Nov 28 18 SIT EC y POL
ND denounce Global-neoliberal debacle y propone State-Social
+ Capit-compet in Econ
ZERO HEDGE ECONOMICS
Neoliberal globalization is over. Financiers know it, they
documented with graphics
US ECON SITUATION TODAY pay
especial attention to last chart
Today was all about Powell although
we note market participants seem to have missed the nuance of the "just
below the policy range" - as opposed to within one hike of being
done... Nevertheless, Stocks,
Bonds, & Gold all rallied post-Powell as the dollar sunk...
See Chart:
Powell's flip-flop sparked the biggest buying panic since the Feb 9 VIXtermination...
(and 2nd biggest uptick since Aug 2011)
But notice that the buying binge
immediately faded...
See Chart:
Nasdaq led the day (up 3%!) but not every
market moved as one... see red line
See Chart:
Futures show it was all Powell...
See Chart:
The S&P was up 2.3% - its biggest jump since March -
which was followed by further pain...
All thanks to a giant short-squeeze...
(biggest squeeze of the month)
See Chart:
And just as hedge funds turned net short...
— zerohedge (@zerohedge) November
28, 2018
FANG Stocks soared top fill last
week's gap-down drop...
See Chart:
Credit markets ripped tighter after
Powell's speech...
See Chart:
The 2Y Yield is unchanged since
Powell's hawkish comments, stocks are not..
See Chart:
Prices: Rate-hike expectations
collapsed to a mere 25bps for next year (one hike)...
See Chart:
Treasury yields were mixed with the
shorter-end falling (and longer-end rising) after Powell blinked...
See Chart:
The dollar
collapsed as Powell flip-flopped...
See Chart:
And as the dollar sank, offshore
Yuan spiked...
So, did Powell "blink"? As
Amherst noted:
"The markets are overreacting to what Powell said, perhaps partly because some of the newswire headlines don’t quite accurately
convey the nuance of what he said..."
See Chart:
In fact, as the chart above shows, the market was already largely priced for this 'blink' -
with barely a hike in 2019 and rate-cuts expected in
2020 and 2021.
And SMART money appears to know
something major changed...
See Chart:
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Neoliberal Recession : World Economic Context
In the past we said: si cae korrea, cae pantalón. Now we say:
si cae China cae calzón
"The world needs (euro) dollars (short)
but the global banking system no longer produces them in sufficient quantity
(shortage). So long as both parts remain true,false dawn deflations are the best we are going to see."
This to the list of all the things going wrong since October. If it felt like a wave of renewed deflation built
up and swept over markets and the global economy, it’s because that’s just what
had happened. I don’t think it random coincidence the WTI curve
went contango and oil prices globally crashed when they did. Golden Weeks in China are always interesting, especially on
the reopen.
There are two facts as they pertain to China in 2018. The first is the nation’s clear monetary trouble. The second is why it has (re)emerged.
The statistics for the first part
were pretty grim last month, accounting for much of why October was such a
major global mess. The People’s Bank of China has been forced into cutting back
on monetary growth in base measures all year. This all
changed in January, the same time the global economy began to come crashing
back down from its low-level reflation in 2017.
See Chart: WTO Global Trade
[[ Wrong writing?: The author uses
–some times- reflation vs deflation as synonyms .. they are not.. they are
related but are not the same: Reflation is a
fiscal or monetary policy aimed to stimulating the economy and reversing
deflation by increasing money supply or by cutting taxes. (Oxford Dict of
Econ). Deflation: is a general decrease in
prices; the opposite of inflation and different
from disinflation which is a reduccion in the price increase. Deflation is caused by the reduction in the money stocks of the
economy. Deflation usually happen after wars, when
countries try to reduce war-inflated prices by reducing the money stock. It
may happen before wars too, when there is high
competition in selling weapons or when there high expending in war-drills..
both can create a general decrease in prices too if they generate a reduction
in the money stocks of the Economy. This probl can be saved temporarily by
printing money from thing-air, but at the expenses of huge debt (Economy crash)
if USD is dropped in the trade world market and if Swift rules for banking
system are either violated or dropped in favor of a new banking system –I guess
this is what happens today because US abuse of Econ sanctions world-wide- (Barron’s business guides)]]
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Continue "THEY WARNED US"
Without foreign assets, euro-dollars, flowing onto its
balance sheet on the asset side the central bank can only restrict growth on
the money (liability) side. Factoring
the cash needs for the central government, the result
has been an increasing squeeze on the RMB base. This includes, ominously, actual cash in circulation.
See Chart: PBOC Balance Sheet
For the
banking system, the external monetary noose tightened much more. This, of course, was perfectly
predictable. China’s central bank practically announced what was going to
happen when it cut the RRR during this very month in question. I wrote when the
country reopened from its National Holiday week last
month:
The RRR
cut signals that the reserve problem therefore dollar problem is anticipated to
grow worse. The PBOC is actually telling us that they expect in the
months ahead the same or perhaps bigger commitment to “stepped up support.” CNY
doesn’t need support if there is no worsening “capital outflow” situation of
retreating eurodollar funding.
This will require more monetary contraction in bank
reserves than we’ve already seen. The
central bank is forecasting more problems ahead.
Both parts have since been shown to be true; facts. China expended
more “foreign reserves” than they had been in trying to support CNY.
That caused contraction on the PBOC’s asset side, now confirmed by that
institution. The net result was both the lowest
currency growth on record (above) as well as a huge contraction in bank
reserves (below).
How big?
See Chart: PBOC Balance Sheet
We haven’t seen anything like this since the darkest days of
2015-16. Deposits of Other Depository Corporations, the technical liability of
the PBOC that counts as RMB bank reserves, crashed by 7.9% year-over-year in
October. Unlike the January-February New Year holidays, the October Golden Week
doesn’t move up and down the calendar, meaning that the numbers presented here
are all apples to apples.
These are
no statistical flukes.
See Charts:
1-Shanghai SSE Composite Index & 2-China
Internal/External
2- See China Internal/External in the source
at the end & then
3- See The Dollar shortage In Alhambra Investment, see below
See Chart:
This problem is growing, giving us a good sense of why
things have turned and why they might not be done moving
in the wrong direction. Not in some unique fashion but under the same kind
of disruptive influence we’ve seen three times already in the last ten years.
I wrote yesterday:
It is the combination of those
two things which has left us with one lost decade and beginning a second staring
into yet another downturn. The world needs (euro)dollars (short) but the global banking system no
longer produces them in sufficient quantity (shortage). So long as both parts
remain true, false dawn reflations are the best we are going to see.
The Communist Chinese have been kind enough to prove these
assertions through nothing more than simple balance
sheet, monetary accounting.
See Chart:
The big
downside, of course, is the entire global economy bears the
brunt of what those numbers show. Again.
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SOURCE: https://www.zerohedge.com/news/2018-11-28/they-warned-us-we-havent-seen-anything-darkest-days-201516
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Here is another explanation of the crisis:
"...
the diagonal recession warning provides adecent tripwire for the countdown to the business cycle’s apex"
“It is
high time we rediscovered the role of the financial cycle in macroeconomics.”
—Claudio Borio, Bank for International Settlements
—Claudio Borio, Bank for International Settlements
In May, we queued up the b-side of
a record describing America’s balance sheet - we looked at the mix of lenders
instead of the usual “a-side” analysis of the borrowers.
We showed that the balance sheet
includes four types of lenders—banks, the Fed, foreigners and prior domestic
saving—as in the updated chart below. And the
“prior domestic saving” category, since you asked, is mostly households,
pension funds and insurance companies investing in bonds and bond funds.
See Chart:
Then we showed why the b-side is so important, even as it
gets little attention. That is, the four types of lenders are fundamentally different from one another -
lending by banks is highly correlated to spending (same-period and next-period spending), whereas the other
lenders show no such correlation.
See Chart:
But economic theory says all lending is the same -
how can banks be different?
Finally, we shared a diagram
that explains the previous result.
See diagrm:
The diagram shows that bank lending is unique
because it creates fresh spending power from “thin air.” We’ll leave further explanations aside for now,
but you might check our articles here or here to
review how banks create spending power from nothing, and why that process
invalidates entire libraries full of mainstream thinking. (Or see our book for
more detail.)
Bank balance sheets are also highly predictive, as
we showed when we used bank credit to construct a business-cycle
indicator. (Again, see the b-side article linked above.)
Considering the connections—empirical and conceptual—between bank credit and
the business cycle, our indicator might be the best first step to
business-cycle forecasting.
Okay so banks conjure spending from thin air—does
anything else do the same?
Now we’ll take a second step by
asking: What else materializes from thin air? How about the gains and losses in
your investment portfolio? It sure seems as though investment gains and losses
pop up from nowhere. And by combining them with new bank credit, we’ll create a
highly predictive composite indicator that we’ll call thin-air spending
power (TSP). Here are the two inputs to the composite:
- Real new bank credit. Inflation-adjusted new bank credit aggregated over four-quarter periods and expressed as a percent of final domestic demand in the prior period.
- Real holding gains. Inflation-adjusted holding gains (household and nonprofit gains from equities, mutual funds, real estate and pensions) aggregated over four-quarter periods and expressed as a percent of final domestic demand in the prior period.
And the
chart below provides an example, using data from 2002 to 2008, of how we can track real new bank credit and real holding
gains through a business cycle by placing one on each axis. Note that
we’re mapping a path through the two dimensions by connecting data sequentially. Although the path shows just a single cycle (the
last decade’s housing boom), the pattern is similar to that of the previous
seven cycles, which you can confirm by reviewing the chart-book we’ll link at
the end of this article.
See Chart:
Thin air spending power: Q1 2001 to Q1 2008
But what exactly does TSP tell us?
So TSP is a creature of habit,
and it has a habit of cycling through three phases: recovery, financial
inflation and financial deflation.
- Recovery. TSP meanders upwards and rightwards as the financial economy heals from the prior recession.
- Financial inflation. TSP enjoys the big air of the upper-right triangle.
- Financial deflation. TSP completes the cycle by becoming scarce once again, dropping below a diagonal recession warning.
In other words, TSP typically triggers a recession warning shortly before the
onset of a recession, anywhere from one to five quarters before. But you
might wonder where the recession-warning line comes from—how do we determine
its slope and position? Here’s the rationale for our
choices:
- Slope. We consider the additional spending that could result from a dollar of real new bank credit versus a dollar of real holding gains. We expect a dollar of real new bank credit to result in up to a dollar of additional spending, but probably not a full dollar due to the portion that banks invest in securities rather than loans—security purchases don’t always flow into the real economy as directly and reliably as loans do. And for real holding gains, there’s a substantial literature suggesting that each dollar of additional wealth boosts spending by anywhere from three or four cents to a little more than ten cents. So weighing up real new bank credit against real holding gains, we see a ratio of about ten to one as far as the effects on economy-wide spending, and that determines the slope of our recession-warning line.
- Position. We draw the line through the origin to keep it as simple as possible. That choice won’t be optimal in every cycle, but we don’t believe it’s realistic to think we can “engineer” a substantially better one, especially as cycles change from one to the next.
Note
that we’re cognizant of the risks of false precision. We didn’t fit the
recession-warning line using regressions or other statistical techniques—we
chose nice, round numbers that seemed reasonable, conceptually, and then we stopped
there. Our choices may or may not hold up in the
future, but we’d rather focus on whether current dynamics could be different to
the past than on data mining the past to the fifth decimal point.
What can we say about the next few years?
And since we mentioned it, are we expecting the
dynamics to be different this time? Or, will they be the same as usual?
You’ll form your own views, but
our nickel’s worth of advice is to expect the usual. After
eight rate hikes (and counting) and nine years of expansion, it’s natural for
bankers, borrowers and asset markets to anticipate slower growth, and
that’s exactly what we think we’re seeing in 2018. We’re seeing the financial
economy lead the real economy. Or, to use a term that’s become popular in some
circles of economics, the financial cycle is leading the
business cycle. As a next step, we expect the financial
cycle to fall into a more definitive contraction.
So once again, the financial cycle should drag
the business cycle lower, and our
TSP chart offers clues about the timing. Most importantly, the diagonal recession warning provides a decent tripwire
for the countdown to the business cycle’s apex. We haven’t triggered the tripwire just yet,
but we get an interesting result when we use high
frequency data to estimate where TSP might fall at year-end. That
is, our year-end (Q4) estimate sits only just above the
recession-warning line, as shown below.
See Chart:
Conclusions
To be clear, we won’t know
TSP’s actual Q4 reading until the Fed’s “flow of funds” data becomes available.
But for now, we suggest watching the high frequency data, as above, especially
as financial markets appear to be losing their nine-year-long buoyancy.
More
generally, we’ll continue to promote the following beliefs:
- There is such as thing as a financial cycle (skeptics notwithstanding).
- The financial cycle explains a significant portion of the business cycle.
- To properly account for the financial cycle, you have to first reject a handful of the most pervasive and deeply held tenets of Keynesian, Monetarist and New Classical theories.
- The most predictive financial-cycle indicators are those that measure spending power created from thin air, as in our TSP chart.
- Other methods decompose the financial cycle into component cycles. (See our book, Economics for Independent Thinkers.)
To demonstrate the fourth
point, in particular, we’ve published a chartbook with
more history.
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US
DOMESTIC POLITICS
Seudo democ duopolico in US is obsolete; it’s full of frauds
& corruption. Urge cambio
It's strange that most media outlets rarely if
ever report on these realities... until you remember who owns most media
outlets...
Many of us are ill-informed about certain critical economic and social
issues. The following facts should have been reported by the mainstream media,
but unfortunately most of that media is controlled by the very people who have
reason to hide the facts.
Here I extracted the list of sub-titles
with Facts
You open the website below to read its content:
1- Tax Haven Cheating is Much Costlier than
the Annual Safety Net—But the IRS Keeps Getting CUT
2- Our Own Country is the World's Second Biggest Tax Haven
3- Record Low
Unemployment? Yes, Because One Hour of
Work Counts as Employed
4- We're Gradually Giving Away Our Country's Wealth to the
Children of the Rich
5- As We Keep
Shooting Each Other, Our Leaders Keep Cutting Mental Health Care
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This
doesn’t make front page news... But
it should...
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POLITICO allowed an ex-CIA officer to use a fake name
to publish demonstrable lies and blame Russia for this
potentially huge media scandal
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"...forcing people to
subsidize that which they find abhorrent is 'sinful and tyrannical'...
but it may be impossible to find a welfare-warfare state program that does
not offend someone’s moral or
religious beliefs..."
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After much talk, economists and so-called health experts have
finally decided what’s best for society: NO STEAK FOR YOU!
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US-WW ISSUES (Geo Econ, Geo Pol
& global Wars)
Global depression is on…China, RU, Iran search for State
socialis+K-, D rest in limbo
French ECON show the
real face of neoliberal collapse.. Who is next?
Guess..
Diesel is in short supply in Europe. The situation is about to worsen as the biggest French refinery
is shutting down...
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Taiwan don’t need us.. I did publish the Art on: majority
favor China no US
Power
play before dinner...
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SPUTNIK and RT SHOWS
GEO-POL n GEO-ECO
..Focus on neoliberal expansion via wars & danger of WW3
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SHOWS RT
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NOTICIAS IN SPANISH
Lat Am search f alternatives to neo-fascist regimes &
terrorist imperial chaos
REBELION
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ALC ARG
La farsa del G-20 y... la del anti G-20 Luis
Bilbao
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ALAI NET
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RT EN ESPAÑOL
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COUNTER PUNCH
Analysis on US Politics & Geopolitics
Charles McKelvey The
Principles of Socialism
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Norman Solomon Democratic
Party “Leadership” is Upside Down
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Andrew Stewart Sorry
Dems, the Green Party Came Up With the Green New Deal!
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DEMOCRACY NOW
ND denounce Global-neoliberal debacle y propone State-Social
+ Capit-compet in Econ
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PRESS TV
Resume of Global News described by Iranian observers..
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