Why Are We Slowing Down? (there are no areas of the world economy that are growing)

The Bonddad Blog ^ | 06/16/2012 | Hale Stewart

[SeekAndFind]

In an article yesterday explaining why I switched from the WSJ to the Financial Times, I cited the FT's far more international orientation as a prime reason for the switch. With that in mind, consider this point from yesterday's statement from the Bank of Japan regarding interest rate policy: Regarding risks to the economic outlook, there remains a high degree of uncertainty about the global economy, including the prospects for the European debt problem, the momentum toward recovery for the U.S. economy, and the likelihood of emerging and commodity-exporting economies simultaneously achieving price stability and economic growth. Regarding risks to the price outlook, careful attention should be paid to future developments in international commodity prices and in medium- to long-term inflation expectations. Put another way, there are no areas of the world economy that are demonstrating a pure growth environment; everybody is dealing with a fairly serious negative environment. Let's break the world down into geographic blocks:

1.) China is located at the center of Asian economic activity. Recently, they lowered their lending rate largely as result of weakening internal numbers. While these numbers still appear strong to a western observer (growth just over 8%), remember that China is trying to help over a billion people become middle class. To accomplish that goal, the economy needs to have a strong growth rate. Also consider that the news out of India has become darker over the last few months as well. A recent set of articles in the Economist highlighted the issues: a political system that is more or less unable to lead, thereby preventing the action on structural roadblocks to growth. The fact that two of the Asian tigers are slowing is rippling into other regions of the world, which leads to point number 2.

2.) The countries that supply the raw materials to these regions are now slowing. Australia recently lowered its interest rate by 25 BP in response to the slowing in Asia. A contributing factor to Brazil's slowdown is the decrease in exports to China. Other Asian economies that have a trade relationship with China are all experiencing a degree of slowdown, but not recession. Some of these countries (such as Brazil) were also experiencing strong price increases. The price increases are are starting to slow, but they are still above comfort levels.

3.) Russia has dropped off the news map of late. However, it emerged from the recession in far worse shape; it's annual growth rate for the duration of the recovery has been between 3.8% and 5%, which is a full 3% below its growth rate preceding the recession. This slower rate of growth makes Russia a far less impressive member of the BRIC list.

4.) The entire European continent is caught up in the debt story -- underneath which we're seeing some terrible economic numbers emerge. PMIs are now in recession territory, unemployment is increasing and interest rates for less than credit-worthy borrowers are rising. And, the overall credit situation is casting a pall over the continent, freezing expansion plans.

5.) The US economy has experienced 2-3 months of declining numbers. While we're not in recession territory yet, we are clearly in a slowdown with growth probably hovering around the 0% mark.

The EU situation is killing growth in that region. This is bleeding over to the US from a psychological perspective. China and India are bleeding over into the Asian region, along with having a negative impact on countries that export raw materials.

What's missing from the above points? There is no good news out there; it's all negative. Every region of the world is experiencing some type of slowdown. This has a tremendous impact on the overall psychology of market participants, and is a contributing factor to the overall slowing occurring over the globe.

[Cringing Negativism Network]

You put China first, then pretended “it is slowing down”.

China is growing.

We need to start worrying about that.

[BenLurkin]

Too much government interference. Too much manipulation by central banks.

[lurk]

But there is some good news. The alphabet Federal agencies are doing just fine.

[EBH]

????

China: ‘weak growth’ for years, says Credit Suisse
http://blogs.ft.com/beyond-brics/2012/06/14/china-weak-growth-for-years-says-credit-suisse/#axzz1xxuC1WYf

China Government Adviser Predicts Second-Quarter Growth Below 7 Percent
http://www.moneynews.com/StreetTalk/China-growth-economic-slow/2012/06/13/id/442129

China’s `New Normal’ Growth to Slow to 6%
http://www.businessweek.com/videos/2012-06-07/chinas-new-normal-growth-to-slow-to-6-percent

China manufacturing growth slows down
http://www.france24.com/en/20120601-china-manufacturing-growth-slows-down

China’s manufacturing activity grew at a markedly lower rate in May, official data showed Friday, providing further confirmation that the world’s number two economy is slowing rapidly.

[InterceptPoint]

Too much government interference. Too much manipulation by central banks.

And too much debt service by both the public and private sectors.

With all that money going to service debt there is simply less to support spending and investment. We borrowed from the future and the future finally showed up and demanded payment. We have two answers to that demand: pay up or declare bankruptcy. And that is what is happening. If we pay, the banks survive. If we don't, they die.

It really isn't any more complicated than that.

[Cringing Negativism Network]

China has America over the coals.

They have nationalized (made in China) almost everything once made here, and continue to rake up huge manufacturing balances against us.

We cannot sustain indefinitely.

We need to start paying attention. China is not our friend.

The longer we avoid looking at the growing problem, the more they become our Enemy.

Let’s not wait until then.

[ChinaGotTheGoodsOnClinton]

My theory is that the US economy is the world’s economic driving force and socialism doesn’t work.

Or free markets drive the world economy and there currently aren’t any.

[ChinaGotTheGoodsOnClinton]

My theory is that the US economy is the world’s economic driving force and socialism doesn’t work.

Or free markets drive the world economy and there currently aren’t any.

[Oatka]

A contributing factor to Brazil's slowdown is the decrease in exports to China

I think all those countries who hitched their star to a rising China are in for a disappointment.

IMO this country will bounce back when Romney gets in, mainly because there will be a collective sigh of relief that the bomb-thrower is out of power. Businesses will have more confidence in a more stable regulatory environment and start hiring. If Romney cuts loose the Keystone pipeline and open new areas to fracking, this country will turn on a dime. BIG problems remain, but maybe some straws will be removed from the camel's back.

[Lazamataz]

The structure of this article is as follows:

Why is the world economy slowing down?
1) The world economy is slowing down.
2) The world economy is slowing down.
3) The world economy is slowing down.
4) The world economy is slowing down.
Conclusion: The world economy is slowing down.

What a spectacularly uninformative author.

[RipSawyer]

“What a spectacularly uninformative author.”
//////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////

He would make a great congressman. Fill a page with words and say nothing.

[silverleaf]

LOL!!

No mention of demographics driving destiny and how China has artifically distorted their demographics to the detriment of the next 2-3 generations, or more

[Rapscallion]

Why are we slowing? That’s easy. Not enough growth. Not enough new technology. Too many taxes. Too much social welfare to the undeserving. Too little productivity. Too many public employee unions siphoning off the wealth as “retirement benetfits”.

[Reeses]

Every region of the world is experiencing some type of slowdown.

The last time this happened the deadliest war in human history broke out. All it takes to start the fire is one country to smell incompetence in foreign leadership. China is acting much like Germany did, moving to annex land they claim is historically theirs. As their standard of living increases they need more resources. They may get into it with Russia to re-balance land resources to population.

Before it starts we need a commander in chief that loves America and has the competitive advantage of faith in God. The Obastard has got to go.

[Uncle Miltie]

The author fails to mention the key to every failure to recover: Government Meddling.

Economies have recessions. The only question about the recovery is whether governments will insert themselves further into the economy and therefore get in the way of the recovery, or remove themselve from the economy so that it can grow faster.

Governments are like carbon rods in a nuclear reactor. The nuclear fission will be either dampened or revved up depending on how much the government / rods GET IN THE WAY.

[HangnJudge]

Usual Suspects...

Underlying all of this is a cancerous lack of belief
That conditions are present where one uses capital to make capital
Labor, Goods, Services, Land, Personal Worth, Borrowed Money
Are all form of Capital

Entrepreneurs act on the belief that a
positive rate of return can be expected
for a given activity

If, as is currently true,
they believe a negative ROI is to be expected,
they sit on their hands

Multiply by 10's of millions of individual decisions
by individual entrepreneurs

The economies stop, and all H.LL breaks out

[Wyatt's Torch]

Yes it is growing but it’s off small numbers and below trend line growth.

[sand88]

Romney gets in, mainly because there will be a collective sigh of relief that the bomb-thrower is out of power. Businesses will have more confidence in a more stable regulatory environment and start hiring.

LOL thanks for the laugh! Did you forget the /sarc tag?

Do you know what Romney did to the state of MA? Do you realize how he made a basket case of the state's economy? I believe it went from the mid-level to the bottom four in performance.

Mitt's dad was a hard-core Statist and ALL of Mitt's record as governor is one of a hard-core Statist.

One would have to be delusional to think Mitt will do much to turn us towards Liberty.

Mitt is running for President for one and only one reason -- to gratify his arrogant ego. Mitt has NO concern for limited government.

I will happily and with contentment do a write-in in November. I will never vote for a Statist.

[Iscool]

The question wasn't answered in the article...And it's all pretty simple...

The unemployment in China is about 5%...Where did they get all those jobs for hundreds of millions of people???

They got them from the U.S.A...From Germany, the UK, France, Australia, Russia and every other industrialized nation in the world...

China has hundreds of billions of U.S. dollars (the world currency) in reserve while every other country on the face of the earth is billions and billions of dollars in debt...

Every time someone buys something, the money goes to China...

No one will talk about the real problem and certainly no one will talk about the obvious solution...