"Sleepwalking Into An Even Worse Version Of The 1930's Depression"

Tyler Durden's picture

Authored by Gail Tverberg via Our Finite World blog,

World GDP in current US dollars is in some sense the simplest world GDP calculation that a person might make. It is calculated by taking the GDP for each year for each country in the local currency (for example, yen) and converting these GDP amounts to US dollars using the then-current relativity between the local currency and the US dollar.

To get a world total, all a person needs to do is add together the GDP amounts for all of the individual countries. There is no inflation adjustment, so comparing GDP growth amounts calculated on this basis gives an indication regarding how the world economy is growing, inclusive of inflation. Calculation of GDP on this basis is also inclusive of changes in relativities to the US dollar.

What has been concerning for the last couple of years is that World GDP on this basis is no longer growing robustly. In fact, it may even have started shrinking, with 2014 being the peak year. Figure 1 shows world GDP on a current US dollar basis, in a chart produced by the World Bank.


Figure 1. World GDP in “Current US Dollars,” in chart from World Bank website.

Since the concept of GDP in current US dollars is not a topic that most of us are very familiar with, this post, in part, is an exploration of how GDP and inflation calculations on this basis fit in with other concepts we are more familiar with.

As I look at the data, it becomes clear that the reason for the downturn in Current US$ GDP is very much related to topics that I have been writing about. In particular, it is related to the fall in oil prices since mid-2014 and to the problems that oil producers have been having since that time, earning too little profit on the oil they sell. A similar problem is affecting natural gas and coal, as well as some other commodities. These low prices, and the deflation that they are causing, seem to be flowing through to cause low world GDP in current US dollars.


Figure 2. Average per capita wages computed by dividing total “Wages and Salaries” as reported by US BEA by total US population, and adjusting to 2016 price level using CPI-Urban. Average inflation adjusted oil price is based primarily on Brent oil historical oil price as reported by BP, also adjusted by CPI-urban to 2016 price level.

While energy products seem to be relatively small compared to world GDP, in fact, they play an outsized role. This is the case partly because the use of energy products makes GDP growth possible (energy provides heat and movement needed for industrial processes), and partly because an increase in the price of energy products indirectly causes an increase in the price of other goods and services. This growth in prices makes it possible to use debt to finance goods and services of all types.

A decrease in the price of energy products has both positive and negative impacts. The major favorable effect is that the lower prices allow the GDPs of oil importers, such as the United States, European Union, Japan, and China, to grow more rapidly. This is the effect that has predominated so far.

The negative impacts appear more slowly, so we have seen less of them so far. One such negative impact is the fact that these lower prices tend to produce deflation rather than inflation, making debt harder to repay. Another negative impact is that lower prices (slowly) push companies producing energy products toward bankruptcy, disrupting debt in a different way. A third negative impact is layoffs in affected industries. A fourth negative impact is lower tax revenue, particularly for oil exporting countries. This lower revenue tends to lead to cutbacks in governmental programs and to disruptions similar to those seen in Venezuela.

In this post, I try to connect what I am seeing in the new data (GDP in current US$) with issues I have been writing about in previous posts. It seems to me that there is no way that oil and other energy prices can be brought to an adequate price level because we are reaching an affordability limit with respect to energy products. Thus, world GDP in current dollars can be expected to stay low, and eventually decline to a lower level. Thus, we seem to be encountering peak GDP in current dollars.

Furthermore, in the years ahead the negative impacts of lower oil and other energy prices can be expected to start predominating over the positive impacts. This change can be expected to lead to debt-related financial problems, instability of governments of oil exporters, and falling energy consumption of all kinds.

 

Peak Per Capita Energy Consumption Is Part of the Problem, Too

One problem that makes our current situation much worse than it might otherwise be is the fact that world per capita energy consumption seems to have hit a maximum in 2013 (Figure 3).


Figure 3. World Daily Per Capita Energy Consumption, based on primary energy consumption from BP Statistical Review of World Energy and 2017 United Nations population estimates.

Surprisingly, this peak in consumption occurred before oil and other energy prices collapsed, starting in mid-2014. At these lower prices, a person would think that consumers could afford to buy more energy goods per person, not fewer.

Per capita energy consumption should be rising with lower prices, unless the reason for the fall in prices is an affordability problem. If the drop in prices reflects an affordability problem (wages of most workers are not high enough to buy the goods and services made with energy products, such as homes and cars), then we would expect the pattern we are seeing today–low oil and other energy prices, together with falling per capita consumption. If the reason for falling per capita energy consumption is an affordability problem, then there is little hope that prices will rise sufficiently to fix our current problem.

One consideration supporting the hypothesis that we are really facing an affordability problem is the fact that in recent years, energy prices have been too low for companies producing oil and other energy products. Since 2015, hundreds of oil, natural gas, and coal companies have gone bankrupt. Saudi Arabia has had to borrow large amounts of money to fund its budget, because at current prices, tax revenues are too low to fund it. In the United States, investors are cutting back on their support for oil investment, because of the continued financial losses of the companies and evidence that approaches for mitigating these losses are not really working.

Which Countries Are Suffering Falling GDP in Current US Dollars?

With lower oil prices, Saudi Arabia is one of the countries with falling GDP in Current US$.


Figure 4. Increase in GDP since 1990 for Saudi Arabia in current US dollars, based on World Bank Data.

Saudi Arabia pegs its currency to the dollar, so its lower GDP is not because its currency has fallen relative to the US dollar; instead, it reflects a situation in which fewer goods and services of all kinds are being produced, as measured in US dollars. GDP calculations do not consider debt, so Figure 4 indicates that even with all of Saudi Arabia’s borrowing to offset falling oil revenue, the quantity of goods and services it was able to produce fell in both 2015 and 2016.

Other oil-producing countries are clearly having problems as well, but data is often missing from the World Bank database for these countries. For example, Venezuela is clearly having problems with low oil prices, but GDP amounts for the country are missing for 2014, 2015, and 2016. (Somehow, world totals seem to include estimates of the total omitted amounts, however.)

Figure 5 shows similar ratios to Figure 4 for a number of other commodity producing countries.


Figure 5. GDP patterns, in US current dollars, for selected resource exporting countries, based on World Bank data.

A comparison of Figures 4 and 5 shows that the GDP patterns for these countries are similar to that of Saudi Arabia. Because resources (including oil) do not account for as large a share of GDP for these countries as for Saudi Arabia, the peak as a percentage of 1990 GDP isn’t quite as high as for Saudi Arabia. But the trend is still downward, with 2014 typically the peak year.

We can also look at similar information for the historically big consumers of oil, coal and natural gas, namely the United States, the European Union, and Japan.


Figure 6. Increase in GDP since 1990 for the United States, the European Union, and Japan, in current US dollars, based on World Bank data.

Here, we find the growth trend is much more subdued than for the countries shown in the previous two charts. I have purposely put the upper limit of the scale of this chart at 6 times the 1990 GDP level. This limit is similar to the upper limit on earlier charts, to emphasize how much more slowly these countries have been growing, compared to the countries shown in Figures 4 and 5.

In fact, for the European Union and Japan, GDP in current US$ is now lower than it has been in recent years. Figure 6 is telling us that the goods and services produced in these countries are now lower in US dollar value than they were a few years ago. Since part of the cost of goods and services is used to pay wages, this lower relativity indirectly implies that the wages of workers in the EU and Japan are falling, relative to the cost of buying goods and services priced in US dollars. Thus, even apart from taxes added by these countries, consumers in the EU and Japan have been falling behind in their ability to buy energy products priced in US dollars.

Figure 6 indicates that the United States has been doing relatively better than the European Union and Japan, in terms of the value of goods and services produced each year continuing to grow. If we look back at Figure 2, however, we see that even in the US, wage growth has lagged far behind oil price increases. Thus, the US was also likely headed toward an affordability problem relating to goods and services made with oil.

The Asian exporting nations have been doing relatively better in keeping their economies growing, despite the downward pressure on energy prices.


Figure 7. Increase in GDP since 1990 for selected rapidly growing Asian exporting countries in current US dollars, based on World Bank data.

The two most rapidly growing countries are China and Vietnam. There seems to be a recent slowing of their growth rates, but no actual downturn.

India, Pakistan, and the Philippines are growing less rapidly. They do not seem to be experiencing any downturn at all.

Considering the indications of Figure 4 through 7, it appears that only a relatively small share of countries have experienced rising GDP in current US dollars. Although we have not looked at all possible groupings, the countries that seem to be doing best in terms of rising current US$ GDP are countries that are exporters of manufactured goods, including the Asian countries shown. Countries that derive significant GDP from producing energy products and other commodities seem to be experiencing falling GDP in current US dollars.

To fix the problems shown here, we would need to get prices of oil and other energy products back up again. This would indirectly raise prices of many other products as well, including food, new vehicles, and new homes. With lagging wages in many countries, this would seem to be virtually impossible to accomplish.

The Wide Range of GDP Indications We See 

In this post, I am talking about GDP of various countries, converted to a US$ basis. This is not quite the same as the GDP that we normally read about. It is not until a person starts working with world data that a person appreciates how different the various GDP and inflation calculations are.

GDP in US dollars is very important because energy products, including oil, are generally priced in US$. This seems to be true, whether or not the currency used in the actual transaction is US$. See Appendix A for charts showing the close connection between these two items.

The type of GDP is generally reported is inflation-adjusted (also called “real”) GDP. The assumption is made that no one will care (very much) about inflation rates. In general, inflation-adjusted GDP figures are much more stable than those in Current US$. This can be seen by comparing world GDP in Figure 8 with that shown in Figure 1.


Figure 8. GDP in 2010 US dollars, for the world and for the United States, based on World Bank data.

Using inflation-adjusted world GDP data, there doesn’t seem to be any kind of crisis ahead. The last major problem was in the 2008-2009 period. Even the impact of this crisis appears to be fairly small. The 2008-2009 crisis shows up more distinctly in the Current US$ amounts plotted in Figure 1.

World GDP growth figures that are published by the World Bank and others combine country by country data using some type of weighting approach. Economists tend to use an approach called Purchasing Power Parity (PPP). This approach gives a great deal more weight to developing nations than the US dollar weighted approach used elsewhere in this post. For example, under the PPP approach, China seems to get a weighting of about 1.9 times its GDP in US$; India seems to get a weighting of about 3.8 times its GDP in US$. The United States gets a weight of 1.0 times its GDP in US$, and the weights for developed nations tend to be fairly close to 1.0 times their GDP in US$. The world GDP we see published regularly should be called “inflation-adjusted world GDP, calculated with PPP weights.”

The relationship among the three types of GDP can be seen in Figure 9. It is clear that GDP growth in Current US$ is far more variable than the inflation-adjusted growth rate (in 2010 US$). PPP inflation-adjusted GDP growth is consistently higher than GDP growth with US dollar weighting.


Figure 9. World GDP Growth in three alternative measures: Current dollars, Inflation-adjusted GDP is in 2010 US$ and adjusted to purchasing power parity (PPP).

It is also clear from Figure 9 that there is also a big “Whoops” in the most recent years. Economic growth is at a record low level, as calculated in Current US$.

World “Inflation” Indications

The typical way of calculating inflation is by looking at prices of a basket of goods in a particular currency, such as the yen, and seeing how the prices change over a period of time. To get an inflation rate for a group of countries (such as the G-20), inflation rates of various countries are weighted together using some set of weights. My guess is that these weights might be the PPP weights used in calculating world GDP.

In Figure 10, I calculate implied world inflation using a different approach. Since the World Bank publishes World GDP both in 2010 US$ and in Current US$, I calculate the implied world inflation rate by comparing these two sets of values. (Some people might call what I am calculating the implicit price deflator for GDP, rather than an inflation rate.) I use three-year averages to smooth out year-to-year variability in these amounts.


Figure 10. World inflation rate calculated by comparing reported World GDP in Current US$ to reported World GDP in 2010 US$. Both of these amounts are available at the World Bank website.

The implied world inflation rates using this approach are fairly different from published inflation rates. In part, this is because the calculations take into account changing relativities of currencies. There may be other factors as well, such as the inclusion of countries that would not normally be included in aggregations. Inflation rates tend to be high when demand for energy products is high, and low when demand for energy products is low.

Figure 10 shows that, on a world basis, there have been negative inflation rates three times since 1963–in approximately 1983-1984; in the late 1990s to early 2000s; and since about 2014. If we compare these dates to the oil price and energy consumption data on Figures 2 and 3, we see that these time periods are ones that are marked by falling per capita energy consumption and by low oil prices. In some sense, these are the time periods when the economy is/was trying to stall, for lack of adequate demand for oil.

The workaround used to “fix” the lack of demand in the late 1990s to early 2000s seems to have been an increased focus on globalization. China’s growth in particular was very important, because it added both a rapidly growing supply of cheap energy from coal and a great deal of demand for energy products. The addition of coal effectively lowered the average price of energy products so that they were again affordable by a large share of the world population. The availability of debt to pull the Chinese and other Asian economies forward was no doubt of importance as well.

The United States has been fairly protected from much of what has happened because its currency, the US Dollar, is the world’s reserve currency. If we look at the inflation rate of the United States using data of the US Bureau of Economic Analysis, the last time the United States had a substantial period of contracting prices was in the US Depression of the 1930s. It is quite possible that such a situation existed worldwide, but I do not have world data for that period.


Figure 11. US inflation rate (really “GDP Deflator”) obtained by comparing US GDP in 2009 US$ to GDP in Current US $, based on US Bureau of Economic Analysis data.

It was during the Depression of the 1930s that debt defaults became widespread. It was only through deficit spending, including the significant debt-based funding for World War II, that the problem of inadequate demand for goods and services was completely eliminated.

How Do We Solve Our World Deflation Crisis This Time 

There seem to be three ways of creating demand for goods and services.

[1] A growing supply of cheap-to-produce energy products is really the basic way of increasing demand through economic growth.

If there are cheap-to-produce energy products available, a growing supply of these energy products can be used to increasingly leverage human labor, through the use of more and better “tools” for the workers. When workers become increasingly more productive, their wages naturally rise. It is this growing productivity of human labor that generally produces the rising demand needed to maintain the economic growth cycle.

As growth in energy consumption slows and then declines (Figure 3), this productivity growth tends to disappear. This seems to be part of today’s problem.

[2] Increasing the amount of debt outstanding can work to make the energy extraction system work more effectively, by raising the price that consumers can afford to pay for high-priced goods.

This increasing ability to pay for high-priced goods seems to come in two ways:

(a) The debt itself can be used to pay for goods, making these goods more affordable on a month-to-month or year-to-year basis.

(b) Increased debt can lead to increased wages for wage earners, because some of the increased debt ultimately goes to create new jobs and to pay workers. Figure 12 shows the positive association that increasing debt seems to have with inflation-adjusted wages in the United States.


Figure 12. Growth in US Wages vs. Growth in Non-Financial Debt. Wages from US Bureau of Economics “Wages and Salaries.” Non-Financial Debt is discontinued series from St. Louis Federal Reserve. (Note chart does not show a value for 2016.) Both sets of numbers have been adjusted for growth in US population and for growth in CPI Urban.

Debt is, in effect, the promise of future goods and services made with energy products. These promises are often helpful in allowing an economy to expand. For example, businesses can issue bonds to provide funds to expand their operations. Selling shares of stock acts in a manner similar to adding debt, with repayment coming from future operations. In both cases, the payback can occur, if energy consumption is in fact growing, allowing the output of the business to expand as planned.

Once world leaders decide that debt levels are too high, or need to be controlled better, we are likely headed for trouble, because debt can be very helpful in “pulling the economy forward.” This is especially the case if productivity growth is low because per capita energy consumption is falling.

[3] Rebalancing of currency relativities to the US dollar.

Rebalancing currencies to different levels relative to the dollar seems to play a major role in determining the “inflation rate” calculated in Figure 10. Currency rebalancing also plays a major role in determining the shape of the GDP graph in current US$, as shown in Figure 1. In general, the higher the average relativity of other currencies to the US$, the higher the demand for goods and services of all kinds, and thus the higher the demand for energy products.

One problem in recent years is that, in some sense, the average relativity of other currencies to the US dollar has fallen too low. The fall in relativities took place when the US discontinued its use of Quantitative Easing in late 2014.


Figure 13. Monthly Brent oil prices with dates of US beginning and ending QE.

The price of oil and of other energy products dropped steeply at that time. In fact, in inflation-adjusted terms, oil prices had been falling even prior to the end of QE. (See Figure 2, above.) The shift in the currency relativities made oil and other energy products more expensive for citizens of the European Union, Japan, and most of the commodity producing countries shown in Figures 4 and 5.

The ultimate problem underlying this fall in average relativities to the US dollar is that there is now a disparity between the prices that consumers around the world can afford to pay for energy products, and the prices that businesses producing energy products really need. I have written about this problem in the past, for example in Why Energy-Economy Models Produce Overly Optimistic Indications.

At this point, none of the three approaches for solving the world’s deflation problem seem to be working:

[1] Increasing the supply of oil and other energy products is not working well, because diminishing returns has led to a situation where if prices are high enough for producers, they are too high for consumers to afford the finished goods made with the energy products.

 

[2] World leaders have decided that we have too much debt and, indeed, debt levels are very high. In fact, if energy prices continue to be low, a significant amount of debt currently outstanding will probably be defaulted on.

 

[3] Countries generally don’t want to raise the exchange rates of their currencies to the dollar, because lower exchange rates tend to encourage exports. If the United States raises its interest rates, either directly or by selling its QE bonds, the level of the US dollar can be expected to rise relative to other currencies. Thus, other currencies are likely to fall even lower than they are today, relative to the US dollar. This will tend to make the problem with low oil prices (and other energy prices) even worse than today.

Thus, there seems to be no way out of our current predicament.

Conclusion

The world economy is in a very precarious situation. Many of the world’s economies have found that, measured in current US$, the goods and services they are producing are less valuable than they were in 2013 and 2014. In particular, all of the oil exporting nations have this problem. Many other countries that are producing commodities have the same problem.

Governments around the world do not seem to understand the situation we are facing. In large part, this is happening because economists have built models based on their view of how the world works. Their models tend to leave out the important role energy plays. GDP growth and inflation estimates based on PPP calculations give a misleading view of how the economy is actually operating.

We seem to be sleepwalking into an even worse version of the Depression of the 1930s. Even if economists were able to figure out what is happening, it is not clear that there would be a good way out. Higher energy prices would aid energy producers, but would push energy importing nations into recession. We seem to be facing a predicament with no solution.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
order66's picture

Nonsense. The view that all the economist phd's in the world know absolutely nothing is patently retarded.

Blue Balls's picture

They know who writes their check.

peddling-fiction's picture

Misery is needed to start bigger wars.

Ordo ab Chao.

vato poco's picture

JFC, more doom porn. ZH has been running articles like this 5X/week since 2008. each one calling for The Big Crash. Starvation, Rioting, Societal Breakdown, $65000 Gold ... 

it's like the assholes who've been squawking about how The Big One will hit CA and tens of millions will die ... for the last 100 years now. God damn, I'm sick of these concern troll pussies!

Mr 9x19's picture

the problem with those category of " people" you tell them to jump of the cliff because of the fun, they do it without problem.

you ask them where the food is coming from, they answer " from the supermarket ".

 

at this point of the discution, it is pointless to developp. a wall of brick do not have a sense of the dialogue.

Iskiab's picture

'They know who writes their check'. Best one liner ever.

Both previous posts are right, Ph.Ds in economics aren't useless, and they know who writes their check. Modern economics is a failed science though, it gives zero predictive power and debatable analysis of the present, hell they can't even agree on the reason for the Great Depression. It's political so what's 'accepted theory' is decided by those who write the cheques. You'll never chair the fed or be head economist at a bank without the 'right' economic views.

With that being said, this article is ridiculous. I don't know where to start...

Let's just say high gas prices are bad and leave it at that. High gas prices roll up the economy and make everything, including doing business, more costly. In other words, less business will be done so lower GDP. It's one of those irrefutable common sense things anyone should be able to grasp.

Kassandra's picture

Le's also say charts don't mean shit it they don't start and end on the same timeline.

As well as other things....

unplugged's picture

"Governments around the world do not seem to understand the situation we are facing."

Good God man. 

Govts, all controlled by the global elite do understand - because they are carrying out the orders of their bosses - and both are complicity and guilty.

FreeShitter's picture

You would think Gail Tverberg, a member of the tribe would know this already....wonder what she did to deserve being exiled.

samsara's picture

gail is one of the good guys.  Don't know where you are coming from.

FreeShitter's picture

Then why would she make a most rediculous statement? Its laughable. 

Consuelo's picture

 

 

If one is into eugenics, then yeah - one could postulate that Gail is one of the 'good guys'.

Read her stuff.   The 'theme', whether suggested in subtlety or posited outright, is nonetheless same; She's a Big fan of depopulation.   And for some, that can't come soon enough, regardless it seems of the avenue chosen to get there.  

 

 

Stormtrooper's picture

I like depopulation too.  Let's depopulate the .1 % onto lamposts.  The Rothschild family, every man, woman and child, should get to hang on long street light supports so that a lot of them would fit into a small area and be very obvious to the rest of the .1 %.

TuPhat's picture

Gail is an economist who thinks that high energy prices and more debt will solve the problems of the world.  That is not one of the good guys.

RagaMuffin's picture

Even if economists were able to figure out what is happening,"  Too funny by half............

Ed Jobb's picture

I bet you a thousand tulips that bitcoin will bring the whole

shebang down when it crashes.

FreeShitter's picture

When the tribe is ready to pull it thats the reason. It will be an orchestrated crash like every other one.

Ed Jobb's picture

Dead right... & they'll blame it on a big false-flag

to distract the sheeple.

Till then it's just 1's & 0"s on a puter... No shortage of them.

They could keep this shit-show going for years.

Personally I think we've been in recession for years already.

Bitcoin however is an outlier that would be hard to manipulate,

and the people invested would be nervous as shit about it crashing.

They will sell at the first hiccup & there'll be no way out.

That's a lot of cash (00110110's) to cover up at the end of day trade.

TuPhat's picture

That is part of the reason for the North Korean show.  They want to see just how close it is to crashing so they can get the timing right.

allgoodmen's picture

More likely an oil shock. In 2008 what finally pushed the trolly off the track was skyrocketing fuel prices - they doubled between 2007 and 08.

Fuel prices pervade everything - dragging down every move you or your suppliers or distributors or customers make, whereas bitcoin pervades pretty much nothing.

Ed Jobb's picture

We are paying 2009 fuel prices now, when oil was $100

a barrel. Nobody questions it.

I think energy prices will break the camel's back downunder.

Power bills have doubled in one year since being privatised.

Crazy Or Not's picture

Can someone tell me what the difference is between an economist and a magician?
Black Hat or FIAT thin air....what's the difference other than audience participation?

USPATENTSUSJOBS's picture

IF YOU COULD TURN $.155 INTO $100, WOULD YOU STOP?

    Inflation has been described as too many dollars chasing too few goods. It means that assets would have a higher valuation, and things you buy will cost more of your paycheck. Inflation makes it easier to pay a future debt.
    The US Constitution established the federal governments right “TO coin Money”. The US Department of the Treasury's, Bureau of Engraving and Printing has the task to produce our currency. We have $1,2,5,10,20,50 and 100 bills. They are composed of 75% cotton and 25% linen. Each note weighs 1 gram.  Their website, http://www.bep.treas.gov/ lists yearly figures for the printing of each of the denominations.  Unfortunately, they can not do basic addition. Numerous entries are listed as NA.  They can not count how many they made? Maybe they just don't want us to know.
    According to the Board of Governors of the Federal Reserve System, our bills cost somewhere between $.054 and $.194 each to make. A $100 bill costs our government $.155 each. If you were in the business of turning $.155 into $100, would you ever stop? A national debt of over $20 trillion and still they don't slow down. They will only stop when the $100 bill , make from bed sheets and ink, is only worth $.155 to the rest of the world.

Crazy Or Not's picture
Conclusion

The world economy is in a very precarious situation. (!!!!)

LOL for crying out loud - that's funny. I see a movie coming....
"The Fucking Gigantic Short" ...playing in Theaters  
e v e r y w h e r e !

loveguru's picture

Market wide debt is at the highest levels it has ever been. However, such a huge novel could be summed up like this.

 

Intro: Energy/commodities still play a significant role in the overall growth of the golbal economy - present numbers for some of the top importers and exporters

Body: Relate deflation in energy prices to lagging wages, lagging overall health of the consumers' wallet

Conclusion: Inflation is important - Employment numbers are not the only metric as the FED seems to consider these days. FED is in a tight spot as raising interst rates is the only way that they would get inflation and drive wage growth - But heck they cannot do that because of huge amounts of debt without causing a chain of uncontrollable events.

 

In essence, we are fucked.

 

loveguru's picture

Market wide debt is at the highest levels it has ever been. However, such a huge novel could be summed up like this.

 

Intro: Energy/commodities still play a significant role in the overall growth of the golbal economy - present numbers for some of the top importers and exporters

Body: Relate deflation in energy prices to lagging wages, lagging overall health of the consumers' wallet

Conclusion: Inflation is important - Employment numbers are not the only metric as the FED seems to consider these days. FED is in a tight spot as raising interst rates is the only way that they would get inflation and drive wage growth - But heck they cannot do that because of huge amounts of debt without causing a chain of uncontrollable events.

 

In essence, we are fucked.

 

skinwalker's picture

The human race has been fucked since we first came down from the trees, but has a rare talent for bouncing back.

buttmint's picture

...human evolution is akin to the toy banging into the wall....backing up...repeat until through sheer luck---it veres off into another trajectory.

We need Vonnegut more than ever about now.....

Lost in translation's picture

HA!

Funny you should mention KV, I was thinking about Slaughterhouse 5 on my evening commute home, yesterday...

directaction's picture

It's 1930s

Not 1930's

Lose the apostrophe 

s2man's picture

He lost me when he confused price deflation with currency deflation.

Jimmy Jimmereeno's picture

He is a she.  She lost you because she's a neo-Malthusian; they've been wrong for 224 years now.

slipreedip's picture

The premise of course is that growth is good.

We have a population spiralling our of control, a standard of living for some that is well beyond what it should be while others live in squallor. Nobody with it wants to give it up (although it is being taken from them) and the people without it will eventually want to redress the imabalance.

The world cannot afford endless growth. Its not an infinite resource. We need population control. We need to change our expectations about "consumer" society and what a contented life looks like.

AI will take most jobs and as yet nobody is attempting to figure out what a well lived life looks like that isnt adorned by luxury labels and celebrity and wealth.

We are screwed.

Lost in translation's picture

https://m.youtube.com/watch?v=RC7aud4b3dQ

Your post reminded me of something I heard, many moons ago...

peippe's picture

when you type: 'we need population conrol", should I go around as 

a childless individual punching pregnant women in the abdomen?

And more to the point, what would my income be from such a job?

Is it hourly or do i need to keep the fetus to collect my gov't paid bounty?

Free_Market_Mafia's picture

GDP is meaningless! 39% of US GDP is comprised of Government Spending. Government spending acts as a drag on the economy! The larger the debt the more screwed you are in the next down turn! 

TeethVillage88s's picture

For MFOBILLS

lol

1960-2017 Pop Music was Wealth Extraction & Propaganda to weaken our specie, weaken our Nation & All Western Nations. No Sarc.

Remember, walking in the sand
Remember, walking hand in hand
Remember, the night was so exciting
Remember, her smile was so inviting
Remember, then she touched my cheek
Remember, with her fingertips
Remember, softly
Softly we met with a kiss

Whatever happened to
The girl that I once knew
The girl that said, she'd been true
Oh, whatever happened to
That night I gave it to you
What will I do with it now

Rick Cerone's picture

Are you expecting bank failures?

When?

Reichstag Fire Dept.'s picture

What if:

What in inflationary monetary policy meant to bankrupt the Soviet Union (and worked) got out of the box and couldn't be stopped?

What if the only countries to stay on the right side of this "trade" were oil producing countries? (or a capital producing country like the United States).

What if former Soviet Russia became a major oil producer to stay on the right side of the "trade"?

What if the capital producing country crashed the oil price by becoming a major producer of oil?

What if the capital producing county's capital was challenged or competed with?

What would happen next?

Knave Dave's picture

This whole article strikes me as missing the biggest factor in this picture. By pricing global GDP in dollars means the biggest change in GDP and even the direction of movement in GDP likely has much more to do with movement in the value of the dollar against the currencies used to calculate each country's GDP initially.

This becomes even more apparent in the statement that energy has a huge impact on global GDP priced in dollars in the charts in this article. Of course it does. Oil is more or less universally priced in dollars (the petro dollar). So, as the value of the dollar rises, the price of oil falls in an inversely proportional manner, causing the value of a nation's production of oil or oil-related products to fall in dollar terms. In other words, when the value of the dollar rises, it takes fewer dollars to buy the same amount of oil. Since oil is sold in dollars, it's price drops.

For example, Canada's GDP may rise every year as originally measured in Canadian dollars, but if the Canadian dollar starts to decrease in value against the American dollar, then Canadian GDP will appear to begin falling if measured in American dollars because it will take fewer American dollars to equate to the number of Canadian dollars in the GDP figure. On top of that, one of Canada's major products is oil, so that whole side of its GDP drops if the value of the dollar rises.

That means everything shown here may not amount to anything but a change in the value of the dollar, which this article barely touches on. The value of the dollar has gotten stronger and stronger against other currencies since the start of the Great Recession; so of course, the price of oil has fallen and the aggregate GDP of other nations expressed in dollars has fallen. It's just a matter of exchange rates.

 

--Knave Dave

The Great Recession Blog

Mr... Robot's picture

According to an article here 2 mo. ago, we've had the same GDP growth the last 10 years as we did for the decade of the 1930s. What would've happened if we had a much, much worse downturn at the end of the '30s, like we're about to have now? The war would have started sooner.

Buckle up, we're in for some chop.

 

http://www.zerohedge.com/news/2017-06-02/over-last-10-years-us-economy-h...

ElTerco's picture

5000 barrels of oil per person, per day (third chart)? I don't see how that number can be correct.