MaxedOutMama
Monday, September 10, 2012
Current Situation
North America and China are still world bright spots, but growth in both areas is slackening. Japan revised its Q2 GDP growth estimate to 0.2% on the quarter, 0.7% annualized. On a nominal basis it's a 1% contraction. Q3 is going to be worse given current stats. The situation in Japan is really weird. They've passed a sales tax increase for next year, but the economy is about to fall into another recession (almost certainly now contracting), so they want to add a supplementary spending package. However they are in an internal political fight and the government is due to run out of money this year unless Parliament comes to terms and authorizes more borrowing. Subsidies for vehicles are expiring and the general forecast isn't good.
China issued industrial production for August at an 8.9% YoY growth rate - another drop. Exports rose 2.7% on the year in August, way below target. Imports fell 2.6%, which generally doesn't happen and is a very bad indicator. So China is in a pickle. This makes the Japanese outlook worse, because China is a big export market for China. The strong yen doesn't help, but BoJ hasn't been able to meaningfully intervene.
Asia as a whole is steadily weakening. Singapore's MoM industrial production for July came in at -9.1%, still up 1.9% YoY. Some generalized weakness is emerging there. Korean exports fell again in August at a 6.2% rate after falling 8% in July. So Korea is planning to push. Australia is of course under pressure, and now it is both external and internal. Taiwan continues its exports slide. It is negative YoY.
Still waiting for August Indian data, but July was sharply negative.
There is ongoing Euro-squawkage as Greece's unhappy ruling bedfellows try to negotiate, and as everyone waits for the German High Court to rule on the ESM. But the German court will not block the ESM.
The real issue now is that the ESM won't do anything unless the ECB buys bonds (unlimited!!!), and the ECB is still claiming that it will only buy bonds if the countries involved formally apply and observe the rules imposed. It is not clear that either Spain or Italy will do that. I assume they will be forced to do it, but that the resultant internal strife will force them to do it Greek-style, after which the ECB has promised to terminate the bond-buying program. But the ECB cannot terminate the bond-buying program once it gets well underway, because stopping it would inflict dire losses.
So there is no exit strategy for the ECB - once it accumulates a good amount of those bonds it is committed. I assume the program will be put in place and will quietly continue regardless of what Spain and Italy do with their fiscal programs.
ECB is now accepting - literally! - old shoes and used underwear from Greece's central bank as collateral, so we all know that ECB can pump forever into Italy. Thus, the Germans have already lost their battle. At some point, it will come to an end, but when that happens is unpredictable.
China issued industrial production for August at an 8.9% YoY growth rate - another drop. Exports rose 2.7% on the year in August, way below target. Imports fell 2.6%, which generally doesn't happen and is a very bad indicator. So China is in a pickle. This makes the Japanese outlook worse, because China is a big export market for China. The strong yen doesn't help, but BoJ hasn't been able to meaningfully intervene.
Asia as a whole is steadily weakening. Singapore's MoM industrial production for July came in at -9.1%, still up 1.9% YoY. Some generalized weakness is emerging there. Korean exports fell again in August at a 6.2% rate after falling 8% in July. So Korea is planning to push. Australia is of course under pressure, and now it is both external and internal. Taiwan continues its exports slide. It is negative YoY.
Still waiting for August Indian data, but July was sharply negative.
There is ongoing Euro-squawkage as Greece's unhappy ruling bedfellows try to negotiate, and as everyone waits for the German High Court to rule on the ESM. But the German court will not block the ESM.
The real issue now is that the ESM won't do anything unless the ECB buys bonds (unlimited!!!), and the ECB is still claiming that it will only buy bonds if the countries involved formally apply and observe the rules imposed. It is not clear that either Spain or Italy will do that. I assume they will be forced to do it, but that the resultant internal strife will force them to do it Greek-style, after which the ECB has promised to terminate the bond-buying program. But the ECB cannot terminate the bond-buying program once it gets well underway, because stopping it would inflict dire losses.
So there is no exit strategy for the ECB - once it accumulates a good amount of those bonds it is committed. I assume the program will be put in place and will quietly continue regardless of what Spain and Italy do with their fiscal programs.
ECB is now accepting - literally! - old shoes and used underwear from Greece's central bank as collateral, so we all know that ECB can pump forever into Italy. Thus, the Germans have already lost their battle. At some point, it will come to an end, but when that happens is unpredictable.
Comments:
Merkel faces an election early next year. I wonder if a "leave the Euro" coalition might gain some traction by then?
Among other problems, there's no way such a coalition can come from the moderate parties--the left is in thrall to the Internationale and the Center-Right is corporatist/statist. That leaves the old euro-right bugbears an opening to make the trains run on time again.
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Merkel faces an election early next year. I wonder if a "leave the Euro" coalition might gain some traction by then?
Among other problems, there's no way such a coalition can come from the moderate parties--the left is in thrall to the Internationale and the Center-Right is corporatist/statist. That leaves the old euro-right bugbears an opening to make the trains run on time again.
MOM,
There is ongoing Euro-squawkage as Greece's unhappy ruling bedfellows try to negotiate, and as everyone waits for the German High Court to rule on the ESM. But the German court will not block the ESM.
Check out the inverse of the 3-Month Treasury Bill yield going back to 1934 (as seen in my link below). As Mark Twain once said, ""History does not repeat itself, but it does rhyme."
September 10, 2012
That "Tanking" Global Economy
Two Panzer IIIs during the Battle of Greece, April 1941.
There is ongoing Euro-squawkage as Greece's unhappy ruling bedfellows try to negotiate, and as everyone waits for the German High Court to rule on the ESM. But the German court will not block the ESM.
Check out the inverse of the 3-Month Treasury Bill yield going back to 1934 (as seen in my link below). As Mark Twain once said, ""History does not repeat itself, but it does rhyme."
September 10, 2012
That "Tanking" Global Economy
Two Panzer IIIs during the Battle of Greece, April 1941.
MOM, I thought you said we were already in a recession. Have you changed your call?
# posted by 
: 3:27 PM
: 3:27 PM
Ahhhh… yes, the heady days of spring 1941, when the German army was unbeatable, their uniforms spiffy, Stukas filled the air with their pleasant sirens and the rather shoddy aspects of the German's cultural intentions had not yet made it to the news yet.
Reminds me of an old German tourist poster: “You cannot make it to Germany, don’t worry: Germany will soon come to you.”
Reminds me of an old German tourist poster: “You cannot make it to Germany, don’t worry: Germany will soon come to you.”
# posted by : 9:19 AM
: 9:19 AM
Yes, I think we are in a recession. I think explaining why would require another post. I'd write one, but I can hardly sit up.
"...but I can hardly sit up."
That would explain this:
"This makes the Japanese outlook worse, because China is a big export market for China."
Err, what?
Interesting times we live in, no?
Where will our Archduke Franz Ferdinand moment begin? Europe, Asia, the Middle East? Or even here in the USA? WWIII was the Cold War, and we won that one, but WWIV will be a hot war, and I'm afraid it will make WWII look like a popcorn fart.
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That would explain this:
"This makes the Japanese outlook worse, because China is a big export market for China."
Err, what?
Interesting times we live in, no?
Where will our Archduke Franz Ferdinand moment begin? Europe, Asia, the Middle East? Or even here in the USA? WWIII was the Cold War, and we won that one, but WWIV will be a hot war, and I'm afraid it will make WWII look like a popcorn fart.
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