Grim Holiday Season Tidings – by Stephen Lendman
New global data show grim results. China’s real estate was especially bleak. It reported 70% of its 70 largest cities experiencing home price deflation, up from 47% in October. Rarely ever does this bode well for economic prospects or banking.
As a result, copper is down 0.7% and 25% in 2011. The base metals complex also dropped 1%.
In Japan, department store sales were down 1.9% year over year, the fifth consequence negative reading. In October, Spain’s service sector declined 2.7% year over year.
In America, recent data reflect downtrends in restaurants, clothing, jewelry, department, grocery, and drug store sales, household appliances, clothing, chemical products, electrical and communication equipment, machinery, paper and wood products, semiconductors, and computers and accessories.
Wage growth is especially weak, showing declines in four of the past six months, and 1% annually year over year.
Global economies also show weakness. Notably, it’s showing up in negative paper boxes and containers four consecutive months and in free fall year over year.
On December 17, Hoisington Investment Management’s Van Hoisington told Barrons he’s bullish on bonds because of America’s weak 2012 economic prospects.
He believes in Irving Fisher’s 1930 Theory of Interest calling long rates a function of the real rate, plus expected inflation. In the last 140 years, the real rate’s averaged about 2%, with wide variations up or down.
With deflationary pressures persisting, he sees bond price appreciation or bottoming around the real rate if (core) inflation stops at zero. “We aren’t there yet, but we’re headed in that direction. That’s why we’ve had a bull market and why it will continue until such time as inflationary expectations start to rise.”
The fundamental global problem, he believes, is “disequilibrium” because of over-indebtedness. In America’s $15 trillion economy, “we have $52 trillion in debt, which is 350% of GDP.”
According to economists Ken Rogoff and Carmen Reinhart, the McKinsey Global Institute, and Stephen Cecchetti (former New York Fed research director), when debt to GDP levels are too high, growth rates fall. It’s happening today in America and other over-indebted economies.
America spends $3 for every $2 in revenue, so another dollar has to be borrowed. “We can’t continue that pattern” much longer. Moreover, the nation’s disposable income declined year over year because people kept spending. As a result, heading into 2012, income’s falling. Savings are low, and Washington’s enacting austerity when stimulus is needed.
Moreover, accelerated depreciation ends January 1. Traditionally when it happens, new manufacturing orders suffer dramatically. In addition, most countries are declining economically, especially Europe, Japan and China. Other countries show dramatic slowing. It spells trouble and decline globally.
While US GDP shows positive reads, real Gross Domestic Income is weakening. Europe is especially weak. Fitch placed Italy, Spain, Ireland, Belgium, Slovenia and Cyprus on credit watch. Downgrades may follow.
It also warned that a comprehensive Eurozone deal was “beyond reach.” In addition, it downgraded Bank of America, Goldman Sachs, Morgan Stanley, BNP Paribas and Barclays. It’ll also complete a Eurozone review by end of January when conditions may look bleaker.
S&P suggested potentially devastating downgrades for France, other Eurozone countries, and possibly Germany. Moreover, the IMF warned of conditions “reminiscent of the 1930s depression,” saying dramatic action is needed.
“The risks of inaction include protectionism, isolation and other (destructive 1930s) elements. This is exactly (what) happened….and what followed is not something we are looking forward to.”
However, everything tried so far failed. Debt levels keep rising. Austerity means less spending, fewer jobs, and greater public anger than today’s high levels.
Insolvent sovereigns and banks are spreading contagion globally. At the same time, “(t)he more that governments cut their budgets, the more they sink their economies, and the bigger their bank losses. (Moreover), the more that banks seek to build their capital, the more they have to (cut) lending – a key factor driving the global economy into a tailspin.”
An early 2012 Martin Weiss study will show 16 of the world’s largest banks weak and vulnerable. They control $26 trillion of global banking assets, far more than all US commercial banks combined.
On December 16, Moody’s downgraded Belgium two notches and warmed of others in all 17 Eurozone countries.
As a result, Weiss believes 2012 will be worse than 2008. At yearend, large global banks have far less capital now than then, and governments have less bailout power to help.
However, publicly, governments, bankers and media scoundrels are in denial. Weiss quoted Emil Zola a century ago, saying:
“If you silence the truth and bury it underground, it will grow and gather such explosive power that the day it bursts through it will blow up everything in its way.”
It’s why revolutions ignite, markets crash, and economies collapse. In America alone, 2,700 banks and 2,600 credit unions are vulnerable to financial failure. Major European ones could collapse first, followed by their US counterparts.
After four years of decline, America and Western economies show more weakness than ever. It suggests rough going in 2012 and beyond.
Stephen Lendman lives in Chicago and can be reached at email@example.com.
Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.