Increasing Evidence of a Global Industrial Recession
By DoctoRx, on December 1st, 2011
dailycapitalist.com
It’s too early to be definitive, but it’s getting to look a lot like global industrial recession.
Reuters is out today with a good summary article, Factories stalling worldwide.
- Manufacturing activity is contracting across Europe and most of Asia, data showed on Thursday, and a Chinese official declared that the world economy faces a worse situation than in 2008 when Lehman Brothers collapsed.
- Factory activity shrank even further in the euro zone, reinforcing the view that the debt-strapped region is in recession, while British manufacturing contracted at the fastest pace in two years, raising the risk the UK economy may suffer the same fate.
- China’s official purchasing managers’ index (PMI) showed factory activity shrank in November for the first time in nearly three years, while a similar PMI showed Indian factory growth slowed close to stall speed.
Naturally, the inflationists are out:
- China’s official purchasing managers’ index for November fell to 49, dipping below the 50 mark that separates growth from contraction for the first time in nearly three years. . .
- “The manufacturing engine has run out of steam,” said Rob Dobson, senior economist at Markit, which compiles the surveys. . .
- “It’s time to start reflating China’s economy,” said Qu Hongbin, co-head of Asian economics research at HSBC.
No surprise about what HSBC desires. One might however spill some digital ink and quibble with Mr. Dobson. I would not say that any “engine” has “run out of steam”. That was partially true during the oil embargo of 1973-4. There’s plenty of energy and raw material inputs to produce more. What is lacking for the nonce is a growing amount of demand from end users who can actually afford the products.
In a classic fashion as described by Ludwig von Mises many years ago, the central authorities have led their societies to draw down capital rather than accumulating it. A principal and crucial mechanism of accomplishing this involved captive central banks’ underpricing of the cost of capital. This, teleologically, is why we see so many European countries experiencing massive interest rate increases in almost no time once traders began to reassess the value of the countries’ debt in view of their deteriorating economies. We are seeing increases in a matter of months that took the U.S. almost 20 years to achieve, from the early 1960s to the early 1980s.
Here at The Daily Capitalist, we have no problem accepting the world as it is. That is what we have done in our professional careers. If too many unsound loans have been made, for whatever reasons, that’s in the past. Deal with it and concentrate on a framework where the merits of the loans to be made in the future are made without government/central bank subsidy. (For projects “for the public good”, let them be paid for by government out of taxes.) To accept this reasoning is not to be in favor of either the “1%” or the “99?. It is not being an “Austerian”. It is common sense. It is the way almost everyone ends up acting in their personal life and any business they might be involved in.
I don’t like to “honor” today’s money-printers with the term “Keynesian”, largely because he emphasized near his death that his policy prescriptions were of their time, so there is no telling what he would recommend now (though of course he was a “big government” advocate). Nowadays it appears that the mere existence of an “output gap” even during periods of economic expansion is enough to justify massive government spending “funded” by unrealistically low interest rates in the minds of “Keynesians”. This policy is proving to have quite the credibility gap, however.
Look: Britain has been running monetary policy rates of 0.5% ever since the financial meltdown. This is the lowest in the history of the Bank of England (founded in 1694). And despite this “stimulation,”, the country may be in or going into recession. So what good did ultra-cheap money do? None. Probably it did net harm.
People are increasingly seeing the many flaws of the economic orthodoxy that has been preached to them by academics and governments alike.
Where this ends no one knows, including the keepers of the orthodox flames.
Our hope here is that there will be a reversion back to what was simply considered normal for large periods of human history, including most periods of great improvement in standards of living, which is that sound money is a linchpin of a fair and sensible economic system. |
