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That didn’t take long. On Monday, the Dow was down another 326 points. Overall, the Dow has now fallen more than 1000 points from the peak of the market (16,588.25) back in late December. This is the first time that we have seen the Dow drop below its 200-day moving average in more than a year, and there are many that believe that this is just the beginning of a major stock market decline. Meanwhile, things are even worse in other parts of the world. For example, the Nikkei is now down about 1700 points from its 2013 high. This is causing havoc all over Asia, and the sharp movement that we have been seeing in the USD/JPY is creating a tremendous amount of anxiety among Forex traders. For those that are not interested in the technical details, what all of this means is that global financial markets are starting to become extremely unstable.
Unfortunately, there does not appear to be much hope on the horizon for investors. In fact, troubling news just continues to pour in from all over the planet. Just consider the following…
-Major currencies all over South America continue to collapse.
-Massive central bank intervention has done little to slow down the currency collapse in Turkey.
-Investors pulled more than 6 billion dollars out of emerging market equity funds last week alone.
-The CBOE Volatility Index (VIX) has risen above 20 for the first time in four months.
-Last month, new manufacturing orders in the United States declined at the fastest pace that we have seen since December 1980.
-Real disposable income in the United States has just experienced the largest year over year drop that we have seen since 1974.
-In January, vehicle sales for Ford were down 7.5 percent and vehicle sales for GM were down 12 percent. Both companies are blaming bad weather.
-A major newspaper in the UK is warning that “growing problems in the Chinese banking system could spill over into a wider financial crisis“.
-U.S. Treasury Secretary Jack Lew is warning that the federal government could hit the debt ceiling by the end of this month if Congress does not act.
-It is being reported that Dell Computer plans to lay off more than 15,000 workers.
-The IMF recently said that the the probability that the global economy will fall into a deflation trap “may now be as high as 20%“.
-The Baltic Dry Index is now down 50 percent from its December highs.
If our economic troubles continue to mount, could we be facing a global “financial avalanche” fairly quickly?
That is what some very prominent analysts believe.
Below, I have posted quotes from five men that are greatly respected in the financial world. What they have to say is quite chilling…
#1 Doug Casey: “Now is a very good time to start thinking financially because I’m afraid that this year, in 2014, we’re going to go back into the financial hurricane. We’ve been in the eye of the storm since 2009, but now we’re going to go back into the trailing edge of the storm, and it’s going to be much longer lasting and much worse and much different than what we had in 2008 and 2009.”
#2 Bill Fleckenstein: “The [price-to-earnings ratio] is 16, 17 times earnings,” Fleckenstein said on Tuesday’s episode of “Futures Now.” “Why would you pay 16 times for an S&P company? I don’t care about where rates are, because rates are artificially suppressed. Why isn’t that worth 11 or 12 times? Just by that analysis, you’d be down by a quarter or 30 percent. So there’s a huge amount of downside.”
#3 Egon von Greyerz of Matterhorn Asset Management: “Nothing goes (down) in a straight line, but the emerging market problems will accelerate and it will spread to the very overbought and the very overvalued stock markets and economies in the West.
So stock markets are now starting a secular bear trend which will last for many years, and we could see falls of massive proportions. At the end of this, the wealth that has been created in the last few decades will be destroyed.”
#4 Peter Schiff: “The crisis is imminent,” Schiff said. “I don’t think Obama is going to finish his second term without the bottom dropping out. And stock market investors are oblivious to the problems.”
“We’re broke, Schiff added. “We owe trillions. Look at our budget deficit; look at the debt to GDP ratio, the unfunded liabilities. If we were in the Eurozone, they would kick us out.”
#5 Gerald Celente: “This selloff in the emerging markets, with their currencies going down and their interest rates going up, it’s going to be disastrous and there are going to be riots everywhere…
…So as the decline in their economies accelerates, you are going to see the civil unrest intensify.”
Those that do not believe that we could ever see “civil unrest” on the streets of America should take note of what just happened in Seattle.
After the Seahawks won the Super Bowl, fans celebrated by “lighting fires, damaging historic buildings and ripping down street signs“.
If that is how average Americans will behave when something good happens, how will they act when the economy totally collapses and nobody can find work for an extended period of time?
We are rapidly approaching another great financial crisis. Unfortunately, we didn’t learn any of the lessons that we should have learned last time. It is being projected that the debt of the federal government will more than double during the Obama years, the “too big to fail banks” have collectively gotten 37 percent larger over the past five years, and the big banks have become more financially reckless than ever before.
When the next great financial crisis arrives (and without a doubt it is inevitable), millions more Americans will lose their jobs and millions more Americans will lose their homes.
Now is not the time to be buying lots of expensive new toys, going on expensive vacations or piling up lots of debt.
Now is the time to build up an emergency fund and to do whatever you can to get prepared for the great storm that is coming.
As you can see from the financial headlines, time is rapidly running out.
The casino metaphor has been widely used as a part-description of the phenomenon of over-financialisation. It’s a handy pejorative tag but can it give us any real insights? This article pursues the metaphor to extremes so that we can file & forget/get back to the football or possibly graduate to next level thinking.
What is the Financialised Economy (FE) and how big is it?
The FE can be loosely described as ‘making money out of money’ as opposed to making money out of something; or ‘profiting without producing’ . Its primacy derives largely from two sources – the ability of the commercial banks to create credit out of thin air and then lend it and charge and retain interest; and their ability to direct the first use of capital created in this fashion to friends of the casino as opposed to investing it in real economy (RE) businesses. So the FE has the ability to create money and direct where it is used. Given those powers it is perhaps unsurprising that it chooses to feed itself before it feeds the RE. The FE’s key legitimate roles – in insurance and banking services – have morphed into a self-serving parasite. The tail is wagging the dog.
The FE’s power over the allocation of capital has been re-exposed, for those who were perhaps unaware of it, as we see the massive liquidity injected by the central banks via QE disappearing into the depths of bank balance sheets and inflated asset values leaving mid/small RE businesses gasping for liquidity.
By giving preferential access to any capital allocated to the RE to its big business buddies the FE enables those companies to take out better run smaller competitors via leveraged buy outs. By ‘investing’ in regulators and politicians via revolving doors and backhanders, it captures the legislative process and effectively writes its own rule book.
Five years after the 2008 crisis hit, as carefully catalogued by FinanceWatch , economies are more financialised than ever. If the politicians and regulators ever had any balls they have been amputated by the casino managers, under the anaesthesis of perceived self-interest. They have become the casino eunuchs. An apparent early consensus on the systemic problems of over financialisation has melted away into a misconceived search for ‘business as usual’.
Derivatives are one of the most popular games in the casino.
Over the counter derivatives, which are essentially bets on the performance of asset prices, stocks, indices or interest rates, have a nominal value (as of December 2012 ) of USD 632 trillion – 6% up from 2007 levels – and 9 times world GDP. If the world decided to stop living and buy back derivatives instead of food, energy, shelter and all the stuff we currently consume, it would take nine years to spend this amount.
OK – it’s a nominal value. Many observers believe (even hope) that its real value is a minute fraction of this, but the only way we will ever find out is if the derivative contracts unwind. That is, prompted presumably by some form of crisis, parties progressively withdraw from the contracts or fold. The regulators (and the FE itself of course) will do everything they can to prevent this from happening, including grinding the population into the dust via austerity, because while no-one knows who precisely holds the unwound risk, most will certainly belong to the FE’s top tier.
Many of these derivatives started life as sensible financial products. Businesses need to insure against an uncertain harvest, or hedge against uncertain currency movements. But only a small proportion of current holders now have an insurable risk. So whereas in the past you could say we insured against our own house burning down, now they bet on their neighbour’s house burning; whereas in the past we bet on our own life expectancy, they now bet on the deaths of others; whereas in the past we insured against currency losses we experienced in our own business transactions, now they bet on currency movements in general. What might be expected when there are incentives to burn your neighbour’s house down? Organisations have even purposely set up junk asset classes, had them AAA rated, sold them to outsiders and then bet on their failure.
Government & Politicians
Politics operates as a debating society in a rented corner of the casino. The rent is high but largely invisible to the populace. The debaters are themselves well off, at least in the U.S. they are .
Now the strange thing is that the government actually owns the casino, but they have forgotten this. For the last 40 years or so, they have asked the casino managers to issue all the chips. The government use the same chips to spend on public services, and require us all to pay taxes in those chips. Mostly they don’t have enough chips for all the services they provide, so they ask the casino managers for loans. The casino managers are happy with this, provided the government pay interest on the loan of chips. This hidden subsidy effectively funds the casino. It’s perverse because the government pays interest on money they could issue themselves debt-free.
It’s not entirely clear why the government thinks the casino managers are better at managing chips than they would be. Arguably the government is elected to carry out a programme and they should be the arbiters of the country’s strategic priorities, so there should be some strategic guidance over the way the chips are spent.
But the government is only here for five years, and the casino managers are here permanently. So perhaps they think it’s safer just to trust the casino managers to get on with it. When asked, the casino managers explain that they allocate chips according to ‘what the market needs’ and no-one quite understands why that doesn’t seem to include much real investment. In any case the government have forgotten that they could issue the chips themselves, and although prompted (e.g. ), have failed to show any interest in reclaiming that power. Occasionally they create a whole new batch of chips themselves (QE) – if they think the tables are quiet – but give them straight back to the casino managers. Maybe it’s too complicated for politicians. Many of them haven’t had proper jobs. There are a few civil servants who understand what’s happening, but most of them don’t want to rock the boat – they are here permanently too and have good pensions. They research for the debaters and have lunch with the casino managers. That keeps them quite busy enough, thank you.
The Real Economy
The Real Economy also operates from a corner of the casino. It’s hard to put an exact figure on it, but perhaps 3-5% of the overall floor space depending how you measure.
It’s a very important corner of the casino, but not for the reasons it should be. It should be important because it’s the place where food is grown, houses are built, energy for warmth and work is created and so on. But these precious things are taken for granted by the casino managers. They have always had enough chips to buy whatever they need – they issue them for God’s sake – and they think food, shelter and energy will always be available to them. Crucially though, they have also managed to financialise this remaining RE corner, and this ‘support’ is trotted out as a continuing justification for the FE’s central importance .
The RE corner has always included important social and cultural, non-GDP activities. The enormous real value of these activities is now being properly articulated and is spawning citizen-led initiatives (e.g. sharing economy approaches, basic unconditional income) but they are often presented as beggars who annoyingly keep petitioning for their ‘entitlements’ and generally clutter up this remote corner of the casino.
On the finance side, individuals and businesses are exploring ways of funding their future activity without going cap-in-hand to the casino managers. They are exploring peer-to-peer finance, crowdfunding, prepayment instruments and so on. What these initiatives have in common is the disintermediation of the casino. They provide ways for people to invest more directly and take more control over their savings and investments. Of course a new breed of intermediary is surfacing to broker and risk-insure these new models, and these new intermediaries can also be captured.
With transparency and short-circuit communication via social media though, there is definitely scope to do things differently. We must hope for progress because the casino managers have little interest in what’s going on outside.
The Planet – outside the casino
The planet outside is used by the casino in two ways – as a source of materials and as a dumping ground for waste.
The materials are not essential to the core FE which is all about making money out of money and needs nothing but ideas, a few arcane mathematical models to give spurious gravitas, and credulous or naive investors. But RE activity performs a valuable role for the casino managers – it provides them with an endless stream of innovative ways of using chips. The shale gas bonanza for example is apparently grounded in the real world need for energy, and is presented as such. Its significance to the FE is as another bubble based partly at least on land-lease ‘flipping’ .
Without an RE-related rationale/narrative, the FE might disappear up its own waste pipe as it re-invested/sliced-and-diced/marketised its own products to itself. So materials from outside the casino are important for the managers’ big corporate proxies in the RE.
FE-favoured RE activities also create lots of waste, some of which is toxic, and may eventually prove terminal, as it builds up. This fact is of little interest to the casino managers. There is a minor interest in waste-related financialised vehicles – carbon markets for example are a relatively new casino game – and in the slight impact on some of the FE’s RE-friends like big energy companies. But mostly the casino managers are too busy with their games and their chips. Occasionally a manager will wake up to the dangers and defect to the real world where they, somewhat perversely, carry more credibility because of their casino experience. A small minority of managers stay within the casino and try to gently modify its behaviour. This is portrayed as a healthy sign of openness; the casino is secure in the knowledge that their ways cannot easily be re-engineered.
Combating the casino’s influence
Essentially there would appear to be three possible lines of response for those who believe there should be more to life than casino capitalism. Marginalise, convert or destroy……
These approaches map on to the three ‘broad strategies of emancipatory transformation’ suggested by sociologist Erik Olin Wright  – interstitial, symbiotic and ruptural. I have a fourth suggestion/ variation of which more in a moment.
The challenge for interstitial initiatives is the sheer pervasiveness of the FE. There are few spaces left where the effects of the FE can be ignored. They may not be well understood, but whenever we pursue dreams, they pop up in front of us, usually as obstacles. Developments that are most heavily attacked by the FE establishment perhaps merit the most attention – community scale renewable energy, crypto currencies, co-ops, the sharing economy, and so on. The more these alternative directions are attacked as utopian or uneconomic the more we can be sure they offer promising interstitial opportunities.
Symbiotic opportunities may represent the triumph of hope over experience. Armed with the power of ideas, we back our ability to persuade policy makers and business leaders to change the game. The main challenges here are the arrogance of the powerful and the danger of being captured by supping with the devil. Vested interests generally feel secure enough that they don’t need to negotiate or even to spend brain power on listening and evaluating alternatives. If enough interest is manifested that symbiotic trial projects are begun, their champions can be captured by being made comfortable.
Ruptural alternatives come in a spectrum from those that would destroy business models to those that would destroy societies. They probably share the above analysis but differ in their degree of radicalism and disconnection from the main. The impact of FE-driven globalisation is beyond the scope of this article, save to note that its effects have unnecessarily radicalised whole populations making more measured responses more difficult to promote than they might have been.
The role of the internet and social media in progressing both interstitial and ruptural initiatives is significant. Most of the space to develop and assemble communities of interest and mission-partners is here, explaining why both are likely to experience increasingly determined attempts to capture.
The nature of one’s chosen response will be a matter of personal choice. We should not be judgemental of those who don’t have the will, energy or resourcefulness to play a more active role. We all suffer from our subservience to a dysfunctional system, some much more than others. The fourth response? Perhaps there’s some mileage in judo principles .
: http://rikowski.wordpress.com/2013/12/12/profiting-without-producing-how-finance-exploits-u s-all/
: “It seems fairly clear at this time that the land is the play, and not the gas. The extremely high prices for land in all of these plays has produced a commodity market more attractive than the natural gas produced.” Art Berman quoted athttp://theautomaticearth.blogspot.ie/2011/07/july-8-2011-get-ready-for-north.html
Featured image: Luxor, Las Vegas. Author: David Marshall jr. Source: http://www.sxc.hu/browse.phtml?f=view&id=90604
The Conference Board of Canada is calling the decline in the Canadian dollar the economic story of the year so far, predicting further declines as the Canadian economy underperforms.
The loonie began the day stronger on Thursday, rising to 91.48 US in early trading, up from its close of 91.37 US yesterday. It closed up 0.16 of a cent to 91.53 cents US.
The Canadian currency fell 6.6 per cent in 2013, after trading at par with the greenback in February, and is down more than three per cent since the beginning of the year.
‘Markets are betting that the Canadian economy will continue to underperform’– Glen Hodgson, Conference Board
The Conference Board, an economic and policy think tank, said the falling dollar is a sign of lack of confidence in Canadian growth prospects.
“Arguably more important than the value of the loonie is the signal it sends about the Canadian economy. Markets are betting that the Canadian economy will continue to underperform,” chief economist Glen Hodgson said in a report released today.
“This assessment is consistent with our own forecast, which calls for U.S. gross domestic product to grow by 3.1 per cent in 2014, much better than Canadian growth of 2.3 per cent,” he continued.
Hodgson is not the only economist predicting Canada’s GDP growth will underperform the U.S. Towers Watson’s annual survey of Canada’s top economists and analysts found most believe Canada will lag the U.S. in both economic activity and job creation over the next few years.
Too many plant closures
“With a lower Canadian dollar, there is hope that manufacturing businesses, and certainly the export sector of the economy, can contribute to reducing the unemployment rate in the next few years,” said Janet Rabovsky, Towers Watson director of investment consulting.
“That being said, recent announcements about industrial plant closures in Ontario would indicate that the cycle has not yet turned.”
Hodgson agreed that it is not clear if Canadian exporters will be able to fully capitalize on a weaker dollar because of the loss of capacity in the manufacturing sector since 2008.
There have been deep slashes in export-dependent industries — such as autos and parts — and a shift of much U.S. production to the southern states, so Canadian suppliers may not benefit as quickly as in the past from the U.S. recovery, he said.
He also points to the hit consumers may take from higher prices.
TD chief economist Craig Alexander said the U.S. Fed’s “decision to taper asset purchases has greased the skids under an already depreciating loonie.”
Traders rush back to U.S. dollar
The Fed decided in December to taper its U.S. bond-buying program to $75 billion US a month and as good economic news out of the U.S. continues to roll in, it is expected to continue tapering.
But that has encouraged traders to buy the U.S. dollar, leading to a rush away from the Canadian dollar.
“However, the fundamentals are not Canadian-dollar positive either, and the loonie likely has further to fall,” Alexander said in a research note.
BMO chief economist Doug Porter predicts a falling dollar will actually help boost Canadian GDP in the long-term – as much as 1.5 percentage points over the next two years if the loonie falls to 90 cents or lower.
“There are definitely losers, such as consumers, travellers, utilities, broadcasters, sports teams. But there are also lots of winners. The beleaguered manufacturing and domestic tourism sectors will find the biggest relief from the weaker currency. Even some retailers will be breathing a tad easier, as the loud siren call of cross-border shopping fades for consumers with each tick down in the currency,” he said.
Americans have never had less economic freedom than they do right now. The 2014 Index of Economic Freedom has just been released, and it turns out that the level of economic freedom in the United States has now fallen for seven consecutive years. But of course none of us need a report or a survey to tell us that. All we have to do is open our eyes and look around. At this point our entire society is completely dominated by control freaks and bureaucrats. Our economy is literally being suffocated to death by millions of laws, rules and regulations and each year brings a fresh tsunami of red tape. As you will see below, the U.S. government issued more than 80,000 pages of brand new rules and regulations last year on top of what we already had. Even if we didn’t have all of the other monumental economic problems that we are currently facing, all of this bureaucracy alone would be enough to kill our economy.
Yes, every society needs a few basic rules. We would have total chaos if we did not have any laws at all. But in general, when there is more economic freedom there tends to be more economic prosperity. In fact, the greatest period of economic growth in U.S. history was during a time when the federal government was much smaller, there was no Federal Reserve and there was no income tax. Most Americans do not know this.
Those that founded this nation intended for it to be a place where freedom was maximized and government intrusion into our lives was minimized.
If they were still alive today, they would be absolutely horrified. We are literally drowning in red tape.
The photo posted below was shared by U.S. Senator Mike Lee on his Facebook page. Study it carefully…
The following is what he had to say about this photo…
“Behold my display of the 2013 Federal Register. It contains over 80,000 pages of new rules, regulations, and notices all written and passed by unelected bureaucrats. The small stack of papers on top of the display are the laws passed by elected members of Congress and signed into law by the president.”
I didn’t even see the small stack of paper at the top of the cabinet until I read his explanation. Most of the time everyone is so focused on what Congress is doing, but the truth is that the real oppression is happening behind the scenes as unelected federal bureaucrats pump out millions upon millions of useless regulations that are systematically killing our economic freedom.
On Tuesday, an article about the 2014 Index of Economic Freedom was published by the Wall Street Journal. As I mentioned above, the United States has fallen for seven years in a row…
World economic freedom has reached record levels, according to the 2014 Index of Economic Freedom, released Tuesday by the Heritage Foundation and The Wall Street Journal. But after seven straight years of decline, the U.S. has dropped out of the top 10 most economically free countries.
That same article mentioned some of the reasons why the United States is falling…
It’s not hard to see why the U.S. is losing ground. Even marginal tax rates exceeding 43% cannot finance runaway government spending, which has caused the national debt to skyrocket. The Obama administration continues to shackle entire sectors of the economy with regulation, including health care, finance and energy. The intervention impedes both personal freedom and national prosperity.
And of course the results are predictable. Our economy has been steadily declining for many years, and that decline appears to be ready to start picking up speed once again. The following is an excerpt from a recent article by Dave in Denver…
In the latest retail sales report for December, auto sales were nailed – down 1.8%. The only reason overall retail sales from November to December showed a slight “gain” that November’s number was revised lower. Electronics fell off of a cliff. The housing market is about to get crushed. Feedback I’m getting from my Seeking Alpha articles and blog posts on housing from housing market professionals all around the country tells me that the housing market hit a wall at the end of 2013, as I have been forecasting.
What he said about the housing market is definitely true. In recent months, mortgage originations have been falling like a rock. Just check out this chart.
And as I wrote about the other day, there has been absolutely no employment recovery since the end of the last recession. In fact,1,687,000 fewer Americans have jobs today compared to exactly six years ago even though the population has grown significantly since then.
Unfortunately, these are not just “cyclical problems”. Long ago we abandoned the fundamental principles that once made our economy great, and now we are paying a tremendous price for that.
Posted below is a story that has been circulating all over the Internet for quite some time. It is a fake story. Once again, let me repeat that. This is a fake story. But I think that it does a great job of illustrating what is happening to America as we march toward full-fledged socialism…
An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that Obama’s socialism worked and that no one would be poor and no one would be rich, a great equalizer.
The professor then said, “OK, we will have an experiment in this class on Obama’s plan”.. All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A…. (substituting grades for dollars – something closer to home and more readily understood by all).
After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.
The second test average was a D! No one was happy. When the 3rd test rolled around, the average was an F. As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.
To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed. Could not be any simpler than that.
But of course it would be disingenuous to pin all of the blame for this just on Obama. The truth is that our nation has continued to march toward socialism no matter who has been in the White House and no matter who has been in control of Congress. So if you want to place some of the blame on a “Bush” or a “Clinton” or a “Boehner” or a “Pelosi” please feel free.
And the American people are getting sick and tired of this one party system that has two heads. According to a recent Gallup survey, only29 percent of all Americans consider themselves to be Democrats right now. And the news was even worse for Republicans. According to that survey, only 24 percent of all Americans consider themselves to be Republicans at this point.
A staggering 45 percent of all Americans now consider themselves to be Independents. Deep down, most Americans know that something is seriously wrong with our nation and that they are being lied to be our politicians and the mainstream media.
Unfortunately, there is very little agreement about how to fix things because Americans do not have a set of shared values that we all agree on anymore.
Bankers disagree on housing bubble 2:59
The average price of a Canadian home increased 10.4 per cent to $389,119 in December, compared to the same month in 2012.
The Canadian Real Estate Association (CREA) released data Wednesday showing that a total of 457,893 homes changed hands in Canada last year, an increase of about 0.8 per cent from 2012’s level.
“Absent further mortgage rule changes,” CREA’s chief economist Gregory Klump said, “sales in 2014 may surpass the annual total for 2013 if demand holds steady near current levels as strengthening economic and better job growth offset the impact of further expected marginal mortgage interest rate increases.”
As has been the case for some time now, CREA says the large jump in prices was largely due to what was happening in Canada’s most active and expensive markets.
Sales activity in December 2012 in Toronto and Vancouver was abnormally low, which dropped the national average at that time.
“Removing Greater Vancouver and Greater Toronto from national average price calculations cuts the year-over-year increase to 4.6 per cent,” CREA said.
CREA says the average price can be misleading, as it can be too easily influenced by individual factors.
The realtor group says its MLS Home Price Index “provides a better gauge of price trends because it is not affected by changes in the mix of sales activity the way that average price is.”
That index shows home prices rose 4.31 per cent over the past 12 months. Gains were seen in all housing types.
The index was led by an 8.7 per cent gain in Calgary and a 6.3 per cent gain in Toronto.
Vancouver’s market index posted a second straight increase of 2.13 per cent after declines for much of the time between late 2012 and late 2013.
The World Bank raised its global growth forecasts as the easing of austerity policies in advanced economies supports their recovery, boosting prospects for developing markets’ exports.
The Washington-based lender sees the world economy expanding 3.2 percent this year, compared with a June projection of 3 percent and up from 2.4 percent in 2013. The forecast for the richest nations was raised to 2.2 percent from 2 percent. Part of the increase reflects improvement in the 18-country euro area, with the U.S. ahead of developed peers, growing twice as fast as Japan.
The report by the institution that’s trying to eradicate extreme poverty by 2030 indicates a near-doubling of the growth in world trade this year from 2012, as developed economies lift export-reliant emerging nations. At the same time, the withdrawal of monetary stimulus in the U.S. may raise market interest rates, hurting poorer countries as investors return to assets such as Treasuries, according to the bank.
“This strengthening of output among high-income countries marks a significant shift from recent years when developing countriesalone pulled the global economy forward,” the bank said yesterday in its Global Economic Prospects report published twice a year. Import demand from the richest nations “should help compensate for the inevitable tightening of global financial conditions that will arise as monetary policy in high-income economies is normalized.”
The bank’s forecasts hinge on the orderly unwinding of Federal Reserve stimulus, which is starting this month with the trimming of monthly bond purchases to $75 billion from $85 billion. If investors react abruptly in coming months, as they did in May when the central bank mentioned the possibility of tapering, capital inflows to developing economies could drop again, according to the report.
“To date, the gradual withdrawal of quantitative easing has gone smoothly,” Andrew Burns, the report’s lead author, said in a statement. “If interest rates rise too rapidly, capital flows to developing countries could fall by 50 percent or more for several months — potentially provoking a crisis in some of the more vulnerable economies.”
The bank sees a global expansion of 3.4 percent in 2015, compared with 3.3 percent predicted in June.
In the U.S., where growth is seen accelerating to 2.8 percent this year, unchanged from the outlook in June, the recent budget compromise in Congress will ease spending cuts previously in place and boost confidence from households and businesses, the bank said.
The bank held its forecast this year for Japan at 1.4 percent, while cautioning that the reforms of the economy promised by the government “have disappointed thus far, raising doubts about whether the improvement in economic performance can be sustained over the medium to longer term.”
It raised its prediction for the euro region to 1.1 percent for this year from 0.9 percent in June as the monetary union comes out of it debt crisis, propelled by Germany and showing improvement in fragile economies including Spain and Italy.
“The euro area is where the U.S. was a year and a half or two years ago, where growth is starting to go positive but it’s still hesitant,” Burns, also the bank’s manager of global macroeconomics, said in a phone interview. “We’re not going to be totally convinced until this gathers a little more steam.”
The bank estimates that investors withdrew $64 billion from developing-country mutual funds between June and August, with the impact most pronounced on middle-income countries includingBrazil, India and Turkey. Not all economies were hit the same way, as China or Mexico were less affected because of stronger economic fundamentals, the bank said.
The 2014 forecast for developing markets was cut to 5.3 percent from 5.6 percent.
The bank lowered its forecast for China this year to 7.7 percent from 8 percent, saying the world’s second-largest economy is shifting “to slower but more sustainable consumption-led growth.”
It cut projections for Brazil to 2.4 percent from 4 percent, for Mexico to 3.4 percent from 3.9 percent and for India to 6.2 percent from 6.5 percent.
Growth in developing countries will accelerate “modestly” between 2013 an 2016, at a pace about 2.2 percentage points below that of the years preceding the global crisis, according to the bank’s report.
“The slower growth is not cause for concern,” according to the report. “More than two-thirds of the slowdown reflects a decline in the cyclical component of growth and less than one-third is due to slower potential growth.”
Still, not all countries are well placed to respond to capital outflows and higher interest rates, according to the bank, which urged policy makers to prepare now for such an outcome.
To contact the reporter on this story: Sandrine Rastello in Washington firstname.lastname@example.org
To contact the editor responsible for this story: Chris Wellisz at email@example.com
If you don’t know what it is yet – that means it’s working. The secrecy, that is. But once Pandora’s Box is opened, there’s no putting anything back. It will go down in history as one of the worst, oppressive plagues to saturate the planet.
Like Spider Man trying to stop a train from going over with nothing but his strength and shooting threads; we are going to need all the Web we can get to stop the fast-tracking Trans-Pacific Partnership from running over us. Perhaps more aptly, it is a tangled web we’ll be left trapped in as prey if we do nothing.
Here’s a crash-course and the easiest approach – all guesswork removed. But first, here’s a sampling of what you can kiss goodbye if this mammoth piece of legislation goes through…
What’s left of our jobs, food safety, Internet freedom, natural medicine, small farming, choice in medicine, financial regulation, privacy and more. Basically, all your rights. It permeates every area of your life, it’s been ramrodded through the Senate, and the media is not saying anything. It grants the likes of Monsanto, Wall Street and other huge entities full reign with immunity.
Kiss any last American sovereignty goodbye and say hello to your new global crypto-corpocracy complete with international tribunals and the end of domestic law – from your newly refurbished prison cell, of course. After all, you clicked on the wrong Internet link! And your ISP was watching and reported you. In the near future, this article could be enough to jail me, ban my whole family from the Internet, have computers seized and delete the website. No more videos that piece other clips together, or anything that hints at “infringement,” no more fair use, so no more non-corporate news.
It’s been shrouded in secrecy, especially from the People and Congress, planned behind closed doors for years, and proponents are searching for sponsors to have the President push it through now that Congress is back from recess.
The Trans-Pacific Partnership n. 1. A “free trade” agreement that would set rules on non-trade matters such as food safety, internet freedom, medicine costs, financial regulation, and the environment. 2. A binding international governance system that would require the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and any other country that signs on to conform their domestic policies to its rules. 3. A secret trade negotiation that has included over 600 official corporate “trade advisors” while hiding the text from Members of Congress, governors, state legislators, the press, civil society, and the public.
Here’s your crash course link on the TPP. You’ll be ready for take-off in no time. They’ve made it that simple:
After being mind-blown and catching your breath, you can do the absolute easiest thing there is to do by using Twitter with the hashtag #NOFastTrackTPP (but wait, there’s more).
Don’t use social media? No problem, scroll down. For social media users, here are the easiest things you can do, besides sharing memes and links on Facebook. Share things to Reddit andStumbleUpon. Everyone should call their reps (below).
See the Twitter storm event – still going. Pull any memes – share. Only use this hashtag for social media: #NOFastTrackTPP. Using other hashtags and adding more will split the trends.
Next, Tweet your little heart out to your reps and others. Easily find them by clicking the “Discover” button and typing “congressman” in the search. All their Twitter names appear. Find celebrities, they often re-tweet. Example: @repfitzpatrick or @RepBera
@RepBera NO to Fast Track Authority and TPP, or we will not re-elect!! #NoFastTrackTPP
Here’s another: “Do NOT sponsor FastTrack! Vote NO on TPP! #NoFastTrackTPP”
Some reps have stood against the TPP, so first you might want to see this:
– OR –
Use a general message for everyone: “I will NEVER support the Trans-Pacific Partnership#NOFastTrackTPP”
Want to jump into the Twitter storm? Easy. Sign up at Twitter, it runs you through a few-second tour and you can figure out the rest, see Help, or ask friends. Use the hashtag #NOFastTrackTPP on Facebook statuses.
Non-Social Media Users:
Find all your representatives’ info/forms in one-click. Just click on your state:
Contacting the Congress
Or use this:
Call President Obama: 202-456-6213
Call your Representative: 202-225-3121
or Toll Free (877) 762-8762
(Breathe and talk slowly. You will do just fine. Be polite and confident.)
“Hi, this is (your full name). I am a constituent of Rep/Senator (name). I live in (name of city). I am calling to request that Rep/Sen (name) vote NO on Fast Track Authority. It is important to me that Congress follows the Constitutional directive to negotiate international trade and that all trade agreements are given full consideration, debate and amendments as needed.
Do you know Rep/Sen (name) position on Fast Track Authority? Will he/she vote Yes or No? (wait for an answer)
Do you know Rep/Sen (name) position on the Trans Pacific Partnership Agreement? Will he/she vote Yes or No? (wait for an answer)
(regardless of their response, just continue)
Once again, I am requesting that Rep/Sen (name) vote NO on Fast Track Authority and NO on the TPP! Please be sure he/she gets my message. Thank you.”
Go to the Crash-Course site and print off PDFs to share. Actually, that whole website is designed to help you take action, online and off. You can still share the hashtag in any way you choose – it gets the point across fast.
If you can target these two reps, you could stop the fast-track today:
1) MIKE QUIGLY (IL-05)
District: (773) 267-5926
2) GREG MEEKS (NY-05)
D.C. (202) 225-3461
District: 347-230-4032 & 718-725-6000
Twitter: Gregory Meeks
Lastly, if you have done something, no matter how small to derail the TPP fast track – THANK YOU!!
Special thanks also to Andrew Pontbriand, Emily Laincz and Nick Bernabe for their tireless organizing, efforts and information – and to all those who joined them. Without them, this article wouldn’t be – nor will it with the TPP!
Recent posts by Heather Callaghan:
“There is an unresolved self-contradiction in China’s current policies: restarting the furnaces also reignites exponential debt growth, which cannot be sustained for much longer than a couple of years.”
The “eerie resemblances” – as Soros previously noted – to the US in 2008 have profound consequences for China and the world – nowhere is that more dangerously exposed (just as in the US) than in the Chinese shadow banking sector as explained below…
Submitted by Minxin Pei via The National Interest,
The spectacle of a game of financial chicken in the world’s second-largest economy is both entertaining and terrifying. Twice in 2013, the People’s Bank of China (PBOC), the country’s central bank, tried to demonstrate its resolve to rein in runaway credit growth. In June, it engineered a sudden credit squeeze that sent the interbank lending rates to more than 20 percent and caused a short-lived panic in the Chinese financial markets. Apparently, the financial turmoil was too much for the Chinese government, which quickly ordered the Chinese central bank to reverse course. As a result, the PBOC lost both face and credibility.
However, as credit growth continued unabated and activities in the most risky segment of China’s financial sector – the so-called shadow banking system – displayed alarming recklessness, the PBOC was left with no choice but try one more time to send a strong message that it could not be counted on to provide unlimited liquidity to the banking system.
It did so in December 2013 with a modified approach that provided liquidity only to the selected large banks but pressured smaller banks (which are the most active participants in the shadow banking system). Although interbank lending rates did not spike to nose-bleeding levels, as they did in June, they doubled quickly. Most Chinese banks held on to their cash and refused to lend to each other. Chinese equity markets fell nearly 10 percent, giving back nearly all the gains since mid-November, when the Chinese Communist Party’s (CCP) reform plan bolstered market sentiments.
Unfortunately for the PBOC, the renewed turbulences in the Chinese banking sector were again viewed as too dangerous by the top leadership of the CCP even though it seemed that the PBOC initially received its support. Consequently, the PBOC had to beat another hasty retreat and inject enough liquidity to force down interbank lending rates. Thus, in the first two rounds of a stand-off between the PBOC and China’s shadow banking system, the latter is widely seen as the winner. The PBOC blinked first each time.
For the moment, the conventional wisdom is that, as long as the PBOC maintains sufficient liquidity (translation: permitting credit growth at roughly the same pace as in previous years), China’s financial sector will remain more or less stable. This observation may be reassuring for the short-term, but overlooks the dangerous underlying dynamics in China’s banking system that prompted the PBOC to act in first place.
Of these dynamics, two deserve special attention.
The first one is the rapid rise in indebtedness (or financial leverage) in the Chinese economy since 2008. In five years, the country’s total debt-to-GDP ratio (including both public and private debt) rose from 130 percent to 210 percent, an unprecedented increase for a major economy. Historically, such expansion of credit hasrarely failed to inflate a credit bubble and cause a financial crisis. In the Chinese case, what makes the credit explosion even more risky is the low creditworthiness of the major borrowers. Only a quarter of the debt is owed by those with relatively high creditworthiness (consumers and the central government). The remaining 75 percent has gone to state-owned enterprises, private real-estate developers, and local governments, all of which are known to have weak loan repayment capacity (most state-owned enterprises generate low cash profits, private real-estate developers are overleveraged, and local governments have a narrow tax base). Staggering under an unsustainable debt burden of roughly 160 percent of GDP (equivalent to $14 trillion), these borrowers are expected to default on a significant portion of their bank debt in the coming years.
The second dynamic, closely related to the first one, is the growth of the shadow-banking sector. Two drivers shape activities in this sector, which operates outside the banking system. To minimize their exposure to risky borrowers, Chinese banks have curtailed their lending. But at the same time, these banks have embraced the shadow banking activities to increase their revenue. Specifically, Chinese banks peddle new “wealth management products” – short-term securities promising high interest rates – to their depositors. The issuers of such securities, which are not protected or insured by the government – are typically high-risk borrowers, such as local governments (and their financing vehicles) and real estate developers.
In the meantime, these borrowers are facing rising pressures for loan repayments in an environment of overcapacity and unprofitable investments. Unable to generate cash to service their loans, they have to turn to the shadow-banking sector for credit and avoid default. The result is an explosive growth of the size of the shadow-banking sector (now conservatively estimated to account for 20-30 percent of GDP).
Understandably, the PBOC does not look upon the shadow banking sector favorably. Since shadow-banking sector gets its short-term liquidity mainly through interbanking loans, the PBOC thought that it could put a painful squeeze on this sector through reducing liquidity. Apparently, the PBOC underestimated the effects of its measure. Largely because Chinese borrowers tend to cross-guarantee each other’s debt, squeezing even a relatively small number of borrowers could produce a cascade of default. The reaction in the credit market was thus almost instant and frightening. Borrowers facing imminent default are willing to borrow at any rate while banks with money are unwilling to loan it out no matter how attractive the terms are.
Should this situation continue, China’s real economy would suffer a nasty shock. Chain default would produce a paralyzing effect on economic activities even though there is no run on the banks. Clearly, this is not a prospect the CCP’s top leadership relishes.
So the task for the PBOC in the coming year will remain as difficult as ever. It will have to navigate between gently disciplining the banks and avoiding a financial panic. Its ability to do so is anything but assured. It has already lost the first two rounds of this game of financial chicken. We can only hope that it can do better in the next round.