Category: Economy

Analysis of the global economy

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How to Prevent a Depression – Nouriel Roubini – Project Syndicate

The risks ahead are not just of a mild double-dip recession, but of a severe contraction that could turn into Great Depression II, especially if the eurozone crisis becomes disorderly and leads to a global financial meltdown. Wrong-headed policies during the first Great Depression led to trade and currency wars, disorderly debt defaults, deflation, rising income and wealth inequality, poverty, desperation, and social and political instability that eventually led to the rise of authoritarian regimes and World War II. The best way to avoid the risk of repeating such a sequence is bold and aggressive global policy action now.

via How to Prevent a Depression – Nouriel Roubini – Project Syndicate.

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Number for the day is 45.0%

The percentage of containers that were shipped empty from the Port of Los Angeles during the 2011 financial year was 48.42% (or 1.8 million twenty-foot units). Incoming containers received empty were a mere 3.42%. Our number for the day is the net 45.0% of incoming containers that are returned empty to their port of destination.

Shippers attempt to fill containers on their return journey, even at super-low rates, in order to offset the cost of completing the round-trip. Empty containers indicate failure to locate manufactured goods that can compete in these export markets. This affects not only the shipper, but the entire economy. You see, those containers leaving the West Coast are not really empty. They contain something far more valuable than the goods being imported. They contain manufacturing jobs — and the infrastructure, skills and know-how to support them.

In 2012, if you need an independent gauge of how successful the President’s jobs program has been, check this number.

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Harpex Container Index stalls

The Harpex Index of container ship rates is retreating. Failure of support at 600 would warn of another test of the 2010 low. The index, calculated by Harper Petersen ship brokers, reflects international demand for container vessels and is a useful measure of international trade in light manufactured goods. Falling international trade would have the greatest impact on export-oriented Asian markets like China, Taiwan, Japan and South Korea.

Harpex Container Ship Index

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Flight to safety

10-Year Treasury yields fell to a new low on Friday, warning of further falls in the stock market as investors seek save havens in Treasurys and precious metals.

10-Year Treasury Yields

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Transport stocks warn of declining economic activity

Bellwether transport stocks Fedex and UPS are both in a primary down-trend, warning of a decline in economic activity.

Fedex and UPS

* Target calculation: 85 – ( 100 – 85 ) = 70

Deutsche Post-DHL shows a similar drop of about 30% from its 2010 peak, indicating that European and international shipping are unlikely to fare any better.

Deutsche Post - DHL

* Target calculation: 12 – ( 14 – 12 ) = 10

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Jobs Paralysis Raises Odds of Fed Action – Real Time Economics – WSJ

Job market paralysis in August increases the chance the Federal Reserve will do something new to help the economy……. The current environment is pushing the Fed towards action. A week ago, Chairman Ben Bernanke told a gathering of the world’s top economic officials he was expanding the length of the upcoming September Federal Open Market Committee to give policy makers additional time to talk about what the Fed can do, which by itself increased the odds something was going to happen.

via Jobs Paralysis Raises Odds of Fed Action – Real Time Economics – WSJ.

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When debt levels turn cancerous – Telegraph Blogs

The professoriat has been a little too cavalier in arguing that debt does not really matter for the world as a whole because we all owe it to ourselves. Debtors are offset by creditors (not always from friendly countries). Common sense suggest that this academic solipsism is preposterous, and so it now proves to be.

“As modern macroeconomics developed over the last half-century, most people either ignored or finessed the issue of debt. Yet, as the mainstream was building and embracing the New Keynesian orthodoxy, there was a nagging concern that something had been missing…..There are intrinsic differences between borrowers and lenders; non-linearities, discontinuities… It is the asymmetry between those who are highly indebted and those who are not that leads to a decline in aggregate demand.”

Creditors do not step up spending to cover the shortfall when debtors are forced to retrench suddenly. So the economy tanks.

via Ambrose Evans-Pritchard|When debt levels turn cancerous – Telegraph Blogs.

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The Second Great Contraction – Kenneth Rogoff – Project Syndicate

…The only practical way to shorten the coming period of painful deleveraging and slow growth would be a sustained burst of moderate inflation, say, 4-6% for several years. Of course, inflation is an unfair and arbitrary transfer of income from savers to debtors. But, at the end of the day, such a transfer is the most direct approach to faster recovery. Eventually, it will take place one way or another, anyway, as Europe is painfully learning.

Some observers regard any suggestion of even modestly elevated inflation as a form of heresy. But Great Contractions, as opposed to recessions, are very infrequent events, occurring perhaps once every 70 or 80 years. These are times when central banks need to spend some of the credibility that they accumulate in normal times.

via The Second Great Contraction – Kenneth Rogoff – Project Syndicate.

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Treasury Prices Sink As Investors Pause Ahead Of Jackson Hole – WSJ.com

The fact that buying tapered off after Wednesday’s and Tuesday’s [Treasury auction] sales underscores the attention that traders are placing on the Jackson Hole, Wyo., summit at which Bernanke will speak, betting against the prospect of some form of new bond-buying initiative…..

Troves of tepid economic data in the past few weeks had worked up hopes that the Fed would step in with some sort of disclosure at this weekend’s conference. But those expectations have died down since the start of the week as new data show the global economic recovery might not have slowed down as much as some investors thought.

via Cynthia Lin: Dow Jones Newswires|Treasury Prices Sink As Investors Pause Ahead Of Jackson Hole – WSJ.com.

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