Yesterday, Japan reported a 35 percent drop in exports from a year ago. This, coupled with the stock market crash, the housing market crash, millions around the world becoming newly unemployed each week, gives one a pretty clear sense that the world economy has fallen off a cliff.
The world has clearly not only entered a depression, but a great depression. Time will tell if it is worse than the 1929-1939 Depression. In any case, things are bad and getting worse.
In a previous post we said, "A halving of income for citizens of the 'Developed Countries' may well be baked into the cake by now." We ought not to have been so provisional. It is almost certain that incomes will be falling on this order. The question arises: will they fall further?
Unfortunately, the answer is probably Yes. It appears the whole credit-based model of economic activity is suffering a fatal, or near-fatal crisis. Remember, gentle readers, the financial architects of the global system gave us an economy that can only grow when people and organisations borrow and spend. When the borrowing stops, the growth stops.
Unfortunately for the model, at present borrowing can no longer grow. Incomes and revenues are falling, so debt burdens are becoming more onerous to households, businesses, and governments alike. Dropping interest rates to near zero is little help since the principal payments alone are the culprit.
Defaults do little to help the situation as they shock and injure the investors. It is looking more and more like gradual monetisation of debt and resultant inflation will be the only way out in the short term. That will be a frying-pan-to-fire operation, though. It will probably take a bit more time for leaders to employ that strategy effectively, as they hope against hope that the economy will fix itself (via consumer attitude adjustments perhaps?), or in response to feeble 'stimulus' programs.
In the meantime folks, prepare for the worst and hope the storm passes quickly.
Showing posts with label developed countries. Show all posts
Showing posts with label developed countries. Show all posts
Friday, January 23, 2009
Wednesday, January 14, 2009
The Severity of the Situation
Recently an aid to the Saudi Arabian oil ministry stated oil demand may fall 23% to 45%. This is a startlingly candid figure coming from a rather conservative and secretive organisation. If oil demand is falling that much, economic activity as a whole is pretty much falling on par, and the 2007 Depression will become more like Great Depression II, if not the Greatest Depression Ever.
On the other hand, Saudi Arabia is known for its disinformation campaigns. All the while oil was rising from $30 a barrel to $140, Saudi Arabia said "we have plenty of oil at lower prices, it's just that no one wants to buy it." The present situation could be that the Saudis are now recognising the long-predicted collapse of their oil production is now imminent. What better way to cover up their declining production potential than to say "no one wants it."
This in itself would be bad news, of course. It would be more evidence of the certainty of peak oil, and the tremendous difficulty that would present to the world's economies.
A halving of income for citizens of the 'Developed Countries' may well be baked into the cake by now - whether the drop in oil production is cause or effect. It is not a pretty thought, but it would be best to plan for some pretty tough times ahead. Most predictions from mainstream media should be discounted, as they will be attempting not to sound alarmist. Pollyannish advice such as "it's never been a better time to buy real estate," or "the current recession is a bump in the road to greater prosperity" should be seen as a quick route to financial suicide.
The growth paradigm of the past few centuries is over. While up until recently, recession and depression were interruptions of chronic growth; for the foreseeable future, spurts of growth and recovery will be interruptions of chronic collapse. This is quite a change, and at first few will be able to wrap their heads around it. It will turn a lot of rules of thumb upside down.
We are not saying all is doom and gloom. As long as people have the liberty to innovate, the world will adjust to a new (and possibly better) way of doing things. It is possible to live quite well on a 'low throughput' diet. Thrift, conservation, invention and efficiency can deliver a good life on a low budget. On that you can bank.
On the other hand, Saudi Arabia is known for its disinformation campaigns. All the while oil was rising from $30 a barrel to $140, Saudi Arabia said "we have plenty of oil at lower prices, it's just that no one wants to buy it." The present situation could be that the Saudis are now recognising the long-predicted collapse of their oil production is now imminent. What better way to cover up their declining production potential than to say "no one wants it."
This in itself would be bad news, of course. It would be more evidence of the certainty of peak oil, and the tremendous difficulty that would present to the world's economies.
A halving of income for citizens of the 'Developed Countries' may well be baked into the cake by now - whether the drop in oil production is cause or effect. It is not a pretty thought, but it would be best to plan for some pretty tough times ahead. Most predictions from mainstream media should be discounted, as they will be attempting not to sound alarmist. Pollyannish advice such as "it's never been a better time to buy real estate," or "the current recession is a bump in the road to greater prosperity" should be seen as a quick route to financial suicide.
The growth paradigm of the past few centuries is over. While up until recently, recession and depression were interruptions of chronic growth; for the foreseeable future, spurts of growth and recovery will be interruptions of chronic collapse. This is quite a change, and at first few will be able to wrap their heads around it. It will turn a lot of rules of thumb upside down.
We are not saying all is doom and gloom. As long as people have the liberty to innovate, the world will adjust to a new (and possibly better) way of doing things. It is possible to live quite well on a 'low throughput' diet. Thrift, conservation, invention and efficiency can deliver a good life on a low budget. On that you can bank.
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