Tag Archive: Global Economy


It’s Official: America Is Now No. 2

 

 

 

 

” Hang on to your hats, America.

  And throw away that big, fat styrofoam finger while you’re about it.

  There’s no easy way to say this, so I’ll just say it: We’re no longer No. 1. Today, we’re No. 2. Yes, it’s official. The Chinese economy just overtook the United States economy to become the largest in the world. For the first time since Ulysses S. Grant was president, America is not the leading economic power on the planet.

  It just happened — and almost nobody noticed.

  The International Monetary Fund recently released the latest numbers for the world economy. And when you measure national economic output in “real” terms of goods and services, China will this year produce $17.6 trillion — compared with $17.4 trillion for the U.S.A. “

 

 

You voted for “fundamental change” and the man has delivered …

 

 

” As recently as 2000, we produced nearly three times as much as the Chinese.

  To put the numbers slightly differently, China now accounts for 16.5% of the global economy when measured in real purchasing-power terms, compared with 16.3% for the U.S.

  This latest economic earthquake follows the development last year when China surpassed the U.S. for the first time in terms of global trade.”

 

 

 

    These two paragraphs should send chills down any forward-looking American’s spines , especially amongst the young …

 

 

 

” Make no mistake: This is a geopolitical earthquake with a high reading on the Richter scale. Throughout history, political and military power have always depended on economic power. Britain was the workshop of the world before she ruled the waves. And it was Britain’s relative economic decline that preceded the collapse of her power. And it was a similar story with previous hegemonic powers such as France and Spain.

  This will not change anything tomorrow or next week, but it will change almost everything in the longer term. We have lived in a world dominated by the U.S. since at least 1945 and, in many ways, since the late 19th century. And we have lived for 200 years — since the Battle of Waterloo in 1815 — in a world dominated by two reasonably democratic, constitutional countries in Great Britain and the U.S.A. For all their flaws, the two countries have been in the vanguard worldwide in terms of civil liberties, democratic processes and constitutional rights.”

 

 

 

Market Watch has more on the latest (dubious) accomplishment of Barack Obama’s administration 

 

 

 

 

 

 

 

 

 

 

“Liquidity Is Becoming A Serious Issue” As Japan’s Bond Market Death Goes Global

 

 

 

 

 

” While we noted last week the death of the Japanese bond market as government intervention has killed the largest bond market in the world; it is now becoming increasingly clear that the dearth of trading volumes is not only spreading to equity markets but also to all major global markets asinvestors rotate to derivatives in order to find any liquidity. Central planners removal of increasing amounts of assets from the capital markets (bonds and now we find out stocks), thus reducing collateral availability, leaves traders lamenting “liquidity is becoming a serious issue.” While there are ‘trade-less’ sessions now in Japanese bonds, the lack of liquidity is becoming a growing problem in US Treasuries (where the Fed owns 1/3rd of the market) and Europe where as JPMorgan warns, “some of this liquidity may be more superficial than really deep.” The instability this lack of liquidity creates is extremely worrisome and likely another reason the Fed wants to Taper asap as DoubleLine warns, this is “the sort of thing that rears its ugly head when it is least welcome — when it’s the greatest problem.”

As Bloomberg reports,

Japan’s bond market is dead… and so is its stock and FX markets…

 

  The Bank of Japan’s unprecedented asset purchase program has released a creeping paralysis that is freezing government bond trading, constricting the yen to the tightest range on record and braking stock-market activity.

“ All the markets have been quiet,” said Daisuke Uno, the Tokyo-based chief strategist at Sumitomo Mitsui Banking Corp. “We’ve already seen the BOJ dominance of JGBs since last year, but recently participants in currency and stock markets are also decreasing as those assets have traded in narrow ranges.”

“ The flows on both the buying side and selling side continue to fall,” said Takehito Yoshino, the chief fund manager at Mizuho Trust & Banking Co., a unit of Japan’s third-biggest financial group by market value. “Falling volatility is a very serious problem for traders and dealers who are unable to get capital gains.”

The effects of the plunge in Japan’s bond market is hardly limited to the land of the Rising Sun …

The US is getting that way as the Fed owns one third of the market…

 

” And with that not only have the central planners broken the largest and historically most liquid markets in the world but have forced investors into leveraged derivatives positions (in order to find liquidity for their exposure-seeking) which themselves are entirely over-promise (relative to the underlyings) and under-collateralized with any quality collateral. As we concluded previously

 
 

  Assume tomorrow the real black swan appears and all the liabilities: traditional and shadow, promptly demand collateral delivery. Well, the $11 trillion shortage would mean that risk values of, for example the S&P, would be haircut by a factor of, say, 75%. Or back to the proverbial 400 on the S&P500.

  Still think owning real high quality collateral, not of the paper but of the hard asset variety such as gold, is a naive proposition, best reserved for fringe lunatic, tin foil hatters and gold bugs?

Go ahead then: sell yours. “

 

 

 

Continue reading at Zero Hedge

 

 

 

 

 

 

 

 

 

 

 

Does The Dollar Have What It Takes ?

 

 

” We use the term “reserve currency” when referring to the common use of the dollar by other countries when settling their international trade accounts. For example, if Canada buys goods from China, it may pay China in US dollars rather than Canadian dollars, and vice versa. However, the foundation from which the term originated no longer exists, and today the dollar is called a “reserve currency” simply because foreign countries hold it in great quantity to facilitate trade.

The first reserve currency was the British pound sterling. Because the pound was “good as gold,” many countries found it more convenient to hold pounds rather than gold itself during the age of the gold standard. The world’s great trading nations settled their trade in gold, but they might hold pounds rather than gold, with the confidence that the Bank of England would hand over the gold at a fixed exchange rate upon presentment. Toward the end of World War II the US dollar was given this status by international treaty following the Bretton Woods Agreement. The International Monetary Fund (IMF) was formed with the express purpose of monitoring the Federal Reserve’s commitment to Bretton Woods by ensuring that the Fed did not inflate the dollar and stood ready to exchange dollars for gold at $35 per ounce. Thusly, countries had confidence that their dollars held for trading purposes were as “good as gold,” as had been the Pound Sterling at one time.

However, the Fed did not maintain its commitment to the Bretton Woods Agreement and the IMF did not attempt to force it to hold enough gold to honor all its outstanding currency in gold at $35 per ounce. The Fed was called to account in the late 1960s, first by France and then by others, until its gold reserves were so low that it had no choice but to revalue the dollar at some higher exchange rate or abrogate its responsibilities to honor dollars for gold entirely. To it everlasting shame, the US chose the latter and “went off the gold standard” in September 1971.”

 

 

 

 

 

 

 

 

 

Where Are We Now? – A World View

 

 

 

Wondering why the money world got its knickers in a twist last week? The answer is simple: the global economy is breaking apart and its constituent major players are doing face-plants on the downhill slope of a no-longer-cheap-oil way of life.  Let’s look at them case by case.

     The USA slogs deeper into paralysis and decay in a collective mental fog of disbelief that its own exceptionalism can’t overcome the laws of thermodynamics. This general malaise precipitates into a range of specific quandaries. The so-called economy depends on financialization, since it is no longer based on manufacturing things of value. The financialization depends on housing, that is, a particular kind of housing: suburban sprawl housing (and its commercial accessories, the strip malls, the box stores, the burger shacks, etc.). Gasoline is now too expensive to run the suburban living arrangement. It will remain marginally unaffordable. Even if the price of oil goes down, it will be because citizens of the USA will not have enough money to buy it. Lesson: the suburban project is over, along with the economy it drove in on.

     But so is the mega-city project, the giant metroplex of skyscrapers. So, don’t suppose that we can transform the production house-building industry into an apartment-building industry. The end of cheap oil also means we can’t run cities at the 20th century scale. That includes the scale of the buildings as well as the aggregate scale of the whole urban organism. Nobody gets this. For one thing, there will be far fewer jobs in anything connected to financialization because that “industry” is imploding. The recent action around the Federal Reserve illustrates this. When chairman Bernanke’s lips quivered last week, the financial markets had a grand mal seizure. He floated the notion that his organization might “taper” their purchases of US government issued debt and mortgage-backed securities — the latter being mostly bundled debt originated by government-sponsored entities and agencies. That’s the “money” that supports the suburban sprawl industry.”

 

 

 

Read the whole sobering article … if you dare .