Tag Archives: Economy

Why China Becomes Worlds #1 Economy

QUESTION: I believe you have said that in order for the Chinese to become the next superpower and be the monetary capital of the world that rule of law would have to exist. Given the recent take down of Alibaba how can one have faith in a system governed by a communist hierarchy?

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How Much Longer Until The Engineered Financial Collapse Of The U.S. Hits?

(Brandon Smith) There are a multitude of false assumptions out there on what the collapse of a nation or “empire” looks like. Modern day Americans have never experienced this type of event, only peripheral crises and crashes. Thanks to Hollywood, many in the public are under the delusion that a collapse is an overnight affair. They think that such a thing is impossible in their lifetimes, and if it did happen, it would happen as it does in the movies – They would simply wake up one morning and find the world on fire. Historically speaking, this is not how it works. The collapse of an empire is a process, not an event.

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How Will You Cope With A Lower Standard Of Living?

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The forces are mounting that will eventually overwhelm most Americans and send their standard of living to unknown depths. Americans that have only known the post WWII prosperity are ill equipped and educated to deal with depression level living. Easy credit and instant gratification have created a nation of whining, self absorbed, entitlement minded people with no moral or mental toughness.

Doug Casey believes we are headed for what he calls a super depression created by the ending of a debt super cycle. The bigger the debt cycle the bigger the depression that follows. That’s how reality works and most people are not prepared for reality.

When this depression, which has already started, gets momentum, it will overwhelm the plans of a society that is expecting to get things like social security, pensions and payouts from retirement plans they have paid into for many years. All of those things will disappear almost overnight and leave society gasping and stupefied over what to do. Their reactions will be to yell and scream and try to identify who to blame but the only person they should blame is the one in the mirror.

Many very smart people have raised the alarm and done their best to warn the sleeping public, but those slumbering masses have ignored the warnings and hit the snooze button one more time. The masses do not understand economics, do not want to understand economics and they will pay dearly for that ignorance in the coming days.

When the real unemployment rate becomes common knowledge as it increases substantially, people will be left to survive on what resources they have saved up outside the banking system that cannot be stolen by the politicians and bankers. That is a key point here. The assets you have outside the system that cannot be stolen from you with a few key strokes on some computer.

Those hoping for some miraculous event that will send the U.S. back to the days of manufacturing might and jobs for all will never see it happen. Those days are gone. The west line theory tells us our economy will slow down and become more modest as the shipping center of the world moves west to the next powerhouse region which is Asia. This is what history teaches us.

When people suddenly wake up one morning and they have no job, their retirement is gone and they need to care for their family, what will they do? When government services have collapsed and they suddenly realize they are now living in a third world country with few government services, what will they do? When the banks are closed and only a select few connected people have any type of money or access to goods, what will they do?

This is the reality that many people will face in the future and they have no idea how bad it can get. They refuse to contemplate the harsh reality they will be living in and take steps to mitigate the effects. To do so would be to acknowledge it could happen and they are taking personal responsibility. Personal responsibility is a dirty phrase in today’s entitlement society. To see some of the effects one only has to look at the collapse of society in Venezuela today to see what awaits.

When it happens it will all fall back to you to take responsibility for your family and take care of them for the duration. To do that you need to plan now for that eventuality and build up the resources you will need to provide food, shelter, clothing and security when the system fails to do it for you. You need to be Noah on his ark not the people watching as he floated away.

Having resources stored up is a must but it may not get you all the way through if the situation lasts for many years. That is why you need some type of plan to replace those resources as time goes by and have some way to generate some type of income or at least items to trade. Usable goods are for the short term and things like gold ,silver and production equipment are for the long term to help you get through the crisis with the least amount of pain.

Even with proper planning the days ahead will not be easy as the standard of living of society will fall substantially to levels only seen in failed third world countries or old pictures. The assets actually owned by people today is very small compared to how they live. They will default on their home loan, their car loan, and their credit card debt leaving them with very few real possessions and few ways to move what they have left even if they have some place to go. Ultimately these people will become the new serfs to the wealthy class that will take possession of anything of value. Feudalism will once again rule.

The lack of planning by society will make this a reality if it is allowed. What will you do when everything you have worked a lifetime for is suddenly taken away? Do you have a plan to keep what you have? Do you have a plan to make money when you cannot find a job? Do you have a way to take care of your family until things stabilize? Do you have a home you will not lose if the whole system breaks down? What will you do if electricity or fuel is too expensive to buy or not available to the general population? These are the questions you should be asking yourself now and you better have a good answer because your family will be asking them when the greater depression sets in.

by Tom Chatham | ZeroHedge

Devastating Metastasizing Global Depression On its Way

Join Greg Hunter as he goes One-on-One with Michael Pento of Pento Portfolio Strategies.

Financial expert and money manager Michael Pento is forecasting a global depression, and Pento contends, It’s happening. It’s happening now. There are going to be global sovereign defaults, and those defaults are going to take the form of defaults through monetization and inflation. That is where we are headed.”

CELENTE REVEALS WHAT YOU’RE NOT BEING TOLD ABOUT THE 2016 FINANCIAL CRISIS

Central Banks Have Pushed The Middle Class Into Neo-feudal Serfdom

The injustice of central-bank enforced neo-feudalism cannot be suppressed like interest rates.

In traditional feudal systems, serfs were the landless peasantry who worked the land of their feudal lords in exchange for protection. In our present-day neo-feudal system, serfdom has a different definition: present-day serfs own little or no productive capital and have few opportunities to ever acquire any.

The Marxist term wage-slaves describes those who, lacking capital, have only their labor to sell. This describes the vast majority of people in both capitalist and socialist systems, but what makes the present system neo-feudal is the central banks: by extending essentially unlimited credit at near-zero interest rates to financiers and corporations, the central banks have given the top .01% the ability to outbid mere savers for income-producing assets (i.e. productive assets).

Just as the feudal-era serf had no choice but to enslave himself and his family to the manor-house lord, the modern-day serf must indenture himself to banks to “own” a car or home or “buy” a college education.

The X22 Report and I discuss this and related topics in the podcast Central Bankers Are Creating A World Where We Are All Serfs (38:10).

As I outlined in The Flaws in Basic Income for Everyone, all the guaranteed basic income schemes being proposed as solutions to automation are merely institutionalized serfdom as they sentence the unemployed to the marginalized political status (equivalent to powerless serfs) of state dependents while stripping them of purposeful work and the opportunity to acquire the means of production and productive capital.

Guaranteed basic income is thus the perfection of neo-feudal serfdom.

The central banks are the critical enforcers of this neo-feudal system. Without access to unlimited credit at near-zero rates, financiers and corporations would not be able to outbid savers for productive assets.

Here’s an example that illustrates how central banks have created a neofeudal system. In an economy not suffering from extremes of central-bank financial repression, home mortgages in recent decades were around 7.5%. This rate of interest (coupled with strict lending standards) was high enough to make credit-fueled bubbles difficult to inflate, so homes cost $100,000.

Those who had saved $50,000 had an advantage over financiers who were borrowing the full $100,000. The base operating costs of buying the home as a rental (investment) property was roughly $4,000 more annually for the financiers than for the savers: the savers’ $50,000 mortgage cost around $4,000 a year (not including property taxes and other expenses of ownership) while the financiers’ mortgage was around $8,000 annually.

This difference was large enough to make the property unprofitable for the financiers to buy and rent out, and large enough to make it a risky bet to buy the home and hope appreciation exceeded the annual expenses.

If the home rented for (say) $1,200 per month, the financiers’ higher mortgage expenses put them at a disadvantage to the saver/owner, who had a significantly lower monthly expense.

Contrast this with the world of today, where financiers can borrow essentially unlimited sums at rates far below what savers can get. As a direct result of ultra-low rates for banks, corporations and financiers, even high-earning wage-slaves cannot outbid the financiers for productive (i.e. income-producing) assets.

If a person is unable to earn enough to save, and is unable to compete with financiers and corporations for productive assets, that person is a modern-day serf, a debt-serf indentured to banks and stripped of opportunities to own the sort of assets the Financial Nobility use to accumulate ever-greater wealth and income.

The injustice of this central-bank enforced neo-feudalism cannot be suppressed like interest rates.

Central Bankers Are Creating A World Where We Are All Serfs (38:10) (X22 Report podcast).

End of the Bubble Finance Era Has Begun

We are nearing a crucial inflection point in the worldwide bubble finance cycle that has been underway for more than two decades. To wit, the world’s central banks have finally run out of dry powder. They will be unable to stop the credit implosion which must inexorably follow the false boom.

We will get to the Fed’s upcoming once in a lifetime shift to raising rates below, but first it is crucial to sketch the global macroeconomic context.

In a word, we are now entering an epic deflation. Its leading edge is manifested in the renewed carnage in the commodity pits.

This week the Bloomberg commodity index, which encompasses everything from crude oil to soybeans, copper, nickel, cotton and livestock, plunged below 80 for the first time since 1999. It is now down nearly 70% from its all-time high on the eve of the financial crisis, and 55% from its 2011 recovery high.

BloombergCommodityIndex

Wall Street bulls and Keynesian apologists for the Fed want you to believe that there isn’t much to see here. They claim it’s just a temporary oil glut and some CapEx over-exuberance in the metals and mining industry.

But their assurances that in a year or so current excess supplies of copper, crude, iron ore and other commodities will be absorbed by an expanding global economy couldn’t be farther from the truth. In fact, this error is at the heart of my investment viewpoint.

We believe the global economy is vastly bloated with debt-based spending that can’t be sustained. And that this distortion is compounded on the supply side by an incredible surplus of excess production capacity. As well as wasteful malinvestments that were enabled by dirt cheap central bank credit.

Consequently, the world economy is actually going to shrink for the first time since the 1930s. That’s because the plunging price of commodities is only a prelude to what will amount to a worldwide CapEx depression — the kind of thing that has not happened since the 1930s.

There has been so much over-investment in energy, mining, materials processing, manufacturing and warehousing that nothing new will be built for years to come. The boom of the last two decades essentially stole output from many years into the future.

So there will be a severe curtailment in the production of mining and construction equipment, oilfield drilling rigs, heavy trucks and rail cars, bulk carriers and containerships, materials handling machinery and warehouse rigging, machine tools and chemical processing equipment and much, much more.

The crucial point, however, is that sharp curtailment of the capital goods industries has far more destructive implications for the macro-economy than a reduction in consumer appliance sales or restaurant and bar tabs.

Service operations have virtually no working inventories and the supply chains for durable consumer goods such as dishwashers and cars typically have perhaps 50 to 100 days of stocks on hand. So when excessive inventory investments accumulate, the destocking and resulting supply chain curtailments are relatively short-lived.

But when it comes to capital goods the relevant inventory measure is capacity in place. That’s where the bubble finance policies of the Fed and other central banks have done so much damage.

Prolonged periods of below market capital costs induce business customers to drastically over-estimate investment returns. And therefore to eventually accumulate years and years worth of excess capacity.

This is very different than your grandfather’s consumer goods recessions of the 1950s and 1960s. Those typically involved moderate production cutbacks and several quarters of inventory destocking. But this time the capital goods adjustment will take years, perhaps more than a decade.

Here’s Why

When iron ore mines are drastically overbuilt, for example, new orders for Caterpillars’ (CAT) big yellow mining machines can drop to nearly zero. That’s why CAT is already in the longest string of dealer sales declines — 35 straight months and running — in its 100 year history.

Caterpillar

That’s also why the coming global recession will be so prolonged and stubborn. When cheap credit generates a boom in long-lived and expensive capital goods, it gives rise to a pipeline of new capacity.

This pipeline is not easy to shut-off and often makes sense to complete — say container ships, steel plants or new field mines — even if pricing and profitability have already headed south. That’s known as the sunk cost problem.

Mining equipment orders are likely to remain deeply depressed for the rest of the decade. And this syndrome will be repeated in most other sectors such as heavy trucks, shipyards, oil drilling equipment etc.

This depression in the capital goods industries, in turn, means the disappearance of thousands of typically high pay, high skill jobs at companies like Caterpillar. The same will happen among their extensive chains of outsourced components, materials and service suppliers. And the cascade of those contractions down the economy’s food chain will further intensify and extend the deflationary dynamic.

The graph below give some hint of the massive downturn which lies ahead on a worldwide basis.

During the last 25 years CapEx spending by the publicly listed companies of the world grew by an incredible 500%. Much of this happened in China and the Emerging Market (EM) economies, and in the transportation and distribution infrastructure that connects them.

GlobalCapex

Yet this massive explosion of investment spending didn’t happen because several billion Asian peasants suddenly decided to save-up a storm of new capital.

Instead, this unprecedented construction and CapEx campaign was financed almost entirely by a massive issuance of printing press credit at virtually zero real interest rates.

That means capital was drastically underpriced and that waste, excess and inefficiency abounded.

At length, the global economy became dangerously unbalanced. And these adverse consequences of the false central bank credit boom, in fact, highlight the investment opportunity ahead.

Healthy capitalist investment based on market prices and savings set aside from current income can go on indefinitely, fueling rising efficiency, output and wealth.

But CapEx based on printing press credit only temporarily enabled the world economy to have its cake and eat it, too. Now it’s payback time.

Needless to say, during the expansion phase of central bank enabled bubble finance, optimism reigns and bulls and speculators insist that “this time is different.”

Yet the laws of sound finance and market economics never change. It often just takes an extended time for all the excesses to work their way through the system and finally reach the blow-off stage.

The graph below summarizes this great deformation.

Over the last two decades, global credit market debt outstanding has soared from $40 trillion to $225 trillion. This represents an incredible $185 trillion debt expansion. That eruption would be simply unimaginable without the help of money printing central banks.

By contrast, global GDP only expanded by $50 billion during the same period, and even that’s an overstatement. Much of that reported gain merely represented the one-time pass-through of fiat credit, not real savings put to work in efficient production.

Consequently, it is likely that the global economy accumulated more than $4 of new debt for every $1 of incremental GDP.

Not only is that self-evidently an unsustainable financial equation, it also means that when credit growth stops, the bottom will drop out of reported GDP. It wasn’t new wealth in the first place, just production stolen from the future.

GlobalDebt

And this gets us to the Fed’s upcoming move to raise interest rates for the first time in 10 years. It will amount to a sea-change that in due course will shatter the entire regime of bubble finance that gave rise to the false credit and CapEx boom depicted above.

As I have often said, the Fed has become addicted to the “Easy Button.” During more than 80% of the 300+ months during the last quarter century it has either cut rates or left them unchanged.

EasyButton

Accordingly, the professional gamblers in today’s Wall Street casino have no real experience of a time when the “Fed is your friend” adage failed to work. They have experienced essentially false one-way markets, knowing that the Greenspan/Bernanke/Yellen “put” under stocks and other risks assets would come to the rescue.

But here’s the thing. After 84 months of zero interest rates — and folks that’s pure lunacy by all historic standards — the Fed has run out of time and excuses.

If it doesn’t begin to normalize rates at last, and as repeatedly promised, its credibility will be shattered. And what it long has been deathly afraid of will happen. That is, the market will plunge into a hissy fit that will shatter confidence in what is essentially a giant credit-based Ponzi.

And the other major central banks of the world are in the same boat. Just last week we saw the ECB stopped short by its powerful Germany contingent that essentially said to Draghi that $1.3 trillion of money printing is enough.

Likewise, the People’s Bank of China (PBOC) has run out of dry powder, too. And that’s of monumental importance.

The epicenter of the global commodity, industrial and CapEx boom was in China. Thanks to the greatest money printing spree by the PBOC in recorded history, outstanding public and private debt there has exploded from $500 billion in 1994 to $30 trillion at present.

That’s a 60-fold gain. Is it any wonder that the commodity and CapEx charts shown above went nearly vertical during the peak of the global boom?

But now China is facing the collapse of its credit Ponzi, and capital is fleeing the country at a prodigious pace.

In the last 15 months alone, nearly $1 trillion has high tailed it for London, New York, Australia, Vancouver and other resting places for flight capital.

So the PBOC is being forced to stop its printing presses in order to prevent the Yuan exchange rate from collapsing and the capital outflow from getting totally out of hand.

Even in Japan, the Bank of Japan’s printing press is no longer accelerating. That because notwithstanding trillions of new money conjured from thin air during recent years, Japan is on the verge of its 5th recession in seven years. Even in Japan, bubble finance is losing its credibility.

Regards,

David Stockman for The Daily Reckoning

Schiff Warns: “The Whole Economy Has Imploded … Collapse Is Coming”

https://s16-us2.ixquick.com/cgi-bin/serveimage?url=http%3A%2F%2Fcdn3.freedomoutpost.com%2Fwp-content%2Fuploads%2F2015%2F06%2Feconomic-collapse.jpg&sp=3b7a581e9216ee06e81159dcf33fa4c6Back before 2008 Peter Schiff was harshly criticized and laughed at for his predictions about a coming economic collapse. Among other things Schiff warned that consumer spending had hit a wall, stocks were overpriced and lax credit lending practices would lead to a detonation of the banking system. Rather than heed the warnings, the biggest names in mainstream media tried to discredit him for not toeing the official narrative. Shortly thereafter, of course, Schiff was vindicated and much of the doom he had forecast came to pass.

Today, Schiff continues to argue that the economy is on a downhill trajectory and this time there will be no stopping it. All of the emergency measures implemented by the government following the Crash of 2008 were merely temporary stop-gaps. The light at the end of the tunnel being touted by officials as recovery, Schiff has famously said, is actually an oncoming train. And if the forecast he laid out in his latest interview is as accurate as those he shared in 2007, then the the train is about to derail.

We’re broke. We’re basically living off of debt. We’ve had a huge transformation of the American economy. Look at all the Americans now on food stamps, on disability, on unemployment.

The whole economy has imploded… the bottom hasn’t dropped out yet because we’re able to go deeper into debt. But the collapse is coming.

Fundamentally, America is worse off now than it was pre-crash. With the national debt rising unabated and money being printed out of thin air without reprieve, it is only a matter of time.

Schiff notes that while government statistics claim Americans are saving again and consumers seem to be spending, the average Joe Sixpack actually has a negative net worth. But most people don’t even realize what’s happening:

I read a statistic… The average American has less than a $5000 net worth… it’s pathetic… we’re basically broke… but in fact it’s much less… If you actually took the national debt and broke it down per capita, the average American has a negative net worth because the government has borrowed in his name more than the average American is able to save.

What’s happening is pretty much what we would anticipate. I don’t see from the data any real economic recovery, certainly not in the United States.

We’re spending more money, but it’s not because we’re generating more wealth. We’re generating more debt. We’re using that borrowed money to consume and so temporarily it feels that we’re wealthier because we get to spend all that money… but we have to come to terms with paying the bill.

The bills are going to come due. Right now interest rates are being kept at zero which makes it possible to service the debt even though it’s impossible to repay it… at least we can service it. But once interest rates go up then we can’t even service it let alone repay it.

And then the party is going to come to an end.

The problem, of course, is that no one with any real influence over public perception, like our elected officials or the media, will do anything about it. They’ll continue the party until it comes to an abrupt and irreversible end, and anyone who goes against the official narrative will be branded a lunatic gloom and doomer or extremist.

But vilifying those who are blaring the warning sirens will do nothing to change the end result:

We’re going to have a crisis… There are always going to be people who say ‘well, you’re a stopped clocked… you keep predicting doom and eventually it happens’… but you have to back and listen to why… Why are they saying it?

If you look back at things that I’ve said and the things that Ron Paul has said… This is why it’s happening… it’s not like we’re just saying negative things to be negative and then when something negative happens we can claim credit for it happening.

If you look back at the events it bears out that we’re right… unfortunately our opinions are in the minority… and you have governments that have a vested interest in ignoring these opinions because they don’t want to change because they’re at the root cause of the problem. But they don’t want to acknowledge their role in creating the problem. They don’t want to acknowledge that the problem is more government and that we need less government because that’s not how they stay in power. They promise something for nothing… they promise that government is the solution for your problems, not the cause of your problems.

They’re never going to acknowledge people like Ron Paul for what they’re saying… but they’ll try to discredit you by saying ‘well, you’ve been saying this for years and nothing bad has happened.’

But look around. A lot of bad stuff has happened. We just haven’t had the final and complete collapse. But what good is it when that happens? Now it’s too late to do anything about it.

The reality is that the American economy is on its last leg. Black Friday sales were pitiful, some of the world’s leading companies are warning of recession, and U.S. national debt will soon surpass $20 Trillion.

Just as was the case before the Crash of 2008, all of the signs are there. And just like before, the stock market continues to hover near all-time highs.

If you’ve been paying attention you know what happens next.

Source: Zero Hedge

Latest Evidence Global Trade Is Collapsing

India’s Exports/Imports Plunge By One Quarter

India’s exports of goods shrank by nearly a quarter in September from a year ago, falling for a 10th straight month and threatening Prime Minister Narendra Modi’s goal of boosting economic growth through manufacturing.

India’s economy, Asia’s third largest, is mostly driven by domestic demand, but the country has still felt the effects of China’s slowdown. Exports have dropped and consumer and industrial demand for imports has weakened.

“We see no signs of revival in exports in the near future,” said Ajay Sahai, director general of the Federation of Indian Export Organizations. “We will be lucky if exports could even touch $265 billion to $270 billion for the whole year.”

Read more: http://www.zerohedge.com/news/2015-10-15/behold-latest-evidence-global-trade-has-collapsed-indias-exportsimports-plunge-25


A Third Of All Containers Shipped From Long Beach Port Are Empty

Shipments of empty containers out of the U.S. are surging this year, highlighting the impact the economic slowdown in China is having on U.S. exporters. In September, the Port of Long Beach handled a near record 197,076 outbound empty boxes. “They accounted for nearly a third of all containers that moved through the port last month. September was the eighth straight month in which empty containers leaving Long Beach outnumbered those loaded with exports.

Read more: http://www.zerohedge.com/news/2015-10-14/third-all-containers-shipped-port-long-beach-are-empty