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We are in a serious recession and don't know it

For discussions of events and conditions not necessarily related to Peak Oil.

Re: We are in a serious recession and don't know it

Unread postby Pops » Fri 16 Jan 2015, 11:44:11

Thanks kub, at least someone attempts comprehension before posting.
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Re: We are in a serious recession and don't know it

Unread postby dissident » Fri 16 Jan 2015, 18:26:07

kublikhan wrote:I think there is a misunderstanding here of this graph. It measures how many petro dollars are entering/leaving the world market. It is not a barometer of the general health of the world economy.


That is an absolutist assertion based on nothing. The flow of money from dozens of countries is obviously related to global economic activity. We are not talking about one country with some peculiar problems. The fact that this metric has captured all of the previous global recessions cannot be simply fobbed off. Around the world economists admit that we are currently in a "mild" global recession. So this metric is correct once again. My assertion based on the money flow decline from 2012 onward is that the current recession is by no means "mild".

Of course, as the ELM model of westexas suggests, some of the money outflow reduction from oil producers is due to diversion for domestic needs. But that is a long term process and would be anti-correlated with recessions if anything.
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Re: We are in a serious recession and don't know it

Unread postby kublikhan » Mon 19 Jan 2015, 13:53:50

It's not based on nothing. This is really not that hard to grasp. When you #1 export tumbles in price, your economy gets hurt. It happened to Russia in the 1990s with the low oil prices then. And it is happening again. Conversely, if your #1 import plummets in price, your economy gets a stimulus.

You are looking at the amounts of dollars energy exporters are using to buy financial products like it is some kind of boom to the global economy. Yet studies have shown that it is the poor going out and spending their money on actually goods and services that has a greater boom to the economy than the rich stashing away their wealth in financial products. The giant steps down on that graph you posted means the rich energy exporters are stuffing less money under their mattress. Instead, an equal amount of money is instead being spent by the rest of the world in the real economy.
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Re: We are in a serious recession and don't know it

Unread postby radon1 » Mon 19 Jan 2015, 14:31:22

Falling "petrodollar exports" is an indication of weakening international trade/investment. Assuming that oil producers international trade/investment is a substantial portion of the world's GDP, this is more likely an indication of a global recession rather than growth.

However, the local GDP dynamics may vary depending on the place and time. So, the question is, when we say "we are in recession", - whom exactly do we mean and when?
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Re: We are in a serious recession and don't know it

Unread postby kublikhan » Mon 19 Jan 2015, 14:42:51

According to the IMF, falling oil prices are beneficial to the world economy as a whole and the world economy continues to strengthen.

International Monetary Fund chief Christine Lagarde on Monday said falling oil prices will help boost economies in the U.S. and across much of the globe, a net positive for a world struggling with slowing growth. “It is good news for the global economy.”

Lower oil prices are good for most consumers, who pay less for gasoline, but could squeeze energy companies and the economies of some major producers like Russia and Venezuela. For the U.S., lower energy prices will help accelerate economic growth to a 3.5% pace next year, Ms. Lagarde said, up from an October forecast of 3.1%.
Lower Oil Prices Will Help Boost Global Economy, IMF’s Lagarde Says

Seven years after the onset of the Great Recession, the global unemployment rate has returned to its pre-crisis level: the jobless rate fell to 5.6% in 2014; essentially the same as in 2007, the year before the recession. The index does show that global employment has grown by about 9 percent—which translates into 208 million jobs being created—since the low point of the recession.
Battling Global Unemployment

According to the IMF, there have been four global recessions since World War II, beginning in 1975, 1982, 1991 and 2009, respectively. This last recession was the deepest and widest of them all. Since 2010, the world economy has been in a process of recovery, albeit a slow one.
Global Recession

Global activity has broadly strengthened and is expected to improve further in 2014–15
World Economic Outlook (WEO)
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Re: We are in a serious recession and don't know it

Unread postby radon1 » Mon 19 Jan 2015, 14:53:05

kublikhan wrote:falling oil prices will help boost economies in the U.S. and across much of the globe


Yes. The "petrodollar exports" will presumably grow too then.
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Re: We are in a serious recession and don't know it

Unread postby Pops » Mon 19 Jan 2015, 14:58:46

radon1 wrote:Falling "petrodollar exports" is an indication of weakening international trade/investment.

Based on what?

It is an "indication" that oil exporters are not investing internationally, the rest is speculation.

Again, lots of things can happen to profits, firstly they can not appear at all which explains what is happening right now after a drop of 60% in income, but they can be also be paid to stockholders/citizens/governments, they can be invested in capital expenditures, they can be used as operational capital while holding down sales, ... as many reasons as any business has to manage capital.

With all the straightforward measurements out there I can't figure out the appeal of one as open to interpretation as this.
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Re: We are in a serious recession and don't know it

Unread postby radon1 » Mon 19 Jan 2015, 15:08:58

Pops wrote:
radon1 wrote:Falling "petrodollar exports" is an indication of weakening international trade/investment.

Based on what?


Based on the expression "petrodollar exports" - this is petrodollars, leaving the country. They can leave the country as a result of trade or investment.
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Re: We are in a serious recession and don't know it

Unread postby Pops » Mon 19 Jan 2015, 15:21:16

It is merely an indication producers have changed their spending, or lost their cash flow entirely due to the price drop.

In Russia's case due to sanctions impacting sales, in KSA's case, due to defending their market share against Fracking, both are reducing cash flow - both governments are reducing spending so why would they continue investing abroad?
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Re: We are in a serious recession and don't know it

Unread postby radon1 » Mon 19 Jan 2015, 15:32:32

Pops wrote:It is merely an indication producers have changed their spending, or lost their cash flow entirely due to the price drop.



Yes. Therefore, the producers are forced to spend less on international trade (possibly, with a time lag).

The producers do little outside exchanging their oil for foreign consumer/investment goods. They can buy less consumer/investment goods as a result of the price decline - meaning weaker international trade.
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Re: We are in a serious recession and don't know it

Unread postby Pops » Mon 19 Jan 2015, 15:53:11

radon1 wrote:The producers do little outside exchanging their oil for foreign consumer/investment goods.


No. LOL

They continue to sell oil if they can but they don't invest the proceeds elsewhere they keep it at hopm.

radon1 wrote:...meaning weaker international trade.


So are you looking for a measure of GDP? if so why not just look at GDP instead of a measuring stick that is imprecise at best?

Here from Gold Sacs:

Deutsche Bank is predicting global GDP growth of 3.6% in 2015, up from 3.3% in 2014. A big part of that jump comes from the bank's projection that US growth will accelerate to 3.7% this year, powered by ongoing accommodation by the Fed, stronger consumer and business spending, a housing market finally returning to normal, and the presumed boost to consumers from lower oil prices.

Read more: http://www.businessinsider.com/deutsche ... z3PIYfJDLo

Here from Bloomberg:
Plunging oil prices are giving a bump to consumer and business spending around the world -- just not enough to increase global growth forecasts.

A darkening outlook in emerging markets including China, Russia and Brazil and geopolitical risks such as Greece’s possible exit from the euro are overshadowing the benefits from lower energy costs. The median estimate for 2015 world expansion from economists surveyed by Bloomberg News has been unchanged since October, when it fell to 3.5 percent from 3.6 percent.


GDP isn't down, if we were in a recession, GDP would be down and we wouldn't need to try reading tea leaves - or in this case, fig leaves purported to be tea leaves.

Not saying it won't tank tomorrow, just pointing out the reality of today, take it or leave it.
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Re: We are in a serious recession and don't know it

Unread postby radon1 » Mon 19 Jan 2015, 16:16:36

Pops wrote:

Deutsche Bank is predicting global GDP growth of 3.6% in 2015, up from 3.3% in 2014.


First, this is a prediction. Second, this prediction is about the future. Note that I pointed out the importance of timing and dynamics. If GDP grows in the future, then the oil prices and "petrodollar exports" will also rise, presumably.

Third, this is official numbers.

In any event, the reduction of purchasing power of the oil producers will result in fewer consumer/investment goods purchased by them. To ensure at least a stable global GDP, the surplus goods need to be purchased by others. This may well happen, as the consumer power of other participants will rise because they will be spending less on oil. But this will mean that the international trade of oil producers is an insubstantial portion of the world GDP, which is contrary to the assumption that I explicitly made. I have no idea whether this assumption is correct. It may well be incorrect, but then it seems to be good news for the cornucopians, doesn't it.
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Re: We are in a serious recession and don't know it

Unread postby Pops » Mon 19 Jan 2015, 16:26:04

First the 3.3% growth in 2014 is not a prediction, it is fact contrary to the title of the thread.
Second, what numbers should be used rather than the "official"?
Third, as Kub pointed out, money spent by consumers stimulates demand for things which stimulates the economy, money invested (lent) by exporters merely stimulates debt, keeping interest rates artificially low, perpetuating the zombie economy.
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Re: We are in a serious recession and don't know it

Unread postby radon1 » Mon 19 Jan 2015, 16:33:16

Pops wrote:Second, what numbers should be used rather than the "official"?


The official world GDP is a complex calculation, while oil prices are a market fact. Thus the oil prices are far more reliable. I am pretty skeptical about the official GDP numbers.
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Re: We are in a serious recession and don't know it

Unread postby Pops » Mon 19 Jan 2015, 16:41:01

Again, for the umpteenth time, the chart and the discussion is not about oil price, it is about what exporters are doing with oil profits if any.
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Re: We are in a serious recession and don't know it

Unread postby radon1 » Mon 19 Jan 2015, 16:42:05

Pops wrote:
They continue to sell oil if they can but they don't invest the proceeds elsewhere they keep it at hopm.


That's why the time lag - they may use their forex reserves and maintain stable consumption rates for a while.
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Re: We are in a serious recession and don't know it

Unread postby radon1 » Mon 19 Jan 2015, 16:47:42

Pops wrote: it is about what exporters are doing with oil profits if any.


It's about "petrodollar exports", which is not the same as oil profits.

But I don't mind.
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Re: We are in a serious recession and don't know it

Unread postby Pops » Mon 19 Jan 2015, 16:52:49

LOL, right.
The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves -- in their separate, and individual capacities.
-- Abraham Lincoln, Fragment on Government (July 1, 1854)
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Re: We are in a serious recession and don't know it

Unread postby AndyA » Mon 19 Jan 2015, 20:23:40

radon1 wrote:
Pops wrote:

Deutsche Bank is predicting global GDP growth of 3.6% in 2015, up from 3.3% in 2014.


That's interesting, because China grew at about 7.3% last year, basically making up over 50% of world growth.
Why is Chinese demand down, and will it continue to fall or will it pick up? A generous portion of the rest of the worlds growth has come from Chinese demand for resources. China has done amazingly well, in terms of growing its economy, though they have externalised a lot of costs, and they are going to have to pay those at some point. Watch this space.
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