Here Comes The Double Dip Pt. 3

[dorlomin]

Lack of growth is going to weigh like a rock around the neck.

Yup.

Colin Campbell predicted that high oil prices would hurt the poorest countries first because they wouldn't be able to afford high priced oil. Its rather a surprise that high energy prices are dampening down growth and wiping out the economies of the wealthiest set of countries in the world----the EU.


A double dip recession is hitting the EU

Everyone has a pet theory. Mine is that all that is happening is the US and EU are finding all the manufacturing jobs that they outsourced are now missing from their economies. In previous recessions when it started people and companies would stop buying goods as the future would be so uncertain. As other staff members were made redundant or other businesses went to the wall first, most found their jobs more secure or they now had a small bit less competition and so felt slightly more secure in their futures. This meant they could go out and buy big ticket household items or invest in new capital machinary to capitalise on the coming recovery. This drove the recovery. The sudden release of pent up spending produced more demand at the factory and hence employment.

But over the past 20 years the loss of jobs now means that that growth in demand was elsewhere so the recvory was only ever feeble.

Emerging economies are growing faster than the price of energy. So they can bouy up through the current energy crunch. Deveoped economies are reducing in there net wealth so as people stop buying on credit cards and borrowed money they are buying less energy from a much larger per capita amount than the emerging economies. This is creating spare capacity for the dollar\euro rich emerging manufacturing economies. They are able to grow their energy consumption still as westerners downsize their demand.

The real global poor, those who are not part of the East Asian boom however are feeling just as Dr Campbell suggested they would. The Egypts and Pakistans of this world.

In the west the huge personal credit boom in the 2000s covered for the loss of manufacturing (although the spare labour capacity was taken up by the service sector which did help a huge amount) but then when it turned out the money lent was struggling to get repaid the financials had a crash. Then the state stepped in to shore up banks and continue spending. That spending has kept money flowing through the economies but the time has not been spent dealing with the underlying malaise.

Now we are slowing getting to the point where governments take away their excess spending and we see the real state of the western economies. No growth for most because without government spending there is nothing to grow with.

At this phase peak oil is not in the driving seat. But it is a clear break on the economy. Sucking money away from being productively employed developing new mechanisms for humans to exchange labour for added value.

But that sucking will not go away and only get bigger and worse. It will go to notoriously unproductive economies. Those built on extraction of resources and the associated corruption and graft, not to economies well known for the efficient employment of productive capital (be it financial or human). Another place conventional economics fails, failing to realise one of the consaquencies of peak oil is that capital is not accumulated by those most able to employ it effeciently hence able to acquire more to enhance efficiency. Its going to make ice rinks in the desert.

On an aside, some analysts are making early calls for the US to be in recession.

[dsula]

The surprising thing to those not familiar with Asia, is the cultural influence on frugality and capability to make more with less. This is a truly key aspect of Asian culture and thinking.

Frugal is who HAS to get by with little. Has nothing to do with culture.

[Daniel_Plainview]

In the west the huge personal credit boom in the 2000s covered for the loss of manufacturing (although the spare labour capacity was taken up by the service sector which did help a huge amount) but then when it turned out the money lent was struggling to get repaid the financials had a crash. Then the state stepped in to shore up banks and continue spending. That spending has kept money flowing through the economies but the time has not been spent dealing with the underlying malaise.

Only 9% of the US economy is now manufacturing (down from over 20% under Reagan). The remainder of the US economy is finance, health care, fast food retail, and other service sectors.

The US economy has been "hollowed-out" and eviscerated ... and what's left is a pastiche of part-time, temp jobs designed to satisfy the US consumer. Historians will take note that this dynamic manifests JUST BEFORE the collapse of the empire.

Now we are slowing getting to the point where governments take away their excess spending and we see the real state of the western economies. No growth for most because without government spending there is nothing to grow with.

The US govt and Federal Reserve have opted for a series of "bubble economies;" when one bubble pops, interest rates are lowered until another bubble forms. When interest rates are at zero, then the solution is to print money and monetize the debt. However, historically, this has NEVER worked (even Heli-Ben Bernanke admits this), and instead leads to heightened long-term pain.

Historians will take note that the US tried every conceivable finance gimmick just before its collapse.

[Daniel_Plainview]

At this phase peak oil is not in the driving seat.

Peak oil is everything. Over 90% of human industrial civilization directly relies on fossil fuel energy, and the remaining 10% indirectly relies on it.

When cheap oil runs out, human industrial civilization will collapse.

Historians will take note that the US made 3 major blunders leading to its collapse:

1. The US''s absolute reliance upon cheap fossil fuels for its perpetual growth paradigm;

2. The US's continued commitment to that strategy even amid overpowering evidence that it will lead to collapse; and

3. The quintessentially "short-sighted", "business as usual" mentality in politics and business, culminating in bailouts, ZIRP, QE, deficit-bonanzas, etc. (yeah, this is truly pathetic stuff ... so sad ...).

[Daniel_Plainview]

Spanish banks need €100bn amid international aid warning
Spanish banks need €100bn (£80.2bn) of extra capital which is “likely” to require international aid, analysts have warned, as Madrid prepares another attempt to rescue its financial sector alone.

Prime minister Mariano Rajoy is on Friday expected to demand that Spanish banks raise an extra €30bn to guard against toxic debts. But analysts at RBS said this was too small and that the €10bn Madrid injected into Bankia this week was “just the start”. Fears over the crisis sent the euro to its lowest level against the pound since August 2008. “Spanish banks face a €68bn capital shortfall over the next three years on increasing bad loan provisions and regulatory capital, in our view,” analysts said. “Capital needs could exceed €98bn in a deeper recession scenario.”

They added: “The other Spanish banks will likely need external help to avoid insolvency. We think public funds alone will not be enough to support all Spanish banks.” Experts have warned that Spain does not have the resources to support its bank and, like Ireland, will have to seek international aid.

[OilFinder2]

Consumer Sentiment in U.S. Climbed in May to Four-Year High

Consumer confidence rose in May to the highest level in four years, indicating falling fuel costs are helping households look beyond a retreat in stocks and weaker employment growth.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 77.8, the highest since January 2008, from 76.4 the prior month. The gauge was projected to drop to 76, according to the median forecast of 68 economists surveyed by Bloomberg News.

Gasoline prices that have declined 21 cents from an almost one-year high may help household finances just as job growth slowed in April to weakest pace in five months. The extra income that comes from cheaper fuel may help consumers maintain the spending that accounts for 70 percent of the economy.

“Confidence has been boosted by lower gasoline prices, which has more than offset the stabilization in equity prices,” said Paul Dales, a senior U.S. economist at Capital Economics Ltd. in London who forecast sentiment would climb to a survey- high 78. “At the same time, perhaps the slowdown in the labor market we’ve seen in recent months has been a bit overblown, and in fact people are getting a bit more encouraged about the jobs outlook.”

Estimates in the Bloomberg survey ranged from 73.5 to 78. The index averaged 64.2 during the last recession and 89 in the five years before the 18-month economic slump that ended in June 2009.

[...]

[OilFinder2]

And from our largest trading partner. Looks like someone else is decoupling from the Eurozone too!



Canada Adds 58,200 Jobs in April, Unemployment Hits 7.3%

Canadian employment rose almost six times faster than economists forecast in April, led by private- sector and full-time positions, creating the largest two-month increase in more than 30 years and leading investors to raise bets on higher interest rates.

Employment rose by 58,200 following a March jump of 82,300 that was the biggest since September 2008, Statistics Canada said today in Ottawa. The labor force grew by 72,500, lifting the jobless rate to 7.3 percent from 7.2 percent. Economists surveyed by Bloomberg News projected a 10,000 gain in jobs and 7.3 percent unemployment, according to the median forecasts.

Canada’s recovery may prompt central bank Governor Mark Carney to raise borrowing costs this year, leading the Group of 10 nations, according to Toronto-Dominion Bank. The Bank of Canada said last month higher interest rates may be needed because of faster-than-expected growth, while a report yesterday showed a fifth straight trade surplus.

“It’s the strongest vote of confidence you can get,” said John Clinkard, economist at Deutsche Bank AG in Toronto, in a telephone interview. Companies are “catching up” after delaying hiring earlier in the recovery, he said.

Canada’s dollar appreciated 0.6 percent to 99.63 cents per U.S. dollar at 10:08 a.m. in Toronto. Earlier it weakened as much as 0.3 percent. Bonds fell, with the yield on the 2-year government benchmark rising nine basis points to 1.33 percent.

[...]

[Daniel_Plainview]

NYT: Japan to Nationalize Fukushima Utility

The Japanese government has been scrambling to keep the utility company from collapsing so it can meet the billions of dollars in compensation claims and decommission the reactors at Fukushima Daiichi, all while continuing to provide the Tokyo metropolis with stable electricity.

The government is also eager to push through reforms to restore public trust in a company that has played a vital role in Japan’s energy policy but has also admitted safety lapses and cover-ups at its power plants. The $12.5 billion bailout comes at a time when the government itself is carrying a debt burden that has mushroomed to more than twice the size of the economy.

“I ask that you rebuild the trust that has been lost,” Yukio Edano, the Japanese trade minister, told executives of the utility on Wednesday after his ministry approved the 10-year plan.

“We consider the plan a new start and are prepared to thoroughly carry it out,” said Toshio Nishizawa, president of Tokyo Electric, also known as Tepco.

The Fukushima Daiichi plant was heavily damaged by a powerful earthquake and tsunami in March 2011, which eventually led to multiple meltdowns at the site and a huge radiation leak that forced tens of thousands from their homes.

The government has separately committed 2.4 trillion yen ($30.1 billion) in taxpayer money to meet compensation payments arising from the accident. But estimates of the payments that Tepco might have to make have reached many tens of billions of dollars, making further government support likely.

Finances at Tepco have also been battered by the costs of decommissioning at least four of the Fukushima plant’s six reactors, a process that could take decades. And the utility has been incurring large fuel costs as it makes up for capacity lost at Fukushima Daiichi, as well as two other nuclear power plants that have been shut down since the quake. Tepco has pushed to reopen at least one of those plants but has so far been hampered by local opposition.

Tepco will issue special shares of up to 1 trillion yen to the government, which will acquire majority voting rights. The government will cede control of Tepco once its credibility is restored enough that it can raise money through the corporate bond market.

To further shore up its finances, Tepco is expected to raise electricity rates — as much as 10 percent for normal households — in a move that is certain to add to the public anger already directed at the company over the disaster.

The plan also calls for Tepco to make cost savings of 3.36 trillion yen ($42.2 billion) over 10 years. It calls for all of Tepco’s 16 directors to resign at its next shareholders’ meeting, in June, and for the new board to have a majority of outside directors.

Tepco has already announced that a new president, Naomi Hirose, will take over in June, pending shareholder approval. Kazuhiko Shimokobe, a corporate turnaround lawyer, is slated to become Tepco’s next chairman, succeeding Tsunehisa Katsumata, who became something of a national villain for what appeared to be a lack of remorse after the nuclear calamity. Mr. Katsumata never visited Fukushima to meet with victims after the accident. Tepco said earlier this week that he had been busy directing the company response from its headquarters in Tokyo.

“This plan forms the basis for how a new Tokyo Electric will proceed with reforms,” said Mr. Edano, the trade minister. “I strongly hope that under new management, Tepco will become more sensitive to the victims of the disaster, as well as its customers and the wider public, change the way it shares information, and reform its corporate culture.”

Whoa ... if you've ever wanted evidence of one massive, ongoing clusterfuck ... here it is.

BTW: Cesium in Fukushima Prefecture 122 Times Higher than in Belarus Evacuation Zone


Upon reviewing the nature and causes of collapse, historians will stress how increasingly desperate the various energy-starved nations had become ... whether the evidence derived from Fukushima, fracking, or frenzied efforts to finesse oil from the Gulf of Mexico.

What a clusterfuck.

[Daniel_Plainview]

... leading investors to raise bets on higher interest rates ...

Hmm ... higher interest rates ... One wonders what that would do to the Cornucopian bubbles ...

[OilFinder2]

In Canada???

It'll raise the value of the Canadian dollar, thus improving Canadian consumer purchasing power - that's what it'll do.

[Daniel_Plainview]

In Canada???

Canada has a mammoth property bubble whose existence depends primarily upon ultra-low interest rates. If/when interest rates rise appreciably, that bubble will pop like a pustulating zit ... and the resultant carnage will be EPIC ...

[OilFinder2]

I actually agree there's a housing bubble in Canada, but it's mostly confined to Vancouver, maybe Toronto too.

However, it has NOTHING to do with low interest rates (their overnight rate is 1%, compared to the US's 0%). Rather, it has 90% to do with Chinese investors buying second homes, or investment homes, mostly condos. Most of these Chinese put 100% cash down, or borrow from Chinese banks, so Canadian rates have little or no effect on their purchase decisions.

[Cog]

I'm wondering if its time to engage OF2 in one of our epic bets on GDP quarters in 2013. I had so much fun the last time.

[Daniel_Plainview]

Oil prices could double by 2022, IMF warned
Global trade would be profoundly affected if crude prices permanently doubled from current historic high of $113 a barrel

The International Monetary Fund (IMF) has been warned by its internal research team that there could be a permanent doubling of oil prices in the coming decade with profound implications for global trade.

"This is uncharted territory for the world economy, which has never experienced such prices for more than a few months," the report warns.

The new IMF "working paper" come as the value of crude on world markets remains at the historically high level of $113 a barrel and just after the International Energy Agency reported that consumption would accelerate for the rest of this year in line with a wider economic recovery.

Undertaken amid mounting concerns about "peak oil", the IMF study does not presume that there is a constraint on how much oil can be taken out of the ground. It prefers to believe that extraction rates will depend on the price that will be able to be charged for the final product.

"While our model is not as pessimistic as the pure geological view that typically holds that binding resource constraints will lead world oil production on to an inexorable downward trend in the very near future, our prediction of small further increases in world oil production comes at the expense of a near doubling, permanently, of real oil prices over the coming decade," argues the report, entitled The Future of Oil: Geology v Technology.

The paper, which contains a warning that it should not be reported as representing the views of the IMF itself was nevertheless prepared by several authors including Jaromir Benes, a former head of macroeconomic modelling in the Czech National Bank but now employed by the IMF in Washington.

It says that its oil market "models" have been significantly more accurate than others in a world where predictability has been historically low. But it adds: "Our empirical results also indicate that if the model's predictions continue to be accurate as they have been over the last decade,… the future will not be easy."

Meanwhile, the Paris-based International Energy Agency, which advises industrialised nations, including the UK on energy policy, said crude prices would remain high in 2012, due to tensions between Iran and the west. "The path of market fundamentals for the rest of the year remains highly uncertain and geopolitical risks will likely continue to keep prices high," the agency said.

The agency believes that a period of declining demand – triggered by the slowdown in the global economy – is now over and the upward trajectory resumed.

The Opec oil cartel made similar statements a week ago, saying that oil demand growth had "stopped its declining trend"."

So, let's assume that we make it past 2012 without entering into a depression ... then we can look forward to $230/bbl oil, at which point you can kiss goodbye any shreds remaining of a healthy private economy.

[dolanbaker]

Well considering the fact that it doubled twice in the past decade, that's not a difficult one to call!

[OilFinder2]

Well it looks as if the doomers have not only given up on making this thread about the US (hence all the posts about Europe, which were extremely rare, if not nonexistent, for the first 2-3 months of this thread) ... it appears they've also given up on the prospect of an imminent US double-dip, and thus are now posting articles about possible events in the year 2022!!

Since it now appears this thread has (d)evolved into anything and everything about any possible event at any time in the future, why stop at the year 2022??

TECHNOLOGICAL UTOPTIA COMING TO A PLANET NEAR U BY 2045, COURTESY OF THE SINGULARITY!!

In 2008 Vernor Vinge predicted a 2030 deadline for the Singularity. Vernor’s early 2030-Singularity could be correct, but to avoid disappointment our target is 2045. Via the Singularity Institute you can watch the video of Vernor’s prediction here. The Singularity will not be a short-lived explosion. The explosion could easily last 30 years. If the Singularity begins in 2030 we should be at peak explosiveness by 2045. The explosion begins with Post-Scarcity and immortality and it ends with infinite strangeness. It will be really weird. 2045 could mark the beginning of the explosion or it could mark the midpoint in the explosion where the explosion is becoming extremely powerful. 2045 is a brilliant target regarding a time when the Singularity is happening. Previous overoptimistic predictions for futuristic breakthroughs motivate us to aim for a 2045 deadline, a very safe and sure date.

@Cog: 2013 is still a ways off. But if you want to make a bet about something that far out, how about something more imaginative than just GDP? Here's something I'd be willing to make another bet on for that time frame: Housing starts (SAAR) will reach 900,000 in at least one month in or before December 2013. This includes both single and multi-family starts. The latest data can be viewed here.

[ralfy]

"By 2022" is not the same as "in the year 2022." The argument is that oil prices will remain high for a decade, and within that decade may double. Since the first dip took place amid high oil prices, and since high oil prices have a significant effect of economic growth (including food prices, employment, etc.), then expect not just a double dip but more.

[Daniel_Plainview]

Eurozone industrial production plummets -2.2% Y/Y

BRUSSELS (Reuters) - Output at factories in the euro zone unexpectedly fell in March, the latest in a series of disappointing numbers signaling that the bloc's recession may not be as mild as policymakers hope. Industrial production in the 17 countries sharing the euro fell 0.3 percent in March from February [-2.2% Y/Y], the EU's statistics office Eurostat said on Monday.

... Many economists expect Eurostat to show on Tuesday that the euro zone entered its second recession in just three years at the end of March,

with households suffering the effects of austerity programs aimed at cutting debt and deficits. "Industrial production is a timely reminder that first-quarter GDP will likely show a contraction," said Martin van Vliet, an economist at ING. "With the fiscal squeeze unlikely to ease soon and the debt crisis flaring up again, any upturn in industrial activity later this year will likely be modest."

European officials have repeatedly said the slump will be mild, with a recovery in the second half of this year. But the strong economic data seen in January has unexpectedly faded and business surveys point to a deeper downturn, with the drag coming from a debt-laden south, epitomized by Greece, Spain and Italy. ... "We suspect that a further slowdown in the service sector meant that the wider economy contracted by around 0.2 percent last quarter," said Ben May, an economist at Capital Economics in London. "What's more, April's disappointing survey data for both the industrial and service sectors suggest that the recession may continue beyond the first quarter."

... On an annual basis, factory output sank 2.2 percent in March, the fourth consecutive monthly slide, Eurostat said, and only Germany, Slovenia and Slovakia were able to post growth.

The picture was similar on a monthly basis, with foreign demand for German cars and high quality machinery driving production. But elsewhere, output fell 9 percent in the Netherlands, the biggest drop in the euro zone for the month.

[Daniel_Plainview]

Q: Can you identify the location of this picture?





[scroll down for answer]





A: That's the Athens Ministry of Finance, of course!

Click here for more info, including a 45 minute video summarizing the tragedy that befalls countries that become so desperate as to accept usurious bailouts, only to squander the money away.

[Daniel_Plainview]

Spanish bonds soar to 6.3%, "plunging further into the danger zone"

The yield on Spanish benchmark 10-year bonds hit 6.3pc, plunging further into the danger zone as traders worried that the €30bn (£23.9bn) bank recapitalisation plan unveiled by Madrid on Friday is still not enough.

Traders instead sought safety in German government debt, yields of which fell to the lowest-ever level. The spread between German and Spanish borrowing costs hit a record 486 basis points.

Spain’s government is poised to intervene in the finances of some of its autonomous regions as it struggles to meet strict deficit reduction targets imposed by Brussels.

Shares in Bankia, Spain’s fourth largest savings bank which was part-nationalised last week, slumped to half the value of their listing price last year and Spanish savers rushed to remove deposits from the stricken lender.

The Spanish government, which is due to approve the spending plans of its 17 autonomous regions later this week, may have to take control of spending in the communities of Asturias in the north and Andalusia in the south after their austerity budgets were not deemed to go far enough.

...“The problem is that we are faced with major uncertainty in certain members sharing the currency.”

The widening of Spanish spreads “has to do with Greece and it’s taking place although we have approved a banking reform that gives the Spanish financial system much more stability,” he said. “In spite of what we’ve done, we are faced with outside events that are making life harder.”

Alessandro Giansanti, a strategist for ING, warned that the implications for Spain were serious if Greece could not find political cohesion.

“There’s a real risk for the market that at some point Greece will have to leave the euro ... This will add to the contagion in the market and the countries that will suffer more are Spain and Italy,” he said.