Gross Domestic Product

The Smart Money is dumping stocks for real assets.

A few hours ago we finally got undeniable confirmation that Europe is once again in recession, its third since Lehman, only this one is worse: it is led by the "core" countries, with Germany in the forefront, a Germany which just reported industrial output which suffered its biggest monthly decline in more than five years in August. Specifically, German IP tumbled 4%, led by capital goods which crashed 8.8%; consumer goods sliding 0.4%, and basic goods dropping 1.9%, with the headline plunge far below the consensus of -1.5%, and below even the worst forecast of -3.0%, the biggest drop since February 2009, a result which according to the FT rose "fears that Europe’s biggest economy might be heading for recession and prompting renewed concern about the economic health of the eurozone."

"What people underestimate is that what's at stake is the entire credibility of the rules," warns one EU official as The WSJ reports, is preparing to reject France’s 2015 budget, that would be the biggest test yet of new powers for Brussels that were designed to prevent a repeat of the eurozone’s sovereign-debt crisis. With the looming handover to former French FinMin Pierre Moscovici (fox, henhouse?) it appears the current European Commission will not stand for Current French FinMin Sapin's plan that would run a budget deficit of 4.3% of GDP next year (far greater than the 3% deficit it had previously promised) put France’s budget in "serious noncompliance" with the new EU rules and risking sanctions of as much as 0.2% of GDP. The credibility of Brussels' new powers threatens to be seriously undermined if big countries such as France and Italy are able to flout the new rules as "it’s not like they will try - and fail; they're actually planning not do it," another EU official said.

Low interest rates are a direct cause of credit bubbles, and this is what is happening in Singapore

In a striking admission that Mario Draghi's "strategy" about the ECB's Private QE future, aka ABS monetization plan, is nothing short of converting Europe's central bank into a "bad bank"  repository for trillions in bad and non-performing debt, the FT yesterday reported that "Mario Draghi is to push the European Central Bank to buy bundles of Greek and Cypriot bank loans with “junk” ratings, in a move that is set to exacerbate tensions between Germany and the bank." It is expected that the former Goldmanite will unveil details of a plan to buy hundreds of billions of euros’ worth of private-sector assets at tomorrow's ECB meeting.

A “poisonous combination” of record debt and slowing growth suggest the global economy could be heading for another crisis, a hard-hitting report will warn on Monday. It warns of a “poisonous combination of high and rising global debt and slowing nominal GDP [gross domestic product], driven by both slowing real growth and falling inflation”. The total burden of world debt, private and public, has risen from 160 per cent of national income in 2001 to almost 200 per cent after the crisis struck in 2009 and 215 per cent in 2013. “Contrary to widely held beliefs, the world has not yet begun to delever and the global debt to GDP ratio is still growing, breaking new highs,” the report said. Luigi Buttiglione, one of the report’s authors and head of global strategy at hedge fund Brevan Howard, said: “Over my career I have seen many so-called miracle economies – Italy in the 1960s, Japan, the Asian tigers, Ireland, Spain and now perhaps China – and they all ended after a build-up of debt.”

In the current GDP-based way we measure "prosperity" (i.e. "growth"), healthy living, low-cost lifestyles and capital accumulation are catastrophes for the economy rather than tremendous benefits. Clearly, we need an entirely new set of metrics and ways of measuring them. This will instantly create an entirely new set of agendas, priorities and incentives that change day-to-day choices without any central-state coercion, bureaucracies or top-down Central Planning.

Any system that has no way to measure, much less prioritize opportunity costs (i.e. what else could have been done the capital, labor and resources) and maximization of utility is not just flawed - it is terribly misguided and structurally destructive.

The U.S. economy has had six full years to bounce back since the financial collapse of 2008, and it simply has not happened.  Median household income has declined substantially since then, total household wealth for middle class families is way down, the percentage of the population that is employed is still about where it was at the end of the last recession, and the number of Americans that are dependent on the government has absolutely exploded.  Even those that claim that the economy is "recovering" admit that we are not even close to where we used to be economically.  Many hope that someday we will eventually get back to that level, but the truth is that this is about as good as things are ever going to get for the middle class. 

Who is the world’s No. 3 arms exporter, after the United States and Russia? Surprise. It is Germany, a country bound by law to supply only allies and peaceable folks like (neutral) Switzerland or Sweden. Off limits are “areas of tension” — bad neighborhoods that actually need the stuff. Yet somehow, Israel and Saudi Arabia, both living in the world’s powder keg, are among Germany’s best customers. So are Algeria, Qatar and the United Arab Emirates.

There is a "hard way" of doing, as in fixing, things and then there is... the European way. Below we show how Italy's debt/GDP for 2013 just was "reduced" by 5% making the country appear far more "sustainable" and attractive to debt investors (the ECB?). As Bloomberg reports, Italy’s 2013 public debt was revised to 127.9% of GDP from a previous estimate of 132.6% of GDP, the country’s statistics agency Istat says in report.

“It’s a questionably unquestionable situation... Are the markets prepared for a shocking answer... Will Janet Yellen announce the final end to QE? Or electrify the bulls with more accommodation? Can Yellen’s eloquent elocution energize the markets…or will she magnetize the bears? Tune in next time Fed fans... Same Fed time... Same Fed channel”

The financial media has no concern of negative outcomes, Wall Street has growth priced in that has never occurred in history, and there is NO expectation of a recession built into any forward assumptions. We have indeed discovered financial “Utopia,” or at least that is what is currently believe.

This is where our economies are perverted. It’s the final excesses and steps of a broke society. It’s madness to the power of infinity. The only thing that’s certain is that in the end, your money will all be gone. That’s how Mario Draghi ‘saves’ the EU for a few more weeks, and that’s how the big boys of finance squeeze more from what little you have left (which is already much less than you think). A world headed for nowhere.

Friday saw the largest demonstration in the history of Barcelona with 1.8 million people showing up, exceeding all previous records, calling for Catalan independence... and as Deutsche Bank warns "Catalonia matters!" seeing four key scenarios.

Google "grocery prices last 12 months" and it's post after post beginning with "Consumer prices rise" or "Rising food prices bite." One person who is happy about this is the New York Times’ Paul Krugman, for instead of being like Europe, that is “clearly in the grip of a deflationary vortex,” America only teeters on the edge of a general price plunge. “And there but for the grace of Bernanke go we,” writes the voice of Grey Lady economics wisdom. However, Mr. Krugman shouldn’t declare defeat to the deflationists just yet. Bankers are learning to say ‘yes’ again, and that means velocity and price increases.