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Musings Report 2017-51 12-23-17 Is the Global Economy Expanding Rapidly, Or Is It an Illusion?
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For those who are new to the Musings reports: they are basically a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
Is the Global Economy Expanding Rapidly, Or Is It an Illusion?
Judging by the headlines, the global economy is firing on all cylinders: China is expanding smartly, Japan is growing again after decades of stagnation, Europe's economy is growing strongly and the US continues its 8-year expansion.
Copper is known as Doctor Copper in the investment realm, as demand for copper is considered a reliable indicator of real economic expansion, as opposed to purely financial churning that boosts profits and stocks.
Copper has been rising since November 2016:
On the surface, the news is all good: the conventional wisdom holds that growth lifts all boats and enables everyone to "grow their way out of difficulties."
Skeptic that I am, I wonder if this expansion is more the last-gasp of a debt-fueled cycle than the start of another decade of strong global growth.
My doubts are based on these factors:
1. Much of the growth (and asset appreciation) is the result of vast expansions of debt, not investments funded by savings.
Debt has expanded at rates far in excess of the rate of real-world economic growth. This strongly suggests diminishing returns on adding more debt as the fuel for additional growth.
2. Energy costs have been stable and relatively cheap the past few years. If growth is indeed strong, then demand for energy will increase while investments in future production have not kept pace.
This sets up a mismatch of demand and supply that typically causes price increases, which in turn tend to depress growth as more disposable income must be devoted to energy.
3. The cartels/bureaucracies that impose high costs and declining quality remain firmly in charge. Cartels such as higher education and healthcare in the US have not reduced costs; rather, they've increased costs which act as a hidden tax on the economy. Structurally, there has been no reduction in friction/churn/cartel profiteering over the past 9 years.
4. Is "growth" really all that wonderful? Does it really allow us to keep funding rapacious cartels, gargantuan waste and fraud, soaring debt and extremes of wealth inequality, all at "no cost"?
5. Wealth and income inequality keeps rising. The central banks have greatly boosted the wealth of the top 5%, but done little to increase the wealth or income of the bottom 80% who own relatively few assets and are exposed to the insecurities of the New Economy.
In other words, the "growth" is virtually all in the top 5%, and to a lesser degree, the top 20%, of the populace.
How can economies be growing when 80% of their citizens are not experiencing meaningful increases in either income or wealth?
Assets can keep rising in value and overall income and spending can continue expanding, but if this expansion is concentrated in the top 5%, what we actually have is a bifurcated global economy that only appears to be lifting all boats.
I suspect that 80% of the boats are mired in the mud of a receding tide, while the top 5% are experiencing fast-rising tides of wealth and income that the corporate media presumes are universal rather than limited to a small global elite.
Summary of the Blog This Past Week
Santa's Stock Market Rally: Tears of Joy, Or Just Tears? 12/21/17
Un-Merry Christmas: The Perverse Incentives to Over-Consume and Over-Spend 12/20/17
Jedi Mind Trick: The Disturbing, Destabilizing Abnormal Is Now Normal 12/19/17
Regulating Cryptocurrencies--and Why It Matters 12/18/17
Best Thing That Happened To Me This Week
Sent gifts to my siblings and niece and her husband. Sharing whatever bounty we possess, whatever it may be, rewards the giver and the receiver.
Market Musings: The Cryptocurrency Craziness Part 2
Last week I submitted a chart of bitcoin that illustrated its incredible rise in the past few months, from $3,000 to $19,000.
I suggested that "nothing goes up in a straight line" for long, and sure enough, a sharp sell-off in the cryptocurrencies occurred on Friday, 12/22/17.
Bitcoin fell to $10,891 (on the exchanges quoted by Coindesk), a drop of roughly 45% from its recent high.
Then it bounced back about 40% from the low on Friday to over $15,000 on Saturday. (Cryptocurrencies trade 24/7; there are no holidays or closing prices, after-hours trading, etc.)
While I was prepared for a sharp decline matching previous drops, I was surprised by the equally rapid bounce. This level of volatility is extraordinary: the "crash" only lasted a few hours.
Will bitcoin and the other cryptocurrencies eventually trade more like other commodities/instruments, or will they remain hyper-volatile going forward? No one knows, but we should prepare for the unexpected.
From Left Field
Skyscrapers, City Ranking -- no surprise, Hong Kong, Manhattan, and so on...
TOP 100 U.S. STARTUP CITIES IN 2016 -- 9 of the top 20 cities for start-ups are in the SF Bay Area--an astonishing concentration. A third of the entire country’s startup activity is located in the Bay Area.
SF’s tech-space market is ‘on fire’ — and so are the rents
History of the Sears Catalog (via Iris K.)
Cultural insanity: Western consumer culture is creating a demoralized man in psycho-spiritual crisis (via Timothy K.)
By their design, the central organizing principles and practices of consumer culture perpetuate an 'existential vacuum' that is a precursor to demoralization.
THE TOP CENSORED STORIES OF 2016-2017 (via Laserlefty)
Trump Tax Reform Causing Panic in Europe & Asia (via Iris K.)
The destabilizing truth of the retail apocalypse: it’s more about inequality than e-commerce.
"It's Not Politics, It's Survival" - Bitcoin, Local Currencies Are Taking Over In Venezuela
The Depression Of The 1930s Was An Energy Crisis -- interesting argument...
Funding the (on the surface) unfundable -- excellent analysis
“A bottle of wine contains more philosophy than all the books in the world.” Louis Pasteur (via Atreya)
Thanks for reading--
charles |
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