The depression quietly deepens. Ambrose Evans-Pritchard, Telegraph.
intro:
Those of us who still question whether the world has purged its toxins are reduced to the same tiny band of moaning Druids from early 2007, when we shook our heads in disbelief as the carry trade swept Iceland to fresh madness and bankers laughed off sub-prime rot at Bear Stearns.
key excerpt:
Yes, the Baltic Dry Index for bulk shipping of resources has quadrupled since January, but this reflects China's bid to stockpile metals while prices are low.
Stephen Roach, Morgan Stanley's Far East chief, fears an "Asian Relapse", saying the region is prisoner to its fatal dependency on exports to the West. The export share of GDP has risen from 36pc to 47pc across developing Asia over the last decade.
"China's incipient rebound relies on a time-worn stimulus formula: upping the ante on infrastructure spending in anticipation of an eventual rebound of global demand," he said. The strategy cannot work this time because Americans have exhausted their credit, and their desire to borrow. Consumption will fall from its peak of 72pc of GDP to the "pre-bubble norm" of 67pc, if not more.
David Rosenberg from Gluskins Sheff expects Americans to retrench ferociously as 78m baby boomers face the looming threat of penury in old age. "The big story is that the personal savings rate hit a 15-year high of 5.7pc in April. I believe it could test the post-War peak of 15pc. Too many pundits are still living in the old paradigm of Americans shopping till they drop," he said.
If he is right, this will shatter the surplus economies of China, Japan, and Germany, unless they adjust fast to the new world order.
Europe swings right as depression deepens. Evans-Pritchard again.
excerpts:
The savings rate is rocketing in the deficit states of the US, UK, Spain, et al, as the "sinners" belatedly tighten their belts, but their fall in consumption is not being matched by an offsetting rise among the surplus "saints" states, China, Japan, Germany-Netherlands, which all points to an implosion in world demand. Yes, the West is printing money. But that is a harder to trick to pull off than Friedman and Bernanke ever realized....
So, we may lose three or four governments in Europe in coming days or weeks -- or even worse, they may survive. The drama is unfolding as I feared. Half way through the depression, we are facing the exactly the sort of political disintegration that occurs in times of profound economic rupture. Remember, the dangerous phase in the Great Depression was Stage II, after the collapse of Austria's Credit-Anstalt in mid-1931 set off a disastrous chain-reaction that Autumn (until then, most people thought they faced no more than a bad recession, like today).
The green shoots crowd liked the NFP labour market data, but looking at the jobs data detail (including that the B/D model has "added" 220k more jobs yet again; and there were 790k more unemployed), its hard to see why; for starters, Menzie Chinn shows some charts which certainly make the prevailing wisdow questionable, in:
James Pethokoukis: "An improving job market"[?] at Econbrowser.
and a member of the NBER Business Cycle Dating Comittee had this to say:
The labour market has NOT yet signaled a turning point. Jeffrey Frankels blog.
excerpt:
all of us [on the NBER business cycle dating comittee] agree, on the one hand, that a decline in economic activity is a decline in economic activity, and therefore still a state of recession, even if the rate of decline has moderated a lot. But I believe that we also agree, on the other hand, that employment is usually a lagging indicator of economic activity. [emphasis on "usually" is mine (see below)]...
Unfortunately, as reported by Forbes, pursuing this logic leads to second thoughts about whether the most recent BLS announcement was really good news after all. The length of the average work week fell to its lowest since 1964!
and then there's this:
Jobless recovery redux? Federal Reserve Bank of San Fran.
the study compares labour market data to that in past recessions and the conclusions are pessimistic on the prospects of a labour market recovery ---- agreed on that front, but I just don't see how in a balance-sheet recession you get any "recovery" without jobs/income growth.
meanwhile, amidst lousy labour market, with the employment-population ratio under 60% for the first time since the early 1980s (when there was a structurally/demographically different labour market profile) there's this...
Why home prices may keep falling. Robert Shiller, NYT.
Home prices in the United States have been falling for nearly three years, and the decline may well continue for some time.
and this...
Consumer credit declines at 7% annual rate in April. Calculated Risk.
and this...
Mortgage market remains solidly frozen. Michael Shedlock.
and this...
Flow of Funds Accounts of the United States, First Quarter 2009. Federal Reserve.
household net worth down again, down to $50T, and both business debt and household debt contracted in the first quarter
and this...
The still over-leveraged consumer. Barry Ritholtz.
and, as per Rosie above, there's little reason to think this trend of increased savings is over.
i.e. aggregate income falling + consumers saving up = consumption falling faster than income => AD < as =""> output gap increasing => no incentive for biz investment -------- govt trying to fill the gap, but seems like a vicious circle to me
which is why...
The economy is still at the brink. Sandy Lewis and William Cohan, NYT.
though there is:
An easing pace of deterioration in some major economies. OECD Composite LEI.
but...
Japan, China and German green shoots looking doubtful. Yves Smith.
and Smith also points out that "China is not playing nice in the sandbox":
Chinese steel export rebate to fuel trade war?
while Ritholtz points out lack of green shoots in this U.S. data:
The American Trucking Association tonnage index. Big Picture.
Where's the money coming from? Paul Krugman.
Krugman also gave a few lectures for which he's posted his slides:
Lecture 1: The sum of all fears
Lecture 2: The eschatology of lost decades.
Lecture 3:
amazing timing: in my last post, I noted that Simon Johnson was asking "what would Gorbachev say?"; well, now we know:
We had our perestroika. It's high time for yours. Mikhail Gorbachev, Washington Post.
Can the Fed execute a perfect landing? Ritholtz.
The return of the great debt scare. Robert Reich and Mark Thoma, Economist's View.
What deleveraging? Rolfe Winkler.
The future of retirement; its time to prepare. HSBC.
more reason why Rosie's savings rate prognosis may not be at all absurd.
Be it resolved: there is no credit market. John Carney via Paul Kedrosky.
should've seen this one coming; if bank debt is guaranteed, either explicitly or implicitly, spreads should be minimal, and spread compression need not come just from the top-down, but also from the bottom-up
*** Which way forward? Rob Parenteau, Richebacher Letter, via nakedcapitalism.
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