THIS 2014 ELECTION FOR GOVERNOR AND 2016 ELECTION FOR PRESIDENT ARE CRITICAL. IF WE DO NOT HAVE A PEOPLE'S PERSON IN OFFICE RATHER THAN THE NEO-LIBERALS WE HAVE NOW, ALL THAT IS PUBLIC WILL GO TO THE RICH AND ANY WEALTH WE HAVE WILL DISAPPEAR.
SHAKE THE BUGS FROM THE RUG AND GET RID OF CORPORATE NEO-LIBERALS!
Gansler, Brown, and Mizeur are all ready to protect wealth and profit. DO YOU HEAR THEM SHOUTING EVER???
People always doubt when I give them the 35-45% unemployment number, but think to yourself, if over 175,000 new jobs must be created every month just to stay even.....the US has had very few of these weeks in years....each month unemployment numbers grow even as people fall off unemployment payments. This is huge. The FED gives the US Federal agencies these rates of 6.7%.
Remember, a third world country must impoverish 90% of people in order to control the population. You see massive poverty with politicians promising hand-outs of basic human needs to get elected. SOUND FAMILIAR?
CONGRESS AND OBAMA IS BLEEDING THE PUBLIC DRY OF WEALTH WHILE PRETENDING TO ADVANCE SURVIVAL POLICY. RULE OF LAW WOULD PAY THE NATIONAL DEBT WITH RECOVERY OF CORPORATE FRAUD MAKING FLUSH ALL PUBLIC TRUSTS AND GOVERNMENT COFFERS!
I spoke last time of Yellen and the FED policy meant to super-size wealth and keep unemployment high with the intent to bankrupt the public sector entirely with leveraged government debt and continuous fleecing of billions from government coffers. All of this advances the neo-liberal goal of third world conditions here in America. I use the leveraging of Baltimore City schools as an example, but all public projects in Maryland are leveraged and tied to Wall Street financial deals that will have the public sector fleeced just as people were of their homes and students were of their education/careers.
STILL, ALL YOU CAN HEAR ON MARYLAND MEDIA ARE 3 NEO-LIBERALS ALL SHOUTING TO LEVERAGE MORE, GIVE MORE TAX CREDITS, AND MARYLAND'S ECONOMY IS DOING FINE!
'The ultimate kicker is how closely the U.S. stock market is mirroring the market in 1929 (right before the Great Depression)'.
Actual U.S. unemployment is 37.2%, not "6.7%", record number of households on food stamps in 2013
RT
Wed, 22 Jan 2014 12:04 CST © Andrew Burton/Getty Images/AFP
A girl pays for her mother's groceries using Electronic Benefits Transfer (EBT) tokens, more commonly known as Food Stamps, at the GrowNYC Greenmarket in Union Square on September 18, 2013 in New York City. As the White House proclaims a recovery is occurring, and the stock market has a head of steam, millions of Americans and their dependents are being left out of the recovery, according to a set of economic indicators.
Perhaps the most worrying yet least reported aspect of the so-called US recovery involves the national labor picture. Although the official US unemployment rate is 6.7 percent, this figure obscures the reality, according to an influential Wall Street adviser.
In a leaked memo to clients, David John Marotta calculates the actual unemployment rate of Americans out of work at an astronomic 37.2 percent, as opposed to the 6.7 percent claimed by the Federal Reserve.
"The unemployment rate only describes people who are currently working or looking for work," he said.
"Unemployment in its truest definition, meaning the portion of people who do not have any job, is 37.2 percent. This number obviously includes some people who are not or never plan to seek employment. But it does describe how many people are not able to, do not want to or cannot find a way to work," he and colleague Megan Russell reveal in their client report, which was leaked to the Washington Examiner.
Contrary to expectations, a drop in the unemployment rate, Marotta argues, is presently a sign that the unemployed are simply dropping out of the job market.
The "officially-reported unemployment numbers decrease when enough time passes to discourage the unemployed from looking for work," said Marotta andRussel. "A decrease is not necessarily beneficial; an increase is clearly detrimental."
The authors then take aim at the so-called Misery Index, which provides something of a pulse rate of American prosperity, based on unemployment and inflation. The Wall Street adviser said the Index, which he maintains is actually over 14, as opposed to the 8 advertised by Washington, fails to address how the US economy is being hugely subsidized by various schemes, including monthly bond purchases by the Federal Reserve.
"Today, the Misery Index would be 7.54 using official numbers," the two analysts wrote. However, taking into consideration the full unemployment picture, including workers who have given up the job search, which is 10.2 percent, together with the historical method of calculating inflation, which is now 4.5 percent, 'the current misery index is closer to 14.7."
© Reuters/Jonathan Ernst
Protesters hold replicas of food stamps during a rally in support of higher pay for low-wage earners outside the National Air and Space Museum in Washington, December 5, 2013.In food stamps we trust
Marotta's findings, which put the actual US unemployment rate at over 37 percent, seem more credible when viewed alongside other indicators, including the number of Americans who now rely on government assistance to make ends meet.
It has just been reported that a record 20 percent of American households were receiving food stamps in 2013, according to data from the US Department of Agriculture (USDA).
The USDA data shows there were 23,052,388 households on food stamps in an average month of fiscal 2013, a jump of 722,675 from fiscal year 2012, when there were 22,329,713 households on food stamps per month on average.
Last year, according to data from the Census Bureau, there were 115,013,000 households. With 23,052,388 households - or 20 percent of the total number of households - now dependent on food stamps.
In just half a decade, the number of American households on food stamps has significantly increased. In fiscal year 2009, for example, the number of households receiving the government assistance program was 15,232,115. Five years later, in 2013, that number had surged by 51.3 percent to hit 23,052,388 households.
Meanwhile, the monthly average for individuals on food stamps hit an all-time-high of 47,636,084, according to the USDA. This is an increase of 1,027,012 over the 46,609,072 people who were getting food stamps in 2012.
In 2009, the number of individuals relying on the government program stood at 33,489,975. In 2013, the number was 47,636,084, an increase of 42.2 percent.
It should come as no surprise that spending on the US government's food stamp program, officially known as the Supplemental Nutrition Assistance Program (SNAP), has reached an all-time high.
Last year, SNAP cost $79,641,880,000 - a 164 percent increase over the past decade.
During the last five years, the SNAP program exploded by 36.8 percent, from $58,223,790,000 in 2009 to $79,641,880,000 in 2013.
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Your media pundit and politicians, labor and justice leaders will say they never saw this coming.....but they did. I have shouted it for years and it is obvious to all. So, all of O'Malley/Brown's credit bond leveraging and TIFs were designed to suck all public wealth and leave governments controlled by corporations. That is what O'Malley's terms have been about and indeed, all governors across the country have been getting ready for this next collapse. Sadly for you and me neo-liberals control most state and city executive offices like O'Malley and Rawlings-Blake in Maryland. The City and State are so mortaged and taxes so high on the working and middle class now, that when the crash comes there will be nothing to tap. There will be great defaults.
Now, if you elect for Governor of Maryland someone who will work to make the corporations and rich pay down these debts.....we the people will be OK. If you elect a neo-liberal like Gansler, Brown, and Mizeur......everything will go the the rich.
Safety First: Strapping on Your Seat Belt Before the Coming Economic Crash
February 23rd, 2014 Investment Watch
It has been a while since the Global Economic Crisis has been the headline in the news. That doesn’t mean that it has ended. In fact, the world is moving further into a Global Economic Crisis daily, but people’s senses are dulled by the other new headlines such as Justin Beiber’s recent arrest and the Winter Olympics. Although it may seem irrelevant right now, global economic problems are brewing to levels that we have never seen before. These problems will begin to affect the U.S. soon.
Part of the problem is the federal reserves reckless money printing. This money was being used to fuel emerging markets and economies and to keep other economies afloat:
The Fed essentially is printing $85 Billion per month, out of thin air, using that digital money to buy bonds up, and trade them out with cash reserves or ultra-short term notes. Banks and hedge funds that owned the original bonds are then supposed to pump that money into the economy, creating a virtuous cycle.
Now, that they have slowed this process. Investors are taking this as a cue that the fun is over. They are beginning to pull their money from the markets:
Emerging market stocks, bonds and currencies—long coveted by investors attracted by the prospects of faster economic growth and access to young consumers—had a rocky start to 2013 as expectations of reduced U.S. monetary stimulus spurred capital outflows. Economic activity in many regions has slowed and faster inflation has eaten into savings.
This is causing massive financial instability in markets all over the globe.
In the past when nations were having trouble they could turn to financial powerhouses like
China for help. This will not be an option this time around with problems in Europe and Asia continuing to grow. XI Jinping of China has decided to stop letting the market run wild and has a plan for deflation. Deflation would be horrible for many economies because:
-Price deflation results in a real increase in the value of debt and a nominal decline in asset values. Debt can no longer be serviced.
-Price deflation would lead to massive tax revenue declines for the government due to a declining taxable base.
-Deflation would have fatal consequences for large parts of the banking system.
-Central banks also have the mandate to ensure ‘financial market stability‘
With unemployment statistics hitting all time highs in Greece and France and businesses failing at an alarming rate it is easy to see why the people there are in a state of unrest. In developing countries like Venezuela it has gotten so bad that armed military groups roam the streets. Topping this list of economic woes is Ghana who is on the cusp of economic collapse with a prominent economist from the country predicting that the country’s financial market will collapse by June if something is not done.
What messes everyone up is that these crises are not isolated incidents. When these crises strike one nation they affect everyone because all nations are connected. Although popular media would like you to believe that all nations are against each other, it is not that clear cut. All nations are connected through investments they’ve made in each other. So, when one fails all nations feel a little pain that they would like to avoid, so in most cases they band together to help whoever is struggling. This can easily be seen in the relationship between the US and China. The two nations compete in many subjects from sports, education systems, and even in their economies. However, when the US was having some major economic problems China was there to bail the US out. This came with some benefits for China, but it also made China even more invested in the well-being of the US since it has put more assets into the US’s economy. Investment Officer Alexander Friedman explains it perfectly:
The twenty-first-century economy has thus far been shaped by capital flows from China to the United States – a pattern that has suppressed global interest rates, helped to reflate the developed world’s leverage bubble, and, through its impact on the currency market, fueled China’s meteoric rise. But these were no ordinary capital flows. Rather than being driven by direct or portfolio investment, they came primarily from the People’s Bank of China (PBOC), as it amassed $3.US Treasury securities…But selling off US Treasury securities, it was argued, was not in China’s interest, given that it would drive up the renminbi’s exchange rate against the dollar, diminishing the domestic value of China’s reserves and undermining the export sector’s competitiveness
A wise man once said that, “those who don’t learn from the mistakes of the past are doomed to repeat them in the present. This statement rings very true. Especially, since all of these problems are being caused because the problems from the financial crisis of 2008 were never fixed. This is true everywhere considering the economist from Ghana was touching on the same principle when predicting why Ghana’s economy would crash:
The government is facing liquidity problems and if we don’t get the appropriate remedies to address the issues at hand the situation may worsen and by June the economy may crash…I said if they don’t address the fundamental problems facing the economy, by June the country’s economy will crash because the government has not even paid University Lecturers since last year among other pressing issues which needs to be address
The ultimate kicker is how closely the U.S. stock market is mirroring the market in 1929 (right before the Great Depression).
Remember Von Mises’s wise words:
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved
The first step in preparing for any crisis is awareness, so at least the readers of this article will know to hold on and to buckle their seat belts before this economic crash.
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Obama, neo-liberals in Congress, and the FED have spent these years since the economic collapse in 2008 making sure those richest had all the money they could to expand overseas. Global corporations getting bigger and global markets expanding into developing worlds. They need to build another middle-class to consume now that they fleeced Americans of all their wealth.
All those trillions of dollars in corporate tax breaks, job stimulus money, and all of the tens of trillions of dollars in corporate fraud never recovered have gone to these developing world markets. Over $600 trillion in derivatives leverage just as in 2007. All of this done knowing this massive collapse would come and all done so that those at the top would be shielded. This is why Yellen comforted everyone with the idea that the US global banks will not be harmed by this next crash.
So, WYPR exposed you and I to corporate NPR/APM and Basu telling us that nothing was wrong with policies, that the economy was growing, that jobs were being created AND NONE OF IT WAS TRUE AND THEY KNEW IT!
6 Signs That 2014 Will Be The Year Of The Super Crash
6 Signs That 2014 Will Be The Year Of The Super Crash Gold Silver Worlds | January 30, 2014
As we have finally arrived in the magic year 2014, in which almost every economic and business cycle is trending down, it seems that things are perfectly lining up for a melt down. If it would have been true that the debt crisis was contained (like our political leaders try to make us believe), then there is a huge divergence with recent trends.
Are we pessimistic? No. Are we optimistic? We do our best. Above all, we aim to be unbiased and neutral. In any case, this article is not an attempt to predict prices or to time any market. That is useless and serves only marketing purposes. This article looks at six different trends which are lining up for an historic sell off in the markets. As readers observe, we stay as factual as possible.
Trend 1:
Market distortions because of QE appearing in emerging markets Up until now, the vast majority of economic and financial pundits have been praising the Western central banks for their monetary miracles. The last two weeks, however, were extremely important as we got evidence of the direct destructive effects of monetary easing. In particular, the carnage in emerging markets and their respective currencies revealed that things can get out of hand and have the ability to spiral out of control (much faster than governments can intervene).
Bloomberg says this is the worst selloff in emerging-market currencies in five years, revealing the impact from the Federal Reserve’s tapering of monetary stimulus. “Investors are losing confidence in some of the biggest developing nations, extending the currency-market rout triggered last year when the Fed first signaled it would scale back stimulus. While Brazil, Russia, India, China and South Africa were the engines of global growth following the financial crisis in 2008, emerging markets now pose a threat to world financial stability.”
Once the destructive power of this monetary experiment starts manifesting itself, it is likely to see spill over effects to all markets. Monetary easing could still look like innocent and constructive, but the side effects are unknown at present, as this is the first monetary experiment at this scale. The most concerning fact is that nodoby has an idea about how exactly the markets will react on each slice of tapering, and the precise timing of all effects (including the unintended consequences).
Trend 2:
There are almost no buyers left in equities Equity markets have shown exceptional yields in 2013. In a world with no yields, investors are chasing assets which yield more than nothing.
It has been thought that quantitative easing would create bubbles, but as it looks now it is resulting in bubbles in specific asset classes, as Marc Faber correctly predicted a while ago. The problem is that sentiment in the stock market has become far too optimistic. It’s not surprising, nor are investors or traders to blame, in a zero-yield world. The first chart shows the extreme optimism based on a bull/bear ratio.
Another red flag is related to margin debt, see next chart. It shows the level of leverage in the equity market. We are well past the previous peaks.
However, there are reasons to believe that a crash is not imminent. Equities have surged but the margin debt to equities growth ratio is not as extreme as in the 2000 and 2007 peaks. This metric suggests there is some room for more upside.
We all know what happens when there is nobody left to buy. That point could be very close.
Trend 3:
Manipulation is entering the public debate Currency markets, LIBOR, base metals, energy, … almost every single market has been manipulated. That is no news, of course, but the fact that it has become widely accepted is an important trend. Consider these headlines in the last few weeks:
The key is that it has the potential to undermine trust. As readers know by now, trust is the pillar on which the current financial system is built. Once there was a tangible asset backing up the monetary and financial system; it was called gold. Not so anymore. A large scale loss in trust will have disastrous effects.
Trend 4:
Banks are once again reporting losses Several mega banks have been reporting losses in the last weeks. Is this a repeat of the 2008 scenario?
Consider Royal Bank of Scotland, who faces £8bn in full year losses. BBC writes: “RBS may face full-year losses of up to £8bn, after the bank said it needed another £3.1bn for claims relating to the financial crisis. RBS boss Ross McEwan said: “The scale of the bad decisions during that period [the financial crisis] means that some problems are still just emerging.”
Another giant, Deutsche Bank, posted EU1.2 billion losses in the fourth quarter. Via Bloomberg: “Deutsche Bank AG, Germany’s biggest bank, said this year will be challenging after a surge in legal costs and lower debt trading revenue spurred a surprise fourth-quarter loss. The shares slumped. Depressed interest rates in Europe and declining demand for banking services are also among the headwinds the bank is confronting in 2014, Co-Chief Executive Officer Anshu Jain said on a conference call with analysts from Frankfurt today.”
Wait a minute. The central banks of this world have injected close to $10 trillions in the banking system since March 2009, in order to prevent a melt down. They have reported happily that, by doing so, they not only saved the world but also generated economic growth. But at the time of victory, mega banks are reporting losses. Something does not add up here.
Trend 5:
The alarms of financial repression are deafening It is getting really ugly with financial repression.
Reuters reported this week that Germany’s Bundesbank publicly commented that countries about to go bankrupt should draw on the private wealth of their citizens through a one-off capital levy before asking other states for help. The Bundesbank’s tough stance comes after years of euro zone crisis that saw five government bailouts. There have also bond market interventions by the European Central Bank in, for example, Italy where households’ average net wealth is higher than in Germany.
“(A capital levy) corresponds to the principle of national responsibility, according to which tax payers are responsible for their government’s obligations before solidarity of other states is required,” the Bundesbank said in its monthly report. It warned that such a levy carried significant risks and its implementation would not be easy, adding it should only be considered in absolute exceptional cases, for example to avert a looming sovereign insolvency.”
The annoying part here is that the bail-ins debate is becoming mainstream. So it was no mistake from Dijselbloem a year ago when he said bail-ins will become the template for the future.
Moreover, some HSBC customers have been prevented from withdrawing large amounts of cash because they could not provide evidence of why they wanted it. The BBC writes: “Listeners have told Radio 4′s Money Box they were stopped from withdrawing amounts ranging from £5,000 to £10,000. HSBC admitted it has not informed customers of the change in policy, which was implemented in November. The bank says it has now changed its guidance to staff.”
Over to Russia, where, according to Zerohedge, the bank Lender has introduced complete ban on cash withdrawals until end of week, news agency reports, citing unidentified person in call center.
The subject is also going mainstream in the literature. A recent IMF working paper from Reinhart and Rogoff says: “The endgame to the global financial crisis is likely to require some combination of financial repression (an opaque tax on savers), outright restructuring of public and private debt, conversions, somewhat higher inflation, and a variety of capital controls under the umbrella of macroprudential regulation. Although austerity in varying degrees is necessary, in many cases it is not sufficient to cope with the sheer magnitude of public and private debt overhangs.”
The annoying part is that the financial repression story is intensifying. It is being accepted in the literature, among politicians and now we see an increasing number of initiatives being rolled out. Not good.
Trend 6:
Complexity theory points to a collapse Jim Rickards recently suggested that the world has become so interconnected that it has the looks of an extremely complex system. His research points out that complexity theory can be useful as an analogy to determine what comes next. Prior experiments in complexity theory suggest there is a point of no return: when things become too complex and interconnected, they can only come down.
Rickards sees a similar situation in the markets today. In fact, he saw something similar in 2006 and 2007. We all know what happened afterwards.
But what has the central bank noticed? Apparently nothing, as evidenced by their systemic risk model on the next chart. It is at an all-time high.
Should we be concerned when there is nothing to be concerned?
A valid question to ask is why Jim Rickars can detect things that the central bankers cannot. Rickards himself explains it in a very simple and short way: the Fed is using the wrong economic models. Their models could be fine theoretically, but they do not reflect reality.
Protect yourself Are six red flags enough to start protecting yourself? When things get out of hand, our world will become very selfish. The most likely outcome is that everything will come down initially, comparable to what happened in 2008. Chances are high that precious metals will recover fast.
The point in all this is that asset prices will be of secondary importance. Avoiding a total catastrophe could be far more important. There really is a reason why we advocate holding physical precious metals outside the banking system or open an offshore bank account with a debit card in gold or silver at a reserve bank.
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THIS IS WHY IT IS IMPORTANT TO HAVE ELECTED OFFICIALS IN TOP OFFICES THAT WILL LOOK OUT FOR THE PEOPLE AND NOT CORPORATIONS AND PROFITS. BERNIE SANDERS MAY BE THAT PERSON FOR PRESIDENT AND CINDY WALSH IS THAT PERSON HERE IN MARYLAND!
'He believes that the next financial crash will result in society realizing that “modern financial institutions cannot in general be trusted with either individuals’ money or the provision of financial services to viable economies”'
2014: Renewed Economic Growth or Financial Crash? DEVELOPMENT & SOCIETY : Business, Economics, Energy, Risk 2014•01•17 Brendan Barrett United Nations University
Your instincts may be telling you otherwise, but the global economy will be strengthening in 2014, according to two major reports released in recent weeks.
In an improvement over 2013’s global economic growth of 2.1 percent, we will see a 3 percent rise this year and a bump up to 3.3 percent in 2015, predicts the United Nations’ World Economic Situation and Prospects 2014 report.
This positive news is echoed in the slightly more optimistic Global Economic Prospects report issued by the World Bank this week that states:
“Global GDP is projected to grow from 2.4 percent in 2013 to 3.2 percent this year, stabilizing at 3.4 percent and 3.5 percent in 2015 and 2016, respectively, with much of the initial acceleration reflecting a pick-up in high-income economies.”
At the same time, the World Bank projects that developing country growth will rise above 5 percent in 2014, with China’s economy growing by 7.7 percent, India’s by 6.2 percent, Mexico’s 3.4 and Brazil’s 2.4 percent.
Global economy: the patient shows signs of recovery The UN report reads very much like the medical examination results for a sick patient who has had to take some pretty strong medicine, but while still looking rather pale and tired, is showing some signs of recovery.
Inflation (like high blood pressure) remains benign worldwide, the report states. It has decelerated in the United States and euro-zone, dropping to 2 percent in the former, and 1 percent in the latter. This is causing concerns from the International Monetary Fund that we could be entering a period of deflation (overly low blood pressure) and that could undermine the global recovery.
In the developing world, inflation rates are above “10 percent in only about a dozen countries scattered throughout different regions”, according to the UN report, and that is arguably a good thing.
High unemployment is part of the explanation for the lower inflation figures and unemployment rates remain a serious challenge, particularly for the euro zone where they reached record levels at 12.2 percent in 2013, but as high as 27 percent in Greece and Spain. Renewed GDP growth in 2014 is projected to bring reductions in these rates in both Europe and the US, with the latter dropping below 7 percent. Again, a very good development, if it happens.
There are, however, major concerns for developing and emerging economies highlighted in the UN report. First, there has been a measurable decline in private capital inflows to “emerging markets, a sub-group of developing countries”. Second, volatility in these markets has increased with equity market sell-offs and local currency depreciation.
Risk and uncertainties: It could all go very badly wrong While delivering these positive forecasts, the UN and the World Bank devote half of their respective press releases to the risks and uncertainties facing the global economy.
The Chief Economist at the World Bank, Kaushik Basu, suggests that “one does not have to be especially astute to see that there are dangers that lurk beneath the surface”. Over at the UN, Shamshad Akhtar, Assistant Secretary-General for Economic Development, claims that “uncertainties and risk coming from possible policy missteps as well as non-economic factors … could stymie economic growth”. By non-economic factors she is referring to the situation in Syria and the Middle East.
By far the biggest concern is the potential impact of the US Federal Reserve’s exit from the quantitative easing programmes. The aim of these programmes is to “inject money into the economy in order to review nominal spending”. This involves “purchasing financial assets from the private sector” using “new central bank money, in addition to boosting the amount of central bank money held by banks…”.
The problem is one of weaning the economy off these programmes with one danger being that the medicine itself could become a form of poison for the global economy. Rather than using the term weaning, the Federal Reserve talks about “tapering”, with the goal being to reduce the monthly amount of quantitative easing in the US, to gradually wind it down and to conclude their programme at the end of 2014.
The authors of the UN report are concerned, however, that tapering could lead to “a sell-off in global equity markets, a sharp decline in capital inflows to emerging economies and a spike in the risk premium for external financing in emerging economies”.
Andrew Burns at the World Bank argues that this decline in capital inflows to developing countries could fall by as much as 50 percent for several months “provoking a crisis in some of the more vulnerable economies”, specifically Brazil, Turkey, India and Indonesia.
Meanwhile, the UN report points to other risks including “fragility in the banking system and the real economy in the euro area and the continued political wrangling in the US on the debt ceiling and the budget”.
Neither the World Bank nor the UN consider that a crisis is inevitable but they do call for strengthened international policy coordination, renewed reform of the financial system and in some instances the tightening of fiscal policies.
Déjà vu – Feels like 2007/8 all over again Reading these reports, I am reminded of the situation back in 2007/8 when we first began work on the Our World magazine. At that time, I became aware of signals among noise about the state of the global economy when the era of cheap energy is over and decided that the magazine should focus on some of the major issues facing the world. One of those issues was the peaking of global conventional oil production.
So in 2007 we began working on the magazine and successfully launched at the beginning of July 2008, just before oil prices peaked at around US$147 per barrel. At the same time, the financial system was just beginning to unravel and a serious collapse looked imminent. Fortunately for us, the global leaders managed to rally around the problem and prevent the world from slipping into depression.
Now, I have that 2007/8 feeling all over again and you probably share it. Particularly, I am struck by a number of signals from financial commentators like Peter Schiff, author of The Real Crash, and Robert Wiedemer, author of Aftershock, who are warning that a second financial crash is just around the corner for the US.
They made similar predictions before the 2008 financial crash and you could argue that they are in the “economic collapse prediction business”, since they also offer their services as investment advisors. Their basic message is that you should try to save yourself and your money in difficult economic times, and if you buy their books you will know what to invest in and what to avoid.
It would be all too easy to dismiss these pundits were it not for the fact that the UN and World Bank reports mentioned above appear so cautious about their growth projections and about the fragile nature of the economic recovery. It is almost as if they are covering their options so that they can say, if things go wrong, “we did try to warn you about the risks we are currently facing”.
The question is whether our leaders are aware of these risks or blind to them.
Risk Blindness and the Road to Renaissance Coincidentally, I have just finished reading the most recent book from Jeremy Leggett – The Energy of Nations: Risk Blindness and the Road to Renaissance. Leggett describes himself as a “social entrepreneur” and is the founder of a renewable energy company, SolarCentury. He maintains a blog called the Triple Crunch Log that covers the interaction between energy, climate and the financial crisis.
Using the log, which tracks events as far back as 2006, Leggett’s book presents a blow-by-blow chronological account of how these three factors have played out in the past seven years.
In the United Kingdom he appears to be viewed by politicians, government officials and the major energy companies as the acceptable face of the environment, climate and/or peak oil community. As he puts it, he is a pinstripe suited, Financial Times carrying, climate change and peak oil concerned capitalist.
In his book, he describes numerous meetings where he interacts with the British government and Big Energy, often behind closed doors. In some instances, his accounts of those interactions read like episodes from Armando Iannucci’s dark political comedy, The Thick of It shown on the BBC.
Here is one example. A group of concerned business leaders representing the UK Industry Taskforce on Peak Oil and Energy Security (that Leggett helped set up) meet with the Secretary of State for Energy and Climate Change. Together they agree on a proposal for the government to work with the Taskforce to develop an oil shock emergency response plan. Subsequently, the business leaders issue a press release to announce the collaboration, only to find limited media coverage. They then discover that the civil servants in the Ministry had been informing the press that no such agreement was ever made. It would be a hilarious episode of The Thick of It, were it not actually true (check it out in the book).
What Leggett describes in his dealings with our leaders in government and the energy sector is a tendency towards “risk blindness” around climate, energy and the financial concerns. He suggests that this tendency will push us towards a financial collapse in the next few years. On the energy front, he sticks to his earlier prediction of an energy crash by 2015.
Leggett points out that many financial commentators believe a second financial crash is imminent. “The weight of debt that we have allowed to accumulate around the world will prove just too heavy for the financial system,” he writes in his book. “As things stand, a seemingly small event holds the potential to trigger the mass failure of banks.”
One such event could be the private equity decline mentioned in the above reports. We have to acknowledge the important role the UN and the World Bank are playing in outlining the risks so clearly and can only hope that the leaders of the world are not blind to them. Leggett, however, suggests that the problems are more profound than even the UN and World Bank officials are willing to admit.
He believes that the next financial crash will result in society realizing that “modern financial institutions cannot in general be trusted with either individuals’ money or the provision of financial services to viable economies”. He further argues that “light touch regulation” of the financial system no longer works. To get us through the next crisis, we are going to need, he explains, a critical mass of “presidents and prime ministers keen to sit constructively in a multilateral emergency room”.
But Leggett is an optimist. With crisis comes opportunity and Leggett would like to see that the road forward takes us to a renaissance based on people power, community interests and the explosive growth of clean energy. In this context, The Energy of Nations is essential reading for those concerned with the interaction of the pressing global issues of today.
If the caution expressed in the UN and World Bank reports is correct then we find ourselves in a time of great risks and uncertainty. If the financial pundits are right then an economic catastrophe lies just ahead. If risk aware business leaders like Jeremy Leggett are making reliable observations then we have “arrived irredeemably in a time of consequences”.
SHAKE THE BUGS FROM THE RUG AND GET RID OF CORPORATE NEO-LIBERALS!
Gansler, Brown, and Mizeur are all ready to protect wealth and profit. DO YOU HEAR THEM SHOUTING EVER???
People always doubt when I give them the 35-45% unemployment number, but think to yourself, if over 175,000 new jobs must be created every month just to stay even.....the US has had very few of these weeks in years....each month unemployment numbers grow even as people fall off unemployment payments. This is huge. The FED gives the US Federal agencies these rates of 6.7%.
Remember, a third world country must impoverish 90% of people in order to control the population. You see massive poverty with politicians promising hand-outs of basic human needs to get elected. SOUND FAMILIAR?
CONGRESS AND OBAMA IS BLEEDING THE PUBLIC DRY OF WEALTH WHILE PRETENDING TO ADVANCE SURVIVAL POLICY. RULE OF LAW WOULD PAY THE NATIONAL DEBT WITH RECOVERY OF CORPORATE FRAUD MAKING FLUSH ALL PUBLIC TRUSTS AND GOVERNMENT COFFERS!
I spoke last time of Yellen and the FED policy meant to super-size wealth and keep unemployment high with the intent to bankrupt the public sector entirely with leveraged government debt and continuous fleecing of billions from government coffers. All of this advances the neo-liberal goal of third world conditions here in America. I use the leveraging of Baltimore City schools as an example, but all public projects in Maryland are leveraged and tied to Wall Street financial deals that will have the public sector fleeced just as people were of their homes and students were of their education/careers.
STILL, ALL YOU CAN HEAR ON MARYLAND MEDIA ARE 3 NEO-LIBERALS ALL SHOUTING TO LEVERAGE MORE, GIVE MORE TAX CREDITS, AND MARYLAND'S ECONOMY IS DOING FINE!
'The ultimate kicker is how closely the U.S. stock market is mirroring the market in 1929 (right before the Great Depression)'.
Actual U.S. unemployment is 37.2%, not "6.7%", record number of households on food stamps in 2013
RT
Wed, 22 Jan 2014 12:04 CST © Andrew Burton/Getty Images/AFP
A girl pays for her mother's groceries using Electronic Benefits Transfer (EBT) tokens, more commonly known as Food Stamps, at the GrowNYC Greenmarket in Union Square on September 18, 2013 in New York City. As the White House proclaims a recovery is occurring, and the stock market has a head of steam, millions of Americans and their dependents are being left out of the recovery, according to a set of economic indicators.
Perhaps the most worrying yet least reported aspect of the so-called US recovery involves the national labor picture. Although the official US unemployment rate is 6.7 percent, this figure obscures the reality, according to an influential Wall Street adviser.
In a leaked memo to clients, David John Marotta calculates the actual unemployment rate of Americans out of work at an astronomic 37.2 percent, as opposed to the 6.7 percent claimed by the Federal Reserve.
"The unemployment rate only describes people who are currently working or looking for work," he said.
"Unemployment in its truest definition, meaning the portion of people who do not have any job, is 37.2 percent. This number obviously includes some people who are not or never plan to seek employment. But it does describe how many people are not able to, do not want to or cannot find a way to work," he and colleague Megan Russell reveal in their client report, which was leaked to the Washington Examiner.
Contrary to expectations, a drop in the unemployment rate, Marotta argues, is presently a sign that the unemployed are simply dropping out of the job market.
The "officially-reported unemployment numbers decrease when enough time passes to discourage the unemployed from looking for work," said Marotta andRussel. "A decrease is not necessarily beneficial; an increase is clearly detrimental."
The authors then take aim at the so-called Misery Index, which provides something of a pulse rate of American prosperity, based on unemployment and inflation. The Wall Street adviser said the Index, which he maintains is actually over 14, as opposed to the 8 advertised by Washington, fails to address how the US economy is being hugely subsidized by various schemes, including monthly bond purchases by the Federal Reserve.
"Today, the Misery Index would be 7.54 using official numbers," the two analysts wrote. However, taking into consideration the full unemployment picture, including workers who have given up the job search, which is 10.2 percent, together with the historical method of calculating inflation, which is now 4.5 percent, 'the current misery index is closer to 14.7."
© Reuters/Jonathan Ernst
Protesters hold replicas of food stamps during a rally in support of higher pay for low-wage earners outside the National Air and Space Museum in Washington, December 5, 2013.In food stamps we trust
Marotta's findings, which put the actual US unemployment rate at over 37 percent, seem more credible when viewed alongside other indicators, including the number of Americans who now rely on government assistance to make ends meet.
It has just been reported that a record 20 percent of American households were receiving food stamps in 2013, according to data from the US Department of Agriculture (USDA).
The USDA data shows there were 23,052,388 households on food stamps in an average month of fiscal 2013, a jump of 722,675 from fiscal year 2012, when there were 22,329,713 households on food stamps per month on average.
Last year, according to data from the Census Bureau, there were 115,013,000 households. With 23,052,388 households - or 20 percent of the total number of households - now dependent on food stamps.
In just half a decade, the number of American households on food stamps has significantly increased. In fiscal year 2009, for example, the number of households receiving the government assistance program was 15,232,115. Five years later, in 2013, that number had surged by 51.3 percent to hit 23,052,388 households.
Meanwhile, the monthly average for individuals on food stamps hit an all-time-high of 47,636,084, according to the USDA. This is an increase of 1,027,012 over the 46,609,072 people who were getting food stamps in 2012.
In 2009, the number of individuals relying on the government program stood at 33,489,975. In 2013, the number was 47,636,084, an increase of 42.2 percent.
It should come as no surprise that spending on the US government's food stamp program, officially known as the Supplemental Nutrition Assistance Program (SNAP), has reached an all-time high.
Last year, SNAP cost $79,641,880,000 - a 164 percent increase over the past decade.
During the last five years, the SNAP program exploded by 36.8 percent, from $58,223,790,000 in 2009 to $79,641,880,000 in 2013.
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Your media pundit and politicians, labor and justice leaders will say they never saw this coming.....but they did. I have shouted it for years and it is obvious to all. So, all of O'Malley/Brown's credit bond leveraging and TIFs were designed to suck all public wealth and leave governments controlled by corporations. That is what O'Malley's terms have been about and indeed, all governors across the country have been getting ready for this next collapse. Sadly for you and me neo-liberals control most state and city executive offices like O'Malley and Rawlings-Blake in Maryland. The City and State are so mortaged and taxes so high on the working and middle class now, that when the crash comes there will be nothing to tap. There will be great defaults.
Now, if you elect for Governor of Maryland someone who will work to make the corporations and rich pay down these debts.....we the people will be OK. If you elect a neo-liberal like Gansler, Brown, and Mizeur......everything will go the the rich.
Safety First: Strapping on Your Seat Belt Before the Coming Economic Crash
February 23rd, 2014 Investment Watch
It has been a while since the Global Economic Crisis has been the headline in the news. That doesn’t mean that it has ended. In fact, the world is moving further into a Global Economic Crisis daily, but people’s senses are dulled by the other new headlines such as Justin Beiber’s recent arrest and the Winter Olympics. Although it may seem irrelevant right now, global economic problems are brewing to levels that we have never seen before. These problems will begin to affect the U.S. soon.
Part of the problem is the federal reserves reckless money printing. This money was being used to fuel emerging markets and economies and to keep other economies afloat:
The Fed essentially is printing $85 Billion per month, out of thin air, using that digital money to buy bonds up, and trade them out with cash reserves or ultra-short term notes. Banks and hedge funds that owned the original bonds are then supposed to pump that money into the economy, creating a virtuous cycle.
Now, that they have slowed this process. Investors are taking this as a cue that the fun is over. They are beginning to pull their money from the markets:
Emerging market stocks, bonds and currencies—long coveted by investors attracted by the prospects of faster economic growth and access to young consumers—had a rocky start to 2013 as expectations of reduced U.S. monetary stimulus spurred capital outflows. Economic activity in many regions has slowed and faster inflation has eaten into savings.
This is causing massive financial instability in markets all over the globe.
In the past when nations were having trouble they could turn to financial powerhouses like
China for help. This will not be an option this time around with problems in Europe and Asia continuing to grow. XI Jinping of China has decided to stop letting the market run wild and has a plan for deflation. Deflation would be horrible for many economies because:
-Price deflation results in a real increase in the value of debt and a nominal decline in asset values. Debt can no longer be serviced.
-Price deflation would lead to massive tax revenue declines for the government due to a declining taxable base.
-Deflation would have fatal consequences for large parts of the banking system.
-Central banks also have the mandate to ensure ‘financial market stability‘
With unemployment statistics hitting all time highs in Greece and France and businesses failing at an alarming rate it is easy to see why the people there are in a state of unrest. In developing countries like Venezuela it has gotten so bad that armed military groups roam the streets. Topping this list of economic woes is Ghana who is on the cusp of economic collapse with a prominent economist from the country predicting that the country’s financial market will collapse by June if something is not done.
What messes everyone up is that these crises are not isolated incidents. When these crises strike one nation they affect everyone because all nations are connected. Although popular media would like you to believe that all nations are against each other, it is not that clear cut. All nations are connected through investments they’ve made in each other. So, when one fails all nations feel a little pain that they would like to avoid, so in most cases they band together to help whoever is struggling. This can easily be seen in the relationship between the US and China. The two nations compete in many subjects from sports, education systems, and even in their economies. However, when the US was having some major economic problems China was there to bail the US out. This came with some benefits for China, but it also made China even more invested in the well-being of the US since it has put more assets into the US’s economy. Investment Officer Alexander Friedman explains it perfectly:
The twenty-first-century economy has thus far been shaped by capital flows from China to the United States – a pattern that has suppressed global interest rates, helped to reflate the developed world’s leverage bubble, and, through its impact on the currency market, fueled China’s meteoric rise. But these were no ordinary capital flows. Rather than being driven by direct or portfolio investment, they came primarily from the People’s Bank of China (PBOC), as it amassed $3.US Treasury securities…But selling off US Treasury securities, it was argued, was not in China’s interest, given that it would drive up the renminbi’s exchange rate against the dollar, diminishing the domestic value of China’s reserves and undermining the export sector’s competitiveness
A wise man once said that, “those who don’t learn from the mistakes of the past are doomed to repeat them in the present. This statement rings very true. Especially, since all of these problems are being caused because the problems from the financial crisis of 2008 were never fixed. This is true everywhere considering the economist from Ghana was touching on the same principle when predicting why Ghana’s economy would crash:
The government is facing liquidity problems and if we don’t get the appropriate remedies to address the issues at hand the situation may worsen and by June the economy may crash…I said if they don’t address the fundamental problems facing the economy, by June the country’s economy will crash because the government has not even paid University Lecturers since last year among other pressing issues which needs to be address
The ultimate kicker is how closely the U.S. stock market is mirroring the market in 1929 (right before the Great Depression).
Remember Von Mises’s wise words:
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved
The first step in preparing for any crisis is awareness, so at least the readers of this article will know to hold on and to buckle their seat belts before this economic crash.
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Obama, neo-liberals in Congress, and the FED have spent these years since the economic collapse in 2008 making sure those richest had all the money they could to expand overseas. Global corporations getting bigger and global markets expanding into developing worlds. They need to build another middle-class to consume now that they fleeced Americans of all their wealth.
All those trillions of dollars in corporate tax breaks, job stimulus money, and all of the tens of trillions of dollars in corporate fraud never recovered have gone to these developing world markets. Over $600 trillion in derivatives leverage just as in 2007. All of this done knowing this massive collapse would come and all done so that those at the top would be shielded. This is why Yellen comforted everyone with the idea that the US global banks will not be harmed by this next crash.
So, WYPR exposed you and I to corporate NPR/APM and Basu telling us that nothing was wrong with policies, that the economy was growing, that jobs were being created AND NONE OF IT WAS TRUE AND THEY KNEW IT!
6 Signs That 2014 Will Be The Year Of The Super Crash
6 Signs That 2014 Will Be The Year Of The Super Crash Gold Silver Worlds | January 30, 2014
As we have finally arrived in the magic year 2014, in which almost every economic and business cycle is trending down, it seems that things are perfectly lining up for a melt down. If it would have been true that the debt crisis was contained (like our political leaders try to make us believe), then there is a huge divergence with recent trends.
Are we pessimistic? No. Are we optimistic? We do our best. Above all, we aim to be unbiased and neutral. In any case, this article is not an attempt to predict prices or to time any market. That is useless and serves only marketing purposes. This article looks at six different trends which are lining up for an historic sell off in the markets. As readers observe, we stay as factual as possible.
Trend 1:
Market distortions because of QE appearing in emerging markets Up until now, the vast majority of economic and financial pundits have been praising the Western central banks for their monetary miracles. The last two weeks, however, were extremely important as we got evidence of the direct destructive effects of monetary easing. In particular, the carnage in emerging markets and their respective currencies revealed that things can get out of hand and have the ability to spiral out of control (much faster than governments can intervene).
Bloomberg says this is the worst selloff in emerging-market currencies in five years, revealing the impact from the Federal Reserve’s tapering of monetary stimulus. “Investors are losing confidence in some of the biggest developing nations, extending the currency-market rout triggered last year when the Fed first signaled it would scale back stimulus. While Brazil, Russia, India, China and South Africa were the engines of global growth following the financial crisis in 2008, emerging markets now pose a threat to world financial stability.”
Once the destructive power of this monetary experiment starts manifesting itself, it is likely to see spill over effects to all markets. Monetary easing could still look like innocent and constructive, but the side effects are unknown at present, as this is the first monetary experiment at this scale. The most concerning fact is that nodoby has an idea about how exactly the markets will react on each slice of tapering, and the precise timing of all effects (including the unintended consequences).
Trend 2:
There are almost no buyers left in equities Equity markets have shown exceptional yields in 2013. In a world with no yields, investors are chasing assets which yield more than nothing.
It has been thought that quantitative easing would create bubbles, but as it looks now it is resulting in bubbles in specific asset classes, as Marc Faber correctly predicted a while ago. The problem is that sentiment in the stock market has become far too optimistic. It’s not surprising, nor are investors or traders to blame, in a zero-yield world. The first chart shows the extreme optimism based on a bull/bear ratio.
Another red flag is related to margin debt, see next chart. It shows the level of leverage in the equity market. We are well past the previous peaks.
However, there are reasons to believe that a crash is not imminent. Equities have surged but the margin debt to equities growth ratio is not as extreme as in the 2000 and 2007 peaks. This metric suggests there is some room for more upside.
We all know what happens when there is nobody left to buy. That point could be very close.
Trend 3:
Manipulation is entering the public debate Currency markets, LIBOR, base metals, energy, … almost every single market has been manipulated. That is no news, of course, but the fact that it has become widely accepted is an important trend. Consider these headlines in the last few weeks:
- Federal Reserve Said to Probe Banks Over Forex Fixing (Bloomberg)
- Deutsche, Citi feel the heat of widening FX investigation (Reuters)
- HSBC, Citi suspend traders as FX probe deepens (Reuters)
The key is that it has the potential to undermine trust. As readers know by now, trust is the pillar on which the current financial system is built. Once there was a tangible asset backing up the monetary and financial system; it was called gold. Not so anymore. A large scale loss in trust will have disastrous effects.
Trend 4:
Banks are once again reporting losses Several mega banks have been reporting losses in the last weeks. Is this a repeat of the 2008 scenario?
Consider Royal Bank of Scotland, who faces £8bn in full year losses. BBC writes: “RBS may face full-year losses of up to £8bn, after the bank said it needed another £3.1bn for claims relating to the financial crisis. RBS boss Ross McEwan said: “The scale of the bad decisions during that period [the financial crisis] means that some problems are still just emerging.”
Another giant, Deutsche Bank, posted EU1.2 billion losses in the fourth quarter. Via Bloomberg: “Deutsche Bank AG, Germany’s biggest bank, said this year will be challenging after a surge in legal costs and lower debt trading revenue spurred a surprise fourth-quarter loss. The shares slumped. Depressed interest rates in Europe and declining demand for banking services are also among the headwinds the bank is confronting in 2014, Co-Chief Executive Officer Anshu Jain said on a conference call with analysts from Frankfurt today.”
Wait a minute. The central banks of this world have injected close to $10 trillions in the banking system since March 2009, in order to prevent a melt down. They have reported happily that, by doing so, they not only saved the world but also generated economic growth. But at the time of victory, mega banks are reporting losses. Something does not add up here.
Trend 5:
The alarms of financial repression are deafening It is getting really ugly with financial repression.
Reuters reported this week that Germany’s Bundesbank publicly commented that countries about to go bankrupt should draw on the private wealth of their citizens through a one-off capital levy before asking other states for help. The Bundesbank’s tough stance comes after years of euro zone crisis that saw five government bailouts. There have also bond market interventions by the European Central Bank in, for example, Italy where households’ average net wealth is higher than in Germany.
“(A capital levy) corresponds to the principle of national responsibility, according to which tax payers are responsible for their government’s obligations before solidarity of other states is required,” the Bundesbank said in its monthly report. It warned that such a levy carried significant risks and its implementation would not be easy, adding it should only be considered in absolute exceptional cases, for example to avert a looming sovereign insolvency.”
The annoying part here is that the bail-ins debate is becoming mainstream. So it was no mistake from Dijselbloem a year ago when he said bail-ins will become the template for the future.
Moreover, some HSBC customers have been prevented from withdrawing large amounts of cash because they could not provide evidence of why they wanted it. The BBC writes: “Listeners have told Radio 4′s Money Box they were stopped from withdrawing amounts ranging from £5,000 to £10,000. HSBC admitted it has not informed customers of the change in policy, which was implemented in November. The bank says it has now changed its guidance to staff.”
Over to Russia, where, according to Zerohedge, the bank Lender has introduced complete ban on cash withdrawals until end of week, news agency reports, citing unidentified person in call center.
The subject is also going mainstream in the literature. A recent IMF working paper from Reinhart and Rogoff says: “The endgame to the global financial crisis is likely to require some combination of financial repression (an opaque tax on savers), outright restructuring of public and private debt, conversions, somewhat higher inflation, and a variety of capital controls under the umbrella of macroprudential regulation. Although austerity in varying degrees is necessary, in many cases it is not sufficient to cope with the sheer magnitude of public and private debt overhangs.”
The annoying part is that the financial repression story is intensifying. It is being accepted in the literature, among politicians and now we see an increasing number of initiatives being rolled out. Not good.
Trend 6:
Complexity theory points to a collapse Jim Rickards recently suggested that the world has become so interconnected that it has the looks of an extremely complex system. His research points out that complexity theory can be useful as an analogy to determine what comes next. Prior experiments in complexity theory suggest there is a point of no return: when things become too complex and interconnected, they can only come down.
Rickards sees a similar situation in the markets today. In fact, he saw something similar in 2006 and 2007. We all know what happened afterwards.
But what has the central bank noticed? Apparently nothing, as evidenced by their systemic risk model on the next chart. It is at an all-time high.
Should we be concerned when there is nothing to be concerned?
A valid question to ask is why Jim Rickars can detect things that the central bankers cannot. Rickards himself explains it in a very simple and short way: the Fed is using the wrong economic models. Their models could be fine theoretically, but they do not reflect reality.
Protect yourself Are six red flags enough to start protecting yourself? When things get out of hand, our world will become very selfish. The most likely outcome is that everything will come down initially, comparable to what happened in 2008. Chances are high that precious metals will recover fast.
The point in all this is that asset prices will be of secondary importance. Avoiding a total catastrophe could be far more important. There really is a reason why we advocate holding physical precious metals outside the banking system or open an offshore bank account with a debit card in gold or silver at a reserve bank.
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THIS IS WHY IT IS IMPORTANT TO HAVE ELECTED OFFICIALS IN TOP OFFICES THAT WILL LOOK OUT FOR THE PEOPLE AND NOT CORPORATIONS AND PROFITS. BERNIE SANDERS MAY BE THAT PERSON FOR PRESIDENT AND CINDY WALSH IS THAT PERSON HERE IN MARYLAND!
'He believes that the next financial crash will result in society realizing that “modern financial institutions cannot in general be trusted with either individuals’ money or the provision of financial services to viable economies”'
2014: Renewed Economic Growth or Financial Crash? DEVELOPMENT & SOCIETY : Business, Economics, Energy, Risk 2014•01•17 Brendan Barrett United Nations University
Your instincts may be telling you otherwise, but the global economy will be strengthening in 2014, according to two major reports released in recent weeks.
In an improvement over 2013’s global economic growth of 2.1 percent, we will see a 3 percent rise this year and a bump up to 3.3 percent in 2015, predicts the United Nations’ World Economic Situation and Prospects 2014 report.
This positive news is echoed in the slightly more optimistic Global Economic Prospects report issued by the World Bank this week that states:
“Global GDP is projected to grow from 2.4 percent in 2013 to 3.2 percent this year, stabilizing at 3.4 percent and 3.5 percent in 2015 and 2016, respectively, with much of the initial acceleration reflecting a pick-up in high-income economies.”
At the same time, the World Bank projects that developing country growth will rise above 5 percent in 2014, with China’s economy growing by 7.7 percent, India’s by 6.2 percent, Mexico’s 3.4 and Brazil’s 2.4 percent.
Global economy: the patient shows signs of recovery The UN report reads very much like the medical examination results for a sick patient who has had to take some pretty strong medicine, but while still looking rather pale and tired, is showing some signs of recovery.
Inflation (like high blood pressure) remains benign worldwide, the report states. It has decelerated in the United States and euro-zone, dropping to 2 percent in the former, and 1 percent in the latter. This is causing concerns from the International Monetary Fund that we could be entering a period of deflation (overly low blood pressure) and that could undermine the global recovery.
In the developing world, inflation rates are above “10 percent in only about a dozen countries scattered throughout different regions”, according to the UN report, and that is arguably a good thing.
High unemployment is part of the explanation for the lower inflation figures and unemployment rates remain a serious challenge, particularly for the euro zone where they reached record levels at 12.2 percent in 2013, but as high as 27 percent in Greece and Spain. Renewed GDP growth in 2014 is projected to bring reductions in these rates in both Europe and the US, with the latter dropping below 7 percent. Again, a very good development, if it happens.
There are, however, major concerns for developing and emerging economies highlighted in the UN report. First, there has been a measurable decline in private capital inflows to “emerging markets, a sub-group of developing countries”. Second, volatility in these markets has increased with equity market sell-offs and local currency depreciation.
Risk and uncertainties: It could all go very badly wrong While delivering these positive forecasts, the UN and the World Bank devote half of their respective press releases to the risks and uncertainties facing the global economy.
The Chief Economist at the World Bank, Kaushik Basu, suggests that “one does not have to be especially astute to see that there are dangers that lurk beneath the surface”. Over at the UN, Shamshad Akhtar, Assistant Secretary-General for Economic Development, claims that “uncertainties and risk coming from possible policy missteps as well as non-economic factors … could stymie economic growth”. By non-economic factors she is referring to the situation in Syria and the Middle East.
By far the biggest concern is the potential impact of the US Federal Reserve’s exit from the quantitative easing programmes. The aim of these programmes is to “inject money into the economy in order to review nominal spending”. This involves “purchasing financial assets from the private sector” using “new central bank money, in addition to boosting the amount of central bank money held by banks…”.
The problem is one of weaning the economy off these programmes with one danger being that the medicine itself could become a form of poison for the global economy. Rather than using the term weaning, the Federal Reserve talks about “tapering”, with the goal being to reduce the monthly amount of quantitative easing in the US, to gradually wind it down and to conclude their programme at the end of 2014.
The authors of the UN report are concerned, however, that tapering could lead to “a sell-off in global equity markets, a sharp decline in capital inflows to emerging economies and a spike in the risk premium for external financing in emerging economies”.
Andrew Burns at the World Bank argues that this decline in capital inflows to developing countries could fall by as much as 50 percent for several months “provoking a crisis in some of the more vulnerable economies”, specifically Brazil, Turkey, India and Indonesia.
Meanwhile, the UN report points to other risks including “fragility in the banking system and the real economy in the euro area and the continued political wrangling in the US on the debt ceiling and the budget”.
Neither the World Bank nor the UN consider that a crisis is inevitable but they do call for strengthened international policy coordination, renewed reform of the financial system and in some instances the tightening of fiscal policies.
Déjà vu – Feels like 2007/8 all over again Reading these reports, I am reminded of the situation back in 2007/8 when we first began work on the Our World magazine. At that time, I became aware of signals among noise about the state of the global economy when the era of cheap energy is over and decided that the magazine should focus on some of the major issues facing the world. One of those issues was the peaking of global conventional oil production.
So in 2007 we began working on the magazine and successfully launched at the beginning of July 2008, just before oil prices peaked at around US$147 per barrel. At the same time, the financial system was just beginning to unravel and a serious collapse looked imminent. Fortunately for us, the global leaders managed to rally around the problem and prevent the world from slipping into depression.
Now, I have that 2007/8 feeling all over again and you probably share it. Particularly, I am struck by a number of signals from financial commentators like Peter Schiff, author of The Real Crash, and Robert Wiedemer, author of Aftershock, who are warning that a second financial crash is just around the corner for the US.
They made similar predictions before the 2008 financial crash and you could argue that they are in the “economic collapse prediction business”, since they also offer their services as investment advisors. Their basic message is that you should try to save yourself and your money in difficult economic times, and if you buy their books you will know what to invest in and what to avoid.
It would be all too easy to dismiss these pundits were it not for the fact that the UN and World Bank reports mentioned above appear so cautious about their growth projections and about the fragile nature of the economic recovery. It is almost as if they are covering their options so that they can say, if things go wrong, “we did try to warn you about the risks we are currently facing”.
The question is whether our leaders are aware of these risks or blind to them.
Risk Blindness and the Road to Renaissance Coincidentally, I have just finished reading the most recent book from Jeremy Leggett – The Energy of Nations: Risk Blindness and the Road to Renaissance. Leggett describes himself as a “social entrepreneur” and is the founder of a renewable energy company, SolarCentury. He maintains a blog called the Triple Crunch Log that covers the interaction between energy, climate and the financial crisis.
Using the log, which tracks events as far back as 2006, Leggett’s book presents a blow-by-blow chronological account of how these three factors have played out in the past seven years.
In the United Kingdom he appears to be viewed by politicians, government officials and the major energy companies as the acceptable face of the environment, climate and/or peak oil community. As he puts it, he is a pinstripe suited, Financial Times carrying, climate change and peak oil concerned capitalist.
In his book, he describes numerous meetings where he interacts with the British government and Big Energy, often behind closed doors. In some instances, his accounts of those interactions read like episodes from Armando Iannucci’s dark political comedy, The Thick of It shown on the BBC.
Here is one example. A group of concerned business leaders representing the UK Industry Taskforce on Peak Oil and Energy Security (that Leggett helped set up) meet with the Secretary of State for Energy and Climate Change. Together they agree on a proposal for the government to work with the Taskforce to develop an oil shock emergency response plan. Subsequently, the business leaders issue a press release to announce the collaboration, only to find limited media coverage. They then discover that the civil servants in the Ministry had been informing the press that no such agreement was ever made. It would be a hilarious episode of The Thick of It, were it not actually true (check it out in the book).
What Leggett describes in his dealings with our leaders in government and the energy sector is a tendency towards “risk blindness” around climate, energy and the financial concerns. He suggests that this tendency will push us towards a financial collapse in the next few years. On the energy front, he sticks to his earlier prediction of an energy crash by 2015.
Leggett points out that many financial commentators believe a second financial crash is imminent. “The weight of debt that we have allowed to accumulate around the world will prove just too heavy for the financial system,” he writes in his book. “As things stand, a seemingly small event holds the potential to trigger the mass failure of banks.”
One such event could be the private equity decline mentioned in the above reports. We have to acknowledge the important role the UN and the World Bank are playing in outlining the risks so clearly and can only hope that the leaders of the world are not blind to them. Leggett, however, suggests that the problems are more profound than even the UN and World Bank officials are willing to admit.
He believes that the next financial crash will result in society realizing that “modern financial institutions cannot in general be trusted with either individuals’ money or the provision of financial services to viable economies”. He further argues that “light touch regulation” of the financial system no longer works. To get us through the next crisis, we are going to need, he explains, a critical mass of “presidents and prime ministers keen to sit constructively in a multilateral emergency room”.
But Leggett is an optimist. With crisis comes opportunity and Leggett would like to see that the road forward takes us to a renaissance based on people power, community interests and the explosive growth of clean energy. In this context, The Energy of Nations is essential reading for those concerned with the interaction of the pressing global issues of today.
If the caution expressed in the UN and World Bank reports is correct then we find ourselves in a time of great risks and uncertainty. If the financial pundits are right then an economic catastrophe lies just ahead. If risk aware business leaders like Jeremy Leggett are making reliable observations then we have “arrived irredeemably in a time of consequences”.
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