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Guest Post: Q2 Economic Contraction Highly Probable

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Sun, 05/15/2011 - 15:39 | 1276828 PulauHantu29
PulauHantu29's picture

Contraction seems to be double-edged; i.e., a little deflation is good for purchasing power of the workers but may increase job losses.

Inflation weakens the dollar but may lead to more job creation.

Does that sound right?

Sun, 05/15/2011 - 15:51 | 1276853 Confuchius
Confuchius's picture

John Williams at shadowstats.com points out that GDP simply = total spending by whomever on whatever.

It therefore means nothing. Nada. Zip.

Sun, 05/15/2011 - 16:00 | 1276876 masterinchancery
masterinchancery's picture

Correct. You don't have to be an economist, and it helps not to be one, to understand that debt-fueled consumption does not constitute any kind of national "product."  The entire GDP as it has been reported for years, is a sham.

Sun, 05/15/2011 - 16:06 | 1276902 cossack55
cossack55's picture

Again, I say (quite stridently, in fact), go "Bhutan". Its a little like going Galt.  Change GDP to GDH (Gross Domestic Happiness). Of course, we would have to kill all the bankers, politicians and Wall St. scum first. Small price to pay.

Sun, 05/15/2011 - 17:21 | 1277107 Al Gorerhythm
Al Gorerhythm's picture

There's a price equation in there?

Sun, 05/15/2011 - 18:03 | 1277225 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

Market opens in less than minute... many equations in there:)

Sun, 05/15/2011 - 18:03 | 1277233 mt paul
mt paul's picture

treked the " snowman "

gross domestic happiness

was surviving ,that little hike 

Bhutan...where pigs fly ..

"The most recent consumer credit data shows the role the government is playing in expanding credit.  Since 2009 government funded credit has risen 91%. Since 2006 it has risen 285%."..consumer credit down 7 %

reality101 ...quoted from article

Sun, 05/15/2011 - 17:26 | 1277124 Al Gorerhythm
Al Gorerhythm's picture

"GDP simply = total spending by whomever on whatever."

Yup, we've all been reclassified from citizens to consumers. I'm a consumer now. Fuck me dead, I hate that term.

Sun, 05/15/2011 - 17:22 | 1277099 Quixotic_Not
Quixotic_Not's picture
Eclipsing a terrible milestone as home prices fall harder than the 1928 through 1933 Great Depression Collapse: Lessons from the Great Depression Part 32. Housing prices continue to fall as other costs eat up disposable income.

"Home prices have been falling steadily since the summer of 2010.  The fact that we still have close to 7,000,000 homes in the shadow inventory tells us that we still have a long way to go before any normal housing market is restored.  This by far is the worst housing collapse ever and it is still ongoing.  This isn’t some closed chapter in our history books. "

"When the bubble unfolded in our current crisis nearly 70 percent of Americans were homeowners with massive amounts of mortgage debt.  Most Americans derive their net worth from their home.  So a collapse in housing values has sent a ripple through the balance sheets of the vast majority of Americans.  Even if you are part of the one-third of homeowners with no mortgage your home values just cratered 32 percent on a nationwide basis."

"As many of you are well aware in the last decade U.S. median household growth was non-existent.  Families are earning what they did going back to the late 1990s.  Yet the cost of a gallon of gas is now up over $4 in many areas, local and state governments are raising taxes for dwindling budgets, medical care costs are soaring, and the cost to feed your family is also sky high.  So the fact that home prices rose in light of all of this is a stunning reflection of the mania we have lived through."

And voila!  Now you know...

Mon, 05/16/2011 - 02:54 | 1278328 Hephasteus
Hephasteus's picture

Option arms are resetting this year to finally tank the dollar. So they'll try to liquidate us soon.

Mon, 05/16/2011 - 04:18 | 1278376 oh_bama
oh_bama's picture

Please realize that consumers are still buying ipads!!!

Sun, 05/15/2011 - 16:06 | 1276842 Muir
Muir's picture

Well, ordinarily, I'd say this was deflationary, after all, for weeks and weeks (and weeks) I've been pointing out deflationary indicators as well topiness and an overly enthuthiastic exuberance in PMs; however, I now see the truth; this is just an awesome opportunity to BTFDs.


edit: Moreover, I want to sincerely apologize to ZH for ever doubting that QE( infinity -1) was both inevitable and that holding physical was the best (only) way to preserve (store) wealth 
Sun, 05/15/2011 - 17:12 | 1277095 css1971
css1971's picture

Well, ordinarily, I'd say this was deflationary, after all, for weeks and weeks (and weeks) I've been pointing out deflationary indicators as well topiness and an overly enthuthiastic exuberance in PMs

Really? All I remember are bouncing tits.

Sun, 05/15/2011 - 17:24 | 1277117 Quixotic_Not
Quixotic_Not's picture

Yep, hard to take anyone seriously that relys on meat-market bait to get attention...

Sun, 05/15/2011 - 18:02 | 1277224 topcallingtroll
topcallingtroll's picture

If you want to change kool aid brands, well fine.

None of you understand bernanke and the fed. Finally people are beginning to realize it isnt a straight line to inflation, but possibly some swings back and forth for a while.

There will be no qe3 unless we have some serious contraction, not a minor upward blip in unemployment.

The earliest is august. We wont need more than two qe's.

Sun, 05/15/2011 - 18:00 | 1277226 topcallingtroll
topcallingtroll's picture

Ok....maybe 3 qe's max!

Sun, 05/15/2011 - 15:48 | 1276852 Sudden Debt
Sudden Debt's picture

Europe is going to tax Chinese government subsidized more than others.

To save jobs and protect what's left of the industrial base, the US should do the same.

Just tripple tax the cheap stuff from china, and put a low tax on national produced products.

The US can make a lot of money on that, create jobs and even cut the deficit.


Sun, 05/15/2011 - 15:51 | 1276856 Confuchius
Confuchius's picture

Are all Belgians as dumb as you?

Sun, 05/15/2011 - 15:54 | 1276861 Muir
Muir's picture

Well you should have pointed out to him that QE(n + 1) is a stealth tariff.


"Just tripple tax the cheap stuff from china, and put a low tax on national produced products."

Sun, 05/15/2011 - 19:36 | 1277464 rocker
rocker's picture

All's fair in industrial warfare. China plays with Iran. Yet benefits from us fighting in the middle east. China actually taxes many items imported to them from the US. Why not tax their exports to us. Hell Yeah.

Sun, 05/15/2011 - 15:58 | 1276873 Sudden Debt
Sudden Debt's picture

Oké, why is that dumb?

So strange that the simple minded always need to insult people without making a point.

Clearly you're a sad person who needs to hide himself behind a keyboard to channel his personal shortcomings.

You should get out of your parents basement and try to talk to normal people. It might help you cope with your complexes.


Sun, 05/15/2011 - 16:10 | 1276904 cossack55
cossack55's picture

Maybe he can't find the stairs or they keep him locked in.

Sun, 05/15/2011 - 15:56 | 1276868 duncecap rack
duncecap rack's picture

Protective trade barriers are a big nono. They are widely blamed for the severity of the colapse in the last great depression.

Sun, 05/15/2011 - 15:59 | 1276879 Sudden Debt
Sudden Debt's picture

Still, our European largest industrial countries are growing at a increasing rate.

Cut away the parts like greece, portugal and spain. Same like your detroit kind of cities that are large enough in our terms to be countries and you'll see that the EU is outpacing the US in a big way.

We've had antidumping for 4 years now and it's starting to show it's effects.


Sun, 05/15/2011 - 18:10 | 1277261 Caviar Emptor
Caviar Emptor's picture

@Sudden Debt: this is one component of what I've been predicting for a couple of months: protective tariffs. But it won't end there. Price controls and capital controls are sure to follow. And that's in addition to continuing interventions in the stock, bond and commodities markets which have already begun. We won't see truly free again in our lifetime. It's the only way for them to hold things together sine they can't erase massive mistakes. 

Sun, 05/15/2011 - 18:17 | 1277273 Al Gorerhythm
Al Gorerhythm's picture


Sun, 05/15/2011 - 18:18 | 1277245 Al Gorerhythm
Al Gorerhythm's picture

"Protective barriers" are a means by which local workers can protect our living standards, against a supplier who uses underpaid labor (in comparison to ours), as an means to dump their products in our market.

If we have to compete against that, we are going to be paid at the same average rate of a third world peasant. Our manufacturing sector has been relocated overseas, because the wage arbitragers, using the "Globalization is Good" meme, have made a bundle selling the goods we used to manufacture, to us, asking for payment in a currency ($) that is more valuable than the Yuan. They make a killing in both currencies. These companies are run by your fellow countrymen. They are prepared to sacrifice the historic soundness of our markets and currency, our living standards, our way of life, just to make a $profit for themselves. We're broke because all of the profits go off shore, compounding the situation that we are now in.


Sun, 05/15/2011 - 16:22 | 1276957 zippy_uk
zippy_uk's picture

Why would anyone in Washington want to do that when the Chinese have bought the place out ?

US politicians serve the people alright, but none of them are US citizens (themselves excepted).


And as for EU - well even if they try to succeed with Taxes as you suggest, they could not organise a shower in a monsoon..

Sun, 05/15/2011 - 17:38 | 1277157 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

The Corporate Dream is to sell into the billion man market. If you put up tariffs, so will the Chinese. They don't make enough dough yet for western corporate profit margins to withstand tariffs on their side. While the Transnationals wait and try to work themselves into the Chinese Market, the little guy in the West, the ephemeral middle class, gets unemployment, foodstamps and inflation. The Chinese get a devalued dollar on their trillions, more inflation and a not so gentle nudge to let the RMB revalue. But heh, those trillions of dollars were not accumulated strategically or on a profit and loss basis, they were accumulated to keep Chinese employed, period. Hundreds and hundreds of millions of Chinese workers, working for relatively nothing. That chapter is getting ready to turn, especially if you can believe sources like BCG discussing the closing wage gradient. Three more years of not paying for your mortgage but living in your house, staying on the dole and eating Rice Krispies for dinner is a small price to pay for GM to sell cars in Hunan. Maybe you'll never work again, but S&P earnings will be $150 ...

Sun, 05/15/2011 - 15:54 | 1276862 High Plains Drifter
High Plains Drifter's picture

Tony, will you please go talk to Leo.....

Sun, 05/15/2011 - 15:53 | 1276867 Franken_Stein
Franken_Stein's picture


Does the Fed balance shite conform with the U.S. Generally Agreed Accounting Principles (US-GAAP) ?


A-hahahahaha !

That was a good one, wasn't it ?

No ? Oh, come on.


Don't be such a Spielverderber (game spoiler).


Sun, 05/15/2011 - 16:46 | 1277017 cossack55
cossack55's picture

Yes it does. They are both written in English.

Sun, 05/15/2011 - 16:00 | 1276874 Hushups
Hushups's picture

I'm sure most have seen this, but seems relevant anyway. Interesting take on deflation.



Sun, 05/15/2011 - 15:58 | 1276877 RockyRacoon
RockyRacoon's picture

Let's get this show on the road....  Give us a huge black swan and stop the teetering in the edge.   This crap is wearing me out!

I'm ready.   You?

Sun, 05/15/2011 - 16:11 | 1276908 cossack55
cossack55's picture

Down and dirty, baby.

Sun, 05/15/2011 - 16:59 | 1277069 MacroStory
MacroStory's picture

I've been ready for two years now.  Pantry is full, inflation is hedged, family has been read the riot act.  Most of my friends don't take my calls anymore.  Wonder why?  On a side note, I must be getting old as I need the calculator to answer the captcha.  Just got the first one wrong.

Sun, 05/15/2011 - 16:00 | 1276881 JimBobOMG
JimBobOMG's picture

Sooooo buy more gold?

Sun, 05/15/2011 - 16:05 | 1276896 Muir
Muir's picture

No silver!

How about silver minis!?



Contract Type Futures Country/Region United States

Closing Price 35.528 CurrencyU.S. Dollar (USD)Contract Identifiers Conid 42320984 Futures FeaturesFutures TypeMetalsFirst Notice Date First Position Date28/11/2011

Last Trading Date28/11/2011

Expiration Date28/11/2011Multiplier2500

Margin Requirements

Intraday Initial Margin15,280Intraday Maintenance Margin8,000



Sun, 05/15/2011 - 16:22 | 1276960 css1971
css1971's picture

No. Understand what money is.

Credit contracting means deflation, not inflation. Gold will appear to lose it's value during deflation just along with everything else. Take a look at the chart of gold during 08, it's on kitco. Gold has some useful monetary properties, but it is not money (yet).

The stock, commodity, bond markets are all levered out of their minds. Everyone wants to get rich quick, and the way to do that is leverage; loans. Well, if credit is contracting, the loans to traders to buy assets is also going to be contracting. We've already seen the margins on silver, oil being raised.

I think 2008 caught the banks by surprise but they've been playing the inflation/deflation game for centuries, possibly millenia. They know Bernanke is ending support. They have mountains of cash. This time they're planning to take everything down in a grind. All they need is for everything to be cheap at the end.

The Bernanke reset isn't over till his employers own everyone.

Sun, 05/15/2011 - 16:49 | 1277029 Muir
Muir's picture


Go ahead and teach your competition in a zero sum game.

Sun, 05/15/2011 - 17:47 | 1277174 css1971
css1971's picture

Nobody here is my competition. This isn't what I do. This is a meaningless freakshow where nothing productive (rent seeking) happens. Little more than the colliding of egos. I'm not here to beat anybody, I'm not even trying to get rich. I'm simply here to make sure that nobody steals the value I have earned. Do you understand just how fucked up it is that I have to do that?

The manipulation of money is too easy.... Any particular trade on the stock market is a zero sum game, but in the real economy it is not. When I buy a car it's because I want the car more than the money, the car is useful to me. Both sides of the trade benefit, it is not zero sum. That's the fucking point of trading.

The more people who understand money, the harder it's manipulation becomes. The better life will be.

Sun, 05/15/2011 - 20:06 | 1277537 Muir
Muir's picture

What, no sense of humor?

Or sarcasm?

Or aesthetics?

Sun, 05/15/2011 - 18:38 | 1277318 ethancasta
ethancasta's picture

That's a great avatar. I notice it everytime I read comments.

Sun, 05/15/2011 - 17:05 | 1277082 Quinvarius
Quinvarius's picture

You might want to actually compare a chart of gold vs the S&P during 2008.  It is pretty clear gold was at all time highs when the S&P was at 666.  That is because gold is money. 

Sun, 05/15/2011 - 17:20 | 1277114 css1971
css1971's picture

Gold declined.


Doesn't look like much now, but that was a big scary fall, just like everything else. Gold buyers are leveraged as well.

Sun, 05/15/2011 - 18:29 | 1277296 Al Gorerhythm
Al Gorerhythm's picture

No. Understand what money is.

Paper gold buyers are leveraged but not this one, and I'm about as far away from debt as my little feet will carry me. Gold is and always has been, as nature's gift, the only true form of money, when used as a numeraire against all others. Disprove its historic record over time, not just some little blip in its chart.

Sun, 05/15/2011 - 16:12 | 1276915 jaffi
jaffi's picture

"The consumer continues to hold up relatively well and has averaged 71% of total GDP since January 2009"


And, here I thought that government spending (local, state, and federal) was currently 46% of GDP.  

Sun, 05/15/2011 - 16:12 | 1276931 falak pema
falak pema's picture

you can't get structural rebalancing on macro economic scale w/o some selective protection play, the first of which is curbing the world wide financial casino, especially NAKED derivatives plays.

Sun, 05/15/2011 - 16:43 | 1277011 RunningMan
RunningMan's picture

Whether there is QE or not, we are in a bizarre operating mode in the economy. Some elements flying high (construction, infrastructure, certain areas of finance), while others have outright stalled. We've got the standoff with the USD - up or down? Risk on or off? It won't matter much, as those in the money - IB, HF and perhaps some PE - will be hiring us in teams to cut their lawns blade by blade this time next year.

Sun, 05/15/2011 - 16:47 | 1277013 Lndmvr
Lndmvr's picture

My part time insurance inspection job turned into full time. Had to put a new front end under the car last month due to crappy roads. Now it needs another grand or so plus tires if i want to keep working. I'm thinkin I'm ready to quit and take a break for a year. Any one want to drive 300-500 miles a week for 500 to 700 bucks minus gas? If your in iowa and nedd a job, watch the want ads. My economy is contracting.

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