Category:

IMF Cuts 2014 Global Forecast After Slowdowns in China, U.S.

The International Monetary Fund lowered its outlook for global growth this year as expansions weaken from China to the U.S. and military conflicts raise the risk of a surge in oil prices . The world economy will advance 3.4 percent in 2014, the IMF said, less than its 3.6 percent prediction in April and stronger than last year’s 3.2 percent. Next year growth will be 4 percent, compared with an April forecast for 3.9 percent, the fund said. “Global growth could be weaker for longer, given the lack of robust momentum in advanced economies” even as interest rates stay low, the IMF said in an update to its World Economic Outlook report. “ Monetary policy should thus remain accommodative in all major advanced economies.” The IMF report reflected a world rattled by geopolitical risks that have risen since April, including the potential for “sharply higher oil prices” because of […]

Posted On : Published By : Tom Whipple
Category:

What Is Power Consumption Telling Us About The US Economy?

We track US power consumption on a weekly basis as reported by Barron’s, as we believe this information provides insightful – albeit sometimes “noisy” and seasonally unadjusted – clues about the performance of the economy over time. The expectation is that a more robust economic environment requires more power, although factors like colder winters and warmer summers relative to the norm can greatly skew the analysis. With that in mind, let’s have a look at the weekly historical performance of this indicator going back to 1995 (in MM kWhs): Many peaks and bottoms can be observed as power demand changes seasonally over the year. We have used polynomial smoothing to extract a trend line (in black). Some quick observations: US power consumption peaked in 2006 (red line), approximately in line with the peak in the US housing market, and the trend line has flatlined since. By definition a peak […]

Posted On : Published By : Tom Whipple
Category:

The deteriorating economic outlook

The third and final estimate (until the annual GDP revisions) of first quarter 2014 real GDP growth released June 25 by the US Bureau of Economic Analysis was a 2.9% contraction in GDP growth, a 5.5 percentage point difference from the January forecast of 2.6% growth. Apparently, the first quarter contraction was dismissed by those speculating in equities as weather related, as stock averages rose with the bad news. Stock market participants might be in for a second quarter surprise. The result of many years of changes made to the official inflation measures is a substantially understated inflation rate. John Williams ( www.shadowstats.com ) provides inflation estimates based on previous official methodology when the Consumer Price Index still represented the cost of a constant standard of living. The 1.26% inflation measure used to deflate first quarter nominal GDP is unrealistic, as Americans who make purchases are aware. A reasonable […]

Posted On : Published By : Tom Whipple
Category:

Debt: Eight Reasons This Time is Different

In today’s world, we have a huge amount of debt outstanding. Academic researchers Carmen Reinhart and Kenneth Rogoff have become famous for their book This Time is Different: Eight Centuries of Financial Folly and their earlier paper This Time is Different: A Panoramic View of Eight Centuries of Financial Crises . Their point, of course, is that the same thing happens over and over again. We can learn from past crises to solve our current problems. Part of their story is of course correct. Governments have gotten themselves into problems with debt, time after time. This is happening again now. In fact, the same two authors recently prepared a working paper for the International Monetary Fund called Financial and Sovereign Debt Crises: Some Lessons Learned and Some Lessons Forgotten , talking about ideas such as governments inflating their way out of debt problems and pushing problems off to insurance […]

Posted On : Published By : Tom Whipple
Category:

Why Standard Economic Models Don’t Work–Our Economy is a Network

The story of energy and the economy seems to be an obvious common sense one: some sources of energy are becoming scarce or overly polluting, so we need to develop new ones. The new ones may be more expensive, but the world will adapt. Prices will rise and people will learn to do more with less. Everything will work out in the end. It is only a matter of time and a little faith. In fact, the Financial Times published an article recently called “ Looking Past the Death of Peak Oil ” that pretty much followed this line of reasoning. Energy Common Sense Doesn’t Work Because the World is Finite  The main reason such common sense doesn’t work is because in a finite world, every action we take has many direct and indirect effects. This chain of effects produces connectedness that makes the economy operate as a network. This network […]

Posted On : Published By : Tom Whipple
Category:

Renminbi use surges in home of US dollar

It is the monetary equivalent of what Chairman Mao called “bombarding the headquarters”. China’s renminbi is rapidly displacing the US dollar as a trading currency not only in Asia and Europe but now also in the US home market. The value of renminbi payments between the US and the rest of the world rose by 327 per cent in April this year from the same month a year ago (see chart) as more US corporations switched to using the Chinese currency to pay for imports from China, according to data from SWIFT, the international currency settlement firm. The reasons driving the upsurge are structural and long-term, said Debra Lodge, a managing director at HSBC in New York. First, US importers can slash the cost of imports from China by agreeing to trade in renminbi rather than US dollars, Lodge said. Second, a recent surge in the popularity of a […]

Posted On : Published By : Tom Whipple
Category:

Europe Struggles to Avoid Deflation’s Grip

ATHENS — In her upscale three-story beauty salon in a middle-class suburb of Athens, Doria Tsirigotis used to charge 30 euros for a haircut. But when a wrenching recession set in, her competitors started cutting their prices, first to 20 euros, then to 10 and even as low as 5 — or less than $7. Ms. Tsirigotis tried to resist discounting her prices. But as her clients lost jobs or had their wages cut, she eventually lowered her rates. Soon, revenues dwindled and her debts mounted, and she had to let go of all but two of her 13 employees. Last month, she downsized to a tiny salon across the street, renamed Cheap ‘N’ Chic — more fitting to the times. “When prices fall so much, you can’t not follow the trend,” Ms. Tsirigotis said, gazing at the now-darkened beauty boutique she ran for 20 years. “But in such […]

Posted On : Published By : Tom Whipple
Category:

China's PMI rises to highest level in 2014

Growth in China’s manufacturing sector continued to accelerate in May, rising to the highest level for this year and adding to signs of a stabilizing economy, official data showed on Sunday. The purchasing managers’ index (PMI) increased to 50.8 in May, up from 50.4 in April, according to data released by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFLP). The reading, which inched further above the 50-point level separating a monthly expansion in factories’ activity from a contraction, indicated a pickup in China’s manufacturing sector and the economy as a whole. This is the third consecutive monthly uptick of the widely watched data. The index, seen as one of the key indicators of how the economy performs, began to climb in March after three months of declines. Zhang Liqun, a researcher at the Development Research Center of […]

Posted On : Published By : Tom Whipple
Category:

China’s PMI rises to highest level in 2014

Growth in China’s manufacturing sector continued to accelerate in May, rising to the highest level for this year and adding to signs of a stabilizing economy, official data showed on Sunday. The purchasing managers’ index (PMI) increased to 50.8 in May, up from 50.4 in April, according to data released by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFLP). The reading, which inched further above the 50-point level separating a monthly expansion in factories’ activity from a contraction, indicated a pickup in China’s manufacturing sector and the economy as a whole. This is the third consecutive monthly uptick of the widely watched data. The index, seen as one of the key indicators of how the economy performs, began to climb in March after three months of declines. Zhang Liqun, a researcher at the Development Research Center of […]

Posted On : Published By : Tom Whipple
Category:

Converging Energy Crises – And How our Current Situation Differs from the Past

At the Age of Limits Conference , I gave a talk called Converging Crises  (PDF), talking about the crises facing us as we reach energy limits. In this post, I discuss some highlights from a fairly long talk. A related topic is how our current situation is different from past collapses. John Michael Greer talked about prior collapses, but because both of our talks were late in the conference and because I was leaving to catch a plane, we never had a chance to discuss how “this time is different.” To fill this gap, I have included some comments on this subject at the end of this post. The Nature of our Current Crisis The first three crises are the basic ones: population growth, resource depletion, and environmental degradation. The other crises are not as basic, but still may act to bring the system down. Humans have found a series […]

Posted On : Published By : Tom Whipple