Musings Report #11 03-12-12 Global recession 2012?
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Global Recession 2012
The permanent question embedded in the Musings is "how can I add value to those who support the site?" The answer usually boils down to a financial-market analysis aimed at personal financial management or an exploration of the changing social order. Integrating these two is the aim of my current book, "Resistance, Revolution, Liberation." This report will be devoted to the global recession that is currently unfolding.
The signs are everywhere for those with an eye for data: exports from China, Japan, Europe and the U.S. are all cratering, income from employment continues to decline in the U.S., and money supply expansion is slowing. Much of what is presented as "good news" is illusory or misleading: for example, almost half of the "new jobs created" last month were ficitious positions created by the BLS Birth-Death Model (which guesses how many new jobs were created by small business with no evidence one way or the other).
What's actually happening in the job market is full-time jobs with substantial wages and benefits are being "recycled" into low-paying temp and part-time jobs. This is why incomes continue to decline despite the "good news" of a supposedly expanding job market. (The old joke is mordantly applicable: ""Part-time jobs are plentiful--I know, because I have three of them.")
Those counting on a permanently rising stock market have convinced themselves the Federal Reserve will step in and create another trillion dollars of "free money" every time the market falters, but the the Fed is constricted in ways it hasn't been for the past 4 years. This is why money supply topped and the rate of expansion is falling. Global liquidity peak spells trouble for late 2012 (so it's not just a U.S. phenomenon).
What's "different this time" is the constraint of speculative price increases in oil. This hits the U.S. uniquely hard because the majority of oil consumption here is non-discretionary.
The majority of those with discretionary income in Europe, Japan and China are urban dwellers who can survive quite nicely without driving their cars, as their urban centers provide multiple modes of public transport. In the U.S., very few urban centers have a public infrastructure that enables people to dispense with driving. As a result, the declines in gasoline consumption that have been widely documented on the web can be attributed to declines in discretionary driving: trips to the mall, weekend vacations and so on.
But beyond these "easy" reductions in consumption, Americans have little choice (or at least few convenient choices) but to pay the price at the pump regardless of what other expenses must be cut to compensate.
Now that oil is stuck above $100 per barrel and the price seems to be "sticky" due to speculative pressure and geopolitical tension, then the Fed dare not expand the flood of "free money" that is already flowing into oil. Thanks to the web, people are starting to connect the Fed's "free money" spigot and gasoline prices, and so the curtain is slowly being ripped away.
Simple math shows how utterly ineffective the Fed's "free money for investment banks" policy has been; of the approximately $2 trillion that has been added to the Fed's balance sheet (i.e. printed) since 2008, $1.6 trillion sits in the Fed as bank reserves.
In other words, the Fed pumped $2 trillion into the banking sector which promptly parked $1.6 trillion--80% of the money expansion--in the Fed as reserves because they borrowed the money at 0% and earn .5% on funds parked at the Fed. It's the Fed's "gift" to recapitalize the banks with interest paid on free money loaned to them by the Fed.
This means only $400 billion in "free money" actually entered the economy, and much of that appears to have been "invested" in speculative bets on oil, stocks, the Aussie dollar, the Japanese yen, etc.--the famously "risk-on" trades. Very little flowed into the "real" economy; ironically, the speculative flood into oil has only hurt the real economy.
Given these real-world constraints, any further Fed money-printing and pumping will do nothing but further inflame voters who see gasoline prices edge ever higher. Propping up the stock market is "Job One" for the Fed until political pressure to "cool inflation" mounts.
Once the stock market realizes the distribution of "free money" has ceased, the "permanent" rise in stocks will reverse.
From Left Field
Two "positive" perspectives worth pondering:
The first is essentially a claim that digital communication is creating exponential opportunities to "outgrow" the forces of depletion, corruption, financialization, etc. I don't really "buy" it but it's worth a look as a contrarian viewpoint (email registration required). Peter Diamondis--is the world getting better or getting worse? (via F.J., M.D.)
The second is an mind-expanding practical website that shows one inventor's explorations of "lighter, cheaper, smaller, faster," from super-light survival kits to vehicles and shelters. The takeaway to me is that we could do so much more with the resources that are routinely squandered as if "this is the only way we can possibly live." Clearly, this is simply not true. High mileage trikes and more--superlight, super-compact, super-cheap vehicles, boats, shelters, etc. (via John D., M.D.)
I have long been interested in space planes, both NASA and privately funded; now it turns out the publicly funded space plane has been in orbit for a year, testing what it can do out of sight and out of mind.... A Year Later, Mysterious Space Plane Is Still in Orbit
The Chocolate Chip Cookies--a crunchy rock trio from Japan whose youthful lead guitarist plays a Les Paul Deluxe guitar like mine (only hers is new and mine is almost 40 years old). Watching this slim young thing prance around with the low-slung Les Paul, you tend to forget the guitar is a brick, almost 12 pounds, and it starts feeling pretty heavy after about a half-hour.... (via I.B.)
Thanks for reading--
charles
