may start to clear next year although, considering Iran, the market may be off balance for a while longer," the IEA said

Bloomberg Issues Dire Forecasts for US Shale Oil Industry by 2017
Bloomberg predicts that the US shale oil industry is facing dire forecasts, especially for 2017, largely due to the cooler attitude among banks and investors toward the oil industry’s shrinking investments; in its turn, this will lead to a drop in production and another “harrowing year for the US producers”.

15 October, 2015

According to the consultancy Wood Mackenzie, about a third of oil production in the US states, not including Alaska and Hawaii, comes from companies that have borrowed against their oil and gas reserves and that face redeterminations of their borrowing base,” Bloomberg says.

However the forecasts for the October redeterminations (banks recalculate the value of reserves for their oil company clients twice a year, in the spring and in the fall) are quite dire.

According to survey conducted by the law firm Haynes and Boone, the forecasts predict a 39 percent decrease in the oil companies' borrowing ability, with 79 percent of borrowers expecting a decrease.

While this is relevant to small producers that can only borrow against their reserves, Bloomberg says, bigger ones will also be hurt by banks' and investors' cooler attitude toward the oil industry.

In the second quarter of 2015, 83 percent of US onshore oil producers' operating cash flow was used for servicing debt, according to the US Energy Information Administration — about twice the level of early 2012.

This is not a sustainable business model, Bloomberg says. The oil companies can keep up their borrowing only if investors believe prices will rise significantly; that's not the case.

December 2016 futures contracts for Brent crude sell for $56 per barrel, about $6 higher than the current price. This makes hedging by selling contracts such as this one rather unattractive, though oil firms still do it to retain their borrowing ability. Wood Mackenzie estimates that the 26 biggest independent oil producers' cash flow from hedging will shrink to $2.2 billion next year from $9.1 billion in 2015.

OPEC expects US oil production to drop by 100,000 barrels per day after explosive growth in 2014 and a slight increase this year (recent losses haven't completely wiped out the strong growth in the first six months of 2015).

That's not a huge decline. Yet OPEC countries, especially Saudi Arabia, will expand their market share by more than that because demand is projected to increase by 1.25 million barrels per day.

At current prices, demand is growing everywhere because cars, trucks and planes are cheaper to use, says the market report of the International Energy Agency.

However, Bloomberg says, the Saudis will cover the increase.

This means another harrowing year for everyone, but especially for the US producers

1 comment:

  1. The Grantham Institute was warning of stranded fossil fuel assets in 2013 and senior International Business Editor Ambrose Evans Pritchard at the London Telegraph began predicting the collapse of world oil and coal prices early last year, and both he and several other sources such as Richard Heinberg at the Post Carbon Institute and Oil Change International among others also predicted the oil & gas industry credit crunch since late last summer too. Already the oil, natural gas, and coal industries as well as related service industries have been substantially impacted by falling wholesale prices, lots of layoffs, and even some bankruptcies. US oil & gas drilling rig count was down to just 686 a couple of weeks ago, lower than 2004 numbers. It looks like the big fracking and directional drilling boom that drove high rates of economic growth in States and Countries dependent on the fortunes of the fossil fuel industry is all but over. They can't say that they weren't warned repeatedly though.

    There have been a couple of recent pieces of economic interest involving climate change and other stranded assets including the auto industry, the steel industry, the commercial aircraft industry, and others out of Bank of England Governor Mark Carney which I have found interesting reading. One of the items contains a link to a Bank of England video and interview with Amy Goodman that I have found interesting too.

    Yes, some places are already in a deep recession and others are still charging along seemingly without a care in the world, like metro-Denver for-instance, where our jobless rate is about 4% right now and employers are crying for experienced workers, but then again even at the height of the recent Great Recession we only saw an 8.5% jobless rate too, nothing at all like the 29% rate in metro Detroit in 2009. Let's hope that what happened to Detroit then doesn't happen on a much larger scale now.

    We are due for at-least a minor recession though, which occur on-average every 7-8 years here in the US anyway, with major recessions occurring every 12-13 years on-average too.


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