Google Groups
Join To Get Blog Update Notices
Visit the Hickory Hound Group

Sunday, July 27, 2014

Economic Stories of Relevance in Today's World -- July 27, 2014

Gary Shilling: "Q2 GDP Was Closer To 1% Than To 3%. It Could Even Be A Negative Number" - Zero Hedge - Tyler Durden - July 27, 2014 - This week, in the aftermath of the Q1 -2.9% GDP disaster, the biggest "non-recessionary" drop in 67 years which was blamed on harsh weather (because there have never been harsh winters in the past 67 years), we get the first glimpse of what Q2 GDP was in the US economy. It is expected to print just shy of 3%. However, one person disagrees: Gary Shilling believes that not only will Q2 GDP be closer to 1% than to 3%, there is a fairly good chance it could be negative, which of course would mean that the US economy has officially entered a recession.                          Shilling's take:Special Report: No Spring Thaw
The consensus of economists looks for second quarter real GDP growth, which will be released July 30, of 3% vs. the first quarter at annual rates. It believes the 2.9% drop in the first quarter was cold weather-driven, and a rebound in the second quarter is the prelude to 3%-plus growth in the second half of the year. As in the last several years, the herd is likely to be disappointed.                       Consumer spending is 69% of GDP and it barely grew in the quarter. According to monthly data, real consumer spending fell 0.2% in April and 0.1% in May. June’s numbers aren’t released yet, but based on the correlation with retail sales, which are available for June, real consumer outlays rose just 0.1%. The jump in March from weak January and February gave consumer spending a higher starting point for the second quarter so we believe it rose 1.3% from the first quarter.                            With the ongoing business cost-cutting and job growth focused on hamburger flippers, hotel desk clerks and other lowpaid jobs, real wage growth to support consumer spending has been absent. Emphasis has also been on lower-paid part-time jobs. In June, they rose 1.1 million while full-timer positions dropped 708,000.

America's Lost Decade: Typical Household Wealth Has Plunged 36% Since 2003 - Zero Hedge - Tyler Durden - July 27, 2014 - Does it feel like you're poorer? There is a simple reason why - you are! According to a new study by the Russell Sage Foundation, the inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36% decline... Welcome to America's Lost Decade.                           Simply put, the NY Times notes, it’s not merely an issue of the rich getting richer. The typical American household has been getting poorer, too.                            The reasons for these declines are complex and controversial, but one point seems clear: When only a few people are winning and more than half the population is losing, surely something is amiss.

2008 Meltdown Revisited-There’s No Solution-Egon von Greyerz - USA Watchdog - Greg Hunter - July 16, 2014 - Gold and financial expert, Egon von Greyerz, says buckle your seat belts–a replay of the 2008 financial crisis will “soon return.”  Greyerz contends, “What happened in 2008 was expected by us for quite a long time.  The solution of $25 trillion to save banks and financial markets was not a solution.  It was just a temporary deferral of the problem.  The money, as we know, went into the banking system, and it didn’t go into the real economy.  The banks in Europe still have the same problems.  They are leveraged as much as before.  Deutsche Bank is leveraged 50 times.  U.S. banks are slightly less leveraged, but they have the derivatives that are not included on their balance sheets; of course, but if you include that, they have more leverage than the European banks. . . . We are now in a situation where every major economy in the world is in a total mess.”  Greyerz goes on to explain, “Japan’s economy is going to disappear into the Pacific.  China is having its problems.  Europe has problems.  The EU will never work and was not supposed to work.  The euro is an artificial currency and, in the long run, will not survive.  The U.S. stock market is at an all-time high, but that has nothing to do with the real economy which is an absolute mess.  So, the world has never been in a situation where all nations simultaneously are having problems that are insoluble.  Every major nation is running a deficit today.  So, right now, I think we are going to revisit 2008; but this time, there is no solution.

85 Super Wealthy People Have More Money Than The Poorest 3.5 Billion Combined - Economic Collapse Blog - Michael Snyder, on July 27th, 2014 - The global economy is structured to systematically funnel wealth to the very top of the pyramid, and this centralization of global wealth is accelerating with each passing year.  According to the United Nations, 85 super wealthy people have more money than the poorest 3.5 billion people on the planet combined.  And 1.2 billion of those poor people live on less than $1.25 a day.  There is something deeply, deeply broken about a system that produces these kinds of results.  Seven out of every ten people on the planet live in countries where the gap between the wealthy and the poor has increased in the last 30 years.  Despite our technological advances, somewhere around a billion people go to bed hungry every single night.  And when our fundamentally flawed financial system finally does collapse, it will be the poor that will suffer the worst.                          Now, let me make one thing clear at the outset.                       Big government and more socialism are not the answer to anything.  Big government and more socialism almost always result in increased oppression and increased poverty.  If you want to see where that road ultimately leads to, just look at North Korea.                          What we need is a system that empowers individuals and families to work hard, be creative, build businesses and to take care of themselves.                           But instead, we have a system where all power and all wealth are increasingly controlled by giant banks and giant corporations that are in turn controlled by the global elite.  The "financialization" of the global economy has turned almost everyone on the planet into "deft serfs", and the compound interest on all of that debt enables the global elite to constantly increase their giant piles of money.

The Rot Within, Part I: Our Ponzi Economy - Of Two - Charles Hugh Smith - July 21, 2014 - Depending on blowing the next bubble to temporarily prop up the economy is the height of foolhardy shortsightedness.                     All the conventional policy fixes proposed by Demopublican politicos, technocrats and the vast army of academic/think-tank apparatchiks are the equivalent of slapping a coat of paint on a fragile facade riddled with dryrot. All these fake-fixes share a few key characteristics:
1. They focus on effects and symptoms rather than address the underlying causes, i.e. the dryrot at the heart of our government, society and economy.

2. They maintain and protect the Status Quo Powers That Be--no vested interests, protected fiefdoms or Financial Elites ever lose power as a result of these policy tweaks.

3. They are politically expedient, meaning they assuage the demands of vested interests rather than tackle the rot undermining the nation.

4. They ignore the perverse incentives built into current systems and the incentives of complicity, i.e. to cheer another coat of paint on the dryrot rather than face the costs of real reform.

The financial underpinnings of the economy and society are rotting from within:finance, higher education, defense, healthcare, law, governance, you name it.                     This week I want to highlight a few key causes of this pervasive and eventually fatal systemic rot.                     Let's start with Our Ponzi Economy. There are three primary examples of our Ponzi Economy: pay-as-you-go social programs (Social Security, Medicare, Medicaid, etc.); housing and the stock market. All are examples of financial Ponzi schemes.                         All Ponzi schemes rely on an ever-expanding pool of greater fools who buy into the scheme and pay the interest/gains due the previous pool of greater fools. Ponzi schemes fail because the pool of greater fools is finite, but the scheme demands an ever-expanding pool of participants to function.                      All Ponzi schemes eventually fail, though each is declared financially sound because this time it's different. The number of greater fools required to keep the scheme going eventually exceeds the working population of the nation...

The Rot Within, Part II: Inflation Is Not "Growth" - Of Two - Charles Hugh Smith - July 23, 2014 - Just as the Federal Reserve cannot directly force you to stick the needle of monetary heroin (debt) into your arm, it also can't force employers to pay employees more.                     The official policy of the Central Bank (Federal Reserve)/government is: inflation is necessary for "growth," i.e. economic expansion. The unstated reason for this official support of inflation is that it's easier for borrowers to service their debts as their income inflates.                        To take an extreme example: let's say a homeowner has a mortgage of $100,000, an annual wage of $40,000 and annual mortgage payments of $10,000. At 100% annual inflation in both prices and wages, the home mortgage remains fixed at $100,000, the payment remains fixed at $10,000 but his earnings double to $80,000.                        Where the mortgage payment initially took 25% of his earnings, now it only takes 12.5%. Yippee Skippy, the homeowner has an "extra" 12.5% of his earnings to support more consumption and debt: thanks to inflation, the homeowner can now buy a car on credit and use the "extra" 12.5% of earnings to pay the auto loan.                       Central banks around the world seek inflation for another reason: the Keynesian Cargo Cult that dominates all central banks and governments believes with quasi-religious certainty that people respond to inflation by buying more stuff now rather than later: since prices will rise in the future, it makes sense to buy stuff now at "lower prices compared to next year's prices."                    This is called bringing demand forward, as the demand to buy stuff is shifted from the future to the present.                 In an economy dependent on debt-based consumption, inflation is absolutely essential to reduce the real costs of servicing old debts so households can afford to buy more stuff on credit. This is the basis of the Fed's insistence that inflation is equivalent to "growth"--inflation enables households to continue adding more debt to buy more stuff, as long as earnings inflate along with prices.                       There are three problems with the Fed's "inflation is growth" scenario:

1. Earned income (wages and salaries) don't inflate along with prices
2. Rising inflation and low interest rates crimp lender profits and increase risks.
3. Bringing demand forward exhausts households' ability to fund additional consumption with debt.

To date, all the Fed's efforts to generate inflation have bypassed earned income: wages and salaries have declined when adjusted for inflation. Hourly wages: stagnant since 2008...

No comments: