Money figures show there's trouble ahead

The Telegraph ^ | 9/26/2009 | Ambrose Evans-Pritchard

[bruinbirdman]

Private credit is contracting on both sides of the Atlantic. The M3 money data is flashing early warning signals of a deflation crisis next year in nearly half the world economy. Emergency schemes that have propped up spending are being withdrawn, gently or otherwise.

Unemployment benefits have masked social hardship unto now but these are starting to expire with cliff-edge effects.The jobless army in Spain will be reduced to €100 a week; in Estonia to €15.

Whoever wins today's elections in Germany will face the reckoning so deftly dodged before. Kurzarbeit, that subsidises firms not to fire workers, is running out. The cash-for-clunkers scheme ended this month. It certainly "worked".

Car sales were up 28pc in August, but only by stealing from the future. The Center for Automotive Research says sales will fall by a million next year: "It will be the largest downturn ever suffered by the German car industry."

Fiat's Sergio Marchionne warns of "disaster" for Italy unless Rome renews its car scrappage subsidies. Chrysler too will see some "harsh reality" following the expiry of America's scheme this month. Some expect US car sales to slump 40pc in September.

Weaker US data is starting to trickle in. Shipments of capital goods fell by 1.9pc in August. New house sales are stuck near 430,000 – down 70pc from their peak – despite an $8,000 tax credit for first-time buyers. It expires in November.

We are moving into a phase when most OECD states must retrench to head off debt-compound traps.

Britain faces the broad sword; Spain has told ministries to slash 8pc of discretionary spending; the IMF says Japan risks a funding crisis.

If you look at the sheer scale of global stimulus this year, what shocks is how little has been achieved. China's exports were down 23pc in

[NCCarrs]

They ARE scheduled to go up in 2010, when Bush Tax Cuts are repealed.

Take advantage of the lower rates (i.e. capital gains, etc.) before 31 Dec.

Recommend moving into precious metals (i.e. brass, copper, lead) and chemicals (i.e. BP and smokeless) ; - )

[Hop A Long Cassidy]

>>>The M3 money data is flashing early warning signals of a deflation crisis next year

The St. Louis Fed, the supposed clerk of records for the Federal Reserve, does not publish M3 data. I assume this is a theoretical number made up by a private entity.

The annual M2 figures are still quite high (14 percent annualized on 14 month data, 8 percent on 12 month data and reflect a large increase in money supply over two years. For example, if M2 goes up by 10 percent a year for three years, and then falls for 1 percent per month for only 2 months (approx, or at a 10 percent annualized rate), you’d have a condition similar to today.

Friedman says look at M2 over 2 years for rough indication of inflation 2 years out. This M2 should expand at the rate of growth of the economy (negative now) to keep productivity growth from leading to (good) deflation (prices getting cheaper because we’re more productive as a nation. Adjusted monetary base (given its current wound up condition), if it turns into M2, pushes the rate of increase of M2 into the stratasphere.

What does support the author’s assertion are the Fed’s weekly report on bank lending for commercial purposes—the numbers continue their downhill slide (it’s weakly report?).

We really don’t know what the Fed has been up to, let alone all the government associated entities like Fannie Mae, etc. The increase in adjusted monetary base and other unknown Fed shenanigans have seeped into the financial system and are causing more financial bubbles: stocks (green shoots), government, and (soon) lobbyists for government allocated medicine, but the increase is not getting to the business system, as CEOs are leery of a fascist future, investors are jaded on off-balance sheet lies and corporate malfeasance (why lend to union companies, why invest in companies with hidden derivatives, etc.), why start or expand a company only to pay larger even larger taxes, and consumer spending (domestic and international) remains subdued.

We are at the true definition of a dilemma (damn if you do, damn if you don’t): our businesses will pick up when the dollar drops but government source for Treasury buyers would dry up, driving up cost of living (inflation) figures and real interest rates (money would be scarce). At that point the real interest rate would kill the economy.

In the “old days” we could fake out the lenders, “but this time it is different.” All the marks have been burned or are sitting with too much inventory of our dollarettes.

Obama and the Congressional Democrats have been doing the wrong thing with our recent debt orgy and borrowing doesn’t create capital.

Inflation favors the borrowers, deflation favors the lenders. Voters are borrowers. Do the math.

[BP2]

My biggest concern is that when this DOES hit, it will be virtually overnight. Maybe a half a week.

Agreed — expect a massive dump that leaves the unexpecting nitwit holding the bag. History shows that when the BIG BOYS feel they have driven the stocks up enough, they will sell off en mass and take their profits earned from when they bought during the lows. That's what the latest RUN UP since March has been all about.

To avoid taxes next year, they will sell off before Dec. 31, ESPECIALLY with Obama likely to MASSIVELY increase taxes in 2010 for those making over $250K per year. The economy will be VERY slow January-March 2010 leading into the next wave of foreclosures. Expect the big sell off to begin when the Forecasts start coming in of a poor Christmas buying season. The BDI is very telling of the 2009 Christmas buying season!

Baltic Exchange Dry Index (BDI) Recent, exponential average in red.

Lastly, Interest Rates MUST go up VERY SOON to entice buyers of US Treasury (UST) notes. Given the degree of "intermediation" by the Federal Reserve in the issuance of US Treasuries hitting a record in Q2, Federal Research System Open Market Account (SOMA) purchasing accounts for just under 50 percent of all net UST issuance "absorption". This is a startling number, as the Fed's SOMA purchases of $164 billion in Q2 Treasury notes dwarf the combined foreign/household UST purchases of $101 billion and $29 billion, respectively, over the same time period.

In fact, the Fed's SOMA purchases was a greater factor in UST demand than all three traditional players combined: Foreigners, Households and Primary Dealers, which amounted to a $158 billion in net Q2 purchases. This dramatic imbalance puts a lot of question marks over how the upcoming hundreds of billions in incremental Treasury purchases will be soaked up to pay for the decrease of tax revenues and increase in treasury spending. China is reportedly — and understandably — losing interest in buying into America's future.

Just throw in a mini-calamity, such as a run on US banks precipitated by:
- domestic terrorist attacks
- attacks on Iraqi nuclear sites causing a HUGE spike in oil prices
- an extremely harsh US winter with slow-to-respond international grain imports
- Swine Flu mutation, etc

... and easy to see that we are very, VERY near a TIPPING POINT.

[unkus]

What will happen when we hit the “Tipping Point” and it all “Tips Over”? I can guess but I’d appreciate your scenario.

[bruinbirdman]

"Lastly, Interest Rates MUST go up VERY SOON to entice buyers of US Treasury (UST) notes. "

The fact that interest rates have not risen is indicative of the depths of the deflationary forces.

yitbos

[upchuck]

Have cash on hand but not in too many large bills.

Agreed. IMHO, it will quickly come to a point where anything over a 20 will be hard to cash.

And if the value of paper money goes to zero, this country is really screwed. Barter systems will take over. Life will be extremely hard. I expect suicides to skyrocket.

[upchuck]

Thanks much for your charts and comments. A lot to think about.

[upchuck]

Thanks much for your charts and comments. A lot to think about.

[sheana]

and since I am a trader not an investor it matters not to me which way the market goes, I can make money either way.
The stock market is NOT the economy.

[RobRoy]

So true. However, when it crashes, the general public’s perception of the president is different, especially as they (few are short traders) see even their investment and 401k money evaporate. If they’re living on it, watch out.

It may not be the economy, but it’s crash could be a catalyst for the “non economic” bad stuff like rioting, looting, domestic violence, etc.

[STARWISE]

Re #43

That’s breathtaking, bp!!

Do you feel fairly confident in the severity of what your analysis portends ? If so, I’m preparing a friends/family email today. Would you please give any suggestions you have for sound preparations now for those of us who’re totally in the dark about economics (other than keeping reasonable cash on hand) and the financial manipulations of the money changers. Thank you very much.

[television is just wrong]

there is no recovery here. obama did not have it in his plans. it is all about him.

[rodguy911]

Very revealing.

Bottom line Capitalism works every time it is tried.

excessive Govt. spending,printing money will slowly destroy what was once a great nation.

[penelopesire]

Thanks for the ping. These type of predictions are getting more and more common in financial circles. It’s very alarming. It may sound paranoid, but I have been buying non-hybrid seed stocks. If it all hits the fan, we will be going back to Mississippi to live on some land we own there with deep, rich soil. I would hate to leave Texas (because if any state fights back against the coming government tyranny, it will be Texas)..but there are not many places to grow survival food around here. The soil is very rocky and dry. Scary stuff to contemplate for sure, but those that are prepared and self sufficient will survive.

[hoosiermama]

Transfered some of my money out of the stock market into money market...Will it be safe there?

[STARWISE]

I think that’s VERY smart, pen.
Good for you! God bless us all.

[mojitojoe]

Couple all of that with those of us who simply are not spending, in protest of the dictator in the White House and the corrupt congress....Still doing my part!
___________________
So am I. I’m amassing cash and not only in dollars. Bartering when possible. I needed some little dessert size plates. My dogs don’t like to eat in bowls, they like plates. I started to order some but my neighbor said go to Salvation Army. I went there and indeed they did have lots of them. I got around 20 of them and paid about .50 each. I will starve the beast in every way possible.

[mojitojoe]

What is Celente saying? If Schiff talks, I listen. He seems to be right more than the others.

[mojitojoe]

How do we turn it around at this point?
_________________
Impeach the #^&%head in the WH or wait until we can vote him out. People are freaked out everywhere and he’s destroying the country and spending like a drunken sailor. Mark my words, until he is gone, there will be no recovery.

[combat_boots]

Celente has a couple of interviews from September, 2009—

“There Is No Recovery”
http://www.infowars.com/gerald-celente-there-is-no-recovery/

is one of them.