While the key market moving event from last Friday may have been Bernanke’s Jackson Hole speech which merely left the door open to future QE episodes, the most important event from an economic standpoint was the first GDP revision Q2, which dropped from preliminary 1.3% to a sub stall speed, in real terms, 1.0%. What is just as important is that as the following chart from Bloomberg demonstrates, the YoY change in real GDP, which is now at 1.5%, is a slam dunk indicator of recession: “Since 1948, every time the four-quarter change has fallen below 2 percent, the economy has entered a recession. It’s hard to argue against an indicator with such a long history of accuracy.” Bernanke agreed that “growth has for the most part been at rates insufficient to achieve sustained reductions in unemployment.”
Couple of things here:
- The numbers as a predictor hold true. Do the math, look at the history.
- A continuing trend of little to no manufacturing volume, zero employment creation because of capital constraints, and high unemployment – likely 18 to 20%.
Another day, another disappointing real-time indicator declines AND is below consensus estimates. In fact, every manufacturing index for the month of August has missed expectations and signaled further weakness. As Bernanke, the IMF, and most Wall St. economists cling to the notion of a second-half acceleration, the rest of us are witnessing a deterioration in global growth which is unprecedented.
I honestly do not know if this is the big collapse, or just another western doldrum. From some angles it looks as if the nation state archetype has finally run its course. From others, it does look like Japan in 1991. As in, we are headed for a lost decade of stagflation’esque low interest rates with increasing dotgov intervention in the markets.
I would argue (haphazardly) that western nation states don’t typically follow that kind of pattern. Western nation states tend to go on large, industrially funded killing sprees across the world for fun & profit.
Vox Day has pointed out something that for whatever reason I have ignored for years and years, and that is this:
The second world war destroyed the manufacturing base of almost every industrialized nation on the earth except America. That is what led to our prosperity throughout this century.
There are those out there that pontificate that China is waiting in the wings to take our place. I disagree as that is not a nation state as we would traditionally think of it. China is more of a conglomeration of factions that kinda, sorta have a common goal. Until they unite and better suppress some of the internal issues facing them as a tribe, they will never be a player on the world’s stage. A mercantilist bubble cannot sustain itself as a global power.
Whatever crisis is coming (it is almost upon us) will be epic.
As shown, the current three month change is the largest in the history of the model. In other words, the collapse in real-time economic data (such as ISM, German IFO, etc.) over the past three months is the sharpest of the last two decades for which data is available.