Friday, February 15, 2013

Is the World Headed for Recession?

Let's see, Europe's GDP shrank by 0.6% in the last quarter of 2012 after shrinking the previous quarter by 0.1%.   A major investment bank revised it's growth target for Europe in 2013 to 0.0%.  Yes, that's right, a goose egg---and the forecast has continued to weaken over time. Japan's economic contraction continues for 3 quarters in a row with a shallow 0.1% GDP decline in the last quarter of 2012.  The US also had a "surprise" contraction in the last quarter of 2012.   So, all of the major economies are in negative economic growth territory, with the notable exception of China.  There is usually a strong correlation between individual country's GDP and the rest of the world and that includes China.

Of course, with China, government spending on bridges, ghost cities and high speed railroads to nowhere count as "GDP."  Up to 40 to 50% of Chinese "GDP" is debt-financed government spending on "infrastructure" boondoggles projects.  How much organic growth in China is not really known since the Chinese are among the world's biggest liars and cheats.

So, after trillions of dollars of stimulus, trillions of government deficits, trillions of money creation (printing) in the US and Japan and the rest of the world,  the world's growth is sinking.  Amazing isn't it?  Economists say that Europe's woes are from "austerity" but that austerity comes from just a few minor peripheral countries.  There's not really much austerity in Europe!

Here's an interesting chart from the Economist showing the trend of the world economy since the post-crisis peak growth in 2009:

So, the chart above shows data from 2007 and shows the trend in Global GDP growth has been down since the "recovery" in 2009.  Data from Q4 in 2012 confirms the trend downward.  Euro-growth is already non-existent since 2011.  There has been contraction in the past 12 of 15 months in the UK for example.

Geopolitical events also show economic distress.  Governments try to distract the populace when times are difficult.  Think about it.  Argentina is making noise about the Falklands when the country is on the verge of default (again), their "Chavista" president De Kirchner has frozen food prices and has been lying about the true state of the economy and rise of inflation.  As I mentioned, China lies like hell about it's 'GDP' and all is not well there.  How can I tell?  Because China is making war-like noises with all neighboring countries in the South China Sea and with Japan regarding disputed islands.  Japan's new prime minister has essentially taken over their Central Bank and has "mandated" vastly expanded money 'printing' to weaken the Yen and create inflation.  He's also calling for more military spending.  There's nothing like a war and re-arming to help the economy!

The US is Becoming Japan (or Argentina?)

Japan is the future for America.  Government debt in Japan is some 230 percent of GDP after something like 20 'stimulus' packages and deficit spending over 20 years. It hasn't worked.  Still ten year Government debt yields about 1% with short term debt yielding much less.  You see, Japanese investors have become used to -1% inflation (deflation) for some 20 years now, so +1% yield gives investors 2% real returns.  But if the Japanese government takeover of the central bank works and inflation rises to the stated goal of 2%, eventually government bond yields will rise to 2% or more.  Eventually interest payments on the debt will consume their entire national budget due to the huge 'stockpile' of debt outstanding.  Already government deficits are some 10% of GDP and rising. Government revenues are shrinking because the population is shrinking and will do so for as far as the eye can see.  There is no way out.  Japan is well past the point of no return.

The US is becoming either Japan or Argentina.

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