Around the Globe 07.31.2013

Black Holes at China’s Shadow Banks – Bloomberg.

Beijing offers growth assurance in its economic balancing act | Reuters.

China 7 Day Repo Rate 07.31.2013

The Chinese economy is cooling off.  Less money is being earned and placed into the Chinese financial system creating a shortfall as evidenced by the rise in overnight repo rates.  Currently, the PBOC is making liquidity available in order to enforce a 5% ceiling on the overnight rate.

In the coming months, the PBOC will attempt to avoid a liquidity crisis by applying various one-off measures as needed.  Eventually, one of these measures will fail and all semblance of a controlled market will evaporate into panic.  The 2nd worst thing that can happen to financial markets is for investors to believe that the central banks have everything under control, but the worst thing is that the central bankers believe in the myth of their own power.

Companies in U.S. Added More Workers in July Than Forecast – Bloomberg.

Slow growth aside, jobs data could mean better second half.

Big jobs number coming? Data firm TrimTabs says just 23,000.

June Full vs Part Time Jobs

The job market is not recovering, merely rebounding.  So many jobs were lost during the Great Recession that we would need to create about 500k position a month for the next few years to fully recover these losses.  On the other hand, what goes down hits the ground and bounces, hence, the rebound we are experiencing.

Virtually all of the new job growth is in McJobs, not the breadwinner jobs needed for Americans to start households and consume at their prior pace.  As a consequence of the excess labor supply, incomes remain depressed, and that is the story of this “recovery.” The gains made by corporations and the 1% who control them creates the perception of a recovery, but the chart shows that this is a canard:

Household Income Growth

The recovery only exists in the luxurious homes  and corporate offices of the 1% and in the bureaus of the mainstream media.

GDP Growth Beats Expectations, Remains Soft – Businessweek.

U.S. GDP Grows at 1.7% Pace –

U.S. economy finds momentum in second quarter, further gains seen | Reuters.

US expands at brisk pace in 2nd quarter, defying gloom.

US GDP Performance 07.2013

Let’s remove the spin from all of this GDP “analysis,” and see what’s left.  A 1.7% growth rate is just above stall speed for the American economy, and that’s all you have.  The economy is not shrinking, but it is not improving much either.  The country requires  sustained 3.5% growth for a few years to attain the job creation target discussed above.  Currently, the economy is growing at less than half this rate with poor future prospects.

Mainstream media articles emphasize that the economy is gaining “momentum,” but they ignore the effects that a slowing China will have on all the world’s economies.  Look for the 2nd quarter to be revised downward amidst decreasing growth in the second half.

Remember not to be too harsh with the mainstream financial press.  Investors want to hear good news, so the press gives them want they want in exchange for clicks.  There is no grand conspiracy to support the Obama administration; in fact, the WSJ resorts to the same spin tactics, and it could not be considered an Obama supporter.  What we have here is mere incompetence, not malevolence.

Greek Bailout Falls $14.6 Billion Short, Says IMF –

Greece - with policy change

As the highlighted areas of our chart illustrate, the troika’s Greek GDP predictions are wildly optimistic.  The United States and Canada with well-diversified economies rich in natural resources and with superior demographics are predicted to grow about half as much as Greece over the next nine years.  All you need to know about Greece is that its Eurozone partners will have to write off their Greek bonds to make Greek debt sustainable.  Sorry, Germans, after elections Angie is getting out the checkbook.  Vote wisely.

Cyprus On Track But Risks Remain, Says Troika –

Cyprus Retail Sales

Allow me to translate troikaese into English.  Italics represent troikaese and standard type English:

Our overall assessment is that Cyprus’s program is on track.  The program is not on track.

All the fiscal targets have been met as a result of significant fiscal consolidation measures underway and prudent budget execution.  The country is flat broke, but they are obeying our directives.

While the authorities have started to implement the [economic reform] program with determination, risks remain substantial.  Even though they’re doing what we tell them, there is no way that this will work.  We’ll figure it out after German elections.

For the true state of the Cypriot economy, look no further than the chart above.  The troika sees an additional 13% fall in Cypriot GDP between now and 2015.  The true figure will be closer to 25%.  Don’t put the checkbook away just yet, Angie.

EU Unemployment Rate Falls –

Eurozone Unemployment Rate 07.2013

The Eurozone unemployment rate remained stuck at 12.1% despite the reduction of 2,000 unemployed workers.  The mainstream is busy spinning this news into a Eurozone stabilization and growth forecast as it has done since it initiated the Eurozone recovery narrative back in the fall of 2012. If you believe the narrative and use the five consecutive months of a 12.1% rate as a signal that the labor market has stabilized, then I present to you today’s Chart of Truth:

Eurozone Employed Workforce 07.2013

The stabilization in the unemployment rate is solely attributed to job seekers giving up the search for work and dropping out of the labor force.  As the chart illustrates, the amount of employed European workers has been steadily dropping for the last two years.


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