Economic Ennui -- and It's Only Going to Get Worse!

by Brandon Smith at Alt-Market.com
The markets, as most people reading this should now well know, no longer reflect in any way the true economic health of our country.  If one was to measure the financial “recovery” of this nation by the strength of global stocks alone, he would probably come to the conclusion that the collapse of 2008 was a mere hiccup in the overall success of the worldwide economic system.  However, electronically traded equities with little more to back their value than scraps of receipt paper and numbers on a screen have no bearing on what is going to happen to you, and to me, over the course of the coming year.  The stock market is a sideshow, a popcorn movie, a façade.  The real drama is going on behind the scenes and revealed in fundamentals that mainstream analysts no longer discuss…

The only advantage of a long drawn disintegration of the overall system is that as the years pass, it becomes possible to discover a pattern through which we can gauge where we really stand today and will stand tomorrow, giving us a chance (a narrow chance) to limit the eventual damage.  Unfortunately, the pattern now in motion suggests that the next year will be exactly what we have been predicting over the past several months:  Dismal.

The MSM refuses to discuss it at great length, but all signs show an epic global slowdown in demand and production, especially in the final quarter of 2012.  This slowdown cannot be denied, nor can it be shrugged off as inconsequential.  This development is exactly as I predicted in January of this year using the Baltic Dry Index as a guide.  During that first quarter, the BDI fell to record lows, indicating an extreme decline in shipping demand around the world, which, in turn, indicated a fall in demand for raw goods, which, in turn, indicated a fall in demand for consumer goods.  Mainstream pundits sought to distract the public from this fact by claiming that the BDI was collapsing due to an “oversupply of ships”, not rescinding demand.  This disinformation was proven incorrect in the beginning of the third quarter of this year, when export nations from China, to Japan, to Germany all began reporting abysmal manufacturing numbers and steep faltering in overseas purchases. 

Of course, we all know what happened next:  The markets began to tank when they caught the scent of a slowdown, losing a thousand points within the span of a week.  Not so unpredictably (since I also predicted it at the beginning of the year) the Federal Reserve leapt into action with its announcement of QE3 (QE Infinity).

QE3 has done little to change the problem of falling global demand, but it has certainly defibrillated stocks.  In fact, I think it is safe to say that a majority of QE fiat funds are flowing (directly or indirectly) into the DOW, and not much else.  International trade and consumption is starting to feel the pain, and respective countries are no longer able to hide it.  Keep in mind that this slowdown is occurring right at the height of the Christmas season, when consumption is usually supposed to reignite.

Despite the sugar coated claims of insane Keynesians who only a few years ago were predicting a “resurgence” of American industry and exports due to the Federal Reserve’s ongoing devaluation of the dollar, production in the U.S. has remained pathetically weak, and continues to decline:

http://www.nytimes.com/2012/12/12/business/economy/decline-in-exports-hurts-us-trade-deficit.html

This is of course a direct result of slowing global demand, reducing potential markets all over the world, which is something deflation fear mongers apparently didn’t see coming.  The reality is that demand is faltering EVERYWHERE, not just in the U.S., and this begs a particular question:  In an interdependent economic system driven primarily by consumption, who is going to fill the void when all nations are dry of spending cash?  That is to say, who is going to take up the slack, when obviously no one has the wealth to do so?  Without a cultural cash engine, the globalized framework is destined to fail.   

China’s export growth fell far more than expected in November, something which many Chinese economists are attributing to a complete lack of revival in American markets:

http://www.reuters.com/article/2012/12/10/us-china-economy-idUSBRE8B80FL20121210

Manufacturing in the UK went into steep decline almost simultaneously, showing that sinking demand is striking both the Pacific and the Atlantic:

http://www.bloomberg.com/news/2012-12-07/u-k-manufacturing-drops-more-than-forecast-on-food-alcohol-1-.html

Germany, the largest economy in the EU and the only country still holding the absurd political entity together, has been shocked to discover that its own Bundesbank is forecasting a contraction in growth to near zero in 2013:

http://www.actionforex.com/analysis/daily-forex-fundamentals/germany%27s-bundesbank-revise-lower-2013-outlook-20121207180090/

Japan’s economy suffered an annualized decline in GDP in November greater than that which occurred during the Fukushima disaster:

http://www.bloomberg.com/news/2012-11-11/japan-s-economy-shrinks-at-fastest-pace-since-earthquake.html

This contraction has recently caused Japan to install a new revamped government during elections this month, which unfortunately will be instituting almost identical policies to the last regime.

Finally, Brazil, a developing export nation with very important significance as a litmus test for world consumption, posted near zero growth in the third quarter of 2012, far below expectations but in line with the bigger picture.  The global financial machine is grinding to a halt right under our very noses…

http://www.reuters.com/article/2012/11/30/us-brazil-economy-gdp-idUSBRE8AT0KM20121130

At the end of 2012, it is undeniable; the system is running out of steam, and not even constant fiat injections by central banks are reversing our current course. 

In order to understand what is happening, I want you to imagine a quickly diminishing cycle.  Imagine that in 2008, America was on the edge of a whirlpool, or a spinning vortex, and was suddenly caught in the outermost current.  Today, we have circled the epicenter several times, each rotation becoming smaller and more volatile than the last.  Eventually, the whirlpool will reach an end, and our economy will be sucked into the destructive funnel.  One can see clear evidence of this decline in the Baltic Dry Index:



Notice how each year since 2008 there is a spike in shipping rates indicating a rise in demand for materials at the onset of the Christmas season, which is the natural progression of things.  Yet, also notice that this spike in demand grows smaller with each passing year.  In 2012, the increase has been almost nonexistent, meaning that we are likely very close to going down the drain.

Some pundits may argue that November’s Black Friday sales were tremendous, and this signals a recovery in spending and consumption.  I would point out that such numbers are deceiving.  High sales during the most discounted day of the Christmas buying season is not necessarily a good thing.  What it really reveals is that a majority of shoppers were looking for the lowest prices possible because of a lack of personal savings.  It is a sign of desperation, not revitalization.  Full season numbers have not yet been released, but when they are, I believe we will see a fantastic spike in sales on Black Friday followed by a complete flatline for the rest of the year.  Obviously high consumption has not been sustained, otherwise, worldwide manufacturing and shipping would be in much better shape. 

The issue here is one of priorities.  With multiplying distractions going on around the globe, including the fear of recent mass murders at home, will the public be able to keep track of the deadly financial tidal waves just off the coast, or will they even care when distracted by so many sharks in the water?  The next two months will be very revealing.  The so-called “fiscal cliff” is on the way, and the question of whether or not the U.S. government should kick the can down the road or take the sour medicine it needs and move on has arisen once again.  This debate is and always has been an illusion.  Whether we continue to increase government spending, taxation, and inflation, or we cut all spending and shut down the fiat presses, there is still going to be a collapse.

However, the “fiscal cliff” could be very dangerous in an entirely different respect…

The coming collapse will not be due to the indecision or partisan bickering of our politicians.  They are in much closer agreement than the MSM would like to admit.  Instead, the monolithic Catch-22 of our age will be the direct result of the actions of the private Federal Reserve and the peripheral international banking cartel; the engineers who gave birth to the toxic derivatives implosion in the first place.  What I fear most is that the results of the fiscal cliff negotiation along with other triggers around the planet (Syria, Iran, the EU breakdown, etc.) will be used to veil the true weaknesses of our already imploding system, and eventually be exploited as scapegoat events for a disaster that has been in the making for decades, not just a few years.  The omens are not good for 2013, and we can only circle the drain for so long…