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There's Something Wrong With The World Today (Hint: 1995)
Submitted by Jeffrey Snider via Alhambra Investment Partners,
There weren’t any surprises in the “final” GDP update for Q1. Going back to -0.2%, the same interpretations still apply, especially and including the inventory contribution. Economists and policymakers want to talk particularly about how Q1 is prone to “residual seasonality” but that is missing the bigger part of the problem. Whether Q1 was -0.2% or +2% doesn’t really matter, as what truly makes this a dangerous economic situation is that Q1 and all the prior quarters were not a steady +4%.
To listen to economists today is to suggest that such an expectation amounts to wishful thinking, and that such “normal” growth is no longer. That sentiment may apply, but only to the narrow manner in which orthodox economics can integrate real world factors. In other words, “they” accept that there is something wrong but cannot answer the relevant and primary question as to what that might be.
This problem is obvious in every economic account, including GDP. Using year-over-year figures to harmonize among other economic systems, the lack of growth is striking post-crisis – made all the more so by the size of the huge hole left in the wake of the Great Recession itself. That means, even by this count, the opportunity cost of this non-recovery is severely understated.
I picked 1995 as a starting point for a reason, which I’ll get back to below. Suffice to say, in isolating only the growth periods of each economic cycle the current version is by comparison about half that of the late 1990’s. The middle cycle, the housing bubble age, shows what is plainly a transition from the first to the third. The primary opportunity cost is not simply the difference between them, but rather far more importantly the compounding nature of time. In other words, the longer these deficiencies drag the more costly in very real economic distortions that cannot be measured.
We can try to do so, but the intangible portions of this kind of negative reality are difficult if not impossible to quantify – the further you stray from the efficient path, the more trouble you incur (geometrically) when you realize the error and attempt to strike back toward the “optimal.” In the counterfactual example above, I have plotted GDP as it is currently estimated (green line); what it “would” be if the housing bubble cycle average had been repeated (blue line); and, what it “would” be if the dot-com bubble cycle had returned. The disparities are enormous, and demonstrate quite well the effects of lost compounding – the difference between current GDP and the dot-com example is nearly $2 trillion!
These are not just unrealistic numbers on an unrelated chart, as those upper trends are exactly what businesses and people are and have been expecting all along. That disparity was sharpened by each of the successive QE’s and promises about ZIRP, as they were explicitly tailored and proclaimed to deliver something like the red line, not the blue, and certainly nothing near the green. Businesses have planned and acted on that expectations for that success as monetarism somehow made it through 2008 largely unscathed if somewhat dented in public opinion (mostly because 2008 remains hidden, especially under cover of “it would have been worse”). I have little doubt that is a big reason why the economy exhibits an almost stop-go pattern, centered on each of the QE’s (not the weather).
What is truly extraordinary, however, is not just the US deficiency but how that same pattern or idea has been clearly transported nearly everywhere around the globe.
GDP volatility from quarter to quarter remains constant, but the baseline upon which that volatility pivots has shifted dramatically lower. It started somewhat, like the US, in the middle cycle period but has attained an enormous depression in this third cycle. Again, that would be a huge problem itself if not for the massive decline of the global Great Recession which means the largely positive numbers that have followed it are even more uninspiring than they first appear.
When switching to the “developing” world, though, the middle cycle turns upward as a clear surge beyond either the first or the third. Not surprisingly, that penetrates not just China but relatedly Brazil (and other “resource” nations I won’t present here).
And so we can start to appreciate the nature of the serial asset bubble economy as it existed globally. In the first age, the dot-coms’ (US terminology, to be sure, but it fits the rest of the world at least loosely) economy was driven the combined impact of the start of housing imbalances as well as a flood of stock-based “money” which heavily influenced, artificially, capital spending. Those two bubble basis effects combined enough to draw in and begin to orient global economic factors toward them.
The serial bubble age began in 1995, a fact easily observed by any number of asset bubble indicators – from stocks to housing to even the relative measures for actual economic efficiency drawing from the bubbles as a primary source.
There are a couple reasons as to why 1995 is such a fixture in starting this global reorientation. It was around that point where eurodollar behavior altered enough so that what was left after the end of the gold exchange standard as an almost niche (if still huge) credit market could suddenly become the primary means of speculative expansion inside the US (and around the world). The key mechanical difference in 1995 was VaR, opened up through JP Morgan’s “publishing” its securities database into what would become RiskMetrics (a service rolled out widely to the global banking sector starting in October 1994). It sounds simple and innocuous, but that one change would unleash untold leverage through nothing more than balance sheet mathematics made deliverable by the Basel rules – technology and regulatory short-sightedness combining to define marginal global expansion for, unfortunately, decades.
The difference in GDP among the three cycles is simply the decreasing efficiency each one can/could produce. After the dot-com crash and related recession, the far bigger housing bubble was left more a matter of asset inflation than actual direct economic activity – a highly inefficient transfer of house prices to mortgage credit to home equity as ATM’s (along with a bump in construction).
The primary difference of the second age in the US and Europe to that in China and Brazil was how the housing bubble affected each. It was highly inefficient in the US and Europe to a lesser extent, but to China and the resource supply chain around the world it was the opposite (if still, again, artificial). Since the middle cycle was largely consumption-based, it makes sense that the consumption chain globally would be among the primary responses. In other words, the eurodollar system “produced” the credit expansion, some of which went to fuel asset prices as the basis for consumption in the US and Europe, but a good portion was dedicated by expediency to China, Brazil and the rest in which to service that consumption trend as cheaply as possible.
That is why China is the perfect expression of the upside (and now downside) to the eurodollar system as it advanced through the middle 2000’s.
The lack of growth universally in the third cycle is simply that neither of the temporarily positive effects of the first two were actually transcendent. The US and Europe are stuck without financial “production”, meaning a consumption problem without any leftover and organic productive expansion to fill that hole. That, then, leaves the rest of the world both dangerously waiting for all that to rekindle (since productive power and ability in the second cycle was based on eurodollar leverage – the global dollar short – to begin with) and short of inertial and internal expansion without any of it. The longer this hole has lingered, the more negative self-feeding starts to unwind the financial basis (clearly seen in China’s severe retrenchment).
The post-1995 eurodollar system simply became so inefficient that it was no longer re-workable past the Great Recession itself. The Fed has become so irrelevant, in the real economy, as to be stuck quibbling whether Q1 was slightly negative or slightly positive when the real problem is much more widespread, global even, and far deeper than they certainly appreciate. Trillions upon trillions in “stimulus” and the FOMC is left, pathetically, fighting for the distinction of “it’s not as bad as it looks.” That would seem to make this the most costly economic age ever conceived, with global implications that are just now starting to be felt as whatever faith was leftover from 2008, wrong or right, wears off all over the world. That is a highly combustible deficiency, since the longer the global economy remains disorientated the more likely it is to experience not just recession but, since this is all still so leveraged (even more poorly this time), something potentially worse.
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it's clearly a recovery
In 1995 Robert Rubin and Larry Summers joined Treasury and the war on gold (rigging interest rates) took off allowing Greenspan's Fed to start blowing bubbles during "The Great Moderation"
http://www.safehaven.com/article/35086/the-role-of-goldmans-jaron-and-co-metal-division-in-capping-gold-prices
https://en.wikipedia.org/wiki/Robert_Rubin
Unfortunately for us everything is going according to plan.
"Real GDP"... that's a good one...
1995? Wasn't that the first time Bill Clinton jizzed all over Monica Jewinski's blue dress?
Coincidence or CONSPIRACY?????
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So, the author is saying that the problem is debt? I want the last 3 minutes of my life back.
More importantly, Basel-based debt. Systemic rot, FTMFW!
Your ministry remains STRONG.
https://www.youtube.com/watch?v=qUb5IcahRuo
Almost no statistics mean anything any more. The degree of manipulation and outright false and jiggered statistics is so enormous, most statistics and charts are nothing more than misleading nonsense.
A few of the most fundamental, unadjusted statistics and charts do mean something, but one needs to be wise enough to figure out which those are, and how to interpret their significance.
One example of helpful statistics/charts is total hours worked [per month] divided by total population (or working age population if you prefer)... adjusted for nothing whatsoever.
To figure out anything financial is near impossible (at least with a significant degree of precision). The reason for that is the massive jiggering and manipulation of currencies, precious metals and DEBT. One could define and compute value on the basis of a basket of basic goods, but this is not easy. But to compute anything without subtracting out accumulated debt + interest (and their indirect consequences) inherently leads to monumentally over-optimistic conclusions.
The bottom line, which can be "measured" approximately by simple observation is... human predators are increasingly dominating human producers, and the rate of increase is increasingly steep and destructive.
Which means, game over for mankind. All that remains are details.
Hm. .... I'm guessing this is your point:
Who, then, do you identify as the predators? It might seem obvious to you, but many who comment here offer somewhat bizarre and, well, Trollish "suggestions", which I will not repeat.
Still, I have my own suggestion: There is a dark economy at work, one that is hidden even from the most acute eyes, but one that has no difficulty at all manipulating the visible economy or economies at a deeper level than rigging and printing, simply by siphoning off assets to its own use.
Note in particular, if you have looked into the subject, that "accountability" in the US Government's Financial Dealings is nonexistent, and that hundreds of Billions simply disappear each year through fraud and also through unknown means. It's the same in the Euro, Brit, Scandinavian, Asian (ex China), and other markets. The asserts (even the freshly printed money) disappear to somewhere else (or, in many cases, the mere ownership of immovable assets disappears!
One question is WHO is doing this? It would be good to know, as today we have no clue.
Another question is, WHERE DID IT ALL GO? It can't all be just "Leverage." This is an even more important question than who, as getting it back from them would be beneficial.
How do we know it is happening? Wealth is disappearing. We do not know where it went. It appears to be massively well planned and executed. There is evidence here and there that some of it is being spent:
For more, start with these two:
Educate yourself. Something else is happening. Do not be distracted from current corruption and incompetence, but perhaps look a little deeper, maybe .... over behind that other curtain.
In just a sentence, those who benefit from the counterfeiting are not producing values that anyone else would voluntarily demand and instead are usurping their livelihoods from those who do produce values to meet voluntary demand.
Like other animal predators, human predators are those humans who just TAKE the goods and goodies they need to survive, prosper and be happy... rather than PRODUCE them.
Those human predators who call themselves "authority" and "government" are the worst (meaning "most destructive"). But lots of "regular folks" have found ways to be highly successful human predators, from those who run HOAs, to those who manipulate businesses to defraud others.
To "produce" is to take physical actions that cause goods and goodies to exist... goods and goodies that would not have come to exist by the natural processes of the earth environment (absent human action).
Thus, "production" (as well as "destruction") is "causality applied to human action".
If someone takes actions that destroys goods and goodies (or steals them from producers), they are the cause of destruction, and are thus predators.
If someone takes actions that cause goods and goodies to exist (or trades such for goods and goodies created by others), they are the cause of creation/production, and are thus producers.
Quite simple really. Sadly, the vast majority of modern humans are destroyers, and the total collapse of the species and world economy is only delayed by the fact that modern producers in modern times produce vastly more than they consume.
True, which is why this makes sense: http://kingworldnews.com/richard-russell-big-money-panicking-as-legendar...
Richard Russell: "Of everything I read there is one item that bothers me, it’s the newsletter by John Williams titled Shadow Government Statistics. But strangely, I never see him quoted. Here’s what he says in his latest mailing:
"Broad outlook is unchanged: economy remains in downturn. Dollar faces massive decline with ongoing implications for a hyperinflation crisis. The US economy remains in ongoing downturn, while the US dollar faces a massive decline, with implications for a meaningful upturn in inflation evolving into a great hyperinflationary crisis. Signs of systemic instability are increasing anew."
Williams' report is based on cutting through the government and Federal Reserve propaganda and giving us the real facts. Williams believes that the US never grew out of the great recession and is still in recession.
[...]
What makes me think that Williams is correct is that nobody will touch or broadcast his ideas.
The Man at the head of the table
Deals with the problem of the serfs
We got enough, we need no more,
We finally bought the Earth.
Minions all around him, they squeal with joy and glee
Like a pack of pigs who had too much food
dumped in their trough for free.
We have satellites and Reaper Drones
We control the Earth and Air.
Anyone can expect their Death if they Declare:
I am Free.
So let us push our wealth together,
Let mankind serve thee and me.
We are the Lords of Lucifer.
We are grateful unto Thee.
Afuckingmen
The whole project is ego driven... no different to every war (hot, cold or financial) that has ever been fought... what amazes me is how the bullshit continues on in this Fiat currency, nothing is as it seems, upside down world.. Maybe the whole thing is a game/matrix of deception and the people are in a deeper sleep that we on ZH realise.
Regardless, I believe I woke from that sleep a year ago, got an alternative education on ZH and consequently got into gold bullion and now I want to give something back.
For those of you not actually in the physical metal .. I can highly recommend it.. because no matter what goes on in the EU Punch and Judy show... my stress levels reduced 90% knowing I have some bullion.
You might think I'm just spamming, but I'm not... I'm deadly serious! I got involved in a German company called Karatbars International who produce Gold Bullion in small weights and boy am I glad on various levels.
They developed an incredibly lucrative affiliate marketing system to get their product to market... Its free to join at the basic level although if you decided to go all in to earn the highest commissions the buy in price is essentially peanuts... FFS my day job Personal Indemnity insurance costs more per month!!
The downside is it's more a mass education programme than marketing,,, because aside from ZeroHedgers the financial IQ out there is well down the trickle down economic cascade and those people need to be educated to get some AU!
I know there are lots of you out there that would love to get your hands on bullion and get the money to acquire it from actually helping some of the lambs lined up for the slaughter - We could actually be doing something worthwhile.
Check out my website www.teamramgold.com its only a simple website to give a snapshot of the programme, but feel free to get in contact with me and I'll show you an incredible system. It could be the most lucrative email you will ever write..
And yes OK I am pitching (a bit) but if you get the programme you will understand why.. I'm a capitalist but with a social conscience.
There’s a shitstorm brewing, and august will be the beginning of it all.
On august the 7th, the first piece of real bad news will come.
And what pray tell happens on August 7?
if anyone thinks we are going to have a 'bad depression' like the 30's i think they are going to be for a big suprise this time round. more like a global die off when the food and spare parts stop flowing around the world. dark ages 2.0 baby....
Well thats a bit drastic. You must have recently watched the new Mad Max movie. I've been watching the Mad Max movies with PB&J sandwiches before grade school. You manifest your own destiny road warrior.
Yep you're right. >>> https://biblicisminstitute.wordpress.com/2015/06/25/warmongering-vs-econ...
The ENTIRE financial system is about to fucking implode. I literally can't imagine the amount of carnage this will create - worldwide. We are so fucking fucked!
actually most of the world still gets it rice and beans from traditional local farming. If you live in mega metro urban shit holes then yes, you're fucking fucked.
Here is more info about bonds and derivatives.
http://michaelekelley.com/2015/05/19/bonds-dry-up-derivatives-explode/
http://michaelekelley.com/2015/01/28/remember-cdos-theyre-baaaack/
Here are some more signs of a coming recession.
http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record...
http://michaelekelley.com/2015/02/20/fed-warns-of-two-bubbles/
http://michaelekelley.com/2015/02/24/would-you-pay-39-more-than-asked/
Here is the starting point.
http://michaelekelley.com/2015/04/28/next-recession-will-start-with-this-country/
Here is how to prepare.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Here is how to get your mind off this stuff.
http://michaelekelley.com/category/humor/
Good luck!
The SPX chart above is showing a perfect Horn pattern .
Mark this post then call me an a$$hole in 5 years but by 2020
IMO it will be at 500. Then a recovery and rally over the next ten years .
The great reset coming.
They stopped correcting the bubbles through small adjustment and let them become large bubbles. Or, they completely killed the free market, which previously would auto correct bubbles.
Seems like a conscious choice ... wouldn't you agree?
When Capitalism reaches its zenith, everyone will be an investor and no one will be doing anything.
Central Bank inflated asset bubbles will provide for all.
The biggest market in the world today is derivatives, money making money without a useful product or service in sight.
With the market in derivatives being ten times larger than global GDP we can see that making useful products and providing useful services is nearly irrelevant even today.
We are nearly there.
What could go wrong?